UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q








x
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the quarterly
      period ended March 31,
      2009o
              TRANSITION
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the transition
      period from __________________ to __________________Commission file
      number 0-51385




COLONIAL
BANKSHARES, INC.


(Exact
name of registrant as specified in its charter)




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




(856)
205-0058


(Registrant’s
telephone number including area code)





N/A


(Former
name, former address, and former fiscal year, if changed since last
report)





Indicate
by check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.


(1) 
x Yes  oNo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or such shorter period that the registrant was required to submit and
post such files). o Yes  o No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):






Large accelerated
      filer  o
            Accelerated
      filer                      
      oNon-accelerated
      filer    o
            Smaller reporting
      company     x




Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes   xNo





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of the latest practicable date:


As of May
11, 2009, 4,425,021 shares of common stock, par value $0.10 per
share









TABLE
OF CONTENTS




PART
      I
            FINANCIAL
      INFORMATION
            PAGEItem
      1
            Unaudited
      Consolidated Statements of Financial Condition
            2Unaudited
      Consolidated Statements of Income
            3Unaudited
      Consolidated Statements of Stockholders’ Equity
            4Unaudited
      Consolidated Statements of Cash Flows
            5Notes
      to Unaudited Consolidated Financial Statements
            6





Item
      2
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            19Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            26Item
      4T.
            Controls
      and Procedures
            26PART
      II
            OTHER
      INFORMATIONItem
      1
            Legal
      Proceedings
            27Item
      1A.
            Risk
      Factors
            27Item
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            27Item
      3
            Defaults
      Upon Senior Securities
            28Item
      4
            Submission
      of Matters to Vote of Security Holders
            28Item
      5
            Other
      Information
            28Item
      6
            Exhibits
            28Signatures
            29








1





PART IFINANCIAL
INFORMATION
 Item 1.Financial
Statements
 
 Colonial
Bankshares, Inc.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION (Unaudited)


At March
31, 2009 and December 31, 2008




March
      31,
              2009
            
            
            December
      31,
              2008(Dollars
      in thousands, except share data)AssetsCash
      and amounts due from banks
            
            $
            26,393
            
            
            $
            23,407Investment
      securities available for sale
            
            
            168,828
            
            
            
            165,462Investment
      securities held to maturity (fair value at March 31, 2009 -
      $17,079;
              at
      December 31, 2008 - $16,332)
            
            
            17,765
            
            
            
            16,897Loans
      receivable, net of allowance for loan losses of $2,257 at March 31,
      2009 and $2,105 at December 31, 2008
            
            
            303,062
            
            
            
            303,151Loans
      available for sale
            
            
            751
            
            
            
            -Real
      estate owned
            
            
            113
            
            
            
            113Federal
      Home Loan Bank stock, at cost
            
            
            1,987
            
            
            
            1,991Office
      properties and equipment, net
            
            
            11,694
            
            
            
            11,563Bank-owned
      life insurance
            
            
            2,700
            
            
            
            2,674Accrued
      interest receivable
            
            
            2,158
            
            
            
            2,298Other
      assets
            
            
            3,382
            
            
            
            3,020Total
      Assets
            
            $
            538,833
            
            
            $
            530,576Liabilities
      and Stockholders’ EquityLiabilitiesDeposits:Noninterest-bearing
            
            $
            18,391
            
            
            $
            18,146Interest-bearing
            
            
            445,127
            
            
            
            439,085Total
      deposits
            
            
            463,518
            
            
            
            457,231Federal
      Home Loan Bank short-term borrowings
            
            
            3,000
            
            
            
            3,000Federal
      Home Loan Bank long-term borrowings
            
            
            28,141
            
            
            
            28,227Advances
      from borrowers for taxes and insurance
            
            
            696
            
            
            
            620Accrued
      interest payable and other liabilities
            
            
            1,403
            
            
            
            868Total
      Liabilities
            
            
            496,758
            
            
            
            489,946Stockholders’
      EquityPreferred
      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 4,425,021 shares at March
      31, 2009 and 4,428,021 at December 31, 2008
            
            
            452
            
            
            
            452Additional
      paid-in capital
            
            
            20,382
            
            
            
            20,290Unearned
      shares held by Employee Stock Ownership Plan (“ESOP”)
            
            
            (1,200
            )
            
            
            (1,200
            )Treasury
      stock, at cost, 132,125 shares at March 31, 2009 and
              129,125
      shares at December 31, 2008
            
            
            (1,578
            )
            
            
            (1,559
            )Retained
      earnings
            
            
            22,882
            
            
            
            22,439Accumulated
      other comprehensive income
            
            
            1,137
            
            
            
            208Total
      Stockholders’ Equity
            
            
            42,075
            
            
            
            40,630Total
      Liabilities and Stockholders’ Equity
            
            $
            538,833
            
            
            $
            530,576




See
notes to unaudited consolidated financial statements.


2




Colonial
Bankshares, Inc.
 CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)


Three
Months Ended March 31, 2009 and 2008




Three
      Months Ended
              March
      31,2009
            
            
            2008(Dollars
      in thousands except
              per
      share date)Interest
      IncomeLoans,
      including fees
            
            $
            4,591
            
            
            $
            3,925Mortgage-backed
      securities
            
            
            1,531
            
            
            
            1,089Securities:Taxable
            
            
            580
            
            
            
            1,297Tax-exempt
            
            
            127
            
            
            
            159Total
      Interest Income
            
            
            6,829
            
            
            
            6,470Interest
      ExpenseDeposits
            
            
            3,265
            
            
            
            3,574Borrowings
            
            
            342
            
            
            
            364Total
      Interest Expense
            
            
            3,607
            
            
            
            3,938Net
      Interest Income
            
            
            3,222
            
            
            
            2,532Provision
      for Loan Losses
            
            
            195
            
            
            
            -Net
      Interest Income after Provision for Loan Losses
            
            
            3,027
            
            
            
            2,532Non-Interest
      IncomeFees
      and service charges
            
            
            277
            
            
            
            258Gain
      on sale of loans
            
            
            8
            
            
            
            7Impairment
      charge on investment securities
            
            
            (97
            )
            
            
            (150
            )Net
      gain (loss) on sales and calls of investment securities
            
            
            157
            
            
            
            (22
            )Earnings
      on life insurance
            
            
            26
            
            
            
            24Other
            
            
            5
            
            
            
            5Total
      Non-Interest Income
            
            
            376
            
            
            
            122Non-Interest
      ExpensesCompensation
      and benefits
            
            
            1,341
            
            
            
            1,340Occupancy
      and equipment
            
            
            373
            
            
            
            315FDIC
      insurance premium
            
            
            391
            
            
            
            41Data
      processing
            
            
            202
            
            
            
            182Office
      supplies
            
            
            46
            
            
            
            35Professional
      fees
            
            
            127
            
            
            
            93Other
            
            
            316
            
            
            
            275Total
      Non-Interest Expenses
            
            
            2,796
            
            
            
            2,281Income
      before Income Tax Expense
            
            
            607
            
            
            
            373Income
      Tax expense
            
            
            164
            
            
            
            69Net
      Income
            
            $
            443
            
            
            $
            304Per
      Share Data (See Note 3):Earnings
      per share – basic
            
            $
            0.10
            
            
            $
            0.07Earnings
      per share – diluted
            
            $
            0.10
            
            
            $
            0.07Weighted
      average number of shares outstanding – basic
            
            
            4,271,718
            
            
            
            4,301,482Weighted
      average number of shares outstanding - diluted
            
            
            4,271,718
            
            
            
            4,301,482






See notes to unaudited
consolidated financial statements.


