**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**







**FORM
      10-KSB**








[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934





For
      the
      fiscal year ended December 31, 2006





**ES
      BANCSHARES, INC.**


(Exact
      Name of Registrant as Specified in its Charter)




**Maryland**
            
            **20-4663714**(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or organization)





**68
      North Plank Road, Newburgh, New York 12550**


(Address
      of principal executive offices)





**1
      (866) 646-0003**


Issuer’s
      telephone number, including area code:





Securities
      Registered Pursuant to Section 12(b) of the Exchange Act:





**None**





Securities
      Registered Pursuant to Section 12(g) of the Exchange Act:





**Common
      stock, par value $0.01 per share**


(Title
      of
      Class)





**Warrants
      to purchase common stock, par value $0.01 per share**


(Title
      of
      Class)





Check
      whether the Registrant (1) filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past twelve months (or for such shorter
      period that the Registrant was required to file such reports), and (2) has
      been
      subject to such requirements for the past 90 days.    
YES x      
NO o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of Registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.    YES x      
NO o




The
      Registrant’s revenues for the fiscal year ended December 31, 2006 were $5.1
      million.





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    YES o       NO
x




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




The
      aggregate market value of the voting stock held by non-affiliates of the
      Registrant, computed by reference to the closing price of such stock on March
      23, 2007, was approximately $10.9 million.  (The exclusion from such amount
      of the market value of the shares owned by any person shall not be deemed an
      admission by the Registrant that such person is an affiliate of the
      registrant.)





**DOCUMENTS
      INCORPORATED BY REFERENCE**





PART
      III
      of Form 10-KSB--Proxy Statement for the Annual Meeting of Stockholders for
      the
      fiscal year ended December 31, 2006.











**ES
      BANCSHARES, INC.**





**ANNUAL
      REPORT ON FORM 10-KSB**


**DECEMBER
      31, 2006**







**Table
      of Contents**







**Page****PART
                  I**
              
              3Item
                  1.
              Business
              3Item
                  2.
              Properties
              24Item
                  3.
              Legal
                  Proceedings
              24Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              24**PART
                  II**
              
              25Item
                  5.
              Market
                  for Registrant's Common Equity and Related Stockholder
                  Matters
              25Item
                  6.
              Management's
                  Discussion and Analysis and Results of Operations
              25Item
                  7.
              Financial
                  Statements
              33Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              55Item
                  8A.
              Controls
                  and Procedures
              55**PART
                  III**
              
              56Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance With
                  Section
                  16(a) of the Exchange Act
              56Item
                  10.
              Executive
                  Compensation
              57Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management
              57Item
                  12.
              Certain
                  Relationships and Related Transactions
              57Item
                  13.
              Exhibits
              58Item
                  14.
              Principal
                  Accountant Fees and Services
              59













**2**


**PART
      I**





**Item
      1.** **Business**





**General**




Empire
      State Bank, N.A. (the “Bank”) was organized under federal law as a national bank
      to primarily service the communities in and around Orange County and Ulster
      County, New York. Upon receipt of final approval from Office of the Comptroller
      of the Currency (“OCC”), the primary regulator of national banks, and the
      Federal Deposit Insurance Corporation (the “FDIC”), the
      Bank commenced operations on June 28, 2005.





The
      Board
      of Directors entered into an Agreement and Plan of Share Exchange (the “Plan”)
      on March 21, 2006, as amended and restated as of May 16, 2006, under which
      we
      reorganized into a one-bank holding company structure (the “Reorganization”). In
      connection with the Reorganization, the Bank formed ES Bancshares, Inc. (the
      “Company”), a Maryland corporation, to serve as the Bank’s holding company and
      the Bank became a wholly owned subsidiary of the Company and former shares
      of
      Bank Common Stock represent the same number of shares of Company Common
      Stock.





The
      Company filed a Registration Statement on Form S-4 that the Securities and
      Exchange Commission (the “SEC”) declared effective on May 25, 2006. The Bank’s
      shareholders approved the Reorganization at our Annual Meeting of Shareholders
      on July 6, 2006. The Reorganization was completed on August 15,
      2006.





As
      a
      community-oriented full service commercial bank, we offer a variety of financial
      services to meet the needs of communities in our market area. We attract
      deposits from the general public and expect to use such deposits to originate
      commercial, multi-family, commercial real estate, one- to four-family, home
      equity and to a lesser extent, construction, land, and consumer installment
      loans. We also invest in mortgage-backed and other securities permissible for
      a
      national bank.





The
      executive offices (corporate headquarters) and our lending center located at
      68
      North Plank Road, Newburgh, New York 12550, and our telephone number at that
      address is (845) 561-0003.





**Market
      Area**





We
      conduct our banking operations through our main office located at 68 North
      Plank
      Road, Newburgh, New York and one full-service banking office located in New
      Paltz, New York. We also operate two loan production offices, one in the New
      York City borough of Staten Island, New York, and one in the village of Lynbrook
      in Nassau County, New York. **** Our
      primary market area for deposits includes the Town of Newburgh and the Village
      of New Paltz in addition to the communities surrounding those offices. Our
      primary market area for our lending activities consists of communities within
      Orange County, Ulster County, Dutchess County, Nassau County, the five boroughs
      of New York City and portions of Rockland, Putnam and Westchester Counties,
      New
      York.





Newburgh
      is located in Orange County, New York approximately 60 miles north of New York
      City and 60 miles south of Albany, New York. New Paltz is located in Ulster
      County, New York approximately 20 miles north of our Newburgh location. The
      Newburgh-New Paltz area consists of many small towns that are experiencing
      economic growth and social transformation. Significant numbers of people seeking
      affordable housing are relocating to the area, most notably from the New York
      City metropolitan area.





**3**


**Competition**





We
      face
      substantial competition for both deposits and loans. Most of our competitors
      have been in business for a number of years and therefore, have an established
      client base. Our principal competitors for deposits are other commercial banks,
      savings and loan associations, savings banks and credit unions, as well as
      money
      market mutual funds, insurance companies, brokerage firms, many which are
      substantially larger than us. Our competition for loans comes principally from
      savings banks, savings and loan associations, commercial banks, mortgage
      bankers, mortgage brokers, finance companies and other institutional
      lenders.





**Lending
      Activities**





***General.*** ** We
      offer
      a variety of loan products, including commercial real estate, commercial
      business loans, construction or development loans, home equity loans and lines
      of credit, multi-family real estate loans, mortgage loans secured by one- to
      four-family residences, and to a lesser extent consumer loans. Generally, we
      engage in secondary market sales of our fixed-rate and adjustable rate
      residential mortgage originations.





The
      Board
      believes that by emphasizing loans other than residential loans, our loan
      portfolio may carry a more favorable yield and/or a shorter term to repricing
      than the portfolios of institutions that emphasize residential lending. However,
      non-residential loans are generally believed to carry a higher level of credit
      risk than residential loans.











**4**


***Loan
      Portfolio Composition.*** ** The
      following table sets forth the composition of our loan portfolio in dollars
      and
      percentages by type of loan including a reconciliation of gross loans receivable
      after consideration of the allowance for loan losses and net deferred
      costs.





**At
                December 31, 2006**
            
            **At
                December 31, 2005****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent****(Dollars
                in thousands)**Loans
                held-for-sale:One-to
                four-family
            
            $
            215
            
            
            0.3
            %
            $
            679
            
            
            2.0
            %Real
                estate loans:One-to
                four-family
            
            
            1,591
            
            
            2.6
            
            
            957
            
            
            2.8Commercial
            
            
            30,341
            
            
            49.4
            
            
            20,872
            
            
            61.6Multi-family
            
            
            3,219
            
            
            5.2
            
            
            1,034
            
            
            3.1Construction
                or development
            
            
            9,128
            
            
            14.9
            
            
            1,679
            
            
            5.0Home
                equity (1)
            
            
            5,383
            
            
            8.8
            
            
            3,360
            
            
            9.9Total
                real estate loans
            
            
            49,662
            
            
            80.9
            
            
            27,902
            
            
            82.4Other
                loans:Commercial
                business (1)
            
            
            10,903
            
            
            17.7
            
            
            5,071
            
            
            15.0Consumer
            
            
            663
            
            
            1.1
            
            
            217
            
            
            0.6Total
                other loans
            
            
            11,566
            
            
            18.8
            
            
            5,288
            
            
            15.6Total
                loans
            
            
            61,443
            
            
            100.0
            %
            
            33,869
            
            
            100.0
            %Less:Deferred
                loan costs (fees) net
            
            
            344
            
            
            
            
            
            241Allowance
                for loan losses
            
            
            (581
            )
            
            
            
            
            (106
            )Total
                loans receivable, net
            
            $
            61,206
            
            
            
            
            $
            34,004





(1)
      Includes lines of credit.











**5**


***Loan
      Maturity Schedule.*** The
      following table shows the remaining contractual maturity of our loans at
      December 31, 2006. Loans are shown as due based on their contractual terms
      to
      maturity. Adjustable rate loans are shown as maturing in the period during
      which
      the contract is due. The schedule does not reflect the effects of possible
      prepayments or enforcement of due-on-sale clauses .




**One-to-****Four-**
              
              **Multi-****Family
                  &**
              
              **Family
                  &****Home**
              
              **Commercial**
              
              
              
              **Construction****Equity**
              
              **Real**
              
              **Commercial**
              
              **or****Loans**
              
              **Estate**
              
              **Business**
              
              **Development**
              
              **Consumer**
              
              **Total****Amounts
                  (in thousands) due in:**One
                  year or less
              
              $
              50
              
              $
              900
              
              $
              4,644
              
              $
              5,592
              
              $
              174
              
              $
              11,360After
                  one year through five years
              
              
              280
              
              
              1,862
              
              
              2,088
              
              
              3,276
              
              
              314
              
              
              7,820After
                  five years
              
              
              6,859
              
              
              30,798
              
              
              4,171
              
              
              260
              
              
              175
              
              
              42,263Total
                  due
              
              $
              7,189
              
              $
              33,560
              
              $
              10,903
              
              $
              9,128
              
              $
              663
              
              $
              61,443








The
      following table sets forth the scheduled repayments of fixed- and
      adjustable-rate loans at December 31, 2006 that are contractually due after
      one
      year.




**Due
                After One Year****Fixed**
            
            **Adjustable**
            
            **Total****(In
                thousands)**One-
                to Four-Family & Home Equity Loans
            
            $
            1,745
            
            $
            5,394
            
            $
            7,139Multi-family
                & Commercial Real Estate
            
            
            7,488
            
            
            25,172
            
            
            32,660Commercial
                Business
            
            
            3,992
            
            
            2,267
            
            
            6,259Construction
                or Development
            
            
            260
            
            
            3,276
            
            
            3,536Consumer
            
            
            14
            
            
            475
            
            
            489Total
                loans
            
            $
            13,499
            
            $
            36,584
            
            $
            50,083













**6**


The
      total
      amount of loans due after December 31, 2007 which have predetermined interest
      rates is $13.5 million, while the total amount of loans due after such dates
      which have floating or adjustable interest rates is $36.6 million.





We
      are
      subject to limits on the amount we may lend to one borrower. At December 31,
      2006, our regulatory limit on loans to one borrower was approximately $2.8
      million. At that date, our largest credit facility to one borrower was $1.5
      million. This is comprised of an unsecured line of credit in the committed
      amount of $750,000, along with our participation interest of $783,000 of a
      $2.7
      million commercial real estate mortgage loan on a 43,200 square foot office
      and
      storage facility in Danbury, Connecticut. This loan is current in its
      terms.





Our
      lending is subject to our written underwriting standards and to loan origination
      procedures. Decisions on loan applications are made on the basis of detailed
      applications submitted by the prospective borrower and property valuations
      (consistent with our appraisal policy) prepared by independent appraisers.
      The
      loan applications are designed primarily to determine the borrower’s ability to
      repay, and the more significant items on the application are verified through
      use of credit reports, financial statements, tax returns and/or
      confirmations.





Under
      our
      lending policy, the individual processing an application is responsible for
      ensuring that all documentation is obtained prior to the submission of the
      application to a loan officer for approval. In addition, the loan officer
      verifies that the application meets our underwriting guidelines described below.
      Also, each application file is reviewed to assure its accuracy and completeness.
      Our quality control process includes reviews by an independent third
      party **** of
      underwriting decisions, appraisals and  documentation.





Generally,
      we require title insurance or abstracts on mortgage loans as well as fire and
      extended coverage casualty insurance in amounts at least equal to the principal
      amount of the loan or the value of improvements on the property, depending
      on
      the type of loan. We also require flood insurance to protect the property
      securing its interest when the property is located in a flood plain.





***Commercial
      Real Estate and Multi-family Lending.*** Loans
      secured by commercial real estate and multi-family real estate totaled
      approximately $33.6 million or 54.6% of the total loan portfolio at December
      31,
      2006. Office buildings, mixed-use properties, strip shopping centers and other
      income producing properties located in our market area secure commercial real
      estate loans. Multi-family real estate loans are generally secured by rental
      properties (including walk-up apartments). Management anticipates that most
      of
      our commercial real estate or multi-family loans over the next several years
      will have balances of $1.0 million or less.





Commercial
      real estate and multi-family loans generally carry a maximum term of 25 years
      and have adjustable rates based on a specific index plus a margin. These loans
      are generally originated in amounts of up to 80% of the lesser of the appraised
      value or the purchase price of the property, with a projected debt service
      coverage ratio of at least 120%. An independent appraiser designated by us
      at
      the time the loan is made performs appraisals on properties securing commercial
      real estate and multi-family loans. Our management reviews all appraisals on
      multi-family or commercial real estate loans. In addition, our underwriting
      procedures require verification of the borrower’s credit history, income and
      financial statements, banking relationships, references and income projections
      for the property. Where feasible, we seek to obtain personal guarantees on
      these
      loans. For loans in excess of $250,000, an environmental study **** may
      be
      performed.




**7**


Commercial
      real estate and multi-family loans generally present a higher level of risk
      than
      loans secured by one- to four-family residences. This greater risk is due to
      several factors, including the concentration of principal in a limited number
      of
      loans and borrowers, the effects of general economic conditions on income
      producing properties, and the increased difficulty of evaluating and monitoring
      these types of loans. Furthermore, the repayment of loans secured by commercial
      real estate and multi-family real estate is typically dependent upon the
      successful operation of the related real estate project. If the cash flow from
      the project is reduced (for example, if leases are not obtained or renewed),
      the
      borrower’s ability to repay the loan may be impaired. There can be no assurance
      that we will not experience credit problems as a result of our investment in
      commercial real estate and multi-family loans.





Set
      forth
      below is information regarding the types of commercial real estate and
      multi-family loans in our loan portfolio at December 31, 2006 and
      2005.





**At
                December 31,****2006**
            
            **2005****(Dollars
                in thousands)****Commercial
                and Multi-Family****Mortgage
                Types**
            
            **Number
                of Loans**
            
            **Balances**
            
            **Number
                of Loans**
            
            **Balances**Apartments
            
            14
            
            $
            6,057
            
            8
            
            $
            4,887Offices
            
            7
            
            
            3,138
            
            4
            
            
            1,355Warehouses
            
            6
            
            
            4,377
            
            4
            
            
            3,194Restaurants
            
            7
            
            
            5,364
            
            4
            
            
            2,513Land
            
            1
            
            
            420
            
            2
            
            
            603Mixed
                use
            
            18
            
            
            7,765
            
            12
            
            
            5,533Other
            
            13
            
            
            6,439
            
            11
            
            
            3,821Total
            
            66
            
            $
            33,560
            
            45
            
            $
            21,906








***Commercial
      Business Lending.*** We
      offer
      loans and lines of credit to local businesses for working capital, machinery
      and
      equipment purchases, expansion and other business purposes. The terms of these
      loans generally do not exceed seven years while commercial lines of credit
      are
      generally **** reviewed
      annually. The interest rates on such loans are generally variable and indexed
      to
      the highest prime rate published in *The
      Wall Street Journal* plus or
      minus a margin or in some cases, fixed. At December 31, 2006 we had $10.9
      million of commercial business loans outstanding, representing 17.7% of the
      total loan portfolio and an additional $5.8 million of funds committed, but
      undrawn, under commercial lines of credit.





Our
      commercial business lending policy includes credit file documentation, analysis
      of the borrower’s capacity to repay the loan, a review of the adequacy of the
      borrower’s capital and collateral, and an evaluation of conditions affecting the
      borrower. Analysis of the borrower’s, present and future cash flows is also an
      important aspect of our current credit analysis.





Unlike
      residential mortgage loans, which generally are made on the basis of the
      borrower’s ability to make repayment from his or her employment and other
      income, and which are secured by real property whose value tends to be more
      easily ascertainable, commercial business loans are of higher risk and typically
      are made on the basis of the borrower’s ability to make repayment from the cash
      flow of the borrower’s business. As a result, the availability of funds for the
      repayment of commercial  business
      loans may be substantially dependent on the success of the business itself.
      Further, the collateral securing the loans may depreciate over time, may be
      difficult to appraise and may fluctuate in value based on the success of the
      business.





**8**


Set
      forth
      below is information regarding the types of commercial business loans in our
      loan portfolio at December 31, 2006 and 2005.




**At
                December 31,****2006**
            
            **2005****(Dollars
                in thousands)****Number
                of**
            
            
            
            **Number
                of****Commercial
                Business Loans**
            
            **Loans**
            
            **Balances**
            
            **Loans**
            
            **Balances**Builder
                lines of credit
            
            17
            
            $
            4,701
            
            11
            
            $
            2,202Working
                capital
            
            21
            
            
            1,675
            
            8
            
            
            396Real
                  estate acquisition& Investment
            
            10
            
            
            1,646
            
            5
            
            
            1,039Business
                acquisition
            
            6
            
            
            603
            
            3
            
            
            350Equipment
                purchase
            
            6
            
            
            367
            
            4
            
            
            335Attorney
                lines of credit
            
            2
            
            
            1,408
            
            —
            
            
            —Other
            
            5
            
            
            503
            
            10
            
            
            749Total
            
            67
            
            $
            10,903
            
            41
            
            $
            5,071





***One-
      to Four-Family and Home Equity Residential Real Estate
      Lending*** **.** At
      December 31, 2006, we had $7.2 million, or 11.7% of our total loan portfolio,
      in
      loans secured by one- to four-family residential properties (including $215,000
      of loans held for sale, $4.1 million in advances under home equity lines of
      credit, and $1.3 million in home equity loans). We offer both fixed rate and
      adjustable rate one-to four-family residential first mortgage loans. Our
      fixed-rate one- to four-family loans are underwritten in accordance with Fannie
      Mae and Freddie Mac guidelines and are generally sold in the secondary market,
      servicing released, in order to minimize interest rate risk exposure. The
      interest rates on such loans are generally based on competitive factors.
      Adjustable rate one- to four-family loans are based on a specific index plus
      a
      margin and may be retained for portfolio purposes.





