----

----

| x      | QUARTERLY      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | For      the quarterly period ended  June 30,      2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| o      | TRANSITION      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | For      the transition period from                                                                                                  to                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Commission      file number 0-51385                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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

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

----

| PART      I   | FINANCIAL      INFORMATION                                                                            | PAGE   |
|---------------|-------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                  |   |
| Item      1   | Unaudited      Consolidated Statements of Financial Condition                                         | 2      |
|          | Unaudited      Consolidated Statements of Income                                                      | 3      |
|          | Unaudited      Consolidated Statements of Stockholders’ Equity                                  | 4      |
|          | Unaudited      Consolidated Statements of Cash Flows                                                  | 5      |
|          | Notes      to Unaudited Consolidated Financial Statements                                             | 6      |
|          |                                                                                                  |   |
| Item      2   | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations | 19     |
|          |                                                                                                  |   |
| Item      3   | Quantitative      and Qualitative Disclosures About Market Risk                                       | 28     |
|          |                                                                                                  |   |
| Item      4T. | Controls      and Procedures                                                                          | 28     |
|          |                                                                                                  |   |
| PART      II  | OTHER      INFORMATION                                                                                |   |
|          |                                                                                                  |   |
| Item      1   | Legal      Proceedings                                                                                | 29     |
|          |                                                                                                  |   |
| Item      1A. | Risk      Factors                                                                                     | 29     |
|          |                                                                                                  |   |
| Item      2   | Unregistered      Sales of Equity Securities and Use of Proceeds                                      | 29     |
|          |                                                                                                  |   |
| Item      3   | Defaults      Upon Senior Securities                                                                  | 30     |
|          |                                                                                                  |   |
| Item      4   | Submission      of Matters to Vote of Security Holders                                                | 30     |
|          |                                                                                                  |   |
| Item      5   | Other      Information                                                                                | 30     |
|          |                                                                                                  |   |
| Item      6   | Exhibits                                                                                              | 30     |
|          |                                                                                                  |   |
|          | Signatures                                                                                            | 31     |

----

----

|                                                                                                                                                                                                                       |   | June      30,2008                              |    |   | December      31,2007 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                       |   |                                           |    |
|                                                                                                                                                                                                                       |   | (Dollars      In thousands, except share data) |    |
| Assets                                                                                                                                                                                                                     |   |                                           |    |   |                  |   |
| Cash      and amounts due from banks                                                                                                                                                                                       |   | $                                              | 20,358  |   |                  | $      | 15,978 |   |
| Interest-bearing      time deposits in banks                                                                                                                                                                               |   |                                           | -       |   |                  |   | 208 |   |
| Investment      securities available for sale                                                                                                                                                                              |   |                                           | 165,826 |   |                  |   | 163,549 |   |
| Investment      securities held to maturity (fair value at June 30, 2008 - $18,518;      at      December 31, 2007 - $17,796)                                                                                              |   |                                           | 18,681  |   |                  |   | 17,213 |   |
| Loans      receivable, net of allowance for loan losses of $1,361 at June 30, 2008      and $1,392 at December 31, 2007                                                                                                    |   |                                           | 275,588 |   |                  |   | 241,040 |   |
| Real      estate owned                                                                                                                                                                                                     |   |                                           | 155     |   |                  |   | - |   |
| Federal      Home Loan Bank stock, at cost                                                                                                                                                                                 |   |                                           | 2,794   |   |                  |   | 2,545 |   |
| Office      properties and equipment, net                                                                                                                                                                                  |   |                                           | 11,245  |   |                  |   | 10,273 |   |
| Bank-owned      life insurance                                                                                                                                                                                             |   |                                           | 2,625   |   |                  |   | 2,578 |   |
| Accrued      interest receivable                                                                                                                                                                                           |   |                                           | 2,106   |   |                  |   | 2,185 |   |
| Other      assets                                                                                                                                                                                                          |   |                                           | 2,917   |   |                  |   | 2,291 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Total      Assets                                                                                                                                                                                                          |   | $                                              | 502,295 |   |                  | $      | 457,860 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Liabilities      and Stockholders’ Equity                                                                                                                                                                            |   |                                           |    |   |                  |   |   |   |
| Liabilities                                                                                                                                                                                                                |   |                                           |    |   |                  |   |   |   |
| Deposits:                                                                                                                                                                                                                  |   |                                           |    |   |                  |   |   |   |
|      Noninterest-bearing                                                                                                                                                                          |   | $                                              | 18,262  |   |                  | $      | 15,141 |   |
|      Interest-bearing                                                                                                                                                                             |   |                                           | 394,619 |   |                  |   | 356,241 |   |
| Total      deposits                                                                                                                                                                                                        |   |                                           | 412,881 |   |                  |   | 371,382 |   |
| Federal      Home Loan Bank short-term borrowings                                                                                                                                                                          |   |                                           | 20,675  |   |                  |   | 23,380 |   |
| Federal      Home Loan Bank long-term borrowings                                                                                                                                                                           |   |                                           | 28,396  |   |                  |   | 22,559 |   |
| Advances      from borrowers for taxes and insurance                                                                                                                                                                       |   |                                           | 754     |   |                  |   | 581 |   |
| Accrued      interest payable and other liabilities                                                                                                                                                                        |   |                                           | 782     |   |                  |   | 930 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Total      Liabilities                                                                                                                                                                                                     |   |                                           | 463,488 |   |                  |   | 418,832 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Stockholders’      Equity                                                                                                                                                                                            |   |                                           |    |   |                  |   |   |   |
| Preferred      stock, 1,000,000 shares authorized and unissued                                                                                                                                                             |   |                                           | -       |   |                  |   | - |   |
| Common      stock, par value $0.10 per share; authorized 10,000,000      shares;issued      4,521,696 shares;  outstanding 4,435,296 shares at June 30,      2008 and 4,450,796 shares at December 31, 2007 |   |                                           | 452     |   |                  |   | 452 |   |
| Additional      paid-in capital                                                                                                                                                                                            |   |                                           | 20,107  |   |                  |   | 19,922 |   |
| Unearned      shares held by Employee Stock Ownership Plan (“ESOP”)                                                                                                                                            |   |                                           | (1,316  | )      |                  |   | (1,316 | ) |
| Treasury      stock, at cost, 104,125 shares at June 30, 2008 and 88,625 shares at      December 31, 2007                                                                                                                  |   |                                           | (1,352  | )      |                  |   | (1,189 | ) |
| Retained      earnings                                                                                                                                                                                                     |   |                                           | 21,785  |   |                  |   | 21,094 |   |
| Accumulated      other comprehensive gain (loss)                                                                                                                                                                           |   |                                           | (869    | )      |                  |   | 65 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Total      Stockholders’ Equity                                                                                                                                                                                      |   |                                           | 38,807  |   |                  |   | 39,028 |   |
|                                                                                                                                                                                                                       |   |                                           |    |   |                  |   |   |   |
| Total      Liabilities and Stockholders’ Equity                                                                                                                                                                      |   | $                                              | 502,295 |   |                  | $      | 457,860 |   |

----

----

----

|                                                             |   | Three      Months Ended June 30,                   |      |   | Six      Months Ended June 30, |   |
|------------------------------------------------------------------|--------|----------------------------------------------------|-----------|--------|--------------------------------|--------|
|                                                             |   | 2008                                               |      |   | 2007                           |   |   | 2008 |   |   | 2007 |   |
|                                                             |   | (Dollars      in Thousands, Except Per Share Data) |      |
| Interest      Income                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |
| Loans,      including fees                                       |   | $                                                  | 4,122     |   |                           | $      | 3,406 |   |   | $ | 8,047 |   |   | $ | 6,584 |   |
| Mortgage-backed      securities                                  |   |                                               | 1,309     |   |                           |   | 765 |   |   |   | 2,398 |   |   |   | 1,505 |   |
| Securities:                                                      |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                          |   |                                               | 1,012     |   |                           |   | 1,069 |   |   |   | 2,309 |   |   |   | 2,021 |   |
| Tax-exempt                                                       |   |                                               | 144       |   |                           |   | 360 |   |   |   | 303 |   |   |   | 718 |   |
| Total      Interest Income                                       |   |                                               | 6,587     |   |                           |   | 5,600 |   |   |   | 13,057 |   |   |   | 10,828 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Expense                                            |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                         |   |                                               | 3,514     |   |                           |   | 3,407 |   |   |   | 7,088 |   |   |   | 6,491 |   |
| Borrowings                                                       |   |                                               | 364       |   |                           |   | 53 |   |   |   | 728 |   |   |   | 128 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Total      Interest Expense                                      |   |                                               | 3,878     |   |                           |   | 3,460 |   |   |   | 7,816 |   |   |   | 6,619 |   |
| Net      Interest Income                                         |   |                                               | 2,709     |   |                           |   | 2,140 |   |   |   | 5,241 |   |   |   | 4,209 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for Loan Losses                                   |   |                                               | -         |   |                           |   | 15 |   |   |   | - |   |   |   | 84 |   |
| Net      Interest Income after Provision for Loan Losses         |   |                                               | 2,709     |   |                           |   | 2,125 |   |   |   | 5,241 |   |   |   | 4,125 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Income                                         |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Fees      and service charges                                    |   |                                               | 284       |   |                           |   | 234 |   |   |   | 542 |   |   |   | 478 |   |
| Gain      on sale of loans                                       |   |                                               | -         |   |                           |   | 12 |   |   |   | 7 |   |   |   | 23 |   |
| Impairment      charge on investment securities                  |   |                                               | (368      | )      |                           |   | - |   |   |   | (518 | ) |   |   | - |   |
| Net      gain (loss) on sales and calls of investment securities |   |                                               | 238       |   |                           |   | (2 | ) |   |   | 216 |   |   |   | (2 | ) |
| Earnings      on life insurance                                  |   |                                               | 24        |   |                           |   | 23 |   |   |   | 48 |   |   |   | 46 |   |
| Other                                                            |   |                                               | 5         |   |                           |   | 7 |   |   |   | 10 |   |   |   | 17 |   |
| Total      Non-Interest Income                                   |   |                                               | 183       |   |                           |   | 274 |   |   |   | 305 |   |   |   | 562 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest      Expenses                                       |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Compensation      and benefits                                   |   |                                               | 1,343     |   |                           |   | 1,319 |   |   |   | 2,683 |   |   |   | 2,486 |   |
| Occupancy      and equipment                                     |   |                                               | 327       |   |                           |   | 270 |   |   |   | 642 |   |   |   | 517 |   |
| Data      processing                                             |   |                                               | 194       |   |                           |   | 186 |   |   |   | 376 |   |   |   | 360 |   |
| Office      supplies                                             |   |                                               | 41        |   |                           |   | 58 |   |   |   | 76 |   |   |   | 91 |   |
| Professional      fees                                           |   |                                               | 108       |   |                           |   | 92 |   |   |   | 201 |   |   |   | 167 |   |
| Other                                                            |   |                                               | 380       |   |                           |   | 394 |   |   |   | 696 |   |   |   | 672 |   |
| Total      Non-Interest Expenses                                 |   |                                               | 2,393     |   |                           |   | 2,319 |   |   |   | 4,674 |   |   |   | 4,293 |   |
| Income      before Income Tax                                    |   |                                               | 499       |   |                           |   | 80 |   |   |   | 872 |   |   |   | 394 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Income      Tax expense (Benefit)                                |   |                                               | 112       |   |                           |   | (193 | ) |   |   | 181 |   |   |   | (291 | ) |
| Net      Income                                                  |   | $                                                  | 387       |   |                           | $      | 273 |   |   | $ | 691 |   |   | $ | 685 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share Data (See Note 3):                                |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share – basic                            |   | $                                                  | 0.09      |   |                           | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.16 |   |
| Earnings      per share – diluted                          |   | $                                                  | 0.09      |   |                           | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.16 |   |
|                                                             |   |                                               |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average number of shares outstanding – basic |   |                                               | 4,296,855 |   |                           |   | 4,289,879 |   |   |   | 4,299,169 |   |   |   | 4,289,879 |   |
| Weighted      average number of shares outstanding - diluted     |   |                                               | 4,385,480 |   |                           |   | 4,418,867 |   |   |   | 4,387,794 |   |   |   | 4,414,617 |   |

----

----

----

|                                                                                                 |   | CommonStock                 |   |   | AdditionalPaid-inCapital |   |   | UnearnedSharesHeld      byESOP |   |   | RetainedEarnings |   |   | TreasuryStock |   |   | Accumu-latedOtherCompre-hensiveIncome(Loss) |   |   | TotalStock-holders’Equity |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|--------------------------|--------|--------|--------------------------------|--------|--------|------------------|--------|--------|---------------|--------|--------|---------------------------------------------|--------|--------|---------------------------------|--------|
|                                                                                                 |   |                        |   |
|                                                                                                 |   | (Dollars      in thousands) |   |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,      January 1, 2008                                                                        |   | $                           | 452    |   |                     | $      | 19,922 |                           |   | $      | (1,316           | )      |   | $             | 21,094 |   |                                        | $      | (1,189 | )                               |   | $ | 65 |   |   | $ | 39,028 |   |
| Comprehensive      income (loss):                                                                    |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Net      income                                                                                      |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | 691    |   |                                        |   | -      |                            |   |   | - |   |   |   | 691 |   |
| Net      change in unrealized gain on securities available for sale, net of tax      benefit of $557 |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | (934 | ) |   |   | (934 | ) |
| Total      Comprehensive Loss                                                                        |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | (243 | ) |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Treasury      stock purchased                                                                        |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | -      |   |                                        |   | (163   | )                               |   |   | - |   |   |   | (163 | ) |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation   expense (restricted stock      awards)                |   |                        | -      |   |                     |   | 111    |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 111 |   |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (stock options)                                                |   |                        | -      |   |                     |   | 74     |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 74 |   |
| Balance,      June 30, 2008                                                                          |   | $                           | 452    |   |                     | $      | 20,107 |                           |   | $      | (1,316           | )      |   | $             | 21,785 |   |                                        | $      | (1,352 | )                               |   | $ | (869 | ) |   | $ | 38,807 |   |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Balance,      January 1, 2007                                                                        |   | $                           | 452    |   |                     | $      | 19,519 |                           |   | $      | (1,432           | )      |   | $             | 19,863 |   |                                        | $      | (1,189 | )                               |   | $ | (550 | ) |   | $ | 36,663 |   |
| Comprehensive      income (loss):                                                                    |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Net      income                                                                                      |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | 685    |   |                                        |   | -      |                            |   |   | - |   |   |   | 685 |   |
| Net      change in unrealized loss on securities available for sale, net of tax      benefit of $654 |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | (1,247 | ) |   |   | (1,247 | ) |
| Total      Comprehensive Loss                                                                        |   |                        | -      |   |                     |   | -      |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | (562 | ) |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (restricted stock awards)                                      |   |                        | -      |   |                     |   | 111    |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 111 |   |
|                                                                                                 |   |                        |   |   |                     |   |   |                           |   |   |             |   |   |          |   |   |                                        |   |   |                            |   |   |   |   |   |   |   |   |
| Stock-based      compensation expense (stock options)                                                |   |                        | -      |   |                     |   | 74     |                           |   |   | -                |   |   |          | -      |   |                                        |   | -      |                            |   |   | - |   |   |   | 74 |   |
| Balance,      June 30, 2007                                                                          |   | $                           | 452    |   |                     | $      | 19,704 |                           |   | $      | (1,432           | )      |   | $             | 20,548 |   |                                        | $      | (1,189 | )                               |   | $ | (1,797 | ) |   | $ | 36,286 |   |

----

----

----

|                                                                                        |   | Six      Months Ended June 30, |    |
|---------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                        |   | 2008                           |    |   | 2007 |   |
|                                                                                        |   | (In      thousands)            |    |
| Cash      Flows from Operating Activities:                                                  |   |                           |    |
| Net      income                                                                             |   | $                              | 691     |   |   | $ | 685 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                           |    |   |   |   |   |   |
| Provision      for loan losses                                                              |   |                           | -       |   |   |   | 84 |   |
| Depreciation      expense                                                                   |   |                           | 285     |   |   |   | 213 |   |
| Stock-based      compensation expense                                                       |   |                           | 185     |   |   |   | 185 |   |
| Impairment      charge on investment security                                               |   |                           | 518     |   |   |   | - |   |
| Deferred      income taxes                                                                  |   |                           | 92      |   |   |   | (373 | ) |
| Net      earnings on bank-owned life insurance                                              |   |                           | (47     | ) |   |   | (46 | ) |
| Loans      originated for sale                                                              |   |                           | (331    | ) |   |   | (1,487 | ) |
| Proceeds      from sale of loans                                                            |   |                           | 338     |   |   |   | 1,222 |   |
| Gain      on sale of loans                                                                  |   |                           | (7      | ) |   |   | (23 | ) |
| Net      amortization of loan fees (costs)                                                  |   |                           | (8      | ) |   |   | (11 | ) |
| Net      (gain) loss  on sales and calls of securities                            |   |                           | (216    | ) |   |   | 2 |   |
| Accretion      of premium and discount on investment securities, net                        |   |                           | (241    | ) |   |   | (272 | ) |
| Decrease      (increase) in accrued interest receivable                                     |   |                           | 79      |   |   |   | (222 | ) |
| (Increase)      decrease in other assets                                                    |   |                           | (162    | ) |   |   | 491 |   |
| (Decrease)      increase in accrued interest payable and other liabilities                  |   |                           | (147    | ) |   |   | 734 |   |
| Net      cash provided by operating activities                                              |   |                           | 1,029   |   |   |   | 1,182 |   |
| Cash      Flows from Investing Activities:                                                  |   |                           |    |   |   |   |   |   |
| Proceeds      from sales of investment securities available for sale                        |   |                           | 19,149  |   |   |   | - |   |
| Proceeds      from sales of mortgage-backed securities available forsale                    |   |                           | 2,911   |   |   |   | - |   |
| Proceeds      from calls and maturities of investment securities available for      sale    |   |                           | 25,912  |   |   |   | 1,831 |   |
| Proceeds      from calls and maturities of investment securities held to      maturity      |   |                           | 2,000   |   |   |   | 706 |   |
| Purchase      of investment securities available for sale                                   |   |                           | (18,947 | ) |   |   | (17,257 | ) |
| Purchase      of investment securities held to maturity                                     |   |                           | (3,712  | ) |   |   | - |   |
| Purchase      of mortgage-backed securities available for sale                              |   |                           | (41,425 | ) |   |   | (11,879 | ) |
| Purchase      of mortgage-backed securities held to maturity                                |   |                           | -       |   |   |   | (719 | ) |
| Purchase      of office properties and equipment                                            |   |                           | (1,257  | ) |   |   | (3,069 | ) |
| Principal      repayments from investment securities                                        |   |                           | 583     |   |   |   | 1,118 |   |
| Principal      repayments from mortgage-backed securities                                   |   |                           | 8,232   |   |   |   | 6,755 |   |
| Net      increase in Federal Home Loan Bank stock                                           |   |                           | (249    | ) |   |   | (623 | ) |
| Purchase      of interest-bearing time deposits in banks                                    |   |                           | -       |   |   |   | (208 | ) |
| Maturity      of interest-bearing time deposits in banks                                    |   |                           | 208     |   |   |   | 200 |   |
| Net      increase in loans receivable                                                       |   |                           | (34,695 | ) |   |   | (25,345 | ) |
| Net      cash used for investing activities                                                 |   |                           | (41,290 | ) |   |   | (48,490 | ) |
| Cash      Flows from Financing Activities:                                                  |   |                           |    |   |   |   |   |   |
| Net      increase in deposits                                                               |   |                           | 41,499  |   |   |   | 36,256 |   |
| (Decrease)      increase in Federal Home Loan Bank short-term borrowings                    |   |                           | (2,705  | ) |   |   | 12,285 |   |
| Proceeds      from Federal Home Loan Bank long-term borrowings                              |   |                           | 6,000   |   |   |   | - |   |
| Repayment      of Federal Home Loan Bank long-term borrowings                               |   |                           | (163    | ) |   |   | (155 | ) |
| Increase      (decrease) in advances from borrowers for taxes and    insurance              |   |                           | 173     |   |   |   | (58 | ) |
| Acquisition      of treasury stock                                                          |   |                           | (163    | ) |   |   | - |   |
| Net      cash provided by financing activities                                              |   |                           | 44,641  |   |   |   | 48,328 |   |
| Increase      in cash and cash equivalents                                                  |   |                           | 4,380   |   |   |   | 1,020 |   |
| CASH      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       |   |                           | 15,978  |   |   |   | 13,257 |   |
| CASH      AND CASH EQUIVALENTS AT END OF PERIOD                                             |   | $                              | 20,358  |   |   | $ | 14,277 |   |
|                                                                                        |   |                           |    |   |   |   |   |   |
| Supplemental      Cash Flow Disclosures:                                                    |   |                           |    |   |   |   |   |   |
| Cash      paid:                                                                             |   |                           |    |   |   |   |   |   |
| Interest                                                                                    |   | $                              | 8,073   |   |   | $ | 6,323 |   |
| Income      taxes                                                                           |   | $                              | 331     |   |   | $ | - |   |
| Supplemental      Schedule of Noncash Investing and Financing Activities:                   |   |                           |    |   |   |   |   |   |
| Other      real estate acquired in settlement of loans                                      |   | $                              | 155     |   |   | $ | - |   |

----

----

| 1.     | Organization      and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | Colonial      Bankshares, Inc. (the “Company”) was organized in January 2003 to serve as      the mid-tier stock holding company of Colonial Bank, FSB (the      “Bank”).  The Company is a federally chartered corporation and      owns 100% of the outstanding common stock of Colonial Bank,      FSB.  The Bank is a federally chartered capital stock savings      bank.  Colonial Bankshares, MHC, a federally chartered mutual      holding company, is the parent of the Company and owns approximately 54%      of the Company’s outstanding common stock.  The Bank is a wholly      owned subsidiary of the Company.  The Bank has established a      Delaware corporation, CB Delaware Investments, Inc. (the “Operating      Subsidiary”) whose purpose is to invest in and manage      securities.                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The      consolidated financial statements include the accounts of Colonial      Bankshares, Inc. Colonial Bank, FSB and CB Delaware Investments,      Inc.  All material intercompany transactions and balances have      been eliminated.  The Company prepares its financial statements      on the accrual basis and in conformity with accounting principles      generally accepted in the United States of America (“US      GAAP”).  The unaudited information furnished herein reflects all      adjustments (consisting of normal recurring accruals) that are, in the      opinion of management, necessary to a fair statement of the results for      the interim periods presented.  They do not include all of the      information and footnotes required by US GAAP for complete financial      statements.  Operating results for the three and six months      ended June 30, 2008 (unaudited) are not necessarily indicative of the      results that may be expected for the year ending December 31,      2008. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The      balance sheet at December 31, 2007 has been derived from the audited      consolidated financial statements at that date but does not include all of      the information and footnotes required by US GAAP for complete financial      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The      preparation of financial statements in conformity with US GAAP requires      management to make estimates and assumptions that affect the reported      amounts of assets and liabilities and disclosure of contingent assets and      liabilities at the date of the financial statements and the reported      amounts of income and expenses during the reporting      period.  Actual results could differ from those      estimates.  Material estimates that are particularly susceptible      to significant change in the near term relate to the determination of the      allowance for loan losses, evaluation of other-than-temporary impairment      of investment securities and our ability to realize deferred tax      assets.                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The      Bank maintains its executive office and main branch in Vineland, New      Jersey with branches in Bridgeton, Mantua, Millville, Upper Deerfield,      Vineland and Sewell, New Jersey.  The Bank’s principal business      consists of attracting customer deposits and investing these deposits      primarily in single-family residential, commercial and consumer loans and      investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

| 2.     | Recent      Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      June 2008, the Financial Accounting Standards Board (“FASB”) ratified      Emerging Issues Task Force (“EITF”) Issue No. 08-3, “Accounting for      Lessees for Maintenance Deposits Under Lease Arrangements” (“EITF 08-3”).      EITF 08-3 provides guidance for accounting for nonrefundable maintenance      deposits.  It also provides revenue recognition accounting      guidance for the lessor.  EITF 08-3 is effective for fiscal      years beginning after December 15, 2008.  The Company is      currently evaluating the potential impact the new pronouncement will have      on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an      Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock”      (“EITF 07-5”).  EITF 07-5 provides that an entity should use a      two step approach to evaluate whether an equity-linked financial      instrument (or embedded feature) is indexed to its own stock, including      evaluating the instrument’s contingent exercise and settlement      provisions.  It also clarifies the impact of foreign currency      denominated strike prices and market-based employee stock option valuation      instruments on the evaluation.  EITF 07-5 is effective for      fiscal years beginning after December 15, 2008.  The Company is      currently evaluating the potential impact the new pronouncement will have      on its consolidated financial statements.                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      June 2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1,      “Determining Whether Instruments Granted in Share-Based Payment      Transactions Are Participating Securities.”  This FSP clarifies      that all outstanding unvested share-based payment awards that contain      rights to nonforfeitable dividends participate in undistributed earnings      with common shareholders.  Awards of this nature are considered      participating securities and the two-class method of computing basic and      diluted earnings per share must be applied.  This FSP is      effective for fiscal years beginning after December 15,      2008.  The Company is currently evaluating the potential impact      the new pronouncement will have on its consolidated financial      statements.                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      May 2008, the FASB issued Statement of Financial Accounting Standards      (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting      Principles.”  This Statement identifies the sources of      accounting principles and the framework for selecting the principles used      in the preparation of financial statements.  This Statement is      effective 60 days following the Securities and Exchange Commission’s      approval of the Public Company Accounting Oversight Board amendments to AU      Section 411, “The Meaning of Present Fairly in Conformity with Generally      Accepted Accounting Principles.”  The Company is currently      evaluating the potential impact the new pronouncement will have on its      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      May 2008, the FASB issued SFAS No. 163, "Accounting for Financial      Guarantee Insurance Contracts-an interpretation of FASB Statement No.      60."  This Statement clarifies how FASB Statement No. 60,      Accounting and Reporting by Insurance Enterprises, applies to financial      guarantee insurance contracts issued by insurance enterprises, including      the recognition and measurement of premium revenue and claim liabilities.      It also requires expanded disclosures about financial guarantee insurance      contracts.  Statement 163 is effective for financial statements      issued for fiscal years beginning after December 15, 2008, and all interim      periods within those fiscal years, except for disclosures about the      insurance enterprise's risk-management activities, which are effective the      first period (including interim periods) beginning after May 23, 2008.      Except for the required disclosures, earlier application is not      permitted.  The Company is currently evaluating the potential      impact the new pronouncement will have on its consolidated financial      statements. |

----

|   | In      May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, "Accounting      for Convertible Debt Instruments That May Be Settled in Cash upon      Conversion (Including Partial Cash Settlement)" which clarifies the      accounting for convertible debt instruments that may be settled in cash      (including partial cash settlement) upon conversion.  The FSP      requires issuers to account separately for the liability and equity      components of certain convertible debt instruments in a manner that      reflects the issuer's nonconvertible debt borrowing rate when interest      cost is recognized.  The FSP requires bifurcation of a component      of the debt, classification of that component in equity and the accretion      of the resulting discount on the debt to be recognized as part of interest      expense.  The FSP requires retrospective application to the      terms of instruments as they existed for all periods      presented.  The FSP is effective for fiscal years beginning      after December 15, 2008, and interim periods within those      years.  Early adoption is not permitted.  The Company      is currently evaluating the potential impact the new pronouncement will      have on its consolidated financial statements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3,      “Determination of the Useful Life of Intangible Assets.”  This      FSP amends the factors that should be considered in developing renewal or      extension assumptions used to determine the useful life of a recognized      intangible asset under FASB Statement No. 142, “Goodwill and Other      Intangible Assets” (“SFAS 142”).  The intent of this FSP is to      improve the consistency between the useful life of a recognized intangible      asset under SFAS 142 and the period of expected cash flows used to      measure the fair value of the asset under SFAS 141 (R) “Business      Combinations,” and other generally accepted accounting      principles.  This FSP is effective for financial statements      issued for fiscal years beginning after December 15, 2008, and      interim periods within those fiscal years. Early adoption is      prohibited.  The Company is currently evaluating the potential      impact the new pronouncement will have on its consolidated financial      statements.                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In      March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative      Instruments and Hedging Activities—an amendment of FASB Statement No. 133”      (Statement 161).  Statement 161 requires entities that utilize      derivative instruments to provide qualitative disclosures about their      objectives and strategies for using such instruments, as well as any      details of credit-risk-related contingent features contained within      derivatives.  FASB Statement 161 also requires entities to      disclose additional information about the amounts and location of      derivatives located within the financial statements, how the provisions of      SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”      has been applied, and the impact that hedges have on an entity’s financial      position, financial performance, and cash flows.  FASB Statement      161 is effective for fiscal years and interim periods beginning after      November 15, 2008, with early application encouraged.  The      Company is currently evaluating the potential impact the new pronouncement      will have on its consolidated financial  statements.                                                                           |

----

|   | In      February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of      Financial Assets and Repurchase Financing Transactions.” This FSP      addresses the issue of whether or not these transactions should be viewed      as two separate transactions or as one "linked" transaction. The FSP      includes a "rebuttable presumption" that presumes linkage of the two      transactions unless the presumption can be overcome by meeting certain      criteria. The FSP will be effective for fiscal years beginning after      November 15, 2008 and will apply only to original transfers made after      that date; early adoption will not be allowed. The Company is currently      evaluating the potential impact the new pronouncement will have on its      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | SFAS      No. 141 (R), “Business Combinations,” was issued in December of 2007. This      Statement establishes principles and requirements for how the acquirer of      a business recognizes and measures in its financial statements the      identifiable assets acquired, the liabilities assumed, and any      noncontrolling interest in the acquiree. The Statement also provides      guidance for recognizing and measuring the goodwill acquired in the      business combination and determines what information to disclose to enable      users of the financial statements to evaluate the nature and financial      effects of the business combination. The guidance will become effective as      of the beginning of a company’s fiscal year beginning after December 15,      2008. This new pronouncement will impact the Company’s accounting for      business combinations completed beginning January 1,  2009.                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | SFAS      Statement No. 160, “Noncontrolling Interests in Consolidated Financial      Statements—an amendment of ARB No. 51,” was issued in December of 2007.      This Statement establishes accounting and reporting standards for the      noncontrolling interest in a subsidiary and for the deconsolidation of a      subsidiary. The guidance will become effective as of the beginning of a      company’s fiscal year beginning after December 15, 2008. The Company is      currently evaluating the potential impact the new pronouncement will have      on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Staff      Accounting Bulletin No. 110 (“SAB 110”) amends and replaces Question      6 of Section D.2 of Topic 14, “Share-Based Payment,”      of the Staff Accounting Bulletin series. Question 6 of Section D.2 of      Topic 14 expresses the views of the staff regarding the use of the      “simplified” method in developing an estimate of expected term of “plain      vanilla” share options and allows usage of the “simplified” method for      share option grants prior to December 31, 2007. SAB 110 allows public      companies which do not have historically sufficient experience to provide      a reasonable estimate to continue use of the “simplified” method for      estimating the expected term of “plain vanilla” share option grants after      December 31, 2007.  SAB 110 is effective January 1,      2008 and did not have a material impact on our consolidated financial      statements.                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Staff      Accounting Bulletin No. 109 (“SAB 109”), "Written Loan Commitments      Recorded at Fair Value Through Earnings," expresses the views of the staff      regarding written loan commitments that are accounted for at fair value      through earnings under generally accepted accounting principles. To make      the staff's views consistent with current authoritative accounting      guidance, the SAB revises and rescinds portions of SAB No. 105,      "Application of Accounting Principles to Loan      Commitments."  Specifically, the SAB revises the SEC staff's      views on incorporating expected net future cash flows related to loan      servicing activities in the fair value measurement of a written loan      commitment. The SAB retains the staff's views on incorporating expected      net future cash flows related to internally-developed intangible assets in      the fair value measurement of a written loan commitment. The staff expects      registrants to apply the views in Question 1 of SAB 109 on a prospective      basis to derivative loan commitments issued or modified in fiscal quarters      beginning after December 15, 2007. The implementation of SAB 109 did not      have a material impact on our consolidated financial      statements. |