3


Colonial
Bankshares, Inc.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)


Three
Months Ended March 31, 2009 and 2008





Common
              Stock
            
            
            Additional
              Paid-in
              Capital
            
            
            Unearned
              Shares
              Held
      by
              ESOP
            
            
            Retained
              Earnings
            
            
            Treasury
              Stock
            
            
            Accumu-
              lated
              Other
              Compre-
              hensive
              Income
            
            
            Total
              Stock-
              holders’
              Equity(Dollars
      in thousands)Balance,
      January 1, 2009
            
            $
            452
            
            
            $
            20,290
            
            
            $
            (1,200
            )
            
            $
            22,439
            
            
            $
            (1,559
            )
            
            $
            208
            
            
            $
            40,630Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            443
            
            
            
            -
            
            
            
            -
            
            
            
            443Net
      change in unrealized gain on securities available for sale, net of tax
      expense of $485
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            929
            
            
            
            929Total
      Comprehensive Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,372Treasury
      stock purchased (3,000 shares)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (19
            )
            
            
            -
            
            
            
            (19
            )Stock-based
      compensation expense (restricted stock awards)
            
            
            -
            
            
            
            55
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            55Stock-based
      compensation expense (stock options)
            
            
            -
            
            
            
            37
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            37Balance,
      March 31, 2009
            
            $
            452
            
            
            $
            20,382
            
            
            $
            (1,200
            )
            
            $
            22,882
            
            
            $
            (1,578
            )
            
            $
            1,137
            
            
            $
            42,075Balance,
      January 1, 2008
            
            $
            452
            
            
            $
            19,922
            
            
            $
            (1,316
            )
            
            $
            21,094
            
            
            $
            (1,189
            )
            
            $
            65
            
            
            $
            39,028Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            304
            
            
            
            -
            
            
            
            -
            
            
            
            304Net
      change in unrealized gain on securities available for sale, net of tax
      expense of $384
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            749
            
            
            
            749Total
      Comprehensive Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,053Stock-based
      compensation expense (restricted stock awards)
            
            
            -
            
            
            
            55
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            55Stock-based
      compensation expense (stock options)
            
            
            -
            
            
            
            37
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            37Balance,
      March 31, 2008
            
            $
            452
            
            
            $
            20,014
            
            
            $
            (1,316
            )
            
            $
            21,398
            
            
            $
            (1,189
            )
            
            $
            814
            
            
            $
            40,173











See notes to unaudited
consolidated financial statements.


4





Colonial
Bankshares, Inc.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)


Three
Months Ended March 31, 2009 and 2008




Three
      Months Ended
              March
      31,2009
            
            
            2008(In
      thousands)Cash
      Flows from Operating Activities:Net
      income
            
            $
            443
            
            
            $
            304Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activities:Provision
      for loan losses
            
            
            195
            
            
            
            -Depreciation
      expense
            
            
            155
            
            
            
            143Stock-based
      compensation expense
            
            
            92
            
            
            
            92Impairment
      charge on investment securities
            
            
            97
            
            
            
            150Net
      earnings on bank-owned life insurance
            
            
            (26
            )
            
            
            (24
            )Loans
      originated for sale
            
            
            (1,468
            )
            
            
            (331
            )Proceeds
      from sale of loans
            
            
            725
            
            
            
            338Gain
      on sale of loans
            
            
            (8
            )
            
            
            (7
            )Net
      amortization of loan costs
            
            
            (5
            )
            
            
            (9
            )Net
      (gain) loss on sales and calls of investment securities
            
            
            (157
            )
            
            
            22Accretion
      of premium and discount on investment securities, net
            
            
            (131
            )
            
            
            (110
            )Decrease
      (increase) in accrued interest receivable
            
            
            140
            
            
            
            (57
            )(Increase)
      in other assets
            
            
            (847
            )
            
            
            (178
            )Increase
      (decrease) in accrued interest payable and other
    liabilities
            
            
            535
            
            
            
            (22
            )Net
      cash (used in) provided by operating activities
            
            
            (260
            )
            
            
            311Cash
      Flows from Investing Activities:Proceeds
      from sales of investment securities available for sale
            
            
            351
            
            
            
            1,000Proceeds
      from calls and maturities of investment securities available for
      sale
            
            
            13,507
            
            
            
            14,472Proceeds
      from calls and maturities of investment securities held to
      maturity
            
            
            2,447
            
            
            
            2,000Purchase
      of investment securities available for sale
            
            
            (17,502
            )
            
            
            (9,016
            )Purchase
      of investment securities held to maturity
            
            
            (3,398
            )
            
            
            (1,802
            )Purchase
      of mortgage-backed securities available for sale
            
            
            (4,508
            )
            
            
            (13,434
            )Purchase
      of office properties and equipment
            
            
            (286
            )
            
            
            (73
            )Principal
      repayments from investment securities
            
            
            414
            
            
            
            267Principal
      repayments from mortgage-backed securities
            
            
            6,060
            
            
            
            3,372Net
      redemption of Federal Home Loan Bank stock
            
            
            4
            
            
            
            382Maturity
      of interest-bearing time deposits in banks
            
            
            -
            
            
            
            208Net
      increase in loans receivable
            
            
            (101
            )
            
            
            (18,644
            )Net
      cash used for investing activities
            
            
            (3,012
            )
            
            
            (21,268
            )Cash
      Flows from Financing Activities:Net
      increase in deposits
            
            
            6,287
            
            
            
            31,485Increase
      in Federal Home Loan Bank short-term borrowings, net
            
            
            -
            
            
            
            (8,410
            )Repayment
      of Federal Home Loan Bank long-term borrowings
            
            
            (86
            )
            
            
            (81
            )Increase
      in advances from borrowers for taxes and insurance
            
            
            76
            
            
            
            91Acquisition
      of treasury stock
            
            
            (19
            )
            
            
            -Net
      cash provided by financing activities
            
            
            6,258
            
            
            
            23,085Increase
      in cash and cash equivalents
            
            
            2,986
            
            
            
            2,128CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            23,407
            
            
            
            15,978CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            26,393
            
            
            $
            18,106Supplemental
      Cash Flow Disclosures:Cash
      paid:Interest
            
            $
            3,611
            
            
            $
            3,934Income
      taxes
            
            $
            380
            
            
            $
            230






See notes to unaudited
consolidated financial statements.


5




COLONIAL
BANKSHARES, INC.


Notes
to Consolidated Financial Statements


(Unaudited)





1.
            Organization
      and Basis of Presentation





Colonial
Bankshares, Inc. (the “Company”) was organized in January 2003 to serve as the
mid-tier stock holding company of Colonial Bank, FSB (the
“Bank”).  The Company is a federally chartered corporation and owns
100% of the outstanding common stock of the Bank.  The Bank is a
federally chartered capital stock savings bank.  Colonial Bankshares,
MHC, a federally chartered mutual holding company, is the parent of the Company
and owns approximately 55% 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 the Company, the Bank
and the Operating Subsidiary.  All material intercompany transactions
and balances have been eliminated.  The Company prepares its financial
statements on the accrual basis and in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”).  The
unaudited information furnished herein reflects all adjustments (consisting of
normal recurring accruals) that are, in the opinion of management, necessary to
a fair statement of the results for the interim periods
presented.  They do not include all of the information and footnotes
required by US GAAP for complete financial statements.  Operating
results for the three months ended March 31, 2009 (unaudited) are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.





The
balance sheet at December 31, 2008 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, the potential impairment of Federal Home Loan Bank
(“FHLB”) stock 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, Sewell and
Cedarville 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.





6




2.
            Recent
      Accounting Pronouncements





In April
2009, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly(FSP FAS
157-4).  FASB Statement 157, Fair Value Measurements,
defines fair value as the price that would be received to sell the asset or
transfer the liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 provides additional guidance
on determining when the volume and level of activity for the asset or liability
has significantly decreased.  The FSP also includes guidance on identifying
circumstances when a transaction may not be considered orderly. FSP FAS
157-4 provides a list of factors that a reporting entity should evaluate to
determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity for
the asset or liability.  When the reporting entity concludes there has been
a significant decrease in the volume and level of activity for the asset or
liability, further analysis of the information from that market is needed and
significant adjustments to the related prices may be necessary to estimate fair
value in accordance with Statement 157. This FSP clarifies that when there
has been a significant decrease in the volume and level of activity for the
asset or liability, some transactions may not be orderly.  In those
situations, the entity must evaluate the weight of the evidence to determine
whether the transaction is orderly.  The FSP provides a list of
circumstances that may indicate that a transaction is not orderly.  A
transaction price that is not associated with an orderly transaction is given
little, if any, weight when estimating fair value. This FSP is effective
for interim and annual reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15,
2009.  An entity early adopting FSP FAS 157-4 must also early adopt
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.  The Company is currently
reviewing the effect this new pronouncement will have on its consolidated
financial statements.





In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments(FSP FAS 115-2 and FAS
124-2).   FSP FAS 115-2 and FAS 124-2 clarify the interaction of
the factors that should be considered when determining whether a debt security
is other-than-temporarily impaired. For debt securities, management must assess
whether (a) it has the intent to sell the security and (b) it is more
likely than not that it will be required to sell the security prior to its
anticipated recovery.  These steps are done before assessing whether the
entity will recover the cost basis of the investment.  Previously, this
assessment required management to assert it has both the intent and the ability
to hold a security for a period of time sufficient to allow for an anticipated
recovery in fair value to avoid recognizing an other-than-temporary impairment.
 This change does not affect the need to forecast recovery of the value of
the security through either cash flows or market price. In instances when a
determination is made that an other-than-temporary impairment exists but the
investor does not intend to sell the debt security and it is not more likely
than not that it will be required to sell the debt security prior to its
anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and
amount of the other-than-temporary impairment recognized in the income
statement.  The other-than-temporary impairment is separated into
(a) the amount of the total other-than-temporary impairment related to a
decrease in cash flows expected to be collected from the debt security (the
credit loss) and (b) the amount of the total other-than-temporary
impairment related to all other factors.  The amount of the total
other-than-temporary impairment related to the credit loss is recognized in
earnings.  The amount of the total other-than-temporary impairment related
to all other factors is recognized in other comprehensive income. This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009.  An entity early adopting FSP FAS 115-2 and FAS 124-2 must also
early adopt FSP FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly.  The Company is currently reviewing the effect this
new pronouncement will have on its consolidated financial
statements.




7




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments(FSP FAS 107-1 and APB 28-1).  FSP FAS
107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements.  This FSP also amends APB
Opinion No. 28, Interim
Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP is effective for interim
and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009.  An
entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS
157-4,Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderlyand FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.The Company is currently
reviewing the effect this new pronouncement will have on its 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 three months ended March 31, 2009 is $443
thousand and the net income for the three months ended March 31, 2008 is $304
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.  At March 31, 2009
and 2008, respectively there were 249,643 and 244,804 anti-dilutive non-vested
awards and options excluded from the computation of diluted earnings per share
because the option price was greater than the average market price,
respectively.





8


For
      the Three Months Ended
              March
      31,2009
            
            
            2008Net
      Income
            
            $
            443,000
            
            
            $
            304,000Weighted
      average common shares issued
            
            
            4,521,696
            
            
            
            4,521,696Average
      unearned ESOP shares
            
            
            (119,986
            )
            
            
            (131,589
            )Average
      treasury stock shares
            
            
            (129,992
            )
            
            
            (88,625
            )Weighted
      average common shares outstanding – basic
            
            
            4,271,718
            
            
            
            4,301,482Effect
      of dilutive non –vested shares and stock options
    outstanding
            
            
            -
            
            
            
            -Weighted
      average common shares outstanding – diluted
            
            
            4,271,718
            
            
            
            4,301,482Basic
      earnings per share
            
            $
            0.10
            
            
            $
            0.07Diluted
      earnings per share
            
            $
            0.10
            
            
            $
            0.07




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
2006 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 2006 Plan may be either non-qualified stock options (NQOs) or incentive
stock options (ISOs).  Only NQOs may be granted to nonemployee
directors under the 2006 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 2006 Plan are subject to
limitations under Section 422 of the Internal Revenue Code.  The
number of shares available under the 2006 Plan, the number of shares subject to
outstanding options and the exercise price of outstanding options will be
adjusted to reflect any stock dividend, stock split, merger, reorganization or
other event generally affecting the number of the Company’s outstanding
shares.  At March 31, 2009, there were 25,095 options available for
grant under the 2006 Plan.




9




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 vests 20% annually beginning
October 19, 2007.  For the three months ended March 31, 2009 and 2008,
$55 thousand, respectively, in compensation expense was recognized in regard to
these restricted stock awards with a related tax benefit of $18 thousand,
respectively.  As of March 31, 2009, there was $562 thousand of
unrecognized compensation expense related to the restricted stock awards which
is expected to be recognized over a period of 2.50 years.  At March
31, 2008, there was $783 thousand of unrecognized compensation expense related
to the restricted stock awards which is expected to be recognized over a period
of 3.50 years.





Activity
in issued but unvested award shares during the three months ended March 31, 2009
was as follows:





Award
      Shares
            
            Number
      of
              Shares
            
            
            Weighted
              Average
              Grant
      Date
              Fair
      ValueRestricted,
      beginning of period
            
            
            53,175
            
            
            $
            12.47Granted
            
            
            -
            
            
            
            -Forfeitures
            
            
            -
            
            
            
            -Vested
            
            
            -
            
            
            
            -Restricted
      stock, end of period
            
            
            53,175
            
            
            $
            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 three months ended March 31,
2009:




Shares
            
            
            Weighted
              Average
              Exercise
              PriceOptions
      outstanding, beginning of period
            
            
            196,468
            
            
            $
            12.47Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Forfeitures
            
            
            -
            
            
            
            -Options
      outstanding, end of period
            
            
            196,468
            
            
            $
            12.47Exercisable
      at end of period
            
            
            78,588
            
            
            $
            12.47




The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes 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 7.5 years at March 31, 2009 and 8.5
years at March 31, 2008.




10




Stock-based
compensation expense related to stock options for the three months ended March
31, 2009 and 2008, were $37 thousand, respectively, with a related tax benefit
of $13 thousand, respectively.  As of March 31, 2009, there was
approximately $379 thousand of unrecognized compensation cost related to
unvested stock options granted in 2006.  The cost will be recognized
in a straight line method over a period of 2.50 years.  At March 31,
2008, there was approximately $527 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 $21
thousand and $30 thousand for the three months ended March 31, 2009 and 2008,
respectively.




The
following table presents the components of the ESOP shares:





March
      31, 2009
            
            
            March
      31, 2008Shares
      released for allocation
            
            
            46,412
            
            
            
            34,809Unreleased
      shares
            
            
            119,986
            
            
            
            131,589Total
      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 months ended March 31, 2009 and 2008 was as follows:





Three
      Months Ended
              March
      31,2009
            
            
            2008(In
      thousands)Other
      comprehensive income:Unrealized
      holding gains on available for sale securities
            
            $
            1,571
            
            
            $
            1,111Reclassification
      adjustment for net (gains) losses realized in net income
            
            
            (157
            )
            
            
            22Net
      unrealized gains
            
            
            1,414
            
            
            
            1,133Income
      tax expense
            
            
            485
            
            
            
            384Net
      of tax amount
            
            $
            929
            
            
            $
            749




11




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 $4.1 million
of standby letters of credit outstanding as of March 31,
2009.  Management believes that the proceeds obtained through a
liquidation of collateral and the enforcement of guarantees would be sufficient
to cover the potential amount of future payment required under the corresponding
guarantees.  The current amount of the liability as of March 31, 2009
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
      March 31, 2009
                            
                            
                            At
      December 31, 2008Amortized
                              Cost
                            
                            
                            Fair
                              Value
                            
                            
                            Amortized
                              Cost
                            
                            
                            Fair
                              Value(In
      thousands)Securities
      available-for-sale:Mortgage-backed
                            
                            $
                            113,889
                            
                            
                            $
                            117,530
                            
                            
                            $
                            115,245
                            
                            
                            $
                            117,010U.
      S. Government agency
                            
                            
                            26,958
                            
                            
                            
                            27,235
                            
                            
                            
                            21,963
                            
                            
                            
                            22,245Corporate
                            
                            
                            14,274
                            
                            
                            
                            12,077
                            
                            
                            
                            15,249
                            
                            
                            
                            13,483Mutual
      funds
                            
                            
                            2,292
                            
                            
                            
                            2,292
                            
                            
                            
                            2,643
                            
                            
                            
                            2,643Municipal
                            
                            
                            3,657
                            
                            
                            
                            3,608
                            
                            
                            
                            3,659
                            
                            
                            
                            3,632SBA
      pools
                            
                            
                            6,093
                            
                            
                            
                            6,086
                            
                            
                            
                            6,453
                            
                            
                            
                            6,449Total
      securities available-for-sale
                            
                            $
                            167,163
                            
                            
                            $
                            168,828
                            
                            
                            $
                            165,212
                            
                            
                            $
                            165,462Securities
      held-to-maturity:Mortgage-backed
                            
                            $
                            2,991
                            
                            
                            $
                            3,120
                            
                            
                            $
                            3,143
                            
                            
                            $
                            3,256U.
      S. Government agency
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            932
                            
                            
                            
                            970Corporate
                            
                            
                            3,994
                            
                            
                            
                            3,139
                            
                            
                            
                            3,969
                            
                            
                            
                            3,259Municipal
                            
                            
                            10,780
                            
                            
                            
                            10,820
                            
                            
                            
                            8,853
                            
                            
                            
                            8,847Total
      securities held-to-maturity
                            
                            $
                            17,765
                            
                            
                            $
                            17,079
                            
                            
                            $
                            16,897
                            
                            
                            $
                            16,332





Management
evaluates investment securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation.  Consideration is given to (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial
condition, rating and near-term prospects of the issuer, and (3) the intent and
ability of the Bank to hold the investment securities until a recovery of fair
value.




12




The
Company’s investment in mortgage-backed securities consists of government
sponsored enterprise (GSE) securities.  The change in market value is
attributable to changes in interest rates and widening credit spreads, and not
due to underlying credit deterioration.  The contractual cash flows
for the investments are performing as expected.  As the change in
market value is attributable to changes in interest rates and credit spread and
not underlying credit deterioration, and because the Company has the ability and
intent to hold the investments until a recovery of fair value, the Company does
not consider the investments to be other-than-temporarily impaired at March 31,
2009.




The
Company’s investment in U. S. Government agency securities and SBA loan pools
consist of debt obligations of government sponsored enterprises and pools of
loans from the Small Business Administration.  All principal and
interest payments are current in regards to the investments.  The
contractual cash flows of these investments are guaranteed by an agency of the
United States government.  The change in market value is attributable
to current interest rate levels relative to the Company’s cost and not credit
quality.  As noted above as to the ability and intent of the Company
to hold the investments, the Company does not consider the investments to be
other-than-temporarily impaired at March 31, 2009.




The
Company’s investment in corporate bonds consists of debt obligations of
corporations mostly in the financial and insurance sectors of the
economy.  All interest payments are current in regards to the
investments and all of the bonds are still rated as investment grade by at least
one of the rating agencies.  As the Company has the ability and intent
to hold the investments until a recovery of fair value, which may be maturity,
the Company does not consider the investments to be other-than-temporarily
impaired at March 31, 2009.




The
Company’s investment in municipal bonds consist of general obligations and
revenue obligations of municipalities in the United States and bond anticipation
notes of entities located in New Jersey.  The change in market value
is attributable to the changes in interest rates relative to the Company’s cost
and because the Company has the ability and intent to hold the investments until
a recovery of fair value, the Company does not consider the investments to be
other-than-temporarily impaired at March 31, 2009.





The
Company recognized an additional write down of a mutual fund held in its
available-for-sale investment portfolio for “other-than-temporary
impairment.”  For the three months ended March 31, 2009 and 2008, the
Company took an impairment charge of $97 thousand (pre-tax) and $150 thousand
(pre-tax), respectively, or an after-tax charge of $58 thousand and $100
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 first quarter of 2009, the Company redeemed $250 thousand of the mutual fund
at a pre-tax loss of approximately $4 thousand, or an after-tax loss of $3
thousand.




13
  8.
                      Loans


The
components of loans at March 31, 2009 and December 31, 2008 are as
follows:





At
      March 31, 2009
            
            
            At
      December 31, 2008Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Real
      estate loans:One-
      to four-family residential
            
            $
            146,550
            
            
            
            47.9
            %
            
            $
            145,329
            
            
            
            47.6
            %Home
      equity loans and lines of credit
            
            
            40,225
            
            
            
            13.2
            
            
            
            41,293
            
            
            
            13.5Multi-family
            
            
            4,926
            
            
            
            1.6
            
            
            
            4,942
            
            
            
            1.6Commercial
            
            
            85,857
            
            
            
            28.1
            
            
            
            81,983
            
            
            
            26.8Construction
            
            
            10,339
            
            
            
            3.4
            
            
            
            12,223
            
            
            
            4.0Commercial
            
            
            15,303
            
            
            
            5.0
            
            
            
            17,177
            
            
            
            5.6Consumer
      and other
            
            
            2,420
            
            
            
            0.8
            
            
            
            2,616
            
            
            
            0.9Total
      loans receivable
            
            $
            305,620
            
            
            
            100.0
            %
            
            $
            305,563
            
            
            
            100.0
            %Deferred
      loan fees
            
            
            (301
            )
            
            
            
            
            
            
            (307
            )Allowance
      for loan losses
            
            
            (2,257
            )
            
            
            
            
            
            
            (2,105
            )Total
      loans receivable, net
            
            $
            303,062
            
            
            
            
            
            
            $
            303,151




Our loans
are originated and administered through our loan policies.  We
originate one- to four-family residential real estate loans, home equity loans
and lines of credit, commercial real estate loans, commercial business loans,
construction loans, consumer loans and multi-family loans.  We offer
fixed-rate, adjustable-rate and balloon loans that fully amortize with monthly
loan payments.





We have
not originated or purchased any sub-prime or Alt-A loans.  We have not
originated or purchased payment-option ARMs or negative amortizing
loans.





Nonaccrual
loans amounted to approximately $1.3 million and $1.9 million at March 31, 2009
and December 31, 2008, respectively.





Loans are
reviewed on a regular basis, and generally are placed on nonaccrual status when
either principal or interest is 90 days or more past due or if we believe that
there is sufficient reason to question the borrower’s ability to continue to
meet contractual principal or interest payment obligations.




14




9.
                      Deposits


Deposit
accounts, by type, at March 31, 2009 and December 31, 2008 are summarized as
follows:





At
      March 31, 2009
                        
                        
                        At
      December 31, 2008Balance
                        
                        
                        Percent
                        
                        
                        Wtd.
                          Avg.
                          Rate
                        
                        
                        Balance
                        
                        
                        Percent
                        
                        
                        Wtd.
                          Avg.
                          Rate(Dollars
      in thousands)Deposit
      type:Non-interest
      bearing demand.
                        
                        $
                        18,391
                        
                        
                        
                        3.97
                        %
                        
                        
                        -
                        %
                        
                        $
                        18,146
                        
                        
                        
                        3.97
                        %
                        
                        
                        -
                        %Savings
                        
                        
                        84,499
                        
                        
                        
                        18.23
                        
                        
                        
                        2.62
                        
                        
                        
                        81,050
                        
                        
                        
                        17.73
                        
                        
                        
                        2.76NOW
      accounts
                        
                        
                        60,262
                        
                        
                        
                        13.00
                        
                        
                        
                        0.39
                        
                        
                        
                        55,439
                        
                        
                        
                        12.12
                        
                        
                        
                        0.72Super
      NOW accounts
                        
                        
                        15,787
                        
                        
                        
                        3.40
                        
                        
                        
                        1.63
                        
                        
                        
                        15,532
                        
                        
                        
                        3.40
                        
                        
                        
                        1.75Money
      market demand
                        
                        
                        47,450
                        
                        
                        
                        10.24
                        
                        
                        
                        2.67
                        
                        
                        
                        45,404
                        
                        
                        
                        9.93
                        
                        
                        
                        3.26Total
      transaction accounts
                        
                        
                        226,389
                        
                        
                        
                        48.84
                        
                        
                        
                        1.76
                        
                        
                        
                        215,571
                        
                        
                        
                        47.15
                        
                        
                        
                        2.06Certificates
      of deposit
                        
                        
                        237,129
                        
                        
                        
                        51.16
                        
                        
                        
                        3.84
                        
                        
                        
                        241,660
                        
                        
                        
                        52.85
                        
                        
                        
                        3.97Total
      deposits
                        
                        $
                        463,518
                        
                        
                        
                        100.00
                        %
                        
                        
                        2.82
                        %
                        
                        $
                        457,231
                        
                        
                        
                        100.00
                        %
                        
                        
                        3.06
                        %




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 March 31, 2009 and December 31,
2008:





Maturity
            
            Interest
              Rate
            
            
            March
      31,
              2009
            
            
            December
      31,
              2008(Dollars
      in thousands)June
      23, 2009
            
            3.35
            
            
            $
            3,000
            
            
            $
            3,000October
      19, 2009
            
            4.65
            
            
            
            4,000
            
            
            
            4,000November
      20, 2009
            
            4.23
            
            
            
            4,000
            
            
            
            4,000December
      3, 2009
            
            3.89
            
            
            
            4,000
            
            
            
            4,000June
      23, 2010
            
            3.88
            
            
            
            3,000
            
            
            
            3,000October
      18, 2010
            
            4.70
            
            
            
            4,000
            
            
            
            4,000June
      23, 2011
            
            4.31
            
            
            
            3,000
            
            
            
            3,000June
      30, 2021
            
            5.57
            
            
            
            6,141
            
            
            
            6,227$
            31,141
            
            
            $
            31,227




At March
31, 2009, the Bank had a borrowing capacity of $127.4 million available from the
FHLB of New York, which is based on the amount of FHLB stock held or levels of
other assets, including investment securities, which are available for
collateral.  At March 31, 2009, the Bank had $31.1 million in
outstanding borrowings from the FHLB of New York.




15




11.
                          Fair
      Value
Measurements







Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sale transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
their respective dates and have not been re-evaluated or updated for purposes of
these financial statements subsequent to those respective dates.  As
such, the estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each
period.




In
September 2006, the FASB issued Statement No. 157, Fair Value Measurements
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements.





In
December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”).  FSP 157-2 delays the effective date of SFAS
157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008 and interim periods
within those fiscal years.




SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value.  The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).  The three levels of the fair value
hierarchy under SFAS 157 are as follows:




Level 1: Unadjusted quoted
prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.





Level 2: Quoted prices for
similar assets or liabilities, quoted prices in markets that are not active, or
inputs that are observable either directly or indirectly, for substantially the
full term of the asset or liability.





Level 3: Prices or valuation
techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported with little or no market
activity).




An
asset’s or liability’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.




16




For
assets measured at fair value on a recurring basis, the fair value measurements
by level within the fair value hierarchy used at March 31, 2009 and December 31,
2008 are as follows:





March
      31,
              2009
            
            
            (Level
      1)
              Quoted
              Prices
      in
              Active
              Markets
      for Identical
              Assets
            
            
            (Level
      2)
              Significant
      Observable
              Other
              Inputs
            
            
            (Level
      3)
              Significant
      Unobservable InputsSecurities
      available-for-sale
            
            $
            168,828
            
            
            $
            -
            
            
            $
            168,828
            
            
            $
            -




December
      31,
              2008
            
            
            (Level
      1)
              Quoted
              Prices
      in
              Active
              Markets
      for Identical
              Assets
            
            
            (Level
      2) Significant Observable
              Other
      Inputs
            
            
            (Level
      3) Significant Unobservable InputsSecurities
      available-for-sale
            
            $
            165,462
            
            
            $
            -
            
            
            $
            165,462
            
            
            $
            -





The fair
value of investment securities available-for-sale is based on quoted market
prices for similar or identical assets or other observable inputs that are
provided by recognized broker dealers or an independent third
party.





For
assets measured at fair value on a nonrecurrent basis, the fair value
measurements by level within the fair value hierarchy used at March 31, 2009 and
December 31, 2008 are as follow:





March
      31,
              2009
            
            
            (Level
      1)
              Quoted
              Prices
      in
              Active
              Markets
      for Identical
              Assets
            
            
            (Level
      2) significant Observable
              Other
      Inputs
            
            
            (Level
      3) Significant Unobservable InputsImpaired
      loans
            
            $
            257
            
            
            $
            -
            
            
            $
            -
            
            
            $
            257Real
      estate owned
            
            $
            113
            
            
            $
            -
            
            
            $
            -
            
            
            $
            113




December
      31,
              2008
            
            
            (Level
      1)
              Quoted
              Prices
      in
              Active
              Markets
      for Identical
              Assets
            
            
            (Level
      2) significant Observable
              Other
              Inputs
            
            
            (Level
      3) Significant Unobservable InputsImpaired
      loans
            
            $
            257
            
            
            $
            -
            
            
            $
            -
            
            
            $
            257Real
      estate owned
            
            $
            113
            
            
            $
            -
            
            
            $
            -
            
            
            $
            113




The
fair-value of impaired loans is based on the fair-value of the collateral less
specific valuation allowances.




17




At March
31, 2009 and December 31, 2008, impaired loans totaled $366 thousand and $370
thousand, respectively.  The amounts of related valuation allowances
were $109 thousand and $113 thousand, respectively, at those dates.





Real
estate owned is based on the fair value of the collateral less estimated costs
to sell the property.





18




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





Forward-Looking
Statements





This
report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements about anticipated
operating and financial performance, such as loan originations, operating
efficiencies, loan sales, charge-offs and loan loss provision, growth
opportunities, interest rates and deposit growth.  Words such as
“may,” “could,” “should,” “would,” “will,” ”will likely result,” ”believe,”
”expect,” ”plan,” ”will continue,” ”is anticipated,” ”estimate,” ”intend,”
”project,” and similar expressions are intended to identify these
forward-looking statements.  We wish to caution readers not to place
undue reliance on any such forward-looking statements, each of which speaks only
as of the date made.  Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings than those presently anticipated or projected.





Critical
Accounting Policies





Critical
accounting policies are those that involve significant judgments and assumptions
by management and that have, or could have, a material impact on our income or
the carrying value of our assets. Our critical accounting policies are those
related to our allowance for loan losses, the evaluation of other-than-temporary
impairment of investments securities and the valuation of and our ability to
realize deferred tax assets.




Allowance for Loan
Losses.  The allowance for loan losses is calculated with the
objective of maintaining an allowance sufficient to absorb estimated probable
loan losses inherent in the loan portfolio. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the loan portfolio
and other relevant factors. However, this evaluation is inherently subjective,
as it requires an estimate of the loss content for each risk rating and for each
impaired loan, an estimate of the amounts and timing of expected future cash
flows, and an estimate of the value of collateral.




We have
established a systematic method of periodically reviewing the credit quality of
the loan portfolio in order to establish the allowance for loan losses. The
allowance for loan losses is based on our current judgments about the credit
quality of individual loans and segments of the loan portfolio. The allowance
for loan losses is established through a provision for loan losses based on our
evaluation of the losses inherent in the loan portfolio, and considers all known
internal and external factors that affect loan collectibility as of the
reporting date.




The
allowance for loan losses consists of specific, general and unallocated
components. Specific allocations are made for loans that are determined to be
impaired. Impairment is measured by determining the present value of expected
future cash flows or, for collateral-dependent loans, the fair value of the
collateral adjusted for market conditions and selling expenses.




19




The
allowance for losses on loans is determined by segregating the loans by loan
category and assigning allowance percentages based on our historical loss
experience, delinquency trends and management’s evaluation of the collectibility
of the loan portfolio.  The allowance is adjusted for significant
factors that, in management’s judgment, affect the collectibility of the
portfolio as of the evaluation date.  These significant factors may
include changes in our lending policies and procedures, changes in current
general economic conditions and business conditions affecting our primary
lending areas, credit quality trends, collateral values, loans volumes and
concentrations, seasoning of the loan portfolio, loss experience, and duration
of the current business cycle.  The applied loss factors are
re-evaluated each reporting period to ensure their relevance in the current
economic environment.





The
unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.  Future provisions for
loan losses may include an unallocated component as we re-evaluate our estimates
including, but not limited to changes in economic conditions in our market area,
declines in local property values and concentrations of
risk.  Included in our estimate and evaluation is an analysis of our
mortgage loans, both current and delinquent, that may have private mortgage
insurance.  With the recent downgrades of insurance companies, this is
another factor management will review as it assesses its allowance for loan
losses.





Management
believes this is a critical accounting policy because this evaluation involves a
high degree of complexity and requires us to make subjective judgments that
often require assumptions or estimates about various matters. Historically, we
believe our estimates and assumptions have proven to be relatively
accurate.  Nevertheless, because a small number of non-performing
loans could result in net charge-offs significantly in excess of the estimated
losses inherent in our loan portfolio, additional provisions to the allowance
for loan losses may be required that would adversely impact earnings for future
periods.





Other-Than-Temporary
Impairment.  In estimating other-than-temporary impairment of
investment securities, securities are evaluated on at least a quarterly basis,
to determine whether a decline in their value is
other-than-temporary.  To determine whether a loss in value is
other-than-temporary, management reviews criteria such as the reasons underlying
the decline, the magnitude and duration of the decline and the intent and
ability of the Company to retain its investment in the security for a period of
time sufficient to allow for an anticipated recovery in the fair value or until
maturity.  Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized.





Management’s
determination of whether FHLB stock is impaired is based on our assessment of
the ultimate recoverability of the cost rather than by recognizing temporary
declines in value.  The determination of whether a decline affects the
ultimate recoverability of the cost is influenced by criteria such as (1) the
significance of the decline in net assets of the FHLB as compared to the capital
stock amount for the FHLB and the length of time this situation has persisted,
(2) commitments by the FHLB to make payments required by law or regulation and
the level of such payments in relation to the operating performance of the FHLB
and (3) the impact of legislative and regulatory changes on institutions and,
accordingly, on the customer base of the FHLB.  Management believes no
impairment is necessary related to the FHLB stock at March 31,
2009.





20


Valuation of Deferred Tax
Assets.  In evaluating our ability to realize deferred tax
assets, management considers all positive and negative information, including
our past operating results and our forecast of future taxable
income.  In determining future taxable income, management utilizes a
budget process that makes business assumptions and the implementation of
feasible and prudent tax planning strategies.  These assumptions
require us to make judgments about our future taxable income and are consistent
with the plans and estimates we use to manage our business.  Any
reduction in estimated future taxable income may require us to record a
valuation allowance against our deferred tax assets which would result in
additional income tax expense in the period.





Comparison
of Financial Condition at March 31, 2009 and December 31, 2008




Total
assets increased $8.2 million, or 1.6%, to $538.8 million at March 31, 2009,
from $530.6 million at December 31, 2008.  The increase was the result
of increases in cash and amounts due from banks, investment securities
available-for-sale, investment securities held-to-maturity, loans available for
sale and other assets.




Net loans
receivable remained constant at $303.1 million at March 31, 2009 from $303.2
million at December 31, 2008.  One- to four-family residential real
estate loans increased $1.3 million, or 0.9%, to $146.6 million at March 31,
2009 from $145.3 million at December 31, 2008.  Commercial real estate
loans increased $3.9 million, or 4.8%, to $85.9 million at March 31, 2009 from
$82.0 million at December 31, 2008.  Home equity loans and lines of
credit, construction loans and commercial loans decreased by $1.1 million, $1.9
million and $1.9 million, respectively.




Securities
available-for-sale increased $3.3 million, or 2.0%, to $168.8 million at March
31, 2009 from $165.5 million at December 31, 2008.  The increase was
the result of purchases in the amount of $22.0 million and increases in market
value of $1.4 million offset by $6.3 million in principal amortization and $13.8
million in sales, calls and maturities.  In addition, securities
held-to-maturity increased by $868 thousand, to $17.8 million at March 31, 2009
from $16.9 million at December 31, 2008.  This increase was the result
of purchases of $3.4 million offset by principal amortization of $154 thousand
and maturities of $2.4 million.




Deposits
increased $6.3 million, or 1.4%, to $463.5 million at March 31, 2009 from $457.2
million at December 31, 2008.  The largest increase was in NOW
accounts, which increased $4.9 million, or 8.8%, to $60.3 million at March 31,
2009 from $55.4 million at December 31, 2008.  Savings accounts
increased $3.4 million, or 4.2%, to $84.5 million at March 31, 2009 from $81.1
million at December 31, 2008.  Money-market deposit accounts increased
by $2.1 million, or 4.6%, to $47.5 million at March 31, 2009 from $45.4 million
at December 31, 2008.  Super-NOW accounts increased by $255 thousand
to $15.8 million at March 31, 2009 from $15.5 million at December 31, 2008,
non-interest bearing demand accounts increased by $245 thousand to $18.4 million
at March 31, 2009 from $18.1 million at December 31, 2008 and certificates of
deposit decreased by $4.6 million to $237.1 million at March 31, 2009 from
$241.7 million at December 31, 2008.




Federal
Home Loan Bank borrowings totaled $31.1 million at March 31, 2009 compared to
$31.2 million at December 31, 2008.




21




Total
stockholders’ equity increased $1.5 million to $42.1 million at March 31, 2009
from $40.6 million at December 31, 2008.  This increase was
attributable to net income of $443 thousand and an increase in other accumulated
comprehensive income of $929 thousand.  Because of interest rate
volatility, accumulated other comprehensive income could materially fluctuate
for future interim periods and years depending on economic and interest rate
conditions.




Comparison
of Operating Results for the Three Months Ended March 31, 2009 and March 31,
2008





General.  Net
income increased $139 thousand to $443 thousand for the three months ended March
31, 2009 from $304 thousand for the three months ended March 31,
2008.  The principal reasons for the increase were an increase of $690
thousand in net interest income, an increase in non-interest income of $254
thousand offset by an increase in the provision for loan losses of $195
thousand, an increase in non-interest expense of $515 thousand and an increase
in income tax expense of $95 thousand.




Interest
Income.Interest income
increased $359 thousand, or 5.5%, to $6.8 million for the three months
ended March 31, 2009 from $6.5 million for the three months ended March 31,
2008.  The increase in interest income resulted from a $666 thousand
increase in interest income on loans offset by a decrease of $307 thousand in
interest income on securities.




Interest
income on loans increased $666 thousand, or 17.0%, to $4.6 million for the
three months ended March 31, 2009 from $3.9 million for the three months
ended March 31, 2008.  The average balance of loans increased $55.7
million, or 22.4%, to $304.1 million for the three months ended March 31, 2009
from $248.4 million for the three months ended March 31, 2008.  As an
offset, the average yield decreased to 6.04% for the three months ended March
31, 2009 from 6.32% for the three months ended March 31, 2008.  The
increase in the average balance of loans resulted primarily from increases
across all loan categories: mortgage, commercial and consumer
loans.




Interest
income on securities decreased $307 thousand, or 12.1% to $2.2 million for the
three months ended March 31, 2009 from $2.5 million for the three months ended
March 31, 2008.  This decrease was due to a decrease in the average
balance of investment securities to $177.9 million for the three months ended
March 31, 2009 from $182.1 million for the three months ended March 31, 2008 in
addition to an decrease in the average yield on the securities portfolio to
5.03% for the three months ended March 31, 2009 from 5.59% for the three months
ended March 31, 2008.




Interest
Expense.Interest expense
decreased $331 thousand, or 8.4%, to $3.6 million for the three months
ended March 31, 2009 from $3.9 million for the three months ended March 31,
2008.




Interest
expense on interest-bearing deposits decreased by $309 thousand, or 8.6%, to
$3.3 million for the three months ended March 31, 2009 from
$3.6 million for the three months ended March 31, 2008.  The
decrease in interest expense on interest-bearing deposits was due to a decrease
in the average rate paid on interest-bearing deposits to 3.04% for the three
months ended March 31, 2009 from 3.91% for the three months ended March 31,
2008, offset by an increase in the average balance of interest-bearing deposits
to $429.1 million for the three months ended March 31, 2009 from $365.5 million
for the three months ended March 31, 2008.  We experienced increases
in the average balances of certificates of deposits, savings accounts, money
market deposit accounts, NOW and Super-NOW accounts.




22




Interest
expense on borrowings decreased $22 thousand to $342 thousand for the three
months ended March 31, 2009 from $364 thousand for the three months ended March
31, 2008.  This decrease was primarily due to a $703 thousand decrease
in the average balance of borrowings to $31.2 million for the three months ended
March 31, 2009 from $31.9 million for the three months ended March 31, 2008 and
a decrease in the average rate paid on borrowings to 4.39% for the three months
ended March 31, 2009 from 4.57% for the three months ended March 31,
2008.




Provision for
Loan Losses.We establish provisions for loan losses, which
are charged to operations in order to maintain the allowance for loan losses at
a level we consider sufficient to absorb estimated probable loan losses inherent
in the loan portfolio.  In determining the level of the allowance for
loan losses, we consider past and current loss experience, evaluation of real
estate collateral, current economic conditions, volume and type of lending,
adverse situations that may affect a borrower’s ability to repay a loan and the
levels of nonperforming and other classified loans. The amount of the allowance
is based on estimates and the ultimate losses may vary from such estimates as
more information becomes available or later events change.  We assess
the allowance for loan losses on a quarterly basis and make provisions for loan
losses in order to maintain the allowance.  We recorded a provision
for loan losses in the amount of $195 thousand for the three months ended March
31, 2009 and did not record a provision for loan losses for the three months
ended March 31, 2008.  For the three months ended March 31, 2009,
there was a net charge-off of $43 thousand. For the three months ended March 31,
2008, there was a net charge-off of $2 thousand.  The allowance for
loan losses as a percentage of total loans was 0.74% and 0.69% at March 31, 2009
and December 31, 2008, respectively.




Non-interest
Income.Non-interest
income was $376 thousand for the three months ended March 31, 2009 and $122
thousand for the three months ended March 31, 2008.  There was a net
gain on the sale and call of securities of $157 thousand for the three months
ended March 31, 2009, compared to a loss of $22 thousand during the same quarter
in 2008.  Fees and service charges on deposit accounts increased by
$19 thousand to $277 thousand for the three months ended March 31, 2009 from
$258 thousand for the three months ended March 31, 2008.  The increase
in fees and service charges was attributed to increases in volume of overdraft
fees and ATM fees and the implementation of new service charges on deposit
accounts.  Non-interest income for the three months ended March 31,
2009 was reduced by an other-than-temporary impairment of a mutual fund in our
available-for-sale investment security portfolio.  This charge totaled
$97 thousand (pre-tax) and resulted from a further decline in the fair value of
the underlying mortgage-related securities held by this mutual
fund.  For the three months ended March 31, 2008, the
other-than-temporary impairment of the mutual fund was $150
thousand.




Non-interest
Expense.  Non-interest
expense increased $515 thousand, or 22.6%, to $2.8 million for the three months
ended March 31, 2009 from $2.3 million for the three months ended March 31,
2008.  Compensation and benefits expense remained constant at $1.3
million for the three months ended March 31, 2009 and 2008,
respectively.  Occupancy and equipment expense increased $58 thousand
mainly due to increases in heat, light and utilities, depreciation expense and
real estate taxes which is attributable to the new branch
locations.  Data processing expense increased $20 thousand due to the
growth of loan and deposit accounts which is also due to the new branch
locations.  Professional fees increased $34 thousand mainly due to
increases in legal fees and accounting and audit expenses.  Federal
deposit insurance premiums increased to $391 thousand for the three months ended
March 31, 2009 from $41 thousand for the three months ended March 31,
2008.    This increase was mainly due to increases in the
balance of insurable accounts and in the increase in the deposit insurance rates
as assessed by the FDIC.  Other miscellaneous non-interest expense
increased $41 thousand.  This increase was mainly due to an increase
in employee training expense, annual meeting expense, supervisory examination
expense and loan processing expense.




23


Income Tax
Expense.We
recorded income tax expense of $164 thousand for the three months ended March
31, 2009, compared to $69 thousand for the three months ended March 31,
2008.  Our effective tax rate for the three months ended March 31,
2009 and 2008 was 27.1% and 18.5%, respectively, and are below the combined
state and federal statutory rate and this was attributable to the formation of
the Delaware operating subsidiary in September 2006, which has resulted in the
Bank being in a net operating loss position for state tax
purposes.  The reason for the increase in the percentage noted above
is due to the decrease in the percentage of tax-exempt income to net income for
the three months ended March 31, 2009 as compared to the three months ended
March 31, 2008.





During
the three months ended March 31, 2009 and 2008, the Bank incurred a net
operating loss of approximately $1.1 million and $1.3 million, respectively, for
state tax purposes but has not recorded a deferred tax benefit for the three
months ended March 31, 2009 and 2008.





Liquidity
and Capital Resources





Liquidity
is the ability to meet current and future financial obligations of a short-term
nature.  Our primary sources of funds consist of deposit inflows, loan
repayments and maturities and sales of securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.





We
regularly adjust our investments in liquid assets based upon our assessment of
expected loan demand, expected deposit flows, yields available on
interest-earning deposits and securities, and the objectives of our
asset/liability management program.  Excess liquid assets are invested
generally in interest-earning deposits and short- and intermediate-term
securities.





Our most
liquid assets are cash and cash equivalents. The levels of these assets are
dependent on our operating, financing, lending and investing activities during
any given period. At March 31, 2009, cash and cash equivalents totaled $26.4
million.  Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $168.8 million at March 31,
2009.  In addition, at March 31, 2009, we had the ability to borrow a
total of approximately $127.4 million from the Federal Home Loan Bank of
New York.  On that date, we had $31.1 million in advances
outstanding.





At March
31, 2009, loan commitments outstanding totaled $13.9 million. In addition to
commitments to originate loans, we had $20.2 million in unadvanced funds to
borrowers. Total certificates of deposit due within one year of March 31, 2009
totaled $166.6 million.  Total certificates of deposit due within one
year of March 31, 2009 represent 35.9% of total deposits.  If these
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and Federal Home Loan Bank
advances. Depending on market conditions, we may be required to pay higher rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before March 31, 2010.  We believe based on past
experience that a significant portion of our certificates of deposit will remain
with us. We have the ability to attract and retain deposits by adjusting the
interest rates offered.




24




We have
no material commitments or demands that are likely to affect our liquidity other
than set forth above. In the event loan demand were to increase at a pace
greater than expected, or any unforeseen demand or commitment were to occur, we
would access our borrowing capacity with the Federal Home Loan Bank of New
York.





Our
primary investing activities are the origination of loans and the purchase of
securities.  For the three months ended March 31, 2009, we originated
$13.9 million of loans and purchased $25.4 million of
securities.  For the three months ended March 31, 2008, we originated
$33.2 million of loans and purchased $24.3 million of
securities.





Financing
activities consist primarily of activity in deposit accounts and Federal Home
Loan Bank advances.  We experienced a net increase in total deposits
of $6.3 million and $31.5 million for the three months ended March 31, 2009 and
2008, respectively.  Deposit flows are affected by the overall level
of interest rates, the interest rates and products offered by us and our local
competitors and other factors.  We generally manage the pricing of our
deposits to be competitive.





Total
borrowings, which include Federal Home Loan Bank advances, decreased $86
thousand net for the three months ended March 31, 2009 and decreased $8.5
million, net for the three months ended March 31, 2008.  Federal Home
Loan Bank advances have primarily been used to fund loan demand and purchase
securities.





In
January 2009, we opened our ninth branch office in Cedarville, Lawrence
Township, New Jersey.





We have
spent $350 thousand for the acquisition and development of land in the Borough
of Buena, New Jersey, $1.3 million for the acquisition and development of land
in Harrison Township, New Jersey and $788 thousand for the acquisition and
development of land in Millville, New Jersey.  However, because
building these offices is subject to state and local government approval, we
cannot assure you that we will be able to open these facilities, or that we will
be able to complete construction even if we expend significant funds on the
construction projects.





Colonial
Bank, FSB is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision, including a risk-based capital measure. The
risk-based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet assets
and off-balance sheet items to broad risk categories.  At March 31,
2009, Colonial Bank, FSB exceeded all of the Office of Thrift Supervision
regulatory capital requirements. Colonial Bank, FSB is considered “well
capitalized” under regulatory guidelines.




25




Item
      3.
              Quantitative
      and Qualitative Disclosures About Market
Risk


Not applicable, as the Company is a
Smaller Reporting Company.




Item
      4.
                Controls
      and Procedures


Not applicable.


Item
      4T.
                  Controls
      and Procedures
  (a)
                  Evaluation
      of disclosure controls and
procedures.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this quarterly report.   Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this quarterly report, our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and
forms.




(b)
              Changes
      in internal control over financial
reporting.





There
were no changes made in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.




26


PART
II – OTHER INFORMATION




Item
      1.
                    Legal
      Proceedings


The
Company or the Bank is periodically involved in various claims and lawsuits in
the ordinary course of business.  Management of the Company believes
that such proceedings will not have a material adverse effect on the Company’s
financial condition, results of operations or cash flows.




Item
      1A.
                      Risk
      Factors





There are
no material changes to the risk factors disclosed under Part I, Item 1A, “Risk
Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December
31, 2008 which could materially and adversely affect the Company’s business,
financial condition or future results.  The risks described in the
Company’s Annual Report on Form 10-K are not the only risks that the Company
faces.  Additional risks and uncertainties not currently known to the
Company or that the Company currently deems to be immaterial also may materially
adversely affect the Company’s business, financial condition and operating
results.




Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of
Proceeds
  (a)
                        Not
    applicable(b)
                        Not
    applicable(c)
                        Purchases of Equity
      SecuritiesThe Company’s
      repurchases of its common stock made during the quarter are set forth in
      the following table:


Period
            
            Total
              Number
      of
              Shares
      Purchased
            
            
            Average
              Price
              Paid
      per
              Share
            
            
            Total
              Number
      of Shares Purchased
              as
      Part of Publicly Announced Plans or Programs
            
            
            Maximum
      Number
              of
      Shares
              that
      May
              yet
      be Purchased Under the
              Plan
      or Programs
              (1)January
      1 – January 31
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            
            59,954February
      1 – February 28
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            59,954March
      1 – March 31
            
            
            3,000
            
            
            $
            6.55
            
            
            
            3,000
            
            
            
            56,954Total
            
            
            3,000
            
            
            $
            6.55
            
            
            
            3,000
            
            
            
            56,954___________________




(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
      Bankshares, MHC.






27




Item
      3.
                        Defaults
      Upon Senior Securities


None


Item
      4.
                          Submission of Matters to Vote
      of Security
Holders




None




Item
      5.
                            Other
      Information




None


Item
      6.
                              ExhibitsExhibit
      31.1Certification
      of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act
      of 2002Exhibit
      31.2Certification
      of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act
      of 2002Exhibit
      32Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      906 of Sarbanes-Oxley Act of 2002




28




SIGNATURES





In
accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.




COLONIAL BANKSHARES,
      INC.
                RegistrantDate:  May
      14, 2009
              By:/s/ Edward J. GeletkaEdward
      J. GeletkaPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:  May
      14, 2009
              By:/s/ L. Joseph Stella, III,
      CPAL.
      Joseph Stella, III, CPAExecutive
      Vice President and Chief Financial
                Officer
      (Principal Accounting and Financial Officer)








29