UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


_______________________________________





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended June 30, 2008









ES
BANCSHARES, INC.


(Exact
name of small business issuer as specified in its charter)








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






68 North Plank Road,
Newburgh, New York 12550


(Address
of principal executive offices)





(866)
646-0003


Issuer’s
telephone number, including area code:







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.   YES x     
NO o.





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




Large accelerated
      filer o
            
            Accelerated filer
      oNon-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            
            Smaller reporting
      company x








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





State the
number of shares outstanding of each of the issuer’s classes of common equity as
of the latest practicable date.





As of
August 8, 2008 there were 1,761,697 issued and outstanding shares of the
Registrant’s Common Stock.





Transitional
Small Business Disclosure Format (Check One)    YES o  NO x.









ES
BANCSHARES, INC.


FORM
10-Q


FOR
THE QUARTERLY PERIOD JUNE 30, 2008










PART
I – FINANCIAL INFORMATION




PAGEItem
      1.
              Financial
      Statements (Unaudited)Consolidated
      Balance Sheets at June 30, 2008 and December 31, 2007
              2Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2008, and
      2007
              3Consolidated
      Statement of Changes in Stockholders’ Equity for the Six Months Ended June
      30, 2008 and 2007
              4Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2008 and
      2007
              5Notes
      to Unaudited Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              11Item
      3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              20Item
      4T.
              Controls
      and Procedures
              21PART
      11 – OTHER INFORMATIONItem
      1.
              Legal
      Procedures
              21Item
      1A.
              Risk
      Factors
              22Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              22Item
      3.
              Defaults
      Upon Senior Securities
              22Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              22Item
      5.
              Other
      Information
              22Item
      6.
              Exhibits
              22Signatures
              24




















1


Part 1. Item 1.


ES
BANCSHARES, INC.


CONSOLIDATED
BALANCE SHEET
 (Unaudited)


June
      30,
                2008
              
              
              December
      31,
                2007ASSETS
              
              (Dollars
      in thousands)Cash
      and cash equivalents:Cash
      and due from banks
              
              $
              2,973
              
              
              $
              2,021Federal
      funds sold
              
              
              6,998
              
              
              
              4,731Total
      cash and cash equivalents
              
              
              9,971
              
              
              
              6,752Certificates
      of deposit at other financial institutions
              
              
              8,646
              
              
              
              5,794Securities:Available
      for sale, at fair value
              
              
              6,090
              
              
              
              7,037Held
      to maturity, at amortized cost(fair
      value of $19,481 at June 30, 2008)
              
              
              20,002
              
              
              
              —Total
      securities
              
              
              26,092
              
              
              
              7,037Real
      estate mortgage loans held for sale
              
              
              —
              
              
              
              350Loans
      receivable, netReal
      estate mortgage loans
              
              
              51,634
              
              
              
              41,519Commercial
      and lines of credit
              
              
              15,454
              
              
              
              14,335Home
      equity and consumer loans
              
              
              9,424
              
              
              
              8,714Construction
      loans
              
              
              5,261
              
              
              
              7,137Deferred
      cost
              
              
              434
              
              
              
              364Allowance
      for loan losses
              
              
              (706
              )
              
              
              (624
              )Total
      loans receivable, net
              
              
              81,501
              
              
              
              71,445Accrued
      interest receivable
              
              
              581
              
              
              
              515Federal
      Reserve Bank stock
              
              
              307
              
              
              
              324Federal
      Home Loan Bank stock
              
              
              548
              
              
              
              89Goodwill
              
              
              581
              
              
              
              581Office
      properties and equipment, net
              
              
              708
              
              
              
              838Other
      assets
              
              
              272
              
              
              
              191Total
      assets
              
              $
              129,207
              
              
              $
              93,916LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Non-interest
      bearing
              
              $
              12,889
              
              
              $
              7,249Interest
      bearing
              
              
              95,288
              
              
              
              75,093Borrowed
      funds
              
              
              10,037
              
              
              
              89Accrued
      interest payable
              
              
              150
              
              
              
              103Other
      liabilities
              
              
              1,002
              
              
              
              1,000Total
      liabilities
              
              
              119,366
              
              
              
              83,534Commitments
      and contingenciesStockholders’
      equityCapital
      stock (par value $0.01; 5,000,000 shares authorized;1,721,437
      shares issued at June 30, 2008 andDecember
      31, 2007)
              
              
              17
              
              
              
              17Additional
      paid-in-capital
              
              
              16,916
              
              
              