In
      underwriting one- to four-family residential real estate loans, we evaluate
      the
      borrower’s ability to make principal, interest and escrow payments, as well as
      the value of the property that will secure the loan and debt-to-income ratios.
      We currently originate residential mortgage loans for our own
      portfolio **** with
      loan-to-value ratios of up to 80% for owner-occupied homes (97% with
      private mortgage insurance to reduce our exposure to 80% or less) and up to
      70%
      for non-owner occupied homes. Originated residential mortgage loans that are
      immediately sold to the secondary market can have loan-to-value ratios of up
      to
      103% for owner-occupied homes and up to 100% for non-owner occupied homes.




We
      also
      originate home equity lines of credit and home equity loans secured by a lien
      on
      the borrower’s residence. Our home equity lines and loans are generally limited
      to $200,000. We use the same underwriting standards for home equity lines and
      loans as we use for one- to four-family residential first mortgage loans for
      our
      own portfolio. The interest rates for home equity lines of credit float at
      a
      stated margin below the highest prime rate published in *The
      Wall Street Journal* and may
      not exceed 18.0% over the life of the loan. We currently offer home equity
      lines
      for terms of up to 30 years with interest only paid for the first ten years
      of
      the loan term. At December 31 2006, we had $4.1 million of outstanding advances
      under home equity lines and an additional $4.1 million of funds committed,
      but
      undrawn, under home equity lines of credit. Home equity loans are made at fixed
      interest rates and are offered at terms up to 15 years. At December 31, 2006,
      our home equity loans totaled $1.3  million.





We
      also
      originate loans secured by co-ops and condominiums located in our market area.
      Condominium and co-op loans are made on substantially the same terms as one-
      to
      four-family loans. At December 31, 2006, we had no condominium or co-op loans.





**9**


Our
      residential mortgage loans customarily include due-on-sale clauses giving us
      the
      right to declare the loan immediately due and payable in the event that, among
      other things, the borrower sells or otherwise disposes of the property subject
      to the mortgage and the loan is not repaid.





***Construction
      and Land Lending.*** We
      originate construction loans to individuals and builders for the construction
      of
      residential real estate and commercial real estate properties. At December
      31,
      2006, our construction loan portfolio totaled $5.8 million, or 9.5% of the
      total
      loan portfolio and an additional $401,000 of funds committed but undrawn. At
      December 31, 2006 $3.6 million of our construction loans were for residential
      real estate purposes. We also originate a limited number of land loans primarily
      for the purpose of developing residential subdivisions. At December 31, 2006,
      our land loan portfolio totaled $3.3 million, or 5.4% of the total loan
      portfolio. At December 31, 2006, $1.4 million of our land loans were made for
      the purpose of developing residential lots.





Construction
      loans to individuals for the construction of their residences are structured
      to
      convert to permanent loans at the end of the construction phase, which typically
      runs up to one year. These construction loans have rates and terms comparable
      to
      one- to four-family loans then offered by us, except during the construction
      phase where the borrower pays interest only at a specified margin over the
      prime
      rate. The maximum loan-to-value ratio of owner-occupied single-family
      construction loans is 80%. Residential construction loans are generally
      underwritten pursuant to the same guidelines used for originating permanent
      residential loans. At December 31, 2006, there were $832,000 of construction
      loans outstanding to persons intending to occupy the premises upon the
      completion of the construction.





Construction
      loans to builders of one- to four-family residences generally carry terms of
      up
      to two years and require the payment of interest only for the loan term. The
      maximum loan-to-value ratio on loans to builders for the construction of
      residential real estate is 80%. When practical, we seek to obtain personal
      guarantees on such loans. We generally limit loans to builders for the
      construction of homes on speculation for sale to two homes per builder. At
      December 31, 2006, we had $2.7 million of construction loans outstanding to
      builders of one- to four-family residences.





We
      will
      also originate commercial real estate construction loans to experienced local
      developers. We will make these loans only when there is a written take-out
      commitment from an acceptable financial institution or government agency, or
      when we have made an internal commitment for permanent financing evidenced
      by a
      written document in the credit file. The maximum loan-to-value ratio on loans
      to
      builders for the construction of commercial real estate is 80%. At December
      31,
      2006, we had $2.3 million of construction loans outstanding to builders of
      commercial real estate properties.





Our
      construction loan agreements generally provide that loan proceeds are disbursed
      in increments as construction progresses. We review the progress of the
      construction of the dwelling before disbursements are made.





We
      also
      make loans to builders and developers for the development of one- to four-family
      lots in our market area. All of our land loans have been originated with
      adjustable rates of interest tied to the prime rate of interest and have terms
      of five years or less. Land loans are generally made in amounts up to a maximum
      loan-to-value ratio of 50% on raw land and up to 75% on developed building
      lots
      based upon an independent appraisal. When feasible, we obtain personal
      guarantees for our land loans.





Construction
      and land loans are obtained principally through referrals from the Bank and
      management’s contacts in the business community as well as existing and walk-in
      customers. The application process includes a submission of accurate plans,
      specifications and costs of the project to be




**10**


constructed/developed.
      These items are used as a basis to determine the appraised value of the subject
      property. Loans are based on the lesser of current appraised value and/or the
      cost of construction (land plus building).





Construction
      and land lending generally affords us an opportunity to receive interest at
      rates higher than those obtainable from permanent residential loans and to
      receive higher origination and other loan fees. In addition, construction and
      land loans are generally made with adjustable rates of interest or for
      relatively short terms. Nevertheless, construction and land lending is generally
      considered to involve a higher level of credit risk than one- to four-family
      residential lending due to the concentration of principal in a limited number
      of
      loans and borrowers, as well as the effects of general economic conditions
      on
      development properties and on real estate developers and managers. In addition,
      the nature of these loans is such that they are more difficult to evaluate
      and
      monitor. Finally, the risk of loss on construction and land loans is dependent
      largely upon the accuracy of the initial estimate of the individual property’s
      value upon completion and the estimated cost (including interest) of
      construction. If the cost estimate proves to be inaccurate, we may be required
      to advance funds beyond the amount originally committed to permit completion
      of
      the property.





***Consumer
      Lending.*** We
      originate a variety of consumer loans, including automobile, home improvement,
      deposit account and other loans for household and personal purposes. At December
      31, 2006, consumer loans totaled $663,000, or 1.1% of total loans
      outstanding.





Consumer
      loan terms vary according to the type of loan and value of collateral, length
      of
      contract and creditworthiness of the borrower. Our consumer loans are made
      at
      fixed or variable **** interest
      rates, with terms of up to 5 **** years.





The
      underwriting standards employed by us for consumer loans include a determination
      of the applicant’s payment history on other debts and the ability to meet
      existing obligations and payments on the proposed loan. Although
      creditworthiness of the applicant is a primary consideration, the underwriting
      process also includes a comparison of the value of the security, if any, in
      relation to the proposed loan amount.





Consumer
      loans may entail greater credit risk than residential mortgage loans,
      particularly in the case of consumer loans, which are unsecured or are secured
      by rapidly depreciable assets, such as automobiles. In such cases, any
      repossessed collateral for a defaulted consumer loan may not provide an adequate
      source of repayment of the outstanding loan balance as a result of the greater
      likelihood of damage, loss or depreciation. In addition, consumer loan
      collections are dependent on the borrower’s continuing financial stability, and
      thus are more likely to be affected by adverse personal circumstances.
      Furthermore, the application of various federal and state laws, including
      bankruptcy and insolvency laws, may limit the amount, which can be recovered
      on
      such loans.










**11**


**Originations,
      Purchases and Sales of Loans**





Loan
      applications are taken at each of our offices as well as through mortgage
      originators. Applications are processed and approved at our Loan Center, which
      is located in the corporate headquarters. We also employ commissioned loan
      originators and utilize mortgage brokers to assist in the process of obtaining
      loans. Total loan originations amounted to $56.8 million for the year ended
      December 31, 2006.





While
      we
      originate a variety of business and personal loans, our ability to originate
      loans is dependent upon the relative customer demand for loans in our market.
      The local economy and the interest rate environment affect demand.





In
      order
      to reduce our vulnerability to changes in interest rates, we generally sell
      in
      the secondary market our fixed-rate residential mortgage originations in
      addition to certain current year originations of adjustable-rate loans.
      Residential mortgage sales amounted to $13.3 million for the year ended December
      31, 2006.





The
      following table sets forth our loan originations, sales, repayments and other
      portfolio activity for the periods indicated.


**Fiscal
                Years Ended December 31,****2006**
            
            **2005****(In
                thousands)**Beginning
                unpaid principal balance
            
            $
            33,869
            
            $
            5,889**Loans
                Originated:**Real
                estate loansOne-to
                four-family
            
            
            13,364
            
            
            21,910Commercial
                real estate
            
            
            14,161
            
            
            20,417Construction
            
            
            5,288
            
            
            2,009Land
            
            
            3,291
            
            
            —Home
                equity line of credit
            
            
            4,297
            
            
            4,812Commercial
                line of credit
            
            
            8,451
            
            
            3,928Commercial
                business loans
            
            
            5,549
            
            
            1,819Consumer
                loans
            
            
            2,371
            
            
            835Total
                loans originated
            
            
            56,772
            
            
            55,730**Loans
                Sold:**One-to
                four-family real estate loans
            
            
            (13,253
            )
            
            (21,290
            )Participated
                to others
            
            
            (579
            )
            
            —**Principal
                repayments and paydowns:**Repayments
            
            
            (5,948
            )
            
            (1,114
            )Paydowns
            
            
            (9,418
            )
            
            (5,346
            )Total
                principal repayments
            
            
            (15,366
            )
            
            (6,460
            )Charge-offs
            
            
            —
            
            
            —Transfer
                to real estate owned
            
            
            —
            
            
            —Unpaid
                principal balance atend
                of period
            
            
            61,443
            
            
            33,869**Less:**Allowance
                for loan leases
            
            
            (581
            )
            
            (106
            )Net
                deferred loan costs
            
            
            344
            
            
            241Net
                loans at end of period
            
            $
            61,206
            
            $
            34,004




**12**


**Asset
      Quality**





***Delinquency
      Procedures*** **.** When a
      borrower fails to make a required payment on a loan, we attempt to cure the
      delinquency by contacting the borrower. Late notices will be sent when a payment
      is more than 16 days past due and a late charge will generally be assessed
      at
      that time. Additional written and verbal contacts may be made with the borrower
      between 30 and 90 days after the due date. If the loan is contractually
      delinquent 60 days, we will send a 30-day demand letter to the borrower and,
      after the loan is contractually delinquent 91 days, institute appropriate action
      to foreclose on the property. If foreclosed, the property will be sold at
      auction and may be purchased by us. Delinquent consumer loans are generally
      handled in a similar manner. Our procedures for repossession and sale of
      consumer collateral are subject to various requirements under New York consumer
      protection laws.





Real
      estate that we may acquire as a result of foreclosure or by deed in lieu of
      foreclosure will be classified as real estate owned until it is sold. When
      property is acquired or expected to be acquired by foreclosure or deed in lieu
      of foreclosure, it will be recorded at estimated fair value less the estimated
      cost of disposition, with the resulting write-down charged to the allowance
      for
      loan losses. After acquisition, all costs incurred in maintaining the property
      will be expensed. Costs relating to the development and improvement of the
      property, however, will be capitalized.





We
      had no
      loans delinquent 60 days or more as of December 31, 2006.





***Classification
      of Assets*** **.** OCC
      regulations require that we classify our own assets on a regular basis and
      establish prudent valuation allowances based on such classifications. In
      addition, in connection with examinations, OCC examiners have the authority
      to
      identify problem assets, and if appropriate, require that they be classified.
      There are three classifications for problem assets: substandard, doubtful,
      and
      loss. Substandard assets have one or more defined weaknesses and are
      characterized by the distinct possibility that the institution will sustain
      some
      loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
      of substandard assets, with the additional characteristics that the weaknesses
      make collection or liquidation in full on the basis of currently existing facts,
      conditions and values questionable, and there is a high possibility of loss.
      An
      asset classified loss is considered uncollectible and of such little value
      that
      continuance as an asset on the balance sheet of the institution is not
      warranted. Assets classified as substandard or doubtful require us to establish
      prudent general allowances for loan losses. If an asset or portion thereof
      is
      classified as loss, we must either establish specific allowances for loan losses
      in the amount of 100% of the portion of the asset classified loss, or charge
      off
      such amount. If a Bank does not agree with an examiner’s classification of an
      asset, it may appeal this determination to the District Deputy Comptroller
      of
      the OCC.














**13**


In
      connection with the filing of our periodic reports with the OCC and in
      accordance with our classification of assets policy, we regularly review the
      problem loans in our portfolio to determine whether any loans require
      classification in accordance with applicable regulations. On the basis of this
      review of our assets, at December 31, 2006, we had classified the following
      assets:





**One-
                to**
              **Four-Family**
            
            **Multi-Family**
            
            **Commercial**
              **Real
                Estate**
            
            **Land**
            
            **Consumer**
            
            **Commercial**
              **Business**
            
            **Total****(In
                thousands)**Sub-Standard
            
            $
            —
            
            $
            —
            
            $
            619
            
            $
            —
            
            $
            —
            
            $
            50
            
            $
            669Doubtful
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            —
            
            $
            —
            
            $
            619
            
            $
            —
            
            $
            —
            
            $
            50
            
            $
            669





Our
      classified assets consist of (i) non-performing loans and (ii) loans and other
      assets of concern discussed herein. As of the date hereof, these asset
      classifications are believed to be consistent with those of the
      OCC.





***Non-Performing
      Assets*** **.** Loans
      are reviewed quarterly and any loan whose collectibility is doubtful is placed
      on non-accrual status. Loans are placed on non-accrual status when either
      principal or interest is 90 days or more past due, unless, in the judgment
      of
      management, the loan is well collateralized and in the process of collection.
      Interest accrued and unpaid at the time a loan is placed on non-accrual status
      is charged against interest income. Subsequent payments are either applied
      to
      the outstanding principal balance or recorded as interest income, depending
      on
      the assessment of the ultimate collectibility of the loan. As of the end of
      the
      last two fiscal years, we had no non-accruals or troubled debt restructurings
      (which involved forgiving a portion of interest or principal on any loans or
      making loans at a rate materially less than that of market rates) or any
      foreclosed assets acquired in settlement of loans.





At
      December 31, 2006, there were no other loans or other assets, that are not
      discussed above, where known information about the possible credit problems
      of
      borrowers caused us to have serious doubts as to the ability of the borrowers
      to
      comply with present loan repayment terms and which may result in disclosure
      of
      such loans in the future.





***Allowance
      for Loan Losses.*** The
      allowance for loan losses is established through a provision for loan losses
      based on management’s evaluation of the risks inherent in our loan portfolio and
      charged to operations. The allowance is established as an amount that management
      believes will be adequate to absorb probable incurred losses on existing loans.
      The allowance for loan losses consists of amounts specifically allocated to
      non-performing loans and potential problem loans (if any) as well as allowances
      determined for each major loan category. Loan categories such as single-family
      residential mortgages and consumer loans are generally evaluated on an aggregate
      or “pool” basis by applying loss factors to the current balances of the various
      loan categories. The loss factors are determined by management based on an
      evaluation of historical loss experience, delinquency trends, volume and type
      of
      lending conducted, and the impact of current economic conditions in our market
      area. Finally, management evaluates and considers the allowance ratios and
      coverage percentages of both peer group and regulatory agency data.





Management’s
      evaluation of the adequacy of the allowance, which is subject to periodic review
      by the OCC, takes into consideration such factors as the historical loan loss
      experience, peer group ratios,




**14**


known
      and
      inherent risks in the portfolio, changes in the nature and volume of the loan
      portfolio, overall portfolio quality, review of specific problem loans,
      estimated value of underlying collateral, and current economic conditions that
      may affect borrowers’ ability to pay. Due to our brief period of operations,
      peer group information is the primary determinant. Other factors as discussed
      above will become more prominent in the methodology as we develop a history
      of
      experience. While management believes that it uses the best information
      available to determine the allowance for loan losses, unforeseen market
      conditions could result in adjustments to the allowance for loan losses, and
      net
      earnings could be significantly affected, if circumstances differ substantially
      from the estimates made in making the final determination.





The
      following table sets forth activity in the allowance for loan losses for the
      periods indicated.





**Fiscal
                Years Ended December 31,****2006**
            
            **2005****(In
                thousands)**Balance
                at beginning of year
            
            $
            106
            
            $
            32Provision
                for losses
            
            
            476
            
            
            74Charge-offs
            
            
            (1
            )
            
            —Recoveries
            
            
            —
            
            
            —Balance
                at end of year
            
            $
            581
            
            $
            106Balance
                as a percentage of total loans
            
            
            0.95
            %
            
            0.31
            %Ratio
                of net charge-offs to average total loans
            
            
            —
            %
            
            —
            %





The
      following table sets forth the breakdown of the allowance for loan losses by
      loan category at December 31, 2006 and December 31, 2005, excluding $215,000
      and
      $679,000, respectively, of one- to four-family loans held for sale. The
      allocation of the allowance to each category is not necessarily indicative
      of
      future losses and does not restrict the use of the allowance to absorb losses
      in
      any category.





**At
                December 31,****2006**
            
            **2005****Loan
                Loss**
              **Allowance**
            
            **Loan
                Balances**
              **by
                Category**
            
            **Percent
                of Loans to Total Loans**
            
            **Loan
                Loss**
              **Allowance**
            
            **Loan
                Balances**
              **by
                Category**
            
            **Percent
                of Loans**
              **to
                Total Loans****(Dollars
                in thousands)**Allowance
                allocated to:Residential
                and commercial mortgages
            
            $
            360
            
            $
            35,151
            
            
            57.4
            %
            $
            61
            
            $
            22,863
            
            
            68.9
            %Commercial
                business loans
            
            
            115
            
            
            10,903
            
            
            17.8
            
            
            30
            
            
            5,071
            
            
            15.3Home
                equity line of credit loans
            
            
            26
            
            
            5,383
            
            
            8.8
            
            
            9
            
            
            3,360
            
            
            10.1Other
                loans
            
            
            7
            
            
            9,791
            
            
            16.0
            
            
            6
            
            
            1,896
            
            
            5.7Unallocated
            
            
            73
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                allowance
            
            $
            581
            
            $
            61,228
            
            
            100.0
            %
            $
            106
            
            $
            33,190
            
            
            100.0
            %







**15**


**Environmental
      Issues**





We
      encounter certain environmental risks in our lending activities. Under federal
      and state environmental laws, lenders may become liable for costs of cleaning
      up
      hazardous materials found on property securing their loans. In addition, the
      presence of hazardous materials may have a substantial effect on the value
      of
      such property as collateral and may cause economic difficulties for the
      borrower, causing the loan to go into default. Although environmental risks
      are
      usually associated with loans secured by commercial real estate, risks may
      also
      exist for loans secured by residential real estate if, for example, there is
      nearby commercial contamination or if the residence was constructed on property
      formerly used for commercial purposes. To control our environmental risk, if
      we
      determine that the investigation of property securing a commercial mortgage
      loan
      is warranted, it will require an environmental assessment by a Company approved
      engineer as part of the underwriting review.





We
      believe our procedures regarding the assessment of environmental risk are
      adequate. As of December 31, 2006, we were unaware of any environmental issues
      with respect to any of our mortgage loans that would subject it to any material
      liability at this time. Hidden or future environmental contamination could
      adversely affect the values of properties securing loans in our
      portfolio.





**Investment
      Activities**





***General.*** Our
      investment policy is to invest funds among categories of investments and
      maturities based upon our asset/liability management policies, investment
      quality, loan and deposit volume, liquidity needs and performance
      objectives.





Upon
      our
      commencement of operations, we utilized investment securities and other
      securities to increase our interest earning assets. However, as our lending
      activities accelerated, we reduced **** the
      percentage of our assets consisting of securities. SFAS No. 115, Accounting
      for
      Certain Investments in Debt and Equity Securities, requires that securities
      be
      classified into three categories: trading, held to maturity, and available
      for
      sale. Securities that are bought and held principally for the purpose of selling
      them in the near term are classified as trading securities and are reported
      at
      fair value with unrealized gains and losses included in earnings. Debt
      securities for which we have the positive intent and ability to hold to maturity
      are classified as held to maturity and reported at amortized cost. All other
      securities not classified as trading or held to maturity are classified as
      available for sale. Available for sale securities are reported at fair value
      with unrealized gains and losses included in a separate component of
      stockholders’ equity. At December 31, 2006, we had $9.4 million or 100% of our
      securities classified as available for sale. There were no securities classified
      as trading or held to maturity. There were no investment securities of a single
      issuer, which exceeded 10% of our stockholders’ equity, other than U.S.
      Government or federal agency obligations.





We
      invest
      in mortgage-backed securities in order to supplement loan production and achieve
      our asset/liability management goals. Substantially all of the mortgage-backed
      securities we own are issued, insured or guaranteed either directly or
      indirectly by a federal agency. At December 31, 2006, the amortized cost of
      mortgage-backed securities, all of which are classified available for sale,
      totaled more than $4.1 million, and the market value of all mortgage-backed
      securities totaled nearly $4.1 million. Additionally, at December 31, 2006,
      the
      mortgage-backed securities portfolio includes a U.S. Government Agency
      collateralized mortgage obligation (“CMO”), with an amortized cost of $734,000
      and a market value of $745,000 at December 31, 2006. A CMO is a special type
      of
      debt security in which the stream of principal and interest payments on the
      underlying mortgages or mortgage-backed securities is used to create classes
      with different maturities and, in some cases, amortization schedules
      as




**16**


well
      as a
      residual interest, with each class possessing different risk characteristics.
      At
      December 31, 2006, all of our mortgage-backed securities, excluding the CMO,
      have an original fixed-rate term for three years and then convert to a one-year
      adjustable rate security in year four.





The
      fair
      value of our mortgage-backed securities would decline significantly in the
      event
      of an increase in interest rates. In addition, a decrease in interest rates
      could result in an increase in prepayments leading to reinvestment at a lower
      yield. Similarly, a decline in interest rates would result in the downward
      adjustment of the rates earned on our adjustable-rate, mortgage-backed
      securities portfolio resulting in lower yields and interest income in future
      periods.





For
      additional information regarding our mortgage-backed securities portfolio,
      see
      Note 2 of the Notes to Financial Statements.





In
      addition to mortgage-backed securities, we also invest in high-quality
      securities (primarily U.S. government and agency obligations) with various
      maturities. At December 31, 2006, we had $5.4 million in U.S. government agency
      securities classified as available for sale. See Note 2 of the Notes to
      Financial Statements for additional information regarding our securities
      portfolio.





All
      national banks are required to be members of the Federal Reserve System and
      to
      purchase stock in the Federal Reserve Bank within the Federal Reserve district
      in which the national bank is located. In accordance with this requirement,
      at
      December 31, 2006, we owned 6,703 shares totaling $335,000 in common stock
      of
      the Federal Reserve Bank of New York.





The
      following table sets forth the amortized cost and fair value of our securities,
      by accounting classification category and by type of security, at the dates
      indicated.


**At
                December 31,****2006**
            
            **2005****Amortized
                Cost**
            
            **Fair
                Value**
            
            **Amortized
                Cost**
            
            **Fair
                Value****(In
                thousands)**Investment
                securities available for sale:U.S.
                Government agencies
            
            $
            5,396
            
            $
            5,383
            
            $
            1,225
            
            $
            1,225Mortgage-backed
                securities
            
            
            4,146
            
            
            4,060
            
            
            5,277
            
            
            5,155Subtotal
            
            
            9,542
            
            
            9,443
            
            
            6,502
            
            
            6,380FRB
                stock
            
            
            335
            
            
            335
            
            
            378
            
            
            378Total
                investment securities and FRB stock
            
            $
            9,877
            
            $
            9,778
            
            $
            6,880
            
            $
            6,758





The
      following table sets forth certain information regarding the amortized cost,
      fair value, weighted average yield and stated maturity of our securities at
      the
      dates indicated. The entire amortized cost and fair value of such securities
      are
      reflected in the maturity period that includes the final security payment date.
      Accordingly, no effects are given to periodic repayments or possible
      prepayments.





**17**


**Available
                for Sale****At
                December 31,****2006**
            
            **2005****Amortized
                Cost**
            
            **Fair
                Value**
            
            **Weighted
                Average Yield**
            
            **Amortized
                Cost**
            
            **Fair
                Value**
            
            **Weighted
                Average Yield****(Dollars
                in thousands)****U.S.
                Government Agencies:**Due
                less than one year
            
            $
            1,000
            
            $
            1,000
            
            
            4.75
            %
            $
            1,225
            
            $
            1,225
            
            
            4.65
            %One
                year to less than three years
            
            
            1,997
            
            
            1,993
            
            
            5.28
            
            
            —
            
            
            —
            
            
            —Three
                years to less than five years
            
            
            700
            
            
            700
            
            
            6.15
            
            
            —
            
            
            —
            
            
            —Five
                years to ten years
            
            
            1,200
            
            
            1,196
            
            
            6.00
            
            
            —
            
            
            —
            
            
            —More
                than ten years
            
            
            499
            
            
            494
            
            
            6.03
            
            
            —
            
            
            —
            
            
            —Total
            
            
            5,396
            
            
            5,383
            
            
            5.52
            %
            
            1,225
            
            
            1,225
            
            
            4.65
            %**Mortgage-backed
                securities:**Due
                less than one year
            
            $
            —
            
            $
            —
            
            
            —
            %
            $
            —
            
            $
            —
            
            
            —
            %Due
                After 10 years
            
            
            4,146
            
            
            4,060
            
            
            3.95
            
            
            5,277
            
            
            5,155
            
            
            3.89Total
            
            
            4,146
            
            
            4,060
            
            
            3.95
            %
            
            5,277
            
            
            5,155
            
            
            3.89
            %Total
                investment securities
            
            $
            9,542
            
            $
            9,443
            
            
            4.84
            %
            $
            6,502
            
            $
            6,380
            
            
            4.03
            %





**Sources
      of Funds**





***General.*** Our
      primary sources of funds are deposits. We also derive funds from payments
      (including prepayments) of loan principal, interest earned on loans and
      securities, repayments of securities and other funds provided from operations.





***Deposits.*** We offer
      a variety of deposit accounts having a wide range of interest rates and terms.
      Deposit account terms vary according to the minimum balance required, the time
      period the funds must remain on deposit and the interest rate, among other
      factors. We rely primarily on competitive pricing policies, advertising and
      customer service to attract and retain these deposits.





The
      variety of deposit accounts we offer has allowed us to be competitive in
      obtaining funds and to respond with flexibility to changes in consumer demand.
      We manage the pricing of our deposits in keeping with our asset/liability
      management, profitability and growth objectives.





Throughout
      2006, in order to fund our growing loan portfolio, we increased our level of
      money market account deposits significantly by offering a competitive rate
      rather than relying predominantly on relatively high-cost savings certificates.
      Whereas savings certificate deposits can be used to more closely align the
      terms
      and maturities of commercial mortgage loans, we believe non-certificate deposits
      have a lower cost over time, and enable us to advertise to, attract, and acquire
      more new customers with needs for multiple services.





**18**


The
      following table sets forth the distribution of our deposit accounts and the
      related weighted average rates at the dates indicated.





**At
                December 31,****2006**
            
            **2005****Amount**
            
            **Percent
                of**
              **Total**
              **Deposits**
            
            **Weighted**
              **Average
                Rate**
            
            **Amount**
            
            **Percent
                of**
              **Total**
              **Deposits**
            
            **Weighted**
              **Average
                Rate****(Dollars
                in thousands)**Demand
                deposit accounts
            
            $
            8,156
            
            
            10.0
            %
            
            —
            %
            $
            10,073
            
            
            23.2
            %
            
            —
            %NOW
                accounts
            
            
            1,403
            
            
            1.7
            
            
            0.30
            
            
            507
            
            
            1.2
            
            
            0.30Money
                market accounts
            
            
            48,032
            
            
            59.0
            
            
            4.99
            
            
            12,882
            
            
            29.7
            
            
            3.52Regular
                savings accounts
            
            
            4,601
            
            
            5.6
            
            
            3.16
            
            
            8,804
            
            
            13.4
            
            
            3.03Savings
                certificate accounts
            
            
            19,283
            
            
            23.7
            
            
            5.07
            
            
            14,111
            
            
            32.5
            
            
            4.20Total
            
            $
            81,475
            
            
            100.0
            %
            
            4.33
            %
            $
            43,377
            
            
            100.0
            %
            
            2.82
            %







The
      following table sets forth, by interest rate ranges, the amount of savings
      certificate accounts outstanding at the dates indicated and the period to
      maturity of savings certificate accounts outstanding at December 31, 2005 and
      December 31, 2006.


**Period
                  to Maturity****At
                  December 31, 2005****Less
                  than**
              
              **One
                  to**
              
              **More
                  than**
              
              
              
              **Percent****One
                  Year**
              
              **Three
                  Years**
              
              **Three
                  Years**
              
              **Total**
              
              **of
                  Total****(Dollars
                  in Thousands)**2.00%
                  and below
              
              $
              26
              
              $
              —
              
              $
              —
              
              $
              26
              
              
              0.2
              %2.01%
                  to 3.00%
              
              
              1,779
              
              
              5
              
              
              —
              
              
              1,784
              
              
              12.63.01%
                  and above
              
              
              3,677
              
              
              6,433
              
              
              2,191
              
              
              12,301
              
              
              87.2Total
              
              $
              5,482
              
              $
              6,438
              
              $
              2,191
              
              $
              14,111
              
              
              100.0
              %**At
                  December 31, 2006**3.00%
                  and below
              
              $
              5
              
              $
              —
              
              $
              —
              
              $
              5
              
              
              0.1
              %3.01%
                  to 4.00%
              
              
              663
              
              
              1,534
              
              
              5
              
              
              2,202
              
              
              11.44.01%
                  to 5.00%
              
              
              3,550
              
              
              2,371
              
              
              255
              
              
              6,176
              
              
              32.05.01%
                  and above
              
              
              5,866
              
              
              3,081
              
              
              1,953
              
              
              10,900
              
              
              56.5Total
              
              $
              10,084
              
              $
              6,986
              
              $
              2,213
              
              $
              19,283
              
              
              100.0
              %




**19**


The
      following table sets forth the maturity distribution and related weighted
      average interest rates for savings certificate accounts with balances less
      than
      $100,000, accounts of $100,000 or more, and total savings certificates at
      December 31, 2006. ****




**At
                  December 31, 2006****Less
                  than $100,000**
              
              **$100,000
                  or more**
              
              **Total****Weighted**
              
              
              
              **Weighted**
              
              
              
              **Weighted****Average**
              
              
              
              **Average**
              
              
              
              **Average****Amount**
              
              **Rate**
              
              **Amount**
              
              **Rate**
              
              **Amount**
              
              **Rate****(Dollars
                  in Thousands)**Within
                  three months
              
              $
              1,973
              
              
              5.37
              %
              $
              1,071
              
              
              5.43
              %
              $
              3,044
              
              
              5.39
              %After
                  three but within six months
              
              
              1,649
              
              
              5.34
              
              
              407
              
              
              4.88
              
              
              2,056
              
              
              5.25After
                  six but within 12 months
              
              
              4,264
              
              
              5.16
              
              
              720
              
              
              4.68
              
              
              4,984
              
              
              5.09Total
                  within one year
              
              
              7,886
              
              
              5.25
              
              
              2,198
              
              
              5.08
              
              
              10,084
              
              
              5.22After
                  one but within two years
              
              
              4,773
              
              
              4.82
              
              
              1,123
              
              
              4.39
              
              
              5,896
              
              
              4.74After
                  two but within three years
              
              
              1,090
              
              
              5.04
              
              
              —
              
              
              —
              
              
              1,090
              
              
              5.04After
                  three but within five years
              
              
              1,213
              
              
              5.04
              
              
              1,000
              
              
              5
              
              
              2,213
              
              
              5.19Total
              
              $
              14,962
              
              
              5.08
              %
              $
              4,321
              
              
              4.97
              %
              $
              19,283
              
              
              5.06
              %






***Borrowings.*** At
      December 31, 2006 the Company had $53,000 outstanding against its committed
      $200,000 credit facility with our correspondent bank, Atlantic Central Bankers
      Bank. There were no borrowings at December 31, 2005. Separately, we have
      additional unused credit lines of $5.0 million, also with our correspondent
      bank, Atlantic Central Bankers Bank.





**Employees**





At
      December 31, 2006, we had a total of 28 full-time and 5 part-time employees.
      None of our employees are represented by any collective bargaining agreement.
      Management considers our employee relations to be good.





**Regulation**





***General.*** The Bank
      is a national bank subject to regulation, examination, and supervision by the
      OCC, as the primary regulator, and by the FDIC, as the deposit insurer. As
      part
      of this supervision, we are required to file periodic reports with the OCC
      concerning our activities and financial condition. We must also obtain
      regulatory approval before commencing certain activities or engaging in
      transactions such as mergers and other business combinations or the
      establishment, closing, purchase or sale of branch offices. The Bank is subject
      to a semi-annual assessment, based upon total assets, which is used to fund
      the
      operations of the OCC.





***Insurance
      of Accounts and Regulation by the FDIC*** **.** Our
      deposits are insured by the FDIC. The FDIC insures deposits up to a maximum
      of
      $100,000 per separately insured depositor and up to a maximum of $250,000 for
      self-directed retirement accounts. As insurer, the FDIC imposes deposit
      insurance assessments and is authorized to conduct examinations of, and to
      require reporting by, FDIC-




**20**


insured
      institutions. The FDIC may prohibit any FDIC-insured institution from engaging
      in any activity the FDIC determines by regulation or order to pose a serious
      risk to the deposit insurance funds. The FDIC also has the authority to initiate
      enforcement actions against banks, after giving the OCC an opportunity to take
      such action, and may terminate our deposit insurance if it determines that
      we
      has engaged or is engaging in unsafe or unsound practices, or is in an unsafe
      or
      unsound condition.





On
      February 15, 2006, federal legislation to reform federal deposit insurance
      was
      enacted. This new legislation required, among other things, that the FDIC adopt
      regulations increasing the maximum amount of federal deposit insurance coverage
      per separately insured depositor beginning in 2010 (with a cost of living
      adjustment to become effective in five years) and modifying the deposit fund’s
      reserve ratio for a range between 1.15% and 1.50% of estimated insured
      deposits.





On
      November 2, 2006, the FDIC adopted final regulations establishing a risk-based
      assessment system that will enable the FDIC to more closely tie each financial
      institution’s premiums to the risk it poses to the deposit insurance fund. Under
      the new risk-based assessment system, which becomes effective in the beginning
      of 2007, the FDIC will evaluate the risk of each financial institution based
      on
      three primary sources of information: (1) its supervisory rating, (2) its
      financial ratios, and (3) its long-term debt issuer rating, if the institution
      has one. The new rates for nearly all of the financial institution industry
      will
      vary between five and seven cents for every $100 of domestic deposits. At the
      same time, the FDIC also adopted final regulations designating the reserve
      ratio
      for the deposit insurance fund during 2007 at 1.25% of estimated insured
      deposits. Effective March 31, 2006, the FDIC merged the Bank Insurance Fund
      and
      the Savings Association Insurance Fund into a single insurance fund called
      the
      Deposit Insurance Fund.





***Loans
      to One Borrower.*** Federal
      law and regulation limit the amount that the Bank may lend to any one borrower
      to 15% of the Bank’s capital and surplus plus an additional 10% of the Bank’s
      capital and surplus if such additional amount is fully secured by readily
      marketable collateral. At December 31, 2006, the Bank’s regulatory limit on
      loans to one borrower was $2.8 million. At that date, we were in compliance
      with
      our legal lending limit.





***Regulatory
      Capital Requirements.*** Federally insured banks are required to maintain minimum levels of regulatory
      capital. Capital adequacy is measured within the guidelines defined as either
      Tier 1 or Tier 2 capital. Tier 1 capital consists primarily of common stock
      and
      retained earnings. Tier 2 capital consists primarily of certain debt instruments
      and a portion of loan loss reserves. There are two measures of capital adequacy
      for banks, the Tier 1 leverage ratio and the risk-based requirements. A bank
      must maintain a minimum Tier 1 leverage ratio of 4 percent of total assets.
      In
      addition, Tier 1 capital must equal 4 percent of risk-weighted assets and total
      Tier 1 and Tier 2 capital must equal 8 percent of risk-weighted assets. A bank’s
      total “risk based assets” is determined by assigning our assets and off-balance
      sheet items to one of four risk categories based upon our relative credit risks.
      The greater the risk associated with an asset, the greater the amount of such
      asset that will be subject to capital requirements.




Federal
      banking agencies, under certain circumstances, are required to take prompt
      corrective action against banks that fail to meet their capital requirements.
      The OCC is generally required to take action to restrict the activities of
      an
“undercapitalized institution” (generally defined to be one with less than
      either a 4 percent Tier 1 leverage ratio, a 4 percent Tier 1 risk-based capital
      ratio or an 8 percent total Tier 1 and Tier 2 risk-based capital ratio). Any
      such bank may not increase its assets, acquire another institution, establish
      a
      branch or engage in any new activities, and generally may not make capital
      distributions. The OCC is authorized to impose the additional restrictions
      that
      are applicable to significantly undercapitalized associations.





**21**


To
      be
      considered “adequately capitalized,” a bank must generally have a leverage ratio
      of at least 4 percent, a Tier 1 capital to risk-weighted assets ratio of a
      least
      4 percent and total Tier 1 and Tier 2 capital to risk-weighted assets ratio
      of a
      least 8 percent. To be categorized as “well capitalized,” a bank must maintain a
      minimum total risk-based capital ratio of 10 percent, a Tier1 risk-based capital
      ratio of at least 6 percent and a Tier 1 leverage ratio of at least 5 percent.
      At December 31, 2006, we met the definition of “well capitalized” under the
      regulatory framework for prompt corrective action.





***Community
      Reinvestment Act and Fair Lending.*** Under
      the federal Community Reinvestment Act (“CRA”), we have a continuing and
      affirmative obligation consistent with safe and sound banking practices, to
      help
      meet the credit needs of our entire community, including low and moderate,
      income neighborhoods. The CRA does not establish specific lending requirements
      or programs for financial institutions nor does it limit an institution’s
      discretion to develop the types of products and services that it believes are
      best suited to our particular community, consistent with the CRA. The CRA
      requires the OCC, in connection with the examination of the Bank to assess
      our
      record of meeting the credit needs of our community and to take such record
      into
      account in our evaluation of certain applications, such as a merger or the
      establishment of a branch. The OCC may use an unsatisfactory rating as the
      basis
      for the denial of an application. We must also comply with the Federal Equal
      Credit Opportunity Act and the New York Executive Law, which prohibits creditors
      from discrimination in their lending practices on basis specified in these
      statutes.





***Transactions
      with Affiliates and Insiders.*** Federal
      regulations govern transactions between the Bank and its affiliates. In general,
      an affiliate is any company that controls, is controlled by, or under common
      control, with the Bank. Federal law limits the extent to which the Bank or
      its
      subsidiaries may engage in “covered transactions” with any one affiliate to 10%
      of our capital stock and surplus, and contains an aggregate limit of 20% of
      our
      capital stock and surplus. Covered transactions include loans, asset purchases,
      the issuance of guarantees and similar transactions. Our loans to insiders
      are
      required to be made on terms that are as favorable to us as transactions with
      non-insiders and approved in advance by a majority of our disinterested
      directors.





***Payment
      of Dividends.*** The
      OCC
      regulates the amount of dividends and other capital distributions that we may
      pay to our shareholders. All dividends must be paid out of undivided profits
      and
      cannot be paid out from capital. In general, if all OCC capital requirements
      are
      satisfied both before and after a dividend payment, a dividend may be paid,
      in
      any year, equal to the current year’s net income plus retained net income for
      the preceding two years that is still available for dividend. A dividend may
      not
      be declared if the Bank is considered “undercapitalized” under OCC
      regulations.





***Federal
      Securities Law.*** The
      stock of the Company is registered with the SEC under the Exchange Act. The
      Company is subject to the information, reporting, proxy solicitation, insider
      trading restrictions and other requirements of the SEC under the Exchange Act
      as
      administered and enforced by the OCC.





***Federal
      Reserve System.*** The
      Federal Reserve Board requires all depository institutions to maintain
      non-interest bearing reserves at specified levels against their transaction
      accounts (primarily checking, NOW and Super NOW checking accounts) and
      non-personal time accounts. Since these reserves are maintained as vault cash
      or
      other non-interest bearing accounts, they have the effect of reducing a bank’s
      earnings. At December 31, 2006, we were in compliance with these reserve
      requirements.





**22**


***USA
      PATRIOT Act.*** The
      USA
      PATRIOT Act was signed into law on October 26, 2001. The USA PATRIOT Act gives
      the federal government new powers to address terrorist threats through enhanced
      domestic security measures, expanded surveillance powers, increased information
      sharing and broadened anti-money laundering requirements. The USA PATRIOT Act
      also requires the federal banking agencies to take into consideration the
      effectiveness of controls designed to combat money-laundering activities in
      whether to approve a merger or other acquisition application of a member
      institution. Accordingly, if we engage in a merger or other acquisition, our
      controls to combat money laundering would be considered as part of the
      application process. We have established policies, procedures and systems
      designed to comply with these regulations.






























































**23**





**Item
      2.** **Properties**





The
      following table sets forth information concerning our properties at December
      31,
      2006. Our premises had an aggregate net book value of approximately $436,000
      at
      that date.





Location
            
            Year
              Acquired/Leased
            
            Owned
                or Leased
            
            Net
                Book Value at December 31, 2006(Dollars
                in thousands)***Corporate
                Headquarters***
              ***And
                Main Office:***68
                North Plank Road
              Newburgh,
                New York 12550
            
            2004
            
            Leased
            
            $
                337***Branch
                Office:***257
                Main Street
              New
                Paltz, New York 12561
            
            2004
            
            Leased
            
            $
                99***Lending
                Offices:***4459
                Amboy Road, Suite 2
              Staten
                Island, New York 10312
            
            2004
            
            Leased
            
            —44
                Atlantic Avenue
              Lynbrook,
                New York 11563
            
            2006
            
            Leased
            
            —








**Item
      3.** **Legal
      Proceedings**





From
      time
      to time, we are involved as plaintiff or defendant in various legal proceedings
      arising in the ordinary course of business. At December 31, 2006, we were not
      involved in any legal proceedings, the outcome of which would be material to
      our
      financial condition or results of operations.






**Item
      4.** **Submission
      of Matters to a Vote of Security Holders**





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the quarter ended December 31, 2006.








**24**


**PART
      II**





**Item
      5.** **Market
      for Registrant’s Common Equity and Related Stockholder
      Matters**





The
      Common Stock of ES Bancshares, Inc., is traded on the OTC BB market under the
      symbol ESBS. At December 31, 2006, the common stock was held by approximately
      700 shareholders of record. The following table shows the range of high and
      low
      market prices for our stock for the quarters indicated. There were no dividends
      declared or paid in any quarter. The payment of any future cash dividends is
      dependent on the results of operations and financial condition of the Company
      as
      well as tax considerations, economic and market conditions, regulatory
      restrictions, regulatory capital requirements and other factors.





**Year
                ended**
              **December
                31, 2006**
            
            **High**
            
            **Low**
            
            **Cash
                Dividends Declared**Fourth
                quarter
            
            $
            9.75
            
            $
            8.00
            
            $
            —Third
                quarter
            
            
            9.75
            
            
            8.75
            
            
            —Second
                quarter
            
            
            9.90
            
            
            8.55
            
            
            —First
                quarter
            
            
            10.50
            
            
            7.95
            
            
            —








**Year
                ended**
              **December
                31, 2005**
            
            **High**
            
            **Low**
            
            **Cash
                Dividends Declared**Fourth
                quarter
            
            $
            10.50
            
            $
            9.50
            
            $
            —Third
                quarter
            
            
            9.90
            
            
            9.25
            
            
            —Second
                quarter
            
            
            10.25
            
            
            9.05
            
            
            —First
                quarter
            
            
            10.50
            
            
            9.80
            
            
            —





**Item
      6.** **Management’s
      Discussion and Analysis and Results of Operations**





**General**





The
      Company’s results of operations are dependent primarily on net interest income,
      which is the difference between the interest income earned on its
      interest-earning assets, such as loans and securities, and the interest expense
      on its interest-bearing liabilities, such as deposits and borrowed funds.
      Results of operations are also affected by non-interest income and expense,
      and
      the provision for loan losses. Non-interest income consists primarily of service
      charges, gains on sale of loans, and other fees. Non-interest expense consists
      primarily of employee compensation and benefits, occupancy expenses, data
      processing fees, and other operating expenses. The Company’s results of
      operations are also significantly affected by general economic and competitive
      conditions (particularly changes in market interest rates), government policies,
      changes in accounting standards and actions of regulatory agencies.





**Analysis
      of Net Interest Income**





Net
      interest income is the difference between interest income on interest-earning
      assets and interest expense on interest-bearing liabilities. Net interest income
      depends on the relative amounts of interest-earning assets and interest-bearing
      liabilities and the interest rates earned or paid on them,
      respectively.





**25**


The
      following table sets forth average balance sheets, average yields and costs,
      and
      certain other information for the years ended December 31, 2006 and 2005,
      respectively. The table reflects the average yield on interest-earning assets
      and the average cost of interest-bearing liabilities (derived by dividing
      interest income or expense by the monthly average balance of interest-earning
      assets or interest-bearing liabilities, respectively), as well as the net yield
      on interest-earning assets. No tax-equivalent adjustments were made. The yields
      set forth below include the effect of deferred loan origination fees and costs,
      and purchase discounts and premiums that are amortized or accreted to interest
      income.


























































**26**


**Year
                Ended December 31,**
            
            **Year
                Ended December 31,****2006**
            
            **2005****Average
                Balance**
            
            **Interest**
            
            **Average
                Yield/Cost**
            
            **Average
                Balance**
            
            **Interest**
            
            **Average
                Yield/Cost****Assets**Interest-earning
                assets:Loans
                receivable (1)
            
            $
            50,156
            
            $
            3,575
            
            
            7.13
            %
            $
            19,670
            
            $
            1,253
            
            
            6.37
            %Fed
                funds sold
            
            
            9,710
            
            
            484
            
            
            4.99
            %
            
            10,386
            
            
            327
            
            
            3.15
            %Certificates
                of deposit
            
            
            3,156
            
            
            165
            
            
            5.22
            %
            
            703
            
            
            29
            
            
            4.13
            %FRB
                stock
            
            
            362
            
            
            22
            
            
            6.00
            %
            
            408
            
            
            24
            
            
            5.88
            %Securities
                available for sale (2)
            
            
            8,899
            
            
            406
            
            
            4.56
            %
            
            7,817
            
            
            277
            
            
            3.54
            %Total
                interest-earning assets
            
            
            72,283
            
            
            4,652
            
            
            6.44
            %
            
            38,984
            
            
            1,910
            
            
            4.90
            %Allowance
                for loan losses
            
            
            (240
            )
            
            
            
            
            
            
            
            (64
            )Non-interest-earning
                assets
            
            
            3,902
            
            
            
            
            
            
            
            
            3,349Total
                assets
            
            $
            75,945
            
            
            
            
            
            
            
            $
            42,269**Liabilities
                and Stockholders’ Equity**Interest-bearing
                liabilities:NOW
                accounts
            
            $
            912
            
            
            3
            
            
            0.30
            %
            $
            829
            
            
            2
            
            
            0.24
            %Money
                market accounts
            
            
            33,196
            
            
            1,578
            
            
            4.75
            %
            
            12,877
            
            
            338
            
            
            2.62
            %Regular
                savings accounts (3)
            
            
            3,829
            
            
            110
            
            
            2.89
            %
            
            2,914
            
            
            64
            
            
            2.20
            %Certificates
                of deposit
            
            
            17,177
            
            
            816
            
            
            4.75
            %
            
            6,068
            
            
            226
            
            
            3.72
            %Total
                interest-bearing deposits
            
            
            55,114
            
            
            2,507
            
            
            4.55
            %
            
            22,688
            
            
            630
            
            
            2.78
            %Borrowings
            
            
            19
            
            
            1
            
            
            8.25
            %
            
            —
            
            
            —
            
            
            —Total
                interest-bearing liabilities
            
            
            55,133
            
            
            2,508
            
            
            4.55
            %
            
            22,688
            
            
            630
            
            
            2.78
            %Non-interest-bearing
                liabilities
            
            
            9,228
            
            
            
            
            
            
            
            
            6,637Total
                liabilities
            
            
            64,361
            
            
            
            
            
            
            
            
            29,325Stockholders’
                equity
            
            
            11,584
            
            
            
            
            
            
            
            
            12,944Total
                liabilities and stockholders’ equity
            
            
            75,945
            
            
            
            
            
            
            
            
            42,269Net
                interest income
            
            
            
            
            $
            2,144
            
            
            
            
            
            
            
            $
            1,280Average
                interest rate spread (4)
            
            
            
            
            
            
            
            
            1.89
            %
            
            
            
            
            
            
            
            2.12
            %Net
                interest margin (5)
            
            
            
            
            
            
            
            
            2.97
            %
            
            
            
            
            
            
            
            3.28
            %Net
                interest-earning assets (6)
            
            $
            17,150
            
            
            
            
            
            
            
            $
            16,296Ratio
                of average interest-earning assets to average interest-bearing
                liabilities
            
            
            
            
            
            
            
            
            131.11
            %
            
            
            
            
            
            
            
            171.83
            %





(1)
            Balances
                are net of deferred loan costs and include loans held for sale.


(2)
            Average
                balances represent amortized cost.


(3)
            Includes
                mortgage escrow accounts


(4)
            Average
                interest rate spread represents the difference between the yield
                on
                average interest-earning assets and the cost of average interest-bearing
                liabilities


(5)
            Net
                interest margin represents net interest income divided by average
                total
                interest-earning assets.


(6)
            Net
                interest-earning assets represents total interest-earning assets
                less
                total interest-bearing liabilities.




**27**


The
      following table presents the dollar amount of changes in interest income and
      interest expense for the major categories of our interest-earning assets and
      interest-bearing liabilities. Information is provided for each category of
      interest-earning assets and interest-bearing liabilities with respect to (i)
      changes attributable to changes in volume (i.e., changes in average balances
      multiplied by the prior-period average rate) and (ii) changes attributable
      to
      rate (i.e., changes in average rate multiplied by prior-period average
      balances). For purposes of this table, changes attributable to both rate and
      volume, which cannot be segregated, have been allocated proportionately to
      the
      change due to volume and the change due to rate.









Years
              Ended December 31,2006
                vs. 2005Increase
                (Decrease) Due to
            
            NetRate
            
            Volume(In
                thousands)**Interest-earning
                assets:**Loans
                receivable
            
            $
            265
            
            $
            2,057
            
            $
            2,322Fed
                funds sold
            
            
            184
            
            
            (27
            )
            
            157Certificates
                of deposit
            
            
            22
            
            
            114
            
            
            136FRB
                stock
            
            
            —
            
            
            (2
            )
            
            (2
            )Securities
                available for sale
            
            
            86
            
            
            43
            
            
            129Total
                interest-earning assets
            
            
            557
            
            
            2,185
            
            
            2,742**Interest-bearing
                liabilities**:NOW
                accounts
            
            
            1
            
            
            —
            
            
            1Money
                market accounts
            
            
            496
            
            
            744
            
            
            1,240Regular
                savings accounts
            
            
            23
            
            
            23
            
            
            46Certificates
                of deposit
            
            
            120
            
            
            470
            
            
            590Total
                interest-bearing deposits
            
            
            640
            
            
            1,237
            
            
            1,877Borrowings
            
            
            —
            
            
            1
            
            
            1Total
                interest-bearing liabilities
            
            
            640
            
            
            1,238
            
            
            1,878Net
                change in interest income
            
            
            (83
            )
            
            947
            
            
            864























**28**


**Forward-Looking
      Statements**





This
      Report on Form 10-KSB includes “forward-looking statements” within the meaning
      of the Securities Act of 1933, as amended, and the Securities Exchange Act
      of
      1934, as amended, that are based on the current beliefs of, as well as
      assumptions made by and information currently available to, the management
      of
      we. All statements other than statements of historical facts included in this
      Report, including, without limitation, statements contained under the caption
      “Management’s Discussion and Analysis” regarding our business strategy and plans
      and objectives of the management of the Company for future operations, are
      forward-looking statements. When used in this Report, the words “anticipate”,
“believe”, “estimate”, “project”, “predict”, “expect”, “intend” or words or
      phrases of similar import, as they relate to the Company or our management,
      are
      intended to identify forward-looking statements. Although we believe that the
      expectations reflected in such forward-looking statements are reasonable, such
      expectations may not prove to be correct. All forward-looking statements are
      subject to risks and uncertainties that could cause actual results to differ
      materially from those anticipated, believed, estimated, projected, predicted,
      expected or intended including risks and uncertainties including changes in
      economic conditions in our market area, changes in local real estate values,
      changes in regulatory policies, fluctuations in interest rates, local loan
      demand levels, competition, our ability to control expenses and other factors.
      We do not intend to update these forward-looking statements. All subsequent
      written and oral forward-looking statements attributable to us or persons acting
      on our behalf are expressly qualified in their entirety by applicable cautionary
      statements.





**Comparison
      of Financial Condition at December 31, 2006 and December 31,
      2005**





***Total
      assets*** *.* Total
      assets as of December 31, 2006 were $93.0 million, an increase of $36.9 million,
      or 65.8%, from total assets of $56.1 million at December 31, 2005.





***Total
      securities.*** Total
      securities increased by $3.0 million, or 46.9%, to $9.4 million at December
      31,
      2006 from $6.4 million at December 31, 2005. Investments were made primarily
      in
      federal agency securities with funds provided from the increase in the Bank’s
      deposits.





***Loans
      receivable, net.*** ** Total
      loans receivable, net, which include real estate mortgage loans held for sale,
      as of December 31, 2006 were $61.2 million, an increase of $27.2 million from
      $34.0 million at December 31, 2005. The increase in loans receivable, net,
      was
      primarily attributable to the Bank’s ability to attract and acquire new business
      relationships, principally in the commercial mortgage sector and, to a lesser
      extent, to commercial, construction, home equity and consumer
      loans.





***Deposits.*** ** Deposits
      as of December 31, 2006 were $81.5 million, up $38.1 million from $43.4 million
      at December 31, 2005. The Bank’s deposit mix changed along with the deposit
      growth. Transaction accounts (demand and NOW deposits) totaled $9.6 million
      and
      represented 11.7% of total deposits at December 31, 2006, compared to $10.6
      million, or 24.4% of total deposits, at December 31, 2005. Savings and money
      market account balances, which totaled $52.6 million at December 31, 2006,
      represented 64.6% of total deposits as of that date compared to $18.7 million,
      or 43.1% of total deposits, one-year earlier. Growth in this category was
      attributable primarily to increases in money market account balances that
      offered a competitive interest rate associated with the Federal Reserve Bank’s
      targeted rate for federal funds. Savings certificates, which include $2.0
      million in brokered CDs, increased to $19.3 million, or 23.7% of deposits at
      December 31, 2006, from $14.1 million, or 32.5%, at December 31, 2005. While
      management would like to accumulate core deposits as a basis of sound growth
      and
      profitability, the Bank has primarily relied more on higher costing savings
      certificates and money market accounts in order to fund and sustain its high
      loan growth rate.





**29**


***Borrowed
      funds.*** ** At
      December 31, 2006 borrowed funds outstanding amounted to $53,000. These funds
      were used primarily for the costs associated with the Bank’s reorganization into
      a bank holding company.




***Stockholders’
      equity.*** ** Stockholders’
      equity decreased from $12.3 million at December 31, 2005 to $10.9 million at
      December 31, 2006. The decrease in equity resulted primarily from the $1.4
      million net loss for the year that was partially mitigated by a $23,000 decrease
      in the accumulated other comprehensive loss associated with the decrease in
      the
      unrealized losses on the Bank’s securities available for sale. Additionally, the
      sum of the Company’s capital stock and additional paid in capital increased by
      $14,000 from December 31, 2005 to December 31, 2006 as a result of the exercise
      of 50 shareholder warrants and accretion associated with stock based
      compensation.





**Comparison
      of Operating Results for the Years Ended December 31, 2006 and December 31,
      2005**





***General*** **.** Net loss
      for the year ended December 31, 2006, was $1.4 million, a decrease of $111,000,
      or 7.2%, compared to net loss of more than $1.5 million for the prior year.
      Basic and fully diluted loss per share decreased to ($0.83) for the year ended
      December 31, 2006 from ($0.89) for the year ended December 31, 2005. The
      decrease in net loss reflected a $2.7 million increase in interest income that
      was partially offset by a nearly $1.9 million increase in interest expense,
      a
      $402,000 increase in the provision for loan loss, a $1,000 decrease in
      non-interest income, and a $350,000 increase in non-interest expense. Losses
      from operations are expected to continue until the Bank achieves sustainable
      levels of loans and deposits.





***Interest
      Income.*** ** Interest
      income for the year ended December 31, 2006 increased to nearly $4.7 million,
      an
      increase of $2.7 million compared to the year ended December 31, 2005. The
      increase was attributable to the increase in average interest-earning assets,
      which increased to $72.3 million for the year ended December 31, 2006 from
      $39.0
      million for the year ended December 31, 2005, and the higher yields that were
      realized in 2006 as compared to 2005 that resulted from the series of
      well-publicized increases in short-term interest rates by the Federal Open
      Market Committee. The average yield on interest-earning assets for the year
      ended December 31, 2006 was 6.44%, which was 154 basis points higher than the
      4.90% average yield on the Bank’s interest-earning assets for the year ending
      December 31, 2005.





***Interest
      Expense.*** ** Interest
      expense for the year ended December 31, 2006 on total interest-bearing deposits
      increased by $1.9 million when compared to the year ended December 31, 2005.
      The
      increase was primarily due to the increase in average interest-bearing deposit
      balances and the increase in short-term interest rates mentioned earlier.
      Average interest-bearing deposit balances increased $32.4 million, from $22.7
      million for the year ended December 31, 2005 to $55.1 million for the year
      ended
      December 31, 2006, while the average rates paid on interest-bearing deposits
      increased 177 basis points, from 2.78% to 4.55%, over the same respective
      periods.





***Provision
      for Loan Losses*** **.** For the
      year ended December 31, 2006 the provision for loan losses increased $402,000
      as
      compared to the year ended December 31, 2005. The increased provision reflected
      the Company’s changed methodology for establishing provisions for the allowance
      for loan losses. Upon commencing operations the provision for loan losses was
      determined after reviewing peer group information as discussed below. In
      response to the ongoing growth in the loan portfolio, the composition of loans
      and the development of an historical record of loan repayments management
      believed it appropriate to change its methods for establishing provisions.
      See
      Note 1 to Notes to Financial Statements.





As
      a de
      novo institution the Bank did not
      have any historical loan losses to enable management to estimate the probable
      credit losses currently imbedded within the portfolio. Alternatively, along
      with




**30**


other
      criteria, the Bank previously considered peer group credit loss data each period
      in providing the provision, which, based on the moderate growth exhibited by
      the
      loan portfolio, was deemed appropriate. However, in light of the significant
      increase in commercial real estate loan, commercial business loan, and
      construction loan balances, the Bank expanded its current risk analysis
      methodologies. Management bifurcated the loan portfolio segments into various
      pools in order to better evaluate the risks to credits associated by distinct
      geographic and business type concentrations. Additional risk was associated
      to
      portions of the increase in commercial real estate loan balances that resulted
      from participations because of potential different lead-bank underwriting
      standards, and to the absence of a direct relationship between the Bank and
      those borrowers. Moreover, management determined that the weakening local
      economy probably had a detrimental impact on the Bank’s business borrowers, most
      of which have had only a short-term relationship with us. Based on this
      quantitative and qualitative overall assessment, we concluded that a more
      significant provision was appropriate given the relatively unseasoned nature
      of
      the loan portfolio. Given the magnitude of the increased provision management
      discussed its current assessment with the OCC, who concurred with management’s
      determination.





***Non-Interest
      Income.*** **** Total
      non-interest income for the years ended December 31, 2006 and December 31,
      2005
      totaled $408,000 and $409,000, respectively. The increases in service charges
      and fees resulted primarily from deposit growth, while the decrease in the
      net
      gain on sales of real estate mortgage loans held for sale resulted from a
      decreased volume of loan originations attributable to a general softening in
      the
      overall housing market evident this year relative to last. The increase in
      other
      non-interest income was primarily attributable to sales of fixed annuities
      that
      the Bank commenced selling in 2006. **





***Non-Interest
      Expense.*** **** Non-interest
      expense for the year ended December 31, 2006 was approximately $3.5 million
      as
      compared to $3.2 million for year ended December 31, 2005. Compensation and
      benefits increased $199,000 primarily as a result of the hiring of business
      development officers and staff necessary to attract and service an increased
      number of loan and deposit customer relationships. Occupancy and equipment
      increased $100,000 primarily as a result of increases in rent, utilities and
      maintenance costs, and to costs related to the increases in personnel. The
      $30,000 increase in data processing service fees was also primarily attributable
      to the growth and servicing of a larger customer base. The $21,000 increase
      in
      all other non-interest expenses was primarily due to increases in professional
      and consulting fees and other operating expenses related to the expansion of
      the
      Company’s business activities.





***Income
      Tax Expense.*** ** We
      receive no tax benefit from our net operating losses as they are being carried
      forward and will be available to reduce future taxable income.





**Liquidity
      and Capital Resources**





Our
      primary sources of funds are deposits and borrowings, principal and interest
      payments on loans and securities, and proceeds from the sale of loans. While
      maturities and scheduled payments on loans and securities provide an indication
      of the timing of the receipt of funds, other sources of funds such as loan
      prepayments and deposit inflows are less predictable due to the effects of
      changes in interest rates, economic conditions and competition.





Our
      primary investing activities are the origination of loans and the purchase
      of
      investment securities. For the years December 31, 2006 and 2005, we originated
      loans of approximately $56.8 million and $55.7 million, respectively, including
      real estate mortgage loans held for sale. At December 31, 2006 and 2005, we
      had
      outstanding loan origination commitments of $11.7 million and $11.8 million
      and
      undisbursed lines of credit and construction loans in process of $10.2 million
      and $9.3 million,




**31**


respectively.
      We anticipate that we will have sufficient funds available to meet our current
      loan originations and other commitments.





At
      December 31, 2006 and 2005 total deposits were approximately $81.5 million
      and
      $43.4 million, of which approximately $19.3 million and $14.1 million were
      in
      certificates of deposit, respectively. Certificates of deposit scheduled to
      mature in one year or less from December 31, 2006 and 2005 totaled $10.1 million
      and $5.5 million, respectively. Management anticipates that a substantial
      portion of our maturing certificate of deposit accounts will be
      renewed





During
      2006, the Company completed its formation. In order to pay the various costs
      associated with its formation, as well as other subsequent expenses as incurred,
      the Company secured a credit facility of $200,000 from its wholesale
      correspondent bank, Atlantic Central Bankers Bank, of which $53,000 has been
      exercised. Separately, the Bank has an unused credit line of $5.0 million with
      the same correspondent. While we have never used these additional credit lines,
      we may do so in the future based upon our need for funds and the cost of
      deposits as an alternative source of funds. In general we manage our liquidity
      by maintaining sufficient levels of overnight federal funds sold and other
      short-term investments so that funds are available for investment in loans
      when
      needed.





**Impact
      of Inflation and Changing Prices**





The
      Financial Statements and related Notes have been prepared in conformity with
      accounting principles generally accepted in the United States of America, which
      require the measurement of financial position and operating results without
      considering the change in the relative purchasing power of money over time
      due
      to inflation. The impact of inflation is reflected in the increased cost of
      our
      operations. Unlike most industrial companies, nearly all of our assets and
      liabilities are financial in nature. As a result, our net income is directly
      impacted by changes in interest rates, which are influenced by inflationary
      expectations. Our ability to match the interest sensitivity of our financial
      assets to the interest sensitivity of our financial liabilities as part of
      our
      interest rate risk management program may reduce the effect that changes in
      interest rates have on our net income. Changes in interest rates do not
      necessarily move to the same extent as changes in prices of goods and services.
      In the current interest rate environment, liquidity and the maturity structure
      of our assets and liabilities are critical to the maintenance of acceptable
      levels of net income. Management believes that by maintaining a significant
      portion of our assets in short-term investments, adjustable rate mortgage-backed
      securities and adjustable rate loans, we will be able to redeploy our assets
      in
      a rising interest rate environment.













**32**


**Item
      7.** **Financial
      Statements**











**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








Board
      of
      Directors


ES
      Bancshares, Inc.


Newburgh,
      New York











We
      have
      audited the accompanying consolidated statements of financial condition of
      ES
      Bancshares, Inc. as of December 31, 2006 and 2005, and the related consolidated
      statements of operations, changes in stockholders’ equity and cash flows for
      each of the two years then ended. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of ES Bancshares, Inc. as of December
      31, 2006 and 2005, and the results of its operations and its cash flows for
      each
      of the two years then ended in conformity with U.S. generally accepted
      accounting principles.





/s/
      Crowe Chizek and Company LLC





Crowe
      Chizek and Company LLC








Livingston,
      New Jersey


March
      20,
      2007














**33**




**ES
                    BANCSHARES, INC.****CONSOLIDATED
                  STATEMENTS OF FINANCIAL CONDITION****(Dollars
                  in thousands)**
  December
                  31,2006
              
              2005ASSETSCash
                  and cash equivalents:Cash
                  and due from banks
              
              $
              2,734
              
              $
              2,972Federal
                  funds sold
              
              
              11,609
              
              
              7,829Total
                  cash and cash equivalents
              
              
              14,343
              
              
              10,801Certificates
                  of deposit at other financial institutions
              
              
              5,746
              
              
              2,749Securities:Available
                  for sale, at fair value
              
              
              9,443
              
              
              6,380Real
                    estate mortgage loans held for sale atlower of cost or market
                    value
              
              
              215
              
              
              679Loans
                  receivable
              
              
              61,228
              
              
              33,190Deferred
                  cost
              
              
              344
              
              
              241Allowance
                  for loan losses
              
              
              (581
              )
              
              (106
              )Loans
                  receivable, net
              
              
              60,991
              
              
              33,325Accrued
                  interest receivable
              
              
              515
              
              
              180Federal
                  Reserve Bank stock
              
              
              335
              
              
              378Goodwill
              
              
              581
              
              
              581Office
                  properties and equipment, net
              
              
              741
              
              
              842Prepaid
                  expenses
              
              
              74
              
              
              75Other
                  assets
              
              
              55
              
              
              63Total
                  assets
              
              $
              93,039
              
              $
              56,053LIABILITIES
                  AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Non-interest
                  bearing
              
              $
              8,156
              
              $
              10,073Interest
                  bearing
              
              
              73,318
              
              
              33,304Borrowed
                  funds
              
              
              53
              
              
              —Accounts
                  payable
              
              
              130
              
              
              307Other
                  liabilities
              
              
              440
              
              
              37Total
                  liabilities
              
              
              82,097
              
              
              43,721Commitments
                  and contingenciesStockholders'
                  equityCapital
                        stock (par value $0.01: 5,000,000 shares authorized
                      1,719,227
                        sharesissued
                        at December 31, 2006
                      1,719,177
                        shares, $5.00 parissued at December 31,
                        2005)
              
              
              17
              
              
              8,596Additional
                  paid-in-capital
              
              
              16,869
              
              
              8,276Accumulated
                  deficit
              
              
              (5,845
              )
              
              (4,418
              )Accumulated
                  other comprehensive loss
              
              
              (99
              )
              
              (122
              )Total
                  stockholders' equity
              
              
              10,942
              
              
              12,332Total
                  liabilities and stockholders' equity
              
              $
              93,039
              
              $
              56,053


**34**


**ES
                    BANCSHARES, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****YEARS
                  ENDED DECEMBER 31, 2006 AND 2005****(In
                  thousands, except per share data)**
  2006
              
              2005Interest
                  and dividend income:Loans
              
              $
              3,575
              
              $
              1,253Securities
              
              
              406
              
              
              277Certificates
                  of deposit
              
              
              165
              
              
              29Other
                  earning assets
              
              
              506
              
              
              351Total
                  interest and dividend income
              
              
              4,652
              
              
              1,910Interest
                  expense:Deposits
              
              
              2,507
              
              
              630Borrowed
                  funds
              
              
              1
              
              
              —Total
                  interest expense
              
              
              2,508
              
              
              630Net
                  interest income
              
              
              2,144
              
              
              1,280Provision
                  for loan losses
              
              
              476
              
              
              74Net
                  interest income after provision for loan losses
              
              
              1,668
              
              
              1,206Non-interest
                  income:Service
                  charges and fees
              
              
              207
              
              
              128Net
                    gain on sales of real estate mortgageloans held for
                    sale
              
              
              169
              
              
              268Other
              
              
              32
              
              
              13Total
                  non-interest income
              
              
              408
              
              
              409Non-interest
                  expense:Compensation
                  and benefits
              
              
              1,810
              
              
              1,611Occupancy
                  and equipment
              
              
              644
              
              
              544Data
                  processing service fees
              
              
              143
              
              
              113Other
              
              
              906
              
              
              885Total
                  non-interest expense
              
              
              3,503
              
              
              3,153<Loss>
                  before income taxes
              
              
              1,427
              
              
              1,538Income
                  tax expense
              
              
              —
              
              
              —Net
                  loss
              
              $
              (1,427
              )
              $
              (1,538
              )(Loss)
                  per common share:Basic
              
              $
              (0.83
              )
              $
              (0.89
              )Diluted
              
              $
              (0.83
              )
              $
              (0.89
              )Weighted
                  average common shares
              
              
              1,719,205
              
              
              1,719,161Weighted
                  average dilutive shares
              
              
              —
              
              
              —Weighted
                  average diluted common shares
              
              
              1,719,205
              
              
              1,719,161


See
      accompanying notes to financial statements





**35**


**ES
                  BANCSHARES, INC.****CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND 2006****(In
                  dollars, except share
                  data)**
    **Accumulated****Additional**
              
              
              
              **Other****Capital
                  Stock**
              
              **Paid-In**
              
              **Accumulated**
              
              **Comprehensive****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **(Loss)**
              
              **Total**Balance
                  at January 1, 2005
              
              
              1,719,127
              
              
              8,596
              
              
              8,192
              
              
              (2,880
              )
              
              (54
              )
              
              13,854Exercise
                  of 50 stock warrants
              
              
              50
              
              
              —
              
              
              1
              
              
              —
              
              
              —
              
              
              1Vested
                  stock options
              
              
              —
              
              
              —
              
              
              83
              
              
              —
              
              
              —
              
              
              83Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,538
              )
              
              —
              
              
              (1,538
              )Net
                    unrealized (loss) on available-for-sale securities
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (68
              )
              
              (68
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,606
              )Balance
                  at December 31, 2005
              
              
              1,719,177
              
              
              8,596
              
              
              8,276
              
              
              (4,418
              )
              
              (122
              )
              
              12,332Exchange
                        of 1,719,227 shares ofEmpire State Bank, NA, $5.00 par value,
                        for
                        1,719,227 shares of ES Bancshares, Inc.,$0.01 par
                        value.
              
              
              
              
              
              (8,579
              )
              
              8,579
              
              
              
              
              
              
              
              
              —Exercise
                  of 50 stock warrants
              
              
              50
              
              
              —
              
              
              1
              
              
              —
              
              
              —
              
              
              1Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              13
              
              
              —
              
              
              —
              
              
              13Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,427
              )
              
              —
              
              
              (1,427
              )Net
                    unrealized gain on available-for-sale securities
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              23
              
              
              23Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,404
              )Balance
                  at December 31, 2006
              
              
              1,719,227
              
              $
              17
              
              $
              16,869
              
              $
              (5,845
              )
              $
              (99
              )
              $
              10,942
   See
          accompanying notes to financial statements





**36**


**ES
                  BANCSHARES, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****FOR
                  THE YEARS ENDED DECEMBER 31, 2006 AND 2005****(In
                  thousands)**
   2006
              
              2005Cash
                  flows from operating activities:Net
                  loss for period
              
              $
              (1,427
              )
              $
              (1,538
              )Adjustments
                    to reconcile net losses to net cashprovided by operating
                    activities:Provision
                  for loan losses
              
              
              476
              
              
              74Depreciation
                  expense
              
              
              199
              
              
              194Amortization
                  of deferred fees, discounts and premiums, net
              
              
              (4
              )
              
              5Net
                  originations on loans held for sale
              
              
              633
              
              
              27Net
                  gain on sale of real estate mortgage loans held for sale
              
              
              (169
              )
              
              (268
              )Stock
                  compensation expense
              
              
              13
              
              
              83Changes
                  in assets and liabilitiesIncrease
                  in other assets
              
              
              (325
              )
              
              (119
              )Increase
                  in accrued expenses and other liabilities
              
              
              225
              
              
              165Net
                  cash used in operating activities
              
              
              (379
              )
              
              (1,377
              )Cash
                  flows from investing activities:Maturity
                  of certificates of deposit at other financial institutions
              
              
              5,499
              
              
              3,199Purchase
                  of certificates of deposit at other financial institutions
              
              
              (8,496
              )
              
              (5,948
              )Purchase
                  of available-for-sale securities
              
              
              (5,897
              )
              
              (2,320
              )Proceeds
                  from principal payments and maturities of securities
              
              
              2,861
              
              
              7,169Net
                  disbursements for loan originations
              
              
              (28,142
              )
              
              (27,975
              )Redemption
                  of Federal Reserve Bank stock
              
              
              43
              
              
              56Leasehold
                  improvements and acquisitions of capital assets
              
              
              (98
              )
              
              (45
              )Net
                  cash used in investing activities
              
              
              (34,230
              )
              
              (25,864
              )Cash
                  flows from financing activities:Net
                  increase in deposits
              
              
              38,097
              
              
              26,938Proceeds
                  of advance from line of credit
              
              
              53
              
              
              —Proceeds
                  from stock issuance
              
              
              1
              
              
              1Net
                  cash provided by financing activities
              
              
              38,151
              
              
              26,939Net
                  increase (decrease) in cash and cash equivalents
              
              
              3,542
              
              
              (302
              )Cash
                  and cash equivalents at beginning of period
              
              
              10,801
              
              
              11,103Cash
                  and cash equivalents at end of period
              
              $
              14,343
              
              $
              10,801Supplemental
                  cash flow informationInterest
                  paid
              
              $
              2,422
              
              $
              594Income
                  taxes paid
              
              $
              —
              
              $
              —


See
          accompanying notes to financial statements
  
 **37**


**NOTES
        TO FINANCIAL STATEMENTS**
 
 **NOTE
        1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Nature
        of Operations**
 
 Empire
        State Bank, NA (the “Bank”) was organized under federal law as a national bank
        to primarily service the communities in and around Orange County and Ulster
        County, New York.  The Bank’s organizers filed an application with the
        Office of the Comptroller of the Currency (“OCC”), the primary regulator of
        national banks, as of July 2, 2003, seeking preliminary approval to organize
        the
        Bank.  The OCC granted such preliminary approval in November 18, 2003
        and granted final approval on June 24, 2004.  On or about the same
        date as the Bank’s application was filed with the OCC, the Bank’s organizers
        filed an application for federal deposit insurance with the Federal Deposit
        Insurance Corporation (the “FDIC”), with respect to which conditional approval
        was granted on April 6, 2004, and final approval was granted on June 24,
        2004.  On December 8, 2003, the Bank’s organizers pursuant to OCC
        preliminary approval adopted the Bank’s Articles of Association and Organization
        Certificate, thereby establishing the Bank’s corporate
        existence.  There are no legal predecessors to the
        Bank.  Upon receipt of final approvals from the OCC and FDIC, the Bank
        commenced operations on June 28, 2004.
 
 **The
        Offering**
 
 The
        Bank
        filed a securities offering registration statement on Form SB-2 on December
        12,
        2003, which was amended and subsequently declared effective by the OCC as
        of
        January 9, 2004.  Pursuant to such registration statement, the Bank in
        a common stock offering beginning on January 9, 2004 through April 28, 2004,
        sold 1,650,000 shares of its common stock at a price of $10.00 per share,
        for an
        aggregate consideration of $16,500,000 (the “Offering”).  In addition,
        for every five (5) shares of common stock purchased by a subscriber in the
        offering, such subscriber received a warrant to purchase, within a three-year
        period, one (1) share of common stock at an exercise price of $12.50 per
        share.
 
 The
        Board of Directors entered into an
        Agreement and Plan of Share Exchange (the “Plan”) on March 21, 2006, as amended
        and restated as of May 16, 2006, under which we reorganized into a one-bank
        holding company structure (the “Reorganization”).  In connection with
        the Reorganization, the Bank formed ES Bancshares, Inc. (the “Company”), a
        Maryland corporation, to serve as its holding company.  The
        Reorganization was effected by an exchange of all of the outstanding shares
        of
        Bank Common Stock for shares of Company Common Stock (the “Share
        Exchange”).  Following the Share Exchange, the Bank became a wholly
        owned subsidiary of the Company and former shares of Bank Common Stock represent
        the same number of shares of Company Common Stock.
 
 The
        Company filed a Registration Statement on Form S-4 that the Securities and
        Exchange Commission (the “SEC”) declared effective on May 25,
        2006.  The Bank’s shareholders approved the Reorganization at our
        Annual Meeting of Shareholders on July 6, 2006.  The Reorganization
        was completed on August 15, 2006.
 
 The
        consolidated financial statements include the accounts of ES Bancshares,
        Inc.
        and its wholly owned subsidiary Empire State Bank, NA.  The Company’s
        financial condition and operating results principally reflect those of the
        Bank.  All intercompany balances and amounts have been
        eliminated.
 
 The
        Bank
        is a full service commercial bank that offers a variety of financial services
        to
        meet the needs of communities in its market area.  The Bank attracts
        deposits from the general public and uses such deposits to originate commercial
        loans, revolving lines of credit, commercial real estate, mortgage
 **38**
 loans
        secured by one-to four-family residences, home equity lines, and to a lesser
        extent construction, land, and consumer installment loans.  The Bank
        also invests in mortgage-backed and other securities permissible for a federally
        chartered commercial bank.  The Bank also operates two loan production
        offices, one in Staten Island, New York, and another in Lynbrook, New
        York.  The Bank’s primary area for deposits includes the Town of
        Newburgh and the Village of New Paltz in addition to the communities surrounding
        those offices.  The Bank’s primary market area for its lending
        activities consists of the communities within Orange County, Ulster County,
        the
        five boroughs of New York City, Nassau County, and portions of Dutchess,
        Rockland, Putnam and Westchester Counties.
 
 Deposits
        are insured up to applicable limits of the FDIC.  As a federally
        chartered commercial bank, the Bank’s primary regulator is the OCC.
 
 **Use
        of Estimates**
 
 To
        prepare financial statements in
        conformity with accounting principles generally accepted in the United States
        of
        America, management makes estimates and assumptions based on available
        information.  These estimates and assumptions affect the amounts
        reported in the financial statements and the disclosures provided, and actual
        results could differ.  The allowance for loan losses and goodwill
        impairment is particularly subject to change.
 
 **Cash
        Flows**
 
 Cash
        and
        cash equivalents include cash, deposits with other financial institutions
        with
        original maturities of 90 days or less, and federal funds sold.  Net
        cash flows are reported for customer loan and deposit transactions,
        interest-bearing deposits in other financial institutions, and federal funds
        purchased.
 
 **Securities**
 
 The
        Company is required to report
        readily-marketable equity and debt securities in one of the following
        categories: (i) “held-to-maturity” (management has the positive intent and
        ability to hold to maturity), which are reported at amortized cost; (ii)
        “trading” (held for current resale), which are to be reported at fair value,
        with unrealized gain and losses included in earnings; and (iii) “available for
        sale” (all other debt and marketable equity securities), which are to be
        reported at fair value, with unrealized gains and losses reported net of
        taxes,
        as accumulated other comprehensive income, a separate component of stockholders’
equity.  The Bank currently classifies all securities as
        available-for-sale.
 
 Premiums
        and discounts on investments in debt securities are amortized to expense
        or
        accreted to income over the estimated life of the respective securities using
        methods approximating the effective interest method. Gains and losses on
        the
        sales of securities are recognized upon realization based on the specific
        identification method.
 
 The
        Company evaluates 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 the length of time and the
        extent to which the fair value has been less than cost, the financial condition
        and near term prospects of the issuer, and the intent and ability of the
        Company
        to retain its investment in the issuer for a period of time sufficient to
        allow
        for any anticipated recovery in fair value.
 **39**
 **Loans
        Held for Sale**
 
 Loans
        originated and intended for sale
        in the secondary market are carried at the lower of cost or estimated fair
        value
        in the aggregate. All sales are made without recourse. Gains and losses on
        the
        disposition of loans held for sale are determined on the specific identification
        basis. Net unrealized losses are recognized through a valuation allowance
        by
        charges to income.  There were no valuation allowances as of December
        31, 2006 and December 31, 2005.
 
 **Loans
        Receivable**
 
 Loans
        receivable that management has
        the intent and ability to hold for the foreseeable future or until maturity
        or
        payoff are reported at their unpaid principal adjusted for any charge-offs,
        the
        allowance for loan losses, and any deferred fees and costs on originated
        loans
        and any unamortized premiums or discounts on purchased loans. Loan origination
        and commitment fees and certain direct loan origination costs will be deferred
        and the net amount amortized as an adjustment of the related loan’s yield using
        methods that approximate the interest method over the contractual life of
        the
        loan. Loan interest income is accrued daily on outstanding balances. The
        accrual
        of interest is discontinued when a loan is specifically determined to be
        impaired or management believes that it is probable the Bank will be unable
        to
        collect all amounts due according to the contractual terms of the loan
        agreement. A loan is impaired when full payment under the loan terms is not
        expected.  Commercial and commercial real estate loans are
        individually evaluated for impairment.  If a loan is impaired, a
        portion of the allowance is allocated so that the loan is reported, net,
        at the
        present value of estimated future cash flows using the loans’ existing rate or
        at the fair value of collateral if repayment is expected solely from the
        collateral.  Large groups of smaller balance homogeneous loans, such
        as consumer and residential real estate loans, are collectively evaluated
        for
        impairment, and accordingly, they are not separately identified for impairment
        disclosure.  The accrual of income on loans, including impaired loans,
        is generally discontinued when a loan becomes more than 90 days delinquent
        as to
        principal and interest or when other circumstances indicate that collection
        is
        questionable, unless the loan is well secured and in the process of collection.
        Income on non-accrual loans, including impaired loans, will be recognized
        only
        in the period in which it is collected, and only if management determines
        that
        the loan principal is fully collectable. Loans are returned to an accrual
        status
        when a loan is brought current as to principal and interest and when reasons
        for
        doubtful collection no longer exist. There were no non-accrual or impaired
        loans
        at December 31, 2006 or December 31, 2005.
 
 **Allowance
        for Loan Losses**
 
 The
        allowance for loan losses is
        increased by provisions for loan losses charged to income.  Losses are
        charged to the allowance when all or a portion of a loan is deemed to be
        uncollectible.  Subsequent recoveries of loans previously charged off
        are credited to the allowance for loan losses when realized.
 
 The
        Company, due to its period of operations, previously determined its provision
        for loan losses primarily from peer group information.  During the
        past year the Company completed an analysis of its methodology to establish
        provisions for the allowance for loan losses.  Based upon the ongoing
        growth in the loan portfolio, the composition of loans and the development
        of a
        historical record of loan repayments, management believed it appropriate
        to
        change its method for establishing provisions.  Management now
        considers the known inherent risks in the loan portfolio, which includes
        the
        overall rapid growth of the portfolio, concentrations of credit, adverse
        situations that may affect the borrowers’ ability to repay, the estimated value
        of any underlying collateral, and current economic conditions to
   **40**
 determine
        its provision for loan losses.  Allocations of the allowance may be
        made for specific loans, but the entire allowance is available for any loan
        that
        in management’s judgment should be charged off.
 
 **Premises
        and Equipment**
 
 Leasehold
        improvements and furniture
        and equipment are carried at cost less accumulated depreciation and
        amortization.  Depreciation expense is recognized on a straight-line
        basis over the estimated useful lives of the related assets, which are 2
        to 7
        years for furniture and equipment.  Amortization of leasehold
        improvements is recognized on a straight-line basis over the terms of the
        respective leases, resulting in amortization periods ranging from approximately
        8 to 10 years.  Costs incurred to improve or extend the life of
        existing assets are capitalized.  Repairs and maintenance are charged
        to expense.
 
 **Goodwill**
 
 Goodwill
        results from business
        acquisitions and represents the excess of the purchases price over the fair
        value of the acquired assets and liabilities and identifiable intangible
        assets.  Goodwill is assessed at least annually for impairment and any
        such impairment will be recognized in the period identified.
 
 **Income
        Taxes**
 
 Deferred
        tax assets and liabilities are
        the expected future tax amounts for the temporary differences between carrying
        amounts and tax bases of assets and liabilities, computed using tax
        rates.  Temporary differences are differences between the tax basis of
        assets and liabilities and their reported amounts in the financial statements
        that will result in taxable or deductible amounts in future years. The effect
        on
        deferred taxes of a change in tax rates is recognized in income in the period
        that includes the enactment date. A valuation allowance is recorded for deferred
        tax assets if the Company cannot determine that the benefits will more likely
        than not be realized.  No deferred income tax effect has been given to
        net operating losses due to the uncertainty of ultimate utilization of such
        net
        operating losses, resulting in a valuation allowance.
 
 **Federal
        Reserve Bank**
 
 As
        a
        member of the Federal Reserve Bank (“FRB”) system, the Bank is required to
        maintain a minimum investment in FRB stock.  Any excess may be
        redeemed by the Bank or called by the FRB at par.  At its discretion,
        the FRB may declare dividends on this stock.  The Bank had $335,000
        and $378,000 invested in FRB stock at December 31, 2006 and December 31,
        2005,
        respectively, which is carried at cost due to the fact that it is a restricted
        security.
 
 **Lines
        of Credit**
 
 The
        Company has a line of credit with a
        commercial bank for an amount of up to $200,000.  This credit facility
        is on an unsecured basis for a period of one year.  The Company
        utilized this credit facility primarily to fund various organizational
        costs
 
 The
        Company has a line of credit with a
        commercial bank for an amount of up to $5.0 million.  This credit
        facility is on a secured basis for $2.5 million for a period of one hundred
        eighty (180) calendar days and an unsecured basis of $2.5 million for a period
        of fourteen (14) calendar days.  The Bank did not utilize this credit
        facility at any time during 2006 or 2005.
 **41**
 **Comprehensive
        Income (Loss)**
 
 Comprehensive
        income or loss represents the sum of the net loss and items of “other
        comprehensive income or loss” that are reported directly in stockholders’
equity, such as the change during the period in the net unrealized gain or
        loss
        on securities available for sale.  The Bank reports its total
        comprehensive income (loss) in the statement of changes in stockholders’
equity.
 
 **Stock
        Options**
 
 The
        Company has a stock-based
        compensation plan as more fully described in Note 9.  Effective
        January 1, 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123 (revised 2004) “Share-based Payment” (“SFAS 123(R)”), using the modified
        prospective transition method.  Previously, the Company accounted for
        stock-based compensation under the fair value method of accounting in accordance
        with SFAS 123 prior to revision.  For accounting purposes, the Bank
        recognizes expense for shares of common stock awarded under the Bank’s Stock
        Option Plan over the vesting period at the fair market value of the shares
        on
        the date they are awarded.  Total expense incurred during the years
        ending December 31, 2006 and 2005 relating to the options was $14,000 and
        $84,000, respectively.  The fair values of options granted are
        computed using the Black-Scholes option-pricing model, using the following
        weighted-average assumptions as of the grant dates.
 2006
                  
                  2005Risk
                      free interest rate
                  
                  4.35%
                  
                  3.98%Expected
                      option life
                  
                  5.0
                  
                  5.0Expected
                      stock price volatility
                  
                  0.10%
                  
                  0.10%Dividend
                      yield
                  
                  0.00%
                  
                  0.00%Weighted
                        average fair value of options granted during the
                        year
                  
                  $
                  2.20
                  
                  $
                  1.08
 **Net
        Loss Per Common Share**
 
 The
        Company reports both basic and
        diluted earnings per share (“EPS”).  Basic EPS excludes dilution and
        is computed by dividing income available to common stockholders by the
        weighted-average number of common shares outstanding for the
        period.  Diluted EPS reflects the potential dilution that could occur
        if securities or other contracts to issue common stock (such as stock warrants
        and options) were exercised or converted into common stock or resulted in
        the
        issuance of common stock that then shared in the earnings of the
        entity.  Diluted EPS is computed by dividing income by the
        weighted-average number of shares outstanding for the period plus
        common-equivalent shares computed using the treasury stock
        method.  None of the 329,900 stockholder warrants, or 190,000
        organizer warrants, or 178,000 stock options were considered in computing
        diluted EPS because to do so would have been antidilutive.
 **42**
 **Adoption
        of new accounting standards**
 
 In
        September 2006, the Securities and
        Exchange Commission (SEC) released Staff Accounting Bulletin No. 108,
        Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements (SAB 108), which is effective
        for fiscal years ending on or after November 15, 2006.  SAB 108
        provides guidance on how the effects of prior-year uncorrected financial
        statement misstatements should be considered in quantifying a current year
        misstatement.  SAB 108 requires public companies to quantify
        misstatements using both an income statement (rollover) and balance sheet
        (iron
        curtain) approach and evaluate whether either approach results in a misstatement
        that, when all relevant quantitative and qualitative factors are considered,
        is
        material.  If prior year errors that had been previously considered
        immaterial now are considered material based on either approach, no restatement
        is required so long as management properly applied its previous approach
        and all
        relevant facts and circumstances were considered.  Adjustments
        considered immaterial in prior years under the method previously used, but
        now
        considered material under the dual approach required by SAB 108, are to be
        recorded upon initial adoption of SAB 108.  The adoption of SAB 108
        had no effect on the Company’s financial statements for the year ending December
        31, 2006.
 
 **Effect
        of Newly Issued But Not Yet Effective Accounting
        Standards:**
 
 In
        February 2006, the Financial Accounting Standards Board (FASB) issued Statement
        No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment
        to
        FASB Statements No. 133 and 140.  This Statement permits fair value
        re-measurement for any hybrid financial instruments, clarifies which instruments
        are subject to the requirements of Statement No. 133, and establishes a
        requirement to evaluate interests in securitized financial assets and other
        items.  The new standard is effective for financial assets acquired or
        issued after the beginning of the entity's first fiscal year that begins
        after
        September 15, 2006.  Management does not expect the adoption of this
        statement to have a material impact on its consolidated financial position
        or
        results of operations.
 
 In
        March
        2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial
        Assets-an amendment of FASB Statement No. 140.  This Statement
        provides the following: 1) revised guidance on when a servicing asset and
        servicing liability should be recognized; 2) requires all separately recognized
        servicing assets and servicing liabilities to be initially measured at fair
        value, if practicable; 3) permits an entity to elect to measure servicing
        assets
        and servicing liabilities at fair value each reporting date and report changes
        in fair value in earnings in the period in which the changes occur; 4) upon
        initial adoption, permits a onetime reclassification of available-for-sale
        securities to trading securities for securities which are identified as
        offsetting the entity's exposure to changes in the fair value of servicing
        assets or liabilities that a servicer elects to subsequently measure at fair
        value; and 5) requires separate presentation of servicing assets and servicing
        liabilities subsequently measured at fair value in the statement of financial
        position and additional footnote disclosures.  This standard is
        effective as of the beginning of an entity's first fiscal year that begins
        after
        September 15, 2006 with the effects of initial adoption being reported as
        a
        cumulative-effect adjustment to retained earnings.  Management does
        not expect the adoption of this statement will have a material impact on
        its
        consolidated financial position or results of operations.
 
 In
        September 2006, the FASB issued Statement No. 157, Fair Value
        Measurements.  This Statement defines fair value, establishes a
        framework for measuring fair value and expands disclosures about fair value
        measurements.  This Statement establishes a fair value hierarchy about
        the assumptions used to measure fair value and clarifies assumptions about
        risk
        and the effect of a restriction on the sale
 **43**
 or
        use of
        an asset.  The standard is effective for fiscal years beginning after
        November 15, 2007.  The Company has not completed its evaluation of
        the impact of the adoption of this standard.
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
        in
        Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which
        prescribes a recognition threshold and measurement attribute for a tax position
        taken or expected to be taken in a tax return.  FIN 48 also provides
        guidance on derecognition, classification, interest and penalties, accounting
        in
        interim periods, disclosure and transition.  FIN 48 is effective for
        fiscal years beginning after December 15, 2006.  The Company has
        determined that the adoption of FIN 48 will not have a material effect on
        the
        financial statements.
 
 **NOTE
        2 – INVESTMENT SECURITIES AVAILABLE-FOR-SALE**
 
 The
        following is a summary of the
        amortized cost, gross unrealized gains and losses, and estimated fair market
        value of investment securities available-for-sale at December 31, 2006 and
        December 31, 2005.
  December
                  31, 2006(in
                  thousands)Amortized
              
              Gross
                  Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueMortgaged-backed
                  securities
              
              $
              4,146
              
              $
              —
              
              $
              (86
              )
              $
              4,060U.S.
                  Government Agencies
              
              
              5,396
              
              
              —
              
              
              (13
              )
              
              5,383Total
              
              $
              9,542
              
              $
              —
              
              $
              (99
              )
              $
              9,443






December
                  31, 2005(in
                  thousands)Amortized
              
              Gross
                  Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueMortgaged-backed
                  securities
              
              $
              5,277
              
              $
              —
              
              $
              (122
              )
              $
              5,155U.S.
                  Government Agencies
              
              
              1,225
              
              
              —
              
              
              —
              
              
              1,225Total
              
              $
              6,502
              
              $
              —
              
              $
              (122
              )
              $
              6,380
  The
        following is a summary of the amortized cost and estimated fair market value
        of
        investment securities available-for-sale at December 31, 2006, with amounts
        shown by remaining term to contractual maturity.  Securities not due
        at a single maturity date, primarily mortgaged-backed securities, are shown
        separately.
 **44**
  December
                      31, 2006(in
                      thousands)Amortized
                  
                  FairCost
                  
                  ValueMortgaged-backed
                      securities
                  
                  $
                  4,146
                  
                  $
                  4,060U.S.
                      Government AgenciesDue
                      less than one year
                  
                  
                  1,000
                  
                  
                  1,000One
                      year to less than three years
                  
                  
                  1,997
                  
                  
                  1,993Three
                      years to less than five years
                  
                  
                  700
                  
                  
                  700Five
                      years to ten years
                  
                  
                  1,200
                  
                  
                  1,196More
                      than ten years
                  
                  
                  499
                  
                  
                  494Total
                  
                  $
                  9,542
                  
                  $
                  9,443
  The
        following tables summarize, for all securities in an unrealized loss position
        at
        December 31, 2006 and December 31, 2005, the aggregate fair values and gross
        unrealized losses by the length of time those securities had been in a
        continuous loss position.
 **December
                      31, 2006****Less
                      Than 12 Months**
                  
                  **12
                      Months or More**
                  
                  **Total****Fair**
                  
                  **Unrealized**
                  
                  **Fair**
                  
                  **Unrealized**
                  
                  **Fair**
                  
                  **Unrealized****Value**
                  
                  **Loss**
                  
                  **Value**
                  
                  **Loss**
                  
                  **Value**
                  
                  **Loss****(In
                      thousands)**Mortgaged-backed
                      securities
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  4,060
                  
                  $
                  (86
                  )
                  $
                  4,060
                  
                  $
                  (86
                  )U.S.
                      Government Agencies
                  
                  
                  4,184
                  
                  
                  (13
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  4,184
                  
                  
                  (13
                  )Total
                      temporarily impaired
                  
                  $
                  4,184
                  
                  $
                  (13
                  )
                  $
                  4,060
                  
                  $
                  (86
                  )
                  $
                  8,244
                  
                  $
                  (99
                  )




**December
                      31, 2005****Less
                      Than 12 Months**
                  
                  **12
                      Months or More**
                  
                  **Total****Fair**
                  
                  **Unrealized**
                  
                  **Fair**
                  
                  **Unrealized**
                  
                  **Fair**
                  
                  **Unrealized****Value**
                  
                  **Loss**
                  
                  **Value**
                  
                  **Loss**
                  
                  **Value**
                  
                  **Loss****(In
                      thousands)**Mortgaged-backed
                      securities
                  
                  $
                  915
                  
                  $
                  (22
                  )
                  $
                  4,240
                  
                  $
                  (100
                  )
                  $
                  5,155
                  
                  $
                  (122
                  )Total
                      temporarily impaired
                  
                  $
                  915
                  
                  $
                  (22
                  )
                  $
                  4,240
                  
                  $
                  (100
                  )
                  $
                  5,155
                  
                  $
                  (122
                  )
 
 The
        Bank
        evaluates 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 the length of time and the
        extent to which the fair value has been less than cost, the financial condition
        and near term prospects of the issuer, and the intent and ability of the
        Bank to
        retain its investment in the issuer for a period of time sufficient to allow
        for
        any anticipated recovery in fair value.  In analyzing an issuer’s
        financial condition, the Bank may consider whether the securities are issued
        by
        the federal
 **45**
 government
        or its agencies, whether downgrades by bond rating agencies have occurred,
        and
        the results of reviews of the issuer’s financial condition.
 
 At
        December 31, 2006, four debt securities have unrealized losses of approximately
        $86,000, and seven others have unrealized losses of approximately $13,000,
        that
        have existed for less than thirty months, and less than twelve months,
        respectively, from the Bank’s cost basis, and are largely due to changes in
        interest rates.  The fair value is expected to recover as the
        securities approach their maturity date or reset date.
 
 At
        December 31, 2005, eight debt securities had unrealized losses of approximately
        $122,000 from the Bank’s cost basis.  Those unrealized losses had
        existed for less than eighteen months and were largely due to changes in
        interest rates.  The fair value was expected to recover as the
        securities approached their maturity date or reset date.
 
 **NOTE
        3 – LOANS**
 
 The
        following is a summary of loans receivable at December 31, 2006 and December
        31,
        2005.
  December
                                31,2006
                            
                            2005(In
                                thousands)Real
                                estate loans:One-to
                                four-family
                            
                            $
                            1,591
                            
                            $
                            957Commercial
                            
                            
                            27,503
                            
                            
                            17,019Multi-family
                            
                            
                            6,057
                            
                            
                            4,887Construction
                                or development
                            
                            
                            9,128
                            
                            
                            1,679Home
                                equity
                            
                            
                            5,383
                            
                            
                            3,360Total
                                real estate loans
                            
                            
                            49,662
                            
                            
                            27,902Other
                                loans:Commercial
                                business
                            
                            
                            10,903
                            
                            
                            5,071Consumer
                            
                            
                            663
                            
                            
                            217Total
                                other loans
                            
                            
                            11,566
                            
                            
                            5,288Total
                                loans
                            
                            
                            61,228
                            
                            
                            33,190Less:Deferred
                                loan costs (fees) net
                            
                            
                            344
                            
                            
                            241Allowance
                                for loan losses
                            
                            
                            (581
                            )
                            
                            (106
                            )Total
                                loans receivable, net
                            
                            $
                            60,991
                            
                            $
                            33,325
 
 **46**
 In
          the
          ordinary course of business the Bank has extended credit to various directors,
          senior officers and their affiliates.  Loans to related parties during
          2006 were as follows:
  Beginning
                      balance at December 31, 2005
                  
                  $
                  2,329New
                      loans
                  
                  
                  1,625Repayment
                  
                  
                  (394
                  )Ending
                      balance at December 31, 2006
                  
                  $
                  3,560
 The
        balance at December 31, 2006 includes unused commitments totaling
        $246.
 
 **NOTE
        4 – ALLOWANCE FOR LOAN LOSSES**
 
 Activity
        in the allowance for loan
        losses is summarized as follows for the years ended December 31, 2006 and
        December 31, 2005.
  **December
                              31,****2006**
                          
                          **2005****(In
                              thousands)**Balance
                              at beginning of year
                          
                          $
                          106
                          
                          $
                          32Provision
                              for losses
                          
                          
                          476
                          
                          
                          74Charge-offs
                          
                          
                          (1
                          )
                          
                          —Recoveries
                          
                          
                          —
                          
                          
                          —Balance
                              at end of year
                          
                          $
                          581
                          
                          $
                          106
 **NOTE
        5 – PREMISES AND EQUIPMENT**
 
 The
        following is a summary of premises
        and equipment at December 31, 2006 and December 31, 2005.
  **December
                              31,****2006**
                          
                          **2005****(In
                              thousands)**Furniture,
                              fixtures and equipment
                          
                          $
                          611
                          
                          $
                          513Leasehold
                              improvements
                          
                          
                          612
                          
                          
                          6121,223
                          
                          
                          1,125Less
                              accumulated depreciation and amortization
                          
                          
                          (482
                          )
                          
                          (283
                          )Total
                              premises and equipment, net
                          
                          $
                          741
                          
                          $
                          842
  Depreciation
        expense was $199,000 and $194,000 for 2006 and 2005, respectively.
 **47**
 **NOTE
        6 – DEPOSITS**
 
 The
        following is a summary of deposit balances at December 31, 2006 and December
        31,
        2005.
  December
                            31,2006
                        
                        2005(in
                            thousands)Demand
                            deposit accounts
                        
                        $
                        8,156
                        
                        $
                        10,073NOW
                            accounts
                        
                        
                        1,403
                        
                        
                        507Money
                            market accounts
                        
                        
                        48,032
                        
                        
                        12,882Regular
                            savings accounts
                        
                        
                        4,600
                        
                        
                        5,804Savings
                            certificate accounts
                        
                        
                        19,283
                        
                        
                        14,111Total
                        
                        $
                        81,474
                        
                        $
                        43,377
 
 The
        following summarizes certificate of deposits by remaining term to contractual
        maturity at December 31, 2006.
  AccountBalances(In
                      thousands)Under
                      one year
                  
                  $
                  10,084One
                      year to under two years
                  
                  
                  5,896Two
                      years to under three years
                  
                  
                  1,090Three
                      years to under four years
                  
                  
                  1,141Four
                      years to under five years
                  
                  
                  1,072Total
                      certificates of deposit
                  
                  $
                  19,283
  Savings
        certificate accounts of $100,000 or more totaled $4.3 million and $3.1 million
        at December 31, 2006 and December 31, 2005, respectively.  Deposits
        from directors, senior officers and their affiliates were approximately $4.5
        and
        $2.6 million at December 31, 2006 and December 31, 2005,
        respectively**.**
  
 **48**
 **NOTE
            7 – INCOME TAXES**
 
 The
            following summarizes components of
            income tax expense for the years ended December 31, 2006 and December
            31,
            2005.
 December
                              31,2006
                          
                          2005(In
                              thousands)Current:Federal
                              expense (benefit)
                          
                          $
                          —
                          
                          $
                          —State
                              expense (benefit)
                          
                          
                          —
                          
                          
                          ——Deferred:Federal
                              expense (benefit)
                          
                          
                          (483
                          )
                          
                          (525
                          )State
                              expense (benefit)
                          
                          
                          (128
                          )
                          
                          (138
                          )Tax
                              expense (benefit) before valuation allowance
                          
                          
                          (611
                          )
                          
                          (663
                          )Valuation
                              allowance
                          
                          
                          611
                          
                          
                          663Tax
                              expense
                          
                          $
                          —
                          
                          $
                          —
 The
        following is a reconciliation of
        the Bank’s statutory federal income tax rate to its effective tax rate at
        December 31, 2006 and December 31, 2005.
  December
                            31,2006
                        
                        2005(In
                            thousands)Federal
                            tax expense (benefit) at statutory rate
                        
                        $
                        (485
                        )
                        $
                        (523
                        )State
                              and local income taxes, net of federal income tax
                              benefit
                        
                        
                        (133
                        )
                        
                        (141
                        )Other
                        
                        
                        7
                        
                        
                        1Tax
                            benefit before valuation allowance
                        
                        
                        (611
                        )
                        
                        (663
                        )Valuation
                            allowance
                        
                        
                        611
                        
                        
                        663Net
                            tax benefit
                        
                        $
                        —
                        
                        $
                        —
 
 **49**
 
 The
            following summarizes the components of the Bank’s deferred tax assets and
            deferred tax liabilities at December 31, 2006 and December 31,
            2005.
 December
                          31,2006
                      
                      2005(In
                          thousands)Deferred
                          tax assets:Net
                          operating loss carry forwards
                      
                      $
                      1,839
                      
                      $
                      1,290Stock
                          option compensation
                      
                      
                      39
                      
                      
                      34Charitable
                          contributions carry forward
                      
                      
                      103
                      
                      
                      102Depreciation
                      
                      
                      58
                      
                      
                      44Mark-to-market
                          loans
                      
                      
                      1
                      
                      
                      3Reserve
                          for loan losses
                      
                      
                      233
                      
                      
                      422,273
                      
                      
                      1,515Less:
                          Valuation allowance
                      
                      
                      (1,940
                      )
                      
                      (1,330
                      )Net
                          deferred tax assets
                      
                      
                      333
                      
                      
                      185Deferred
                          tax liabilities:Accrual
                          to cash adjustment
                      
                      
                      (133
                      )
                      
                      (48
                      )Accretion
                          of bond discount
                      
                      
                      (23
                      )
                      
                      (17
                      )Intangible
                          asset amortization
                      
                      
                      (39
                      )
                      
                      (23
                      )Deferred
                          loan fees
                      
                      
                      (138
                      )
                      
                      (97
                      )Deferred
                          tax liabilities
                      
                      
                      (333
                      )
                      
                      (185
                      )Net
                          deferred tax asset (liability)
                      
                      $
                      —
                      
                      $
                      —
 
 The
        net
        operating losses are available to reduce future taxable income and can be
        carried forward until 2025.  The charitable contribution carried
        forward is also available to reduce future taxable income and will begin
        expiring in 2009.
 
 Realization
        of deferred tax assets is
        dependent upon the generation of future taxable income.  A valuation
        allowance is provided when it more likely than not that some portion of the
        deferred tax asset will not be realized.  Because the Bank has no
        earnings history, management believes it is prudent to record a valuation
        allowance against the deferred tax assets.
 
 For
        the years ended December 31, 2006
        and 2005, the Bank was subject to a minimum tax on assets for New York State
        purposes in the amount of $6,000 and $11,000, respectively, which is included
        in
        other expense.
 
 **NOTE
        8 – COMMITMENTS AND CONTINGENCIES**
 
 **Legal
        Proceedings**
 
 Since
        the Bank’s opening on June 28,
        2004, it has not been a party to any legal proceedings, which may have a
        material effect on the Bank’s results of operations and financial
        condition.  However, in the normal course of its business, the Bank
        may become involved as plaintiff or defendant in proceedings such as judicial
        mortgage foreclosures and proceedings to collect on loan obligations and
        to
        enforce contractual obligations.
 **50**
 **Operating
        Lease Commitments**
 
 The
        Bank is obligated under
        non-cancelable operating leases for its main office location in Newburgh,
        New
        York and its branch office location in New Paltz, New York.  Rent
        expense under the two respective operating leases was $162,000 and $141,000
        for
        the year ended December 31, 2006, and $125,000 and $138,000, respectively,
        for
        the year ended December 31, 2005.  The leases are for initial terms of
        10 years and 15 years respectively, and have various renewal
        options.
 
 The
        combined future minimum rent commitments under the non-cancelable operating
        leases, excluding taxes and insurance, before considering renewal options
        that
        generally are present, are as follows:
  2007
                
                $
                212,0002008
                
                
                215,0002009
                
                
                219,0002010
                
                
                226,0002011
                
                
                229,000Later
                
                
                1,134,288Total
                
                $
                2,235,288
  
 Each
        of
        the Bank’s lease obligations for its Staten Island, New York and Lynbrook, New
        York lending offices are on a month-to-month basis at $800 per
        month.
 
 **Off-Balance
        Sheet Financial Instruments**
 
 Loan
        origination commitments and lines
        of credit are contractual agreements to lend to customers within specified
        time
        periods at interest rates and on other terms specified in the
        agreements.  These financial instruments involve elements of credit
        risk and interest rate risk in addition to the amounts for funded loans
        recognized in the balance sheet.  The contractual amounts of
        commitments and lines of credit represent the Bank’s maximum potential exposure
        to credit loss (assuming that the agreements are fully funded and any collateral
        proves to be worthless), but do not represent future cash requirements since
        certain agreements may expire without being fully funded.  Loan
        commitments generally have fixed expiration dates (ranging up to three months)
        or other termination clauses and may require the payment of a fee by the
        customer.  Commitments and lines of credit are subject to the same
        credit approval process applied in the Bank’s general lending activities,
        including a case-by-case evaluation of the customer’s creditworthiness and
        related collateral requirements.
 
 **51**
 The
          contractual amounts of financial
          instruments with off-balance sheet risk at year-end were as
          follows:
  December
                    31, 2006
                
                December
                    31, 2005Fixed
                
                Variable
                
                Fixed
                
                VariableRate
                
                Rate
                
                Rate
                
                Rate(Dollars
                    in thousands)Commitments
                    to make loans
                
                $
                1,923
                
                $
                9,765
                
                $
                3,549
                
                $
                8,269Unused
                    lines of credit
                
                
                92
                
                
                10,156
                
                
                0
                
                
                9,299Standby
                    letters of credit
                
                
                267
                
                
                0
                
                
                35
                
                
                0
 Loan
        origination commitments consisted
        of adjustable and fixed rate commitments with interest rates ranging from
        5.625%
        to 14.25% and terms generally not exceeding 90 days.
 
 **NOTE
        9 – EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS**
 
 **Stock
        Options**
 
 On
        October 19, 2004 the Board of
        Directors approved the adoption of the Bank’s Stock Option Plan and option
        grants were made for 173,000 shares at an exercise price of $10.50 per
        share.  These options have a 10-year term and may be either
        non-qualified stock options or incentive stock options.  These options
        were not deemed granted until shareholder approval occurred on May 3,
        2005.  Subsequently, incentive options on 10,000 shares at an exercise
        price of $10.00 per share, 6,250 shares at an exercise price of $10.50 per
        share, and 5,000 shares at an exercise price of $10.00 per share were awarded
        on
        November 15, 2005, December 20, 2005, and January 12, 2006,
        respectively.  The options vest at a rate of 20% on each of five
        annual vesting dates except for 60,000 options granted to Directors, which
        vested immediately.  Each option entitles the holder to purchase one
        share of common stock at an exercise price equal to the fair market value
        of the
        stock on the grant date.  At December 31, 2006 the outstanding options
        had an average unrecognized compensation cost of $59,000 with a corresponding
        average remaining period of 38.2 months for that cost to be
        expensed.
  **52**
 A
          summary
          of the activity in the plan is as follows:
  2006
                                              
                                              2005Weighted
                                              
                                              
                                              
                                              
                                              
                                              WeightedWeighted
                                              
                                              Average
                                              
                                              
                                              
                                              Weighted
                                              
                                              AverageAverage
                                              
                                              Remaining
                                              
                                              
                                              
                                              Average
                                              
                                              RemainingExercise
                                              
                                              Contractual
                                              
                                              
                                              
                                              Exercise
                                              
                                              ContractualShares
                                              
                                              Price
                                              
                                              Life
                                                  in Years
                                              
                                              Shares
                                              
                                              Price
                                              
                                              Life
                                                  in YearsOutstanding
                                                  atbeginning
                                                  of year
                                              
                                              
                                              173,000
                                              
                                              $
                                              10.47
                                              
                                              
                                              
                                              
                                              
                                              —
                                              
                                              $
                                              —Granted
                                              
                                              
                                              5,000
                                              
                                              
                                              10.00
                                              
                                              
                                              
                                              
                                              
                                              173,000
                                              
                                              
                                              10.47Exercised
                                              
                                              
                                              —
                                              
                                              
                                              —
                                              
                                              
                                              
                                              
                                              
                                              —
                                              
                                              
                                              —Forfieited
                                                  or expired
                                              
                                              
                                              (30,250
                                              )
                                              
                                              10.42
                                              
                                              
                                              
                                              
                                              
                                              —
                                              
                                              
                                              —Outstanding
                                                    atend of year
                                              
                                              
                                              147,750
                                              
                                              $
                                              10.47
                                              
                                              
                                              7.9
                                              
                                              
                                              173,000
                                              
                                              $
                                              10.47
                                              
                                              
                                              8.9Intrinsic
                                                  value (,000's)
                                              
                                              $
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              5Options
                                                    exerciseableat year-end
                                              
                                              
                                              91,450
                                              
                                              $
                                              10.49
                                              
                                              
                                              
                                              
                                              
                                              78,650
                                              
                                              $
                                              10.47Intrinsic
                                                  value (,000's)
                                              
                                              $
                                              —
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              —
  **Warrants**
 
 At
        December 31, 2006 the Bank had
        329,950 total shareholder warrants issued and
        outstanding.   Warrants are convertible into common shares at an
        exercise price of $12.50 exercisable through June 27, 2007. Additionally,
        there
        were 190,000 organizer warrants issued as of December 31, 2004. The organizer
        warrants are convertible into common shares at an exercise price of $10.00
        exercisable through June 27, 2009. The organizer warrants are valued at
        $323,000. The fair value was determined using the minimum value method using
        the
        following assumptions: Grant date of June 28, 2004, $10.00 strike price,
        $10.00
        fair value of a share of capital stock at grant date, risk-free rate of 3.8%,
        no
        dividends, five (5) year life and no volatility.  During the year
        ended December 31, 2006 fifty shareholder warrants were exercised for which
        the
        Company received $625.00.
 
 
 **401(k)
        Plan**
 
 A
        401(k) benefit plan allows employee
        contributions up to 15% of their compensation.  The Bank does not make
        any matching contributions.
 
 **NOTE
        10 – REGULATORY CAPITAL REQUIREMENTS**
 
 OCC
        regulations require Banks to
        maintain a minimum leverage ratio of core (Tier 1) capital to total adjusted
        tangible assets of 3.0%, and a minimum ratio of total capital (core capital
        and
        supplementary capital) to risk-weighted assets of 8.0%, of which 4.0% must
        be
        core (Tier 1) capital.
 
 Under
        its prompt corrective action
        regulations, the OCC is required to take certain supervisory actions with
        respect to an undercapitalized institution.  The regulations establish
        a framework for the
 **53**
 classification
        of depository institutions into five categories: (1) well-capitalized, (2)
        adequately capitalized, (3) undercapitalized, (4) significantly
        undercapitalized, and (5) critically undercapitalized.  Generally an
        institution is considered well capitalized if it has a core (Tier 1) capital
        ratio of at least 5.0%, a core (Tier 1) risk-based capital ratio of at least
        6.0%, and a total risk-based capital ratio of a least 10.0%.  At
        year-end 2006, the most recent regulatory notifications categorized the Bank
        as
        well capitalized under the regulatory framework for prompt corrective
        action.  There are no conditions or events since that notification
        that management believes have changed the institution’s category.
 
 The
        foregoing capital ratios are based
        in part on specific quantitative measures of assets, liabilities and certain
        off-balance sheet items as calculated under regulatory accounting
        practices.  Capital amounts and classifications are also subject to
        qualitative judgments by the OCC about capital components, risk weightings
        and
        other factors.
 
 Management
        believes that, as of
        December 31, 2006 and December 31, 2005, the Bank met all capital adequacy
        requirements to which it was subject.
 
 The
        following is a summary of the Bank’s actual capital amounts and ratios, compared
        to the OCC requirements for minimum capital adequacy and for classification
        as a
        well-capitalized institution at December 31, 2006 and December 31,
        2005.  The capital ratios of the Company are not significantly
        different than those shown in the table below for the Bank and exceed the
        requirements to be well capitalized.  In accordance with the
        applicable regulatory requirements, the Bank’s actual tangible and Tier 1
        capital amounts exclude goodwill, while the total risk-based capital amounts
        include the allowance for loan losses.
 
 **Minimum
                      Capital**
                  
                  **Classification
                      as****Bank
                      Actual**
                  
                  **Adequacy**
                  
                  **Well
                      Capitalized****Amount**
                  
                  **Ratio**
                  
                  **Amount**
                  
                  **Ratio**
                  
                  **Amount**
                  
                  **Ratio****(Dollars
                      in thousands)**December
                      31, 2006Tier
                      I (core)capital
                  
                  $
                  10,522
                  
                  
                  11.3
                  %
                  $
                  2,791
                  
                  
                  3.0
                  %
                  $
                  4,652
                  
                  
                  5.0
                  %Risk-based
                      capital:Tier
                      I
                  
                  
                  10,522
                  
                  
                  15.2
                  
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  4,145
                  
                  
                  6.0Total
                  
                  
                  11,103
                  
                  
                  16.1
                  
                  
                  5,527
                  
                  
                  8.0
                  
                  
                  6,908
                  
                  
                  10.0
  **Minimum
                      Capital**
                  
                  **Classification
                      as****Bank
                      Actual**
                  
                  **Adequacy**
                  
                  **Well
                      Capitalized****Amount**
                  
                  **Ratio**
                  
                  **Amount**
                  
                  **Ratio**
                  
                  **Amount**
                  
                  **Ratio****(Dollars
                      in thousands)**December
                      31, 2005Tier
                      I (core)capital
                  
                  $
                  11,872
                  
                  
                  21.2
                  %
                  $
                  1,682
                  
                  
                  3.0
                  %
                  $
                  2,803
                  
                  
                  5.0
                  %Risk-based
                      capital:Tier
                      I
                  
                  
                  11,872
                  
                  
                  30.6
                  
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  2,328
                  
                  
                  6.0Total
                  
                  
                  11,978
                  
                  
                  30.9
                  
                  
                  3,104
                  
                  
                  8.0
                  
                  
                  3,880
                  
                  
                  10.0
 
 The
        OCC
        regulates the amount of dividends and other capital distributions that the
        Bank
        may pay to the Company.  All dividends must be paid out of undivided
        profits and cannot be paid out from capital.  In general, if the Bank
        satisfies all OCC capital requirements both before and after a dividend payment,
        the Bank may pay a dividend to the Company, in any year, equal to the current
        year’s net income plus retained net income for the preceding two years that is
        still available for dividend.
 **54**
 **NOTE
        11 – BUSINESS COMBINATIONS**
 
 On
        the
        date of the opening of the Bank, the Bank acquired Atlantic States Mortgage
        Corporation (“Atlantic States”), a full service mortgage lender.  The
        activity of Atlantic States, which was incorporated into the Bank’s lending
        operations, is conducted from the Bank’s main office located in Newburgh, New
        York and a satellite office located in Staten Island, New York.
 
 The
        aggregate purchase price of $691,270 was equal to Atlantic States’ stockholders
        equity of $110,554, as of the June 28, 2004 closing date, plus $580,724,
        which
        represents an estimate of the cost of starting a full-service mortgage operation
        in a newly formed commercial bank.  The purchase price of $691,270 was
        paid with 69,127 unregistered shares of the Bank’s common stock.
 
 The
        purchase price resulted in approximately $581,000 in goodwill, which will
        be
        evaluated periodically for impairment.  Goodwill is not deductible for
        tax purposes.
 
 The
        following summarizes the estimated
        fair value of assets acquired and liabilities assumed at the date of
        acquisition.
  **2004****(In
                      thousands)**Cash
                      and cash equivalents
                  
                  $
                  4Loans
                      held for sale
                  
                  
                  250Loans
                      receivable
                  
                  
                  62Premises
                      and equipment
                  
                  
                  50Goodwill
                  
                  
                  581Other
                      Assets
                  
                  
                  10Total
                      assets acquired
                  
                  
                  957Notes
                      payable
                  
                  
                  (250
                  )Other
                      Liabilities
                  
                  
                  (16
                  )Net
                      assets acquired
                  
                  $
                  691
 
 **Item
                  8.**
              **Changes
                  in and Disagreements With Accountants on Accounting and
                  Financial  Disclosure**
 
 None.
 
 **Item
                  8A.**
              **Controls
                  and Procedures**
 
 We
        have
        adopted interim disclosure controls and procedures designed to facilitate
        our
        financial reporting.  The disclosure controls currently consist of
        communications among the Chief Executive Officer, the Chief Financial Officer
        and each department head to identify any transactions, events, trends, risks
        or
        contingencies which may be material to our operations.  In addition,
        the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
        the Audit Committee and our independent auditors meet on a quarterly basis
        and
        discuss our material accounting policies.  Our Chief Executive Officer
        and Chief Financial Officer have evaluated the effectiveness of these disclosure
        controls as of December 31, 2006 and found them to be adequate.
 **55**
 We
        maintain internal control over financial reporting.  There have not
        been any significant changes in such internal control over financial reporting
        that have materially been affected, or are reasonably likely to materially
        affect, our internal control over financial reporting.
  
 **PART
        III**
 
 **Item
                  9.**
              **Directors,
                  Executive Officers, Promoters and Control Persons; Compliance With
                  Section
                  16(a) of the Exchange Act**
 
 **Directors**
 
 Information
        concerning Directors of the Registrant is incorporated herein by reference
        from
        our definitive Proxy Statement for the Annual Meeting of Stockholders to
        be held
        on May 3, 2007, a copy of which will be filed not later than 120 days after
        the
        close of the fiscal year covered by this report.
 
 **Officers
        Who Are Not Directors**
 
 The
        following is information concerning our officers that are not also directors
        as
        of December 31, 2006.
 
 ***Arthur
        W. Budich.*******Mr. Budich, age 56, is the
        Executive Vice President and Chief Financial Officer.  Mr. Budich
        previously served as Senior Vice President and Chief Financial Officer at
        Warwick Savings Bank, the subsidiary bank of Warwick Community Bancorp, Inc.
        from 1992 until its merger with Provident Bancorp, Inc. in October
        2004.  Previously, from 1986 to 1992, Mr. Budich was Warwick Savings
        Bank’s Vice President and Branch Administrator.  Mr. Budich began his
        banking career in 1973 with Chase Manhattan Bank where he served in a variety
        of
        management positions until he joined Warwick Savings Bank.
 
 ***Emil
        Mian.***Mr. Mian, age 59, is the Senior Vice President,
        and Chief Credit Officer of the Bank, a position he has held since we commenced
        operations on June 28, 2004.  Previously, Mr. Mian, from 1995 to June
        2004, was owner/operator of Commercial Financial Solutions, a company
        specializing in the brokering of commercial loans and commercial
        mortgages.  Mr. Mian began his banking career in 1974 with the Bank of
        New York as a Vice President of Commercial Loans and in 1990 joined First
        Fidelity Bank as a Senior Vice President in charge of Commercial
        Lending.
 
 ***Branca
        Gatto.***Ms. Gatto, age 46, is the Senior Vice President,
        in charge of residential lending, a position she has held since we commenced
        operations on June 28, 2004.  Prior to joining the Bank, Ms. Gatto was
        a Vice President, in charge of residential lending with Atlantic States Mortgage
        Corporation from 2003 until its acquisition by Empire State Bank, N.A. in
        June
        2004.  With over 20 years in the industry, Ms. Gatto has also held
        management positions in residential lending with Sleepy Hollow Bank and Yonkers
        Financial Corporation.
 
 ***Joseph
        Macchia.*********Mr.
        Macchia, age 55, is the Senior Vice President, in charge of branch
        administration, sales and marketing.  Prior to joining the Bank in
        January 2007, Mr. Macchia served as Senior Vice President and Chief Operations
        Officer at Sleepy Hollow Bank from July 2002 to October 2006.  Mr.
        Macchia began his banking career in 1972 with Yonkers Savings and Loan
        Association where he served in a variety of positions, including that of
        Senior
        Vice President, Secretary, and Chief Operations Officer until June
        2002.
 **56**
 **Compliance
        with Section 16(a) of the Exchange Act**
 
 Section
        16(a) of the Exchange Act requires our directors and executive officers,
        and
        persons who own more than 10% of a registered class of our equity securities,
        to
        file with the SEC reports of ownership and reports of changes in ownership
        of
        common stock and other equity securities of we.  Officers, directors
        and greater than 10% stockholders are required by SEC regulation to furnish
        we
        with copies of all Section 16(a) forms they file.
 
 To
        our knowledge, based solely on a
        review of the copies of such reports furnished to we and written representations
        that no other reports were required during the fiscal year ended December
        31,
        2006, all Section 16(a) filing requirements applicable to its officers,
        directors and greater than 10 percent beneficial owners were
        met.
 
 **Item
        10.                  Executive
        Compensation**
 
 Information
        concerning executive compensation is incorporated herein by reference from
        our
        definitive Proxy Statement for the Annual Meeting of Stockholders to be held
        on
        May 3, 2007, a copy of which will be filed not later than 120 days after
        the
        close of the fiscal year.
 
 **Item
        11.                  Security
        Ownership of Certain Beneficial Owners and Management**
 
 Information
        concerning security ownership of certain beneficial owners and management
        is
        incorporated herein by reference from our definitive Proxy Statement for
        the
        Annual Meeting of Stockholders to be held on May 3, 2007, a copy of which
        will
        be filed not later than 120 days after the close of the fiscal
        year.
 
 **Item
        12.                  Certain
        Relationships and Related Transactions**
 
 Information
        concerning certain relationships and related transactions is incorporated
        herein
        by reference from our definitive Proxy Statement for the Annual Meeting of
        Stockholders to be held on May 3, 2007, a copy of which will be filed not
        later
        than 120 days after the close of the fiscal year.
 **57**
 **Item
        13.                  Exhibits**
 
 **Exhibit
                    Number**
              
              **Document**
              
              **Reference
                    to Previous Filing, If Applicable**3(1)
              
              Articles
                  of Incorporation
              
              *3(2)
              
              Amended
                  and Restated Bylaws
              
              *****4
              
              Form
                  of Stock Certificate
              
              **10.1
              
              Employment
                  Agreement dated September 23, 2005 Between Empire State Bank and
                  Anthony
                  P. Costa
              
              **10.2
              
              Employment
                  Agreement dated September 23, 2005 Between Empire State Bank and
                  Philip
                  Guarnieri
              
              **10.3
              
              Employment
                  Agreement dated October 20, 2006 between Empire State Bank and
                  Arthur W.
                  Budich
              
              **10.4
              
              Empire
                  State Bank, N.A. 2004 Stock Option Plan
              
              **16
              
              Code
                  of Ethics
              
              ***31.1
              
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200232
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
 
  
 *
              Previously
                  filed with the SEC as an exhibit to the Company’s Quarterly Report of Form
                  10-QSB for the period ended September 30,
                  2006
 
 **
              Previously
                  filed with the SEC as an exhibit to the Company’s Registration Statement
                  on Form S-4 filed on April 14, 2006 and subsequently amended on
                  April 18,
                  2006, May 1, 2006, May 16, 2006, and May 23, 2006 and a post-effective
                  amendment filed on June 9, 2006.
 
 ***
              Previously
                  filed with the SEC as an exhibit to the Company’s Quarterly Report of Form
                  10-QSB for the period ended June 30,
                  2006
 
 **58**
 **Item
        14.                  Principal
        Accountant Fees and Services**
 
 Information
        concerning Independent
        Auditors’ Fees is incorporated herein by reference from our definitive Proxy
        Statement for the Annual Meeting of Stockholders to be held on May 3, 2007,
        a
        copy of which will be filed not later than 120 days after the close of the
        fiscal year.
 
 
 **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, hereunto duly
        authorized.
 
 **ES
        BANCSHARES, INC.**
 
 Date:  March
        29,
        2007                                                                           By:   /s/
        Anthony Costa
 Anthony
        Costa, Chairman
 and
        Chief
        Executive Officer, Director
 *(Duly
        Authorized Representative)*
 
 In
        accordance with the Exchange Act this report has been signed below by the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.
 
 Date:
        March 29,
        2007                                                                           /s/
        Philip Guarnieri
 Philip
        Guarnieri, President and
        Chief
 Operating
        Officer,
        Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Arthur W. Budich
 Arthur
        W.
        Budich, Executive Vice President
 and
        Chief
        Financial Officer
 
 Date:
        March 29,
        2007                                                                           /s/
        Leslie M. Apple
 Leslie
        M. Apple, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        William Davenport
 William
        Davenport,
        Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Peter Ferrante
 Peter
        Ferrante, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Andrew Finklestein
 Andrew
        Finklestein Esq.,
        Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Gale Foster
 Gale
        Foster Esq.,
        Director
 
 Date:
        March 29,
        2007                                                                           /s/
        David Freer, Jr.
 David
        Freer, Jr.,
        Director
 **59**
 Date:
        March 29,
        2007                                                                           /s/
        Harold Kahn
 Harold
        Kahn, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        David Mesches
 David
        Mesches, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Michael Ostrow
 Michael
        Ostrow, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Albert Pagano
 Albert
        Pagano, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Richard B. Rowley
 Richard
        B. Rowley,
        Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Peter Savago
 Peter
        Savago, Director
 
 Date:
        March 29,
        2007                                                                           /s/
        Thomas D. Weddell
 Thomas
        D. Weddell,
        Director
      
 
 **60**