----

|   | In      June 2007, the Emerging Issues Task Force (EITF) reached a consensus on      Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on      Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 states that an      entity should recognize a realized tax benefit associated with dividends      on nonvested equity shares, nonvested equity share units and outstanding      equity share options charged to retained earnings as an increase in      additional paid in capital. The amount recognized in additional paid      in capital should be included in the pool of excess tax benefits available      to absorb potential future tax deficiencies on share-based payment      awards. EITF 06-11 should be applied prospectively to income tax      benefits of dividends on equity-classified share-based payment awards that      are declared in fiscal years beginning after December 15,      2007. The implementation of EITF 06-11 did not have a material impact      on our 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      implementation of EITF 06-10 did not have a material impact on our      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for      Financial Assets and Financial Liabilities-Including an amendment of FASB      Statement No. 115.   SFAS No. 159 permits entities to      choose to measure many financial instruments and certain other items at      fair value.  Unrealized gains and losses on items for which the      fair value option has been elected will be recognized in earnings at each      subsequent reporting date.  SFAS No. 159 is effective for the      Company on January 1, 2008.  The implementation of SFAS No. 159      did not have a material impact on our consolidated financial      statements.                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In      September 2006, FASB ratified the consensus reached by the EITF in Issue      06-4, “Accounting for Deferred Compensation and Postretirement Benefit      Aspects of Endorsement Split-Dollar Life Insurance      Arrangements.”  EITF 06-4 applies to life insurance arrangements      that provide an employee with a specified benefit that is not limited to      the employee’s active service period, including certain bank-owned life      insurance (“BOLI”) policies.  EITF 06-4 requires an employer to      recognize a liability and related compensation costs for future benefits      that extend to postretirement periods.   EITF 06-4 is      effective for fiscal years beginning after December 31, 2007, with earlier      application permitted.  The implementation of EITF 06-4 did not      have an impact on our consolidated financial  statements.                                                                                                                                               |

----

| 3.     | Earnings      Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | There      are no convertible securities which would affect the net income      (numerator) in calculating basic and diluted earnings per share;      therefore, for these calculations, the net income for the six months ended      June 30, 2008 is $691 thousand and the net income for the six months ended      June 30, 2007 is $685 thousand.  For the three months ended June      30, 2008, net income is $387 thousand and for the three months ended June      30, 2007, net income is $273 thousand.  Basic and diluted      earnings per share data are based on the weighted-average number of common      shares outstanding during each period.  Diluted earnings per      share are further adjusted for potential common shares that were dilutive      and outstanding during the period.  Potential common shares      consist of stock options outstanding and non-vested stock grants under the      stock-based incentive plans.  The dilutive effect of potential      common shares is computed using the treasury stock method.  The      following table sets forth the composition of the weighted average common      shares (denominator) used in the basic and diluted earnings per share      computation. |

|                                                                              |   | For      the Three Months EndedJune      30, |      |   | For      the Six Months EndedJune      30, |   |
|-----------------------------------------------------------------------------------|--------|----------------------------------------------|-----------|--------|--------------------------------------------|--------|
|                                                                              |   | 2008                                         |      |   | 2007                                       |   |   | 2008 |   |   | 2007 |   |
| Net      Income                                                                   |   | $                                            | 387,000   |   |                                       | $      | 273,000 |   |   | $ | 691,000 |   |   | $ | 685,000 |   |
|                                                                              |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares issued                                        |   |                                         | 4,521,696 |   |                                       |   | 4,521,696 |   |   |   | 4,521,696 |   |   |   | 4,521,696 |   |
| Average      unearned ESOP shares                                                 |   |                                         | (131,589  | )      |                                       |   | (143,192 | ) |   |   | (131,589 | ) |   |   | (143,192 | ) |
| Average      treasury stock shares                                                |   |                                         | (93,252   | )      |                                       |   | (88,625 | ) |   |   | (90,938 | ) |   |   | (88,625 | ) |
| Weighted      average common shares outstanding – basic                     |   |                                         | 4,296,855 |   |                                       |   | 4,289,879 |   |   |   | 4,299,169 |   |   |   | 4,289,879 |   |
| Effect      of dilutive non –vested shares and stock options    outstanding |   |                                         | 88,625    |   |                                       |   | 128,988 |   |   |   | 88,625 |   |   |   | 124,738 |   |
| Weighted      average common shares outstanding – diluted                   |   |                                         | 4,385,480 |   |                                       |   | 4,418,867 |   |   |   | 4,387,794 |   |   |   | 4,414,617 |   |
| Basic      earnings per share                                                     |   | $                                            | 0.09      |   |                                       | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.16 |   |
| Diluted      earnings per share                                                   |   | $                                            | 0.09      |   |                                       | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.16 |   |
|                                                                              |   |                                         |      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |

| 4.     | Stock      Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The      Company’s Board of Directors and stockholders have adopted the 2006      Colonial Bankshares, Inc. Stock-Based Incentive Plan (the “2006      Plan”).  The Stock-Based Incentive Plan provides for the grant      of shares of common stock and the grant of stock options to officers,      employees and directors of the Company.  Under the 2006 Plan,      the Company may grant options to purchase 221,563 shares of Company stock      and may grant up to 88,625 shares of common stock as restricted stock      awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The      2006 Plan enables the Board of Directors to grant stock options to      executives, other key employees and nonemployee directors.  The      options granted under the Plan may be either non-qualified stock options      (NQOs) or incentive stock options (ISOs).  Only NQOs may be      granted to nonemployee directors under this plan and ISOs may be granted      to employees.  The Company has reserved 221,563 shares of common      stock for issuance upon the exercise of options granted under the 2006      Plan.  The 2006 Plan will terminate ten years from the grant      date.  Options may not be granted with an exercise price that is      less than 100% of the fair market value of the Company’s common stock on      the date of grant.  Options may not be granted with a term      longer than 10 years.  Stock options granted under the Incentive      Plan are subject to limitations under Section 422 of the Internal      Revenue Code.  The number of shares available under the 2006      Plan, the number of shares subject to outstanding options and the exercise      price of outstanding options will be adjusted to reflect any stock      dividend, stock split, merger, reorganization or other event generally      affecting the number of the Company’s outstanding shares.  At      June 30, 2008, there are 25,095 shares available for option grants under      the 2006 Plan. |

----

|   | On      October 19, 2006, 88,625 shares of restricted stock were      awarded.  The restricted shares awarded had a grant date fair      value of $12.47 per share.  The restricted stock awarded vest      20% annually beginning October 19, 2007.  For the three and six      months ended June 30, 2008, $55 thousand and $111 thousand, respectively,      in compensation expense was recognized in regard to these restricted stock      awards with a related tax benefit of $18 thousand and $37 thousand,      respectively.  As of June 30, 2008, there was $728 thousand of      unrecognized compensation expense related to the restricted stock awards      which is expected to be recognized over a period of 3.25      years.  At June 30, 2007, there was $949 thousand of      unrecognized compensation expense related to the restricted stock awards      which is expected to be recognized over a period of 4.25      years. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Activity      in issued but unvested award shares during the six months ended June 30,      2008, was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

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

|   | On      October 19, 2006, options to purchase 196,468 shares of common stock at      $12.47 per share were awarded.  The options awarded vest 20%      annually beginning October 19, 2007.  The following is a summary      of the Company’s stock option activity for the six months ended June 30,      2008: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|   | The      fair value of each option grant is estimated on the date of grant using      the Black-Sholes option-pricing model with the following weighted average      assumptions for options granted in 2006:  dividend yield of 0%,      risk-free interest rate of 4.79%, expected life of 6.5 years, and expected      volatility of 15.00%.  The calculated fair value of options      granted in 2006 was $3.79 per option.  The weighted average      contractual term of options outstanding and exercisable were 8.25 years at      June 30, 2008 and 9.25 years at June 30, 2007.  The aggregate      intrinsic value of options outstanding was $0 and $350 thousand at June      30, 2008 and 2007, respectively.                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Stock-based      compensation expense related to stock options for the three and six months      ended June 30, 2008 was $37 thousand and $74 thousand, respectively with a      related tax benefit of $13 thousand and $27 thousand,      respectively.  As of June 30, 2008, there was approximately $490      thousand of unrecognized compensation cost related to unvested stock      options granted in 2006.  The cost will be recognized on a      graded vesting method over a period of 3.25 years.  At June 30,      2007, there was approximately $639 thousand of unrecognized compensation      cost related to unvested stock options granted in 2006.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The      Company has an Employee Stock Ownership Plan (“ESOP”) for the benefit of      employees who meet the eligibility requirements as defined in the      plan.  The ESOP trust purchased 166,398 shares of common stock      in the initial public offering using proceeds of a loan from the      Company.  The Bank will make cash contributions to the ESOP on      an annual basis sufficient to enable the ESOP to make the required loan      payments to the Company.  The loan bears an interest rate of      6.00% with principal and interest payable annually in equal installments      over 15 years.  The loan is secured by the shares of the stock      purchased.                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | As      the debt is repaid, shares are released from the collateral and allocated      to qualified employees.  Accordingly, the shares pledged as      collateral are reported as unearned ESOP shares in the Consolidated      Statements of Financial Condition.  As shares are released from      collateral, the Company reports compensation expense equal to the current      market price of the shares, and the shares become outstanding for earnings      per share computations.  The compensation expense is recorded on      a monthly basis.  The Company’s contribution expense for the      ESOP was $60 thousand and $83 thousand for the six months ended June 30,      2008 and 2007, respectively and $30 thousand and $42 thousand for the      three months ended June 30, 2008 and 2007,respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The      following table presents the components of the ESOP  shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|                                |   | June      30, 2008 |    |   | June      30, 2007 |   |
|-------------------------------------|--------|--------------------|---------|--------|--------------------|--------|
| Shares      released for allocation |   |               | 34,809  |   |               |   | 23,206 |   |
| Unreleased      shares              |   |               | 131,589 |   |               |   | 143,192 |   |
| Total      ESOP shares              |   |               | 166,398 |   |               |   | 166,398 |   |
|                                |   |               |    |   |               |   |   |   |

----

| 5.     | Comprehensive      Income                                                                                                                                                                                                                                         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                              |
|   | Comprehensive      income for the Company consists of net income and unrealized gains and      losses on available for sale securities.  Other comprehensive      income for the three and six months ended June 30, 2008 and 2007 was as      follows: |

|                                                                           |   | Three      Months EndedJune      30, |   |   | Six      Months EndedJune      30, |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|------------------------------------|--------|
|                                                                           |   | 2008                                 |   |   | 2007                               |   |   | 2008 |   |   | 2007 |   |
|                                                                           |   | (In      Thousands)                  |   |
| Other      comprehensive gain (loss):                                          |   |                                 |   |
| Unrealized      holding (losses) on available for sale securities              |   | $                                    | (2,385 | )      |                               | $      | (2,001 | ) |   | $ | (1,275 | ) |   | $ | (1,903 | ) |
| Reclassification      adjustment for net (gains) losses realized in net income |   |                                 | (238   | )      |                               |   | 2 |   |   |   | (216 | ) |   |   | 2 |   |
| Net      unrealized (losses)                                                   |   |                                 | (2,623 | )      |                               |   | (1,999 | ) |   |   | (1,491 | ) |   |   | (1,901 | ) |
| Income      tax (benefit)                                                      |   |                                 | (941   | )      |                               |   | (686 | ) |   |   | (557 | ) |   |   | (654 | ) |
| Net      of tax amount                                                         |   | $                                    | (1,682 | )      |                               | $      | (1,313 | ) |   | $ | (934 | ) |   | $ | (1,247 | ) |

| 6.     | Contingent      Liabilities and Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In      the normal course of business, there are various outstanding commitments      and contingent liabilities, such as commitments to extend credit and      standby letters of credit that are not reflected in the accompanying      financial statements.  No material losses are anticipated as a      result of those transactions on either a completed or uncompleted      basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The      Company does not issue any guarantees that would require liability      recognition or disclosure, other than its standby letters of      credit.  Standby letters of credit are conditional commitments      issued by the Company to guarantee the performance of a customer to a      third party.  Generally, all letters of credit, when issued,      have expiration dates within one year.  The credit risk involved      in issuing letters of credit is essentially the same as those that are      involved in extending loan facilities to customers.  The Company      generally holds collateral and/or personal guarantees supporting those      commitments.  The Company had $2.6 million of standby letters of      credit outstanding as of June 30, 2008.  Management believes      that the proceeds obtained through a liquidation of collateral and the      enforcement of guarantees would be sufficient to cover the potential      amount of future payment required under the corresponding      guarantees.  The current amount of the liability as of June 30,      2008 for guarantees under standby letters of credit is not      material. |

----

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

|                                      |   | At      June 30, 2008 |    |   | At      December 31, 2007 |   |
|-------------------------------------------|--------|-----------------------|---------|--------|---------------------------|--------|
|                                      |   | AmortizedCost         |    |   | Fair      Value           |   |   | AmortizedCost |   |   | Fair Value |   |
|                                      |   | (In      thousands)   |    |
| Securities      available-for-sale:       |   |                  |    |   |                      |   |   |   |   |   |   |   |
| Mortgage-backed                           |   | $                     | 109,797 |   |                      | $      | 109,258 |   |   | $ | 79,085 |   |   | $ | 79,454 |   |
| U.      S. Government agency              |   |                  | 24,705  |   |                      |   | 24,530 |   |   |   | 44,052 |   |   |   | 44,275 |   |
| Corporate                                 |   |                  | 18,215  |   |                      |   | 17,484 |   |   |   | 12,880 |   |   |   | 12,267 |   |
| Mutual      funds                         |   |                  | 3,783   |   |                      |   | 3,783 |   |   |   | 14,385 |   |   |   | 14,385 |   |
| Municipal                                 |   |                  | 3,663   |   |                      |   | 3,694 |   |   |   | 5,402 |   |   |   | 5,504 |   |
| SBA      pools                            |   |                  | 7,023   |   |                      |   | 7,077 |   |   |   | 7,614 |   |   |   | 7,664 |   |
| Total      securities available-for-sale. |   | $                     | 167,186 |   |                      | $      | 165,826 |   |   | $ | 163,418 |   |   | $ | 163,549 |   |
|                                      |   |                  |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Securities      held-to-maturity:         |   |                  |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                           |   | $                     | 3,390   |   |                      | $      | 3,456 |   |   | $ | 3,766 |   |   | $ | 3,863 |   |
| U.      S. Government agency              |   |                  | 928     |   |                      |   | 926 |   |   |   | 1,420 |   |   |   | 1,442 |   |
| Corporate                                 |   |                  | 3,921   |   |                      |   | 3,490 |   |   |   | 2,173 |   |   |   | 2,317 |   |
| Municipal                                 |   |                  | 10,442  |   |                      |   | 10,646 |   |   |   | 9,854 |   |   |   | 10,354 |   |
| Total      securities held-to-maturity.   |   | $                     | 18,681  |   |                      | $      | 18,518 |   |   | $ | 17,213 |   |   | $ | 17,976 |   |
|                                      |   |                  |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |

|   | Following      the decisions made in the fourth quarter of 2007 and the first quarter of      2008, the Company continued the write down of a mutual fund held in its      available-for-sale investment portfolio for “other-than-temporary      impairment.”  For the three and six months ended June 30, 2008,      the Company took an impairment charge of $368 thousand (pre-tax) and $518      thousand (pre-tax), respectively, or an after-tax charge of $221 thousand      and $309 thousand, respectively.  The Company’s decision was      based on the length of time the mutual fund was in a loss position and      based on the fact that the mutual fund had not made any recovery during      the recent reduction in interest rates. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | During      the second quarter of 2008, the Company redeemed $10.3 million of the      mutual fund at a pre-tax realized loss of approximately $78 thousand, or      an after-tax realized loss of $47thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

----

| 8.     | Loans                                                                                    |
|--------|------------------------------------------------------------------------------------------|
|   |                                                                                     |
|   | The      components of loans at June 30, 2008 and December 31, 2007 are as      follows: |

|                                       |   | At      June 30, 2008       |    |   | At      December 31, 2007 |   |
|--------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|
|                                       |   | Amount                      |    |   | Percent                   |   |   | Amount |   |   | Percent |   |
|                                       |   | (Dollars      in thousands) |    |
| Real      estate loans:                    |   |                        |    |   |                      |   |   |   |   |   |   |   |
| One-      to four-family residential       |   | $                           | 133,487 |   |                      |   | 48.1 | % |   | $ | 114,745 |   |   |   | 47.3 | % |
| Home      equity loans and lines of credit |   |                        | 41,491  |   |                      |   | 15.0 |   |   |   | 40,264 |   |   |   | 16.6 |   |
| Multi-family                               |   |                        | 4,937   |   |                      |   | 1.8 |   |   |   | 5,609 |   |   |   | 2.3 |   |
| Commercial                                 |   |                        | 67,091  |   |                      |   | 24.2 |   |   |   | 55,606 |   |   |   | 22.9 |   |
| Construction                               |   |                        | 12,061  |   |                      |   | 4.4 |   |   |   | 10,137 |   |   |   | 4.2 |   |
| Commercial                                 |   |                        | 14,510  |   |                      |   | 5.2 |   |   |   | 12,600 |   |   |   | 5.2 |   |
| Consumer      and other                    |   |                        | 3,645   |   |                      |   | 1.3 |   |   |   | 3,752 |   |   |   | 1.5 |   |
| Total      loans receivable                |   | $                           | 277,222 |   |                      |   | 100.0 | % |   | $ | 242,713 |   |   |   | 100.0 | % |
| Deferred      loan fees                    |   |                        | (273    | )      |                      |   |   |   |   |   | (281 | ) |   |   |   |   |
| Allowance      for loan losses             |   |                        | (1,361  | )      |                      |   |   |   |   |   | (1,392 | ) |   |   |   |   |
| Total      loans receivable, net           |   | $                           | 275,588 |   |                      |   |   |   |   | $ | 241,040 |   |   |   |   |   |

|   | Nonaccrual      loans amounted to approximately $916 thousand and $1.2 million at June 30,      2008 and December 31, 2007, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                           |
| 9.     | Deposits                                                                                                                                       |
|   |                                                                                                                                           |
|   | Deposit      accounts, by type, at June 30, 2008 and December 31, 2007 are summarized      as follows:                                         |

|                              |   | At      June 30, 2008       |    |   | At      December 31, 2007 |   |
|-----------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|
|                              |   | Balance                     |    |   | Percent                   |   |   | Wtd.Avg.Rate |   |   | Balance |   |   | Percent |   |   | Wtd.Avg.Rate |   |
|                              |   | (Dollars      in thousands) |    |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposit      type:                |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing demand. |   | $                           | 18,262  |   |                      |   | 4.43 | % |   |   | - | % |   | $ | 15,141 |   |   |   | 4.08 | % |   |   | - | % |
| Savings                           |   |                        | 82,956  |   |                      |   | 20.09 |   |   |   | 2.70 |   |   |   | 55,716 |   |   |   | 15.00 |   |   |   | 2.18 |   |
| NOW      accounts                 |   |                        | 47,940  |   |                      |   | 11.61 |   |   |   | 1.11 |   |   |   | 45,255 |   |   |   | 12.18 |   |   |   | 2.12 |   |
| Super      NOW accounts           |   |                        | 15,330  |   |                      |   | 3.71 |   |   |   | 1.74 |   |   |   | 16,520 |   |   |   | 4.45 |   |   |   | 1.77 |   |
| Money      market accounts        |   |                        | 32,507  |   |                      |   | 7.87 |   |   |   | 3.15 |   |   |   | 20,670 |   |   |   | 5.57 |   |   |   | 3.72 |   |
| Total      transaction accounts   |   |                        | 196,995 |   |                      |   | 47.71 |   |   |   | 2.06 |   |   |   | 153,302 |   |   |   | 41.28 |   |   |   | 1.81 |   |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates      of deposit      |   |                        | 215,886 |   |                      |   | 52.29 |   |   |   | 4.52 |   |   |   | 218,080 |   |   |   | 58.72 |   |   |   | 4.86 |   |
|                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      deposits               |   | $                           | 412,881 |   |                      |   | 100.00 | % |   |   | 3.35 | % |   | $ | 371,382 |   |   |   | 100.00 | % |   |   | 3.72 | % |

----

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

| Maturity               |   | InterestRate |   |   | June      30,2008           |   |   | December      31, 2007 |   |
|------------------------|--------|--------------|--------|--------|-----------------------------|--------|--------|------------------------|--------|
|                   |   |         |   |   | (Dollars      in thousands) |   |
| January      2, 2008   |   |         | 3.61   | %      |                        | $      | -      |                   |   | $ | 15,000 |   |
| January      2, 2008   |   |         | 4.11   |   |                        |   | -      |                   |   |   | 380 |   |
| March      24, 2008    |   |         | 4.79   |   |                        |   | -      |                   |   |   | 4,000 |   |
| July      1, 2008      |   |         | 2.36   |   |                        |   | 6,675  |                   |   |   | - |   |
| October      7, 2008   |   |         | 2.40   |   |                        |   | 4,000  |                   |   |   | - |   |
| November      20, 2008 |   |         | 4.42   |   |                        |   | 4,000  |                   |   |   | 4,000 |   |
| December      23, 2008 |   |         | 2.89   |   |                        |   | 3,000  |                   |   |   | - |   |
| June      23, 2009     |   |         | 3.35   |   |                        |   | 3,000  |                   |   |   | - |   |
| October      19, 2009  |   |         | 4.65   |   |                        |   | 4,000  |                   |   |   | 4,000 |   |
| November      20, 2009 |   |         | 4.23   |   |                        |   | 4,000  |                   |   |   | 4,000 |   |
| December      03, 2009 |   |         | 3.89   |   |                        |   | 4,000  |                   |   |   | 4,000 |   |
| June      23, 2010     |   |         | 3.88   |   |                        |   | 3,000  |                   |   |   | - |   |
| October      18, 2010  |   |         | 4.70   |   |                        |   | 4,000  |                   |   |   | 4,000 |   |
| June      23, 2011     |   |         | 4.31   |   |                        |   | 3,000  |                   |   |   | - |   |
| June      30, 2021     |   |         | 5.57   |   |                        |   | 6,396  |                   |   |   | 6,559 |   |
|                   |   |         |   |   |                        | $      | 49,071 |                   |   | $ | 45,939 |   |

|   | At      June 30, 2008, the Bank had a borrowing capacity of $124.8 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 June 30, 2008, the Bank      had $49.1 million in outstanding borrowings from the FHLB of New      York.                                                                                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 11.    | Fair      Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|   | SFAS      No. 157 establishes a fair value hierarchy that prioritizes the input to      valuation techniques used to measure fair value.  The hierarchy      gives the highest priority to unadjusted prices in active markets for      identical assets or liabilities (level 1 measurements) and the lowest      priority to unobservable inputs (level 3 measurements).  The      three levels of the fair value hierarchy under SFAS No. 157 are described      below: |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Level      1 – Unadjusted quoted prices in active markets that are accessible at the      measurement date for identical, unrestricted assets or      liabilities; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Level      2 – Quoted prices in markets that are not active, or inputs that are      observable, either directly or indirectly, for substantially the full term      of the asset or liability; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Level      3 – Prices or valuation techniques that require inputs that are both      significant to the fair value measurement and observable (1.e., supported      by little or no market activity). |

----

|   | A      financial instrument’s level within the fair value hierarchy is based on      the lowest level of input that is significant to the fair value      measurement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | The      Company’s cash instruments are generally classified within level 1 or      level 2 of the fair value hierarchy because they are valued using quoted      market prices, broker or dealer quotations, or alternative pricing sources      with reasonable levels of price transparency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | The      types of instruments valued based on quoted market prices in active      markets include most U. S. government and agency securities, many other      sovereign government securities, liquid mortgage products, active listed      equities and most money market securities  Such instruments are      generally classified within level 1 or level 2 of the fair value      hierarchy.  As required by SFAS No. 157, the Company does not      adjust the quoted price for such instruments.                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | The      types of instruments valued based on quoted prices in markets that are not      active, broker or dealer quotations, or alternative pricing sources with      reasonable levels of price transparency include most investment-grade and      high-yield corporate bonds, less liquid mortgage products, less liquid      listed equities, state, municipal or provincial obligations and certain      physical commodities.  Such instruments are generally classified      within level 2 of the fair value hierarchy.                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | Level      3 is for positions that are not traded in active markets or are subject to      transfer restrictions, valuations are adjusted to reflect illiquidity      and/or non-transferability, and such adjustments are generally based on      available market evidence.  In the absence of such evidence,      management’s best estimate is used.  Subsequent to inception,      management only changes level 3 inputs and assumptions when corroborated      by evidence such as transactions in similar instruments, completed or      pending third-party transactions in the underlying investment or      comparable entities, subsequent rounds of financing, recapitalization and      other transactions across the capital structure, offerings in the equity      or debt markets, and changes in financial ratios or cash      flows. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | For      assets measured at fair value on a recurring basis, the fair value      measurements by level within the fair value hierarchy used at June 30,      2008 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                               |   | QuotedPrices      inActiveMarkets      for IdenticalAssets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |    | Significant      Unobservable Inputs(Level      3) |   |   | June      30,2008 |   |
|------------------------------------|--------|--------------------------------------------------------------------------|--------|--------|------------------------------------------------|--------|---------|----------------------------------------------------|--------|--------|-------------------|--------|
|                               |   |                                                                     |   |   |                                           |   |    |                                               |   |   |              |   |
| Securities      available-for-sale |   | $                                                                        | -      |   |                                           | $      | 165,826 |                                               |   | $      | -                 |   |   | $ | 165,826 |   |

----

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

----

----

----

----

----

----

----

----

----

| Item      3.  | Quantitative      and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | Not      applicable, as the Company is a Smaller Reporting  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item      4T. | Controls      and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| (a)           | Evaluation      of disclosure controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | Under      the supervision and with the participation of our management, including      our Chief Executive Officer and Chief Financial Officer, we evaluated the      effectiveness of the design and operation of our disclosure controls and      procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange      Act) as of the end of the period covered by this quarterly      report.   Based upon that evaluation, the Chief Executive      Officer and Chief Financial Officer concluded that, as of the end of the      period covered by this quarterly report, our disclosure controls and      procedures were effective to ensure that information required to be      disclosed in the reports that the Company files or submits under the      Exchange Act is recorded, processed, summarized and reported within the      time periods specified in the Securities and Exchange Commission’s rules      and forms. |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| (b)           | Changes      in internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|          | There      were no changes made in our internal control over financial reporting      during the period covered by this report that have materially affected, or      are reasonably likely to materially affect, our internal control over      financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

----

| 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      1A. | Risk      Factors                                                                                                                                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                      |   |
|          | Not      applicable, as the Company is a Smaller Reporting  Company.                                                                                                                                                                                                                                                                      |
|          |                                                                                                                                                                                                                                                                                                                                      |   |
| Item      2.  | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                          |
|          |                                                                                                                                                                                                                                                                                                                                      |   |
|          | (a)                                                                                                                                                                                                                                                                                                                                       | Not      applicable |
|          | (b)                                                                                                                                                                                                                                                                                                                                       | Not      applicable |
|          | (c)                                                                                                                                                                                                                                                                                                                                       | Purchases      of Equity Securities |
|          |                                                                                                                                                                                                                                                                                                                                      |   |
|          |                                                                                                                                                                                                                                                                                                                                      | The      Company’s repurchases of its common stock made during the quarter are set      forth in the following table: |

|  Period                  |   | TotalNumber      ofSharesPurchased |   |   | AveragePrice      Paidper      Share |   |   | TotalNumber      of Shares Purchased as Part ofPublicly      Announced Plans or Programs |   |   | Maximum      Number of Shares thatMay      yet be PurchasedUnder      thePlan      orPrograms      (1) |   |
|-------------------------------|--------|------------------------------------|--------|--------|--------------------------------------|--------|--------|------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------|--------|
| April      1 – April 30 |   |                               | -      |   |                                 | $      | -      |                                                                                     |   |   | -                                                                                                      |   |   |   | 100,454 |   |
|                          |   |                               |   |   |                                 |   |   |                                                                                     |   |   |                                                                                                   |   |   |   |   |   |
| May      1 – May 31     |   |                               | 8,000  |   |                                 |   | 10.07  |                                                                                     |   |   | 8,000                                                                                                  |   |   |   | 92,454 |   |
|                          |   |                               |   |   |                                 |   |   |                                                                                     |   |   |                                                                                                   |   |   |   |   |   |
| June      1 – June 30   |   |                               | 7,500  |   |                                 |   | 11.05  |                                                                                     |   |   | 7,500                                                                                                  |   |   |   | 84,954 |   |
|                          |   |                               |   |   |                                 |   |   |                                                                                     |   |   |                                                                                                   |   |   |   |   |   |
| Total                         |   |                               | 15,500 |   |                                 | $      | 10.54  |                                                                                     |   |   | 15,500                                                                                                 |   |   |   | 84,954 |   |
|                          |   |                               |   |   |                                 |   |   |                                                                                     |   |   |                                                                                                   |   |   |   |   |   |
| ___________________           |   |                               |   |   |                                 |   |   |                                                                                     |   |   |                                                                                                   |   |   |   |   |   |

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

----

| Item      3. | Defaults Upon SeniorSecurities                                                                                                                                                                                                                                                                                                                                                          |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                    |   |
|         | None                                                                                                                                                                                                                                                                                                                                                                                    |
|         |                                                                                                                                                                                                                                                                                                                                                                                    |   |
| Item      4. | Submission      of Matters to Vote of Security Holders                                                                                                                                                                                                                                                                                                                                  |
|         |                                                                                                                                                                                                                                                                                                                                                                                    |   |
|         | On      May 15, 2008, the Company held its Annual Meeting of Stockholders to      obtain approval for two proposals submitted on behalf of the Company’s      Board of Directors.  Stockholders of record as of March 30,      2008, were eligible to vote on these proposals.  The following      is a summary of each proposal and the result of the  vote. |
|         |                                                                                                                                                                                                                                                                                                                                                                                    |   |
|         | 1.                                                                                                                                                                                                                                                                                                                                                                                      | The      following directors were elected by the requisite plurality of the votes      cast to serve on the Company’s Board of Directors for a three-year      term: |

|                          |   | For       |   | Withheld          |
|-------------------------------|--------|-----------|--------|-------------------|
|                          |   |      |   |              |
| Albert      A. Fralinger, Jr. |   | 4,033,974 |   | 16,357            |
| John      Fitzpatrick, CPA    |   | 4,044,160 |   |   6,171 |
|                          |   |      |   |              |

|   | 2. | To      ratify the appointment of Beard Miller Company LLP as the independent      registered public accounting firm for the year ending December 31,      2008: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For       |   | Against |   | Abstain |   | Broker      non-votes |
|-----------|--------|---------|--------|---------|--------|-----------------------|
|      |   |    |   |    |   |                  |
| 4,044,467 |   | 5,664   |   | 200     |   | -                     |

| 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 |

----

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