              16,911Accumulated
      deficit
              
              
              (7,063
              )
              
              
              (6,553
              )Accumulated
      other comprehensive income / (loss)
              
              
              (29
              )
              
              
              7Total
      stockholders’ equity
              
              
              9,841
              
              
              
              10,382Total
      liabilities and stockholders’ equity
              
              $
              129,207
              
              
              $
              93,916




See
accompanying notes to financial statements


2
 
 ES
BANCSHARES, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (Unaudited)
 (In
thousands, except per share data)


For
      the Three Months
              
              
              For
      the Six MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Interest
      and dividend income:Loans
              
              $
              1,207
              
              
              $
              1,272
              
              
              $
              2,432
              
              
              $
              2,421Securities
              
              
              294
              
              
              
              92
              
              
              
              379
              
              
              
              191Certificates
      of deposit
              
              
              69
              
              
              
              78
              
              
              
              136
              
              
              
              162Fed
      Funds and other earning assets
              
              
              45
              
              
              
              117
              
              
              
              103
              
              
              
              279Total
      interest and dividend income
              
              
              1,615
              
              
              
              1,559
              
              
              
              3,050
              
              
              
              3,053Interest
      expense:Deposits
              
              
              678
              
              
              
              892
              
              
              
              1,367
              
              
              
              1,768Borrowed
      funds
              
              
              69
              
              
              
              1
              
              
              
              70
              
              
              
              2Total
      interest expense
              
              
              747
              
              
              
              893
              
              
              
              1,437
              
              
              
              1,770Net
      interest income
              
              
              868
              
              
              
              666
              
              
              
              1,613
              
              
              
              1,283Provision
      for loan losses
              
              
              90
              
              
              
              5
              
              
              
              83
              
              
              
              9Net
      interest income after provision for loan losses
              
              
              778
              
              
              
              661
              
              
              
              1,530
              
              
              
              1,274Non-interest
      income:Service
      charges and fees
              
              
              119
              
              
              
              81
              
              
              
              207
              
              
              
              154Net
      gain on sales of real estate mortgage loans held for
      sale
              
              
              23
              
              
              
              49
              
              
              
              38
              
              
              
              66Net
      gain on securities available for sale
              
              
              —
              
              
              
              —
              
              
              
              7
              
              
              
              —Other
              
              
              20
              
              
              
              11
              
              
              
              42
              
              
              
              24Total
      non-interest income
              
              
              162
              
              
              
              141
              
              
              
              294
              
              
              
              244Non-interest
      expense:Compensation
      and benefits
              
              
              577
              
              
              
              449
              
              
              
              1,151
              
              
              
              935Occupancy
      and equipment
              
              
              211
              
              
              
              155
              
              
              
              405
              
              
              
              316Data
      processing service fees
              
              
              65
              
              
              
              43
              
              
              
              130
              
              
              
              84Other
              
              
              322
              
              
              
              287
              
              
              
              648
              
              
              
              510Total
      non-interest expense
              
              
              1,175
              
              
              
              934
              
              
              
              2,334
              
              
              
              1,845Net
      (loss) before income taxes
              
              
              (235
              )
              
              
              (132
              )
              
              
              (510
              )
              
              
              (327
              )Income
      tax expense
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Net
      (loss)
              
              $
              (235
              )
              
              $
              (132
              )
              
              $
              (510
              )
              
              $
              (327
              )Other
      comprehensive income (loss):Net unrealized gain/(loss) on available-for-sale
      securities
              
              
              (55
              )
              
              
              37
              
              
              
              (36
              )
              
              
              29Comprehensive
      income (loss)
              
              $
              (290
              )
              
              $
              (95
              )
              
              $
              (546
              )
              
              $
              (298
              )Weighted
      average:Common
      shares
              
              
              1,721,437
              
              
              
              1,719,760
              
              
              
              1,721,437
              
              
              
              1,719,495(Loss)
      per common share:Basic
      & diluted
              
              $
              (0.14
              )
              
              $
              (0.08
              )
              
              $
              (0.30
              )
              
              $
              (0.19
              )




See
accompanying notes to financial statements


3
 
 ES
BANCSHARES, INC.
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 and JUNE 30, 2007
 (Unaudited)
 (In
thousands of dollars, except share data)


AccumulatedCapital
              
              
              
              
              
              Additional
              
              
              
              
              
              OtherStock
              
              
              
              
              
              Paid-In
              
              
              Accumulated
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Gain
      / (Loss)
              
              
              TotalBalance
      at January 1, 2007
              
              
              1,719,227
              
              
              $
              17
              
              
              $
              16,869
              
              
              $
              (5,845
              )
              
              $
              (99
              )
              
              $
              10,942Exercise
      of  stock warrants
              
              
              2,010
              
              
              
              —
              
              
              
              20
              
              
              
              —
              
              
              
              —
              
              
              
              20Stock
      based compensation, net
              
              
              —
              
              
              
              —
              
              
              
              10
              
              
              
              —
              
              
              
              —
              
              
              
              10Comprehensive
      loss:Net
      loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (327
              )
              
              
              —
              
              
              
              (327
              )Net unrealized gain
      on available-for-sale
      securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              29
              
              
              
              29Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (298
              )Balance
      at June 30, 2007
              
              
              1,721,237
              
              
              $
              17
              
              
              $
              16,899
              
              
              $
              (6,172
              )
              
              $
              (70
              )
              
              $
              10,674Balance
      at January 1, 2008
              
              
              1,731,437
              
              
              $
              17
              
              
              $
              16,911
              
              
              $
              (6,553
              )
              
              $
              7
              
              
              $
              10,382Stock
      based compensation, net
              
              
              —
              
              
              
              —
              
              
              
              5
              
              
              
              —
              
              
              
              —
              
              
              
              5Comprehensive
      loss:Net
      loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (510
              )
              
              
              —
              
              
              
              (510
              )Net
      unrealized (loss) on available-for-sale
      securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (36
              )
              
              
              (36
              )Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (546
              )Balance
      at June 30, 2008
              
              
              1,731,437
              
              
              $
              17
              
              
              $
              16,916
              
              
              $
              (7,063
              )
              
              $
              (29
              )
              
              $
              9,841





See
accompanying notes to financial statements


4


ES
Bancshares, Inc.
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 (Unaudited)
   For
      the Six MonthsEnded
      June 30,2008
              
              
              2007(In
      thousands)Cash
      flows from operating activities:Net
      loss for period
              
              $
              (510
              )
              
              $
              (327
              )Adjustments
      to reconcile net losses to net cash provided by operating
      activities:Provision
      for loan losses
              
              
              83
              
              
              
              9Depreciation
      expense
              
              
              179
              
              
              
              80Amortization
      of deferred fees, discounts and premiums, net
              
              
              3
              
              
              
              1Net
      originations on loans held for sale
              
              
              387
              
              
              
              15Stock
      compensation expense
              
              
              5
              
              
              
              10Net
      gain on sale of real estate mortgage loans held for sale
              
              
              (38
              )
              
              
              (66
              )Net
      gain on sale of securities held for sale
              
              
              (7
              )
              
              
              —Gain
      on sale of fixed assets
              
              
              (9
              )
              
              
              —Changes
      in assets and liabilitiesIncrease
      in other assets
              
              
              (147
              )
              
              
              (32
              )Increase
      in accrued expenses and other liabilities
              
              
              49
              
              
              
              184Net
      cash used in operating activities
              
              
              (5
              )
              
              
              (126
              )Cash
      flows from investing activities:Maturity
      of certificates of deposit at other financial institutions
              
              
              4,249
              
              
              
              4,146Purchase
      of certificates of deposit at other financial institutions
              
              
              (7,102
              )
              
              
              (3,897
              )Purchase
      of available-for-sale securities
              
              
              (2,929
              )
              
              
              (1,000
              )Purchase
      of held-to-maturity securities
              
              
              (20,265
              )
              
              
              —Proceeds
      on sale of securities available for sale
              
              
              506
              
              
              
              —Proceeds
      from principal payments and maturities of securities
              
              
              3,601
              
              
              
              2,731Proceeds
      on sale of fixed assets
              
              
              9
              
              
              
              —Net
      disbursements for loan originations
              
              
              (10,137
              )
              
              
              (8,126
              )Purchase
      of Federal Home Loan Bank stock
              
              
              (463
              )
              
              
              (89
              )Redemption
      of Federal Home Loan Bank stock
              
              
              3Redemption
      of Federal Reserve Bank stock
              
              
              18
              
              
              
              11Leasehold
      improvements and acquisitions of capital assets
              
              
              (49
              )
              
              
              (46
              )Net
      cash used in investing activities
              
              
              (32,559
              )
              
              
              (6,270
              )Cash
      flows from financing activities:Net
      increase in deposits
              
              
              25,835
              
              
              
              6,120Net
      increase in borrowed funds
              
              
              9,948
              
              
              
              31Proceeds
      from stock issuance
              
              
              —
              
              
              
              20Net
      cash provided by financing activities
              
              
              35,783
              
              
              
              6,171Net
      increase / (decrease) in cash and cash equivalents
              
              
              3,219
              
              
              
              (225
              )Cash
      and cash equivalents at beginning of period
              
              
              6,752
              
              
              
              14,343Cash
      and cash equivalents at end of period
              
              $
              9,971
              
              
              $
              14,118Supplemental
      cash flow informationInterest
      paid
              
              $
              1,390
              
              
              $
              1,776Income
      taxes paid
              
              $
              —
              
              
              $
              —
  See
accompanying notes to financial statements


5


ES
BANCSHARES, INC.


NOTES
TO UNAUDITED FINANCIAL STATEMENTS








Note
1.   Commencement of Operations





On April
28, 2004, Empire State Bank, NA (the “Bank”) 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 Bank
commenced operations on June 28, 2004.





Note
2.   Holding Company Formation





On August 15, 2006, the Bank
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 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.





Note
3.   Basis of Presentation





The consolidated financial statements
included herein include the accounts of the Company and the Bank, subsequent to
the elimination of all significant intercompany balances and transactions, and
have been prepared by the Company without audit.  In the opinion of
management, the unaudited financial statements include all adjustments,
consisting of normal recurring accruals, necessary (i) so that such statements
are not misleading and (ii) for a fair presentation of the financial position
and results of operations, for the periods presented.  Certain
information and footnote disclosures normally included in accordance with
generally accepted accounting principles of the United States have been
condensed or omitted pursuant to the rules and regulations of the SEC, however,
the Company believes that the disclosures are adequate to make the information
presented not misleading.  The operating results for the periods
presented are not necessarily indicative of results to be expected for any other
interim period or for the entire fiscal year ending December 31,
2008.  The unaudited interim financial statements presented herein
should be read in conjunction with the annual financial statements of the
Company as of and for the fiscal year ended December 31, 2007, included in Form
10-KSB filed with the SEC.





The financial statements have been
prepared in conformity with generally accepted accounting principles of the
United States.  In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets, liabilities, income and expense.  Actual results could differ
significantly from these estimates.  Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans, and the valuation allowance on deferred tax
assets.





Note
4.   Stock Based Compensation





Warrants





Effective June 30, 2008 the Company
modified the terms of the warrants to purchase common stock of the Company
attached to the 2004 Offering by reducing the exercise price of $10.00 to $6.75,
and extended the expiration date from June 28, 2008 to October 31,
2008.  Previously, on April 15, 2007, the Company modified the
original expiration term of the warrants from June 28, 2007 to June 28, 2008 and
reduced the original exercise price from $12.50 to $10.00.  At June
30, 2008 the Company had 327,690 stockholder warrants issued and
outstanding.




6


Also effective June 30, 2008, the
Company reduced the exercise price of its 190,000 issued and outstanding
organizer warrants from $10.00 to $6.75 for a period ending on October 31, 2008
after which the exercise price will revert back to $10.00 per
share.  The organizer warrants, which had an original exercise price
of $10.00 per share and expiration date of June 28, 2009, were granted to the
Bank’s organizers in connection with the opening of the Bank.  The
organizer warrants were valued at $323,000 and were expensed at the time of
issuance in accordance with FAS 123.   There was no additional
expense recognized as a result of any of the modifications.




Stock
Options




On October 19, 2004 the Board of
Directors approved the adoption of the Company’s Stock Option Plan which allows
for 180,000 options.  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.  The options vest at a rate of 20% on each of five annual
vesting dates except for 65,000 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.





The Company accounts for stock options
under Statement of Financial Accounting Standards No. 123 (revised 2004)
“Share-based Payment” (“SFAS 123(R)”), using the modified prospective transition
method.  For accounting purposes, the Company recognizes expense for
shares of common stock awarded under the Company’s Stock Option Plan over the
vesting period at the fair market value of the shares on the date they are
awarded.





Provided below are the assumptions used
for grants in 2008, 2007, and 2006.





2008
            
            2007
            
            2006Risk
      free interest rate
            
            3.02%
            
            4.74%
            
            4.35%Expected
      option life
            
            5.0
            
            5.0
            
            5.0Expected
      stock price volatility
            
            0.10%
            
            0.10%
            
            0.10%Dividend
      yield
            
            0.00%
            
            0.00%
            
            0.00%Weighted
      average fair value of options granted
            
            $        —
            
            $        —
            
            $   
      2.20






7


A summary
of options outstanding under the Bank’s Stock Option Plan as of June 30, 2008,
and changes during the six-month period then ended is presented
below.




Weighted
              
              
              AverageAverage
              
              
              RemainingExercise
              
              
              Contractual
              
              
              IntrinsicShares
              
              
              Price
              
              
              Term
      (yrs.)
              
              
              ValueOutstanding
      atJanuary
      1, 2008
              
              
              157,750
              
              
              $
              10.47
              
              
              
              7.3
              
              
              
              —Granted
              
              
              5,000
              
              
              
              9.00
              
              
              
              9.9
              
              
              
              —Exercised
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Forfieited
      or expired
              
              
              (5,000
              )
              
              
              10.50
              
              
              
              —
              
              
              
              —Outstanding
      atJune
      30, 2008
              
              
              157,750
              
              
              $
              10.42
              
              
              
              6.7
              
              
              
              —Options
      exerciseable atJune
      30, 2008
              
              
              106,700
              
              
              $
              10.48
              
              
              
              6.5
              
              
              
              —Vested
      and expectedto
      vest
              
              
              157,750
              
              
              $
              10.42
              
              
              
              6.7
              
              
              
              —






As of
June 30, 2008, there was $29,612 of total unrecognized compensation cost related
to nonvested stock options granted under the Stock Option Plan.  The
cost is expected to be recognized over a period of approximately 22
months.





Note
5.   Earnings (Loss) Per Share





Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the period.  Diluted earnings (loss) per share
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
earnings (loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares outstanding for the period plus
common-equivalent shares computed using the treasury stock method. None of the
327,690 stockholder warrants, or 190,000 organizer warrants, or 157,750 stock
options were considered in computing diluted earnings (loss) per share because
to do so would have been antidilutive.





Note
6.   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. The tax
benefit on net operating losses, included in deferred tax assets, was
approximately $2.3 million at June 30, 2008.  The net operating losses
are being carried forward and will be available to reduce future taxable
income.  Realization of deferred tax assets is dependent upon the
generation of future taxable income.  A valuation allowance is
provided when it is more likely than not that some portion of the deferred tax
asset will not be realized.  Because the Bank has no operating
history, management recorded a valuation allowance against the total amount of
deferred tax assets.




8


Note
7.   Non-Performing Assets





Loans are
reviewed monthly and any loan whose collectability 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 reversed from interest income related to current year
income and charged to the allowance for loan losses with respect to income that
was recorded in the prior fiscal year.  Subsequent payments are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectability of the
loan.  We did not have any non-accrual loans nor did we have any
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 foreclosed assets acquired in settlement of loans, at and for
the six-month periods ending June 30, 2008 and June 30, 2007.





Note
8.   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
allowance for loan losses is a significant estimate based upon management’s
periodic evaluation of the loan portfolio under current economic conditions,
considering factors such as the Company’s past loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower’s ability to repay, and the estimated value of the underlying
collateral.  Establishing the allowance for loan losses involves
significant management judgment, utilizing the best available information at the
time of review.  Those judgments are subject to further review by
various sources, including the Bank’s regulators, who may require the Company to
recognize additions to the allowance based on their judgment about information
available to them at the time of their examination.  While management
estimates loan losses using the best available information, future adjustments
to the allowance may be necessary based on changes in economic and real estate
market conditions, further information obtained regarding known problem loans,
the identification of additional problem loans, and other
factors.  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.





Note
9.   Adoption of New Accounting Standards





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 or use of an asset.  The
standard is effective for fiscal years beginning after November 15,
2007.  In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157.  This FSP delays the
effective date of FAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years.The impact of adoption was
not material.





In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities.  The standard provides
companies with an option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities.  The new
standard is effective for the Company on January 1, 2008.  The Company
did not elect the fair value option for any financial assets or financial
liabilities as of January 1, 2008.





9


On November 5, 2007, the SEC issued
Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair
Value through Earnings (“SAB 109”).  Previously, SAB 105, Application
of Accounting Principles to Loan Commitments, stated that in measuring the fair
value of a derivative loan commitment, a company should not incorporate the
expected net future cash flows related to the associated servicing of the
loan.  SAB 109 supersedes SAB 105 and indicates that the expected net
future cash flows related to the associated servicing of the loan should be
included in measuring fair value for all written loan commitments that are
accounted for at fair value through earnings.  SAB 105 also indicated
that internally-developed intangible assets should not be recorded as part of
the fair value of a derivative loan commitment, and SAB 109 retains that
view.  SAB 109 is effective for derivative loan commitments issued or
modified in fiscal quarters beginning after December 15,
2007.   The impact of adoption was not
material.





Note
10.  Fair Value





Statement 157 establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value.  The standard describes three levels of inputs that may be used
to measure fair value:





Level
1:  Quoted prices (unadjusted) or identical assets or liabilities in
active markets that the entity has the ability to access as of the measurement
date.





Level
2:  Significant other observable inputs other than Level 1 prices such
as quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be corroborated
by observable market data.





Level
3:  Significant unobservable inputs that reflect a reporting entity’s
own assumptions about the assumptions that market participants would use in
pricing an asset or liability.





The fair values of securities available
for sale are determined by obtaining quoted prices on nationally recognized
securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical
technique widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying
on the securities’ relationship to other benchmark quoted securities (Level 2
inputs).





Assets and liabilities measured at fair
value on a recurring basis are summarized below:








Fair
      Value Measurements at June 30, 2008 UsingQuoted
      Prices
              
              Significantin
      Active
              
              Other
              
              SignificantMarkets
      for
              
              Observable
              
              UnobservableJune
      30
              
              Identical
      Assets
              
              Inputs
              
              Inputs2008
              
              (Level
      1)
              
              (Level
      2)
              
              (Level
      3)AssetsAvailable
      for sale securities
              
              $    6,090
              
              $          —
              
              $    6,090
              
              $          —


10


Note
11. Commitments and Contingencies





Legal
Proceedings





The
Company has not been a party to any legal proceedings, which may have a material
effect on the Company’s results of operations and financial
condition.  However, in the normal course of its business, the Company
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.





Operating
Lease Commitments





The
Company is obligated under non-cancelable operating leases for its main office
location in Newburgh, New York and its branch office locations in New Paltz, New
York and Staten Island, New York.  The leases are for initial terms of
10 years, 15 years, and 10 years, respectively and have various renewal
options.  Rent expense under operating leases was $74,000 for the
three months ended June 30, 2008.  At June 30, 2008, the future
minimum rental payments under operating lease agreements for the fiscal years
ending December 31 are $135,000 in 2008, $266,000 in 2009, $273,000 in 2010,
$276,000 in 2011, $279,000 in 2012 and a total of $2,557,000 for 2013 and
thereafter.





Off-Balance
Sheet Financial Instruments





The Company’s off-balance sheet
financial instruments at June 30, 2008 were limited to loan origination
commitments of $16.6 million (including one-to-four family loans held for sale
of $3.5 million) and unused lines of credit (principally commercial and home
equity lines) extended to customers of $13.1 million.  Substantially
all of these commitments and lines of credit have been provided to customers
within the Bank’s primary lending area.  Loan origination commitments
at June 30, 2008 consisted of adjustable and fixed rate commitments of $11.0
million and $5.6 million respectively, with interest rates ranging from 4.50% to
8.00%.







Item
2.





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





Forward-Looking
Statements





This Report on Form 10-Q of the Company
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 the
Company.  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 the Company’s
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 the Company’s management, are intended to identify forward-looking
statements.  Although the Company believes 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 and
deposit demand levels, competition, our ability to control expenses, our ability
to increase our lower cost deposits, our ability to execute our plan to grow our
assets and liabilities and attain profitability, and other
factors.  The Company does not intend to update these
forward-looking




11


statements.  All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by applicable cautionary statements.





Comparison
of Financial Condition at June 30, 2008 and December 31, 2007





Total
assets.  Total assets at June 30, 2008 amounted to $129.2
million, representing an increase of $35.3 million, or 37.6%, from $93.9 million
at December 31, 2007.  The increase in assets was primarily
attributable to a $19.1 million increase in total securities, a $10.1 million
increase in total loans receivable, net, a $3.2 million increase in total cash
and cash equivalents and a $2.9 million increase in certificates of deposit at
other financial institutions.  We have recently decided to accelerate
our growth of assets and liabilities.  This is based on several
factors.  First, we believe that, over time, we can achieve better
operating results with a larger asset and liability base.  Moreover,
we believe that the recent changes in the yield curve provides us with an
opportunity to grow at a higher interest rate spread.  Additionally,
the recent cutbacks in lending by our competitors provides us with selected
opportunities to expand our lending activities, provided that we do so while
maintaining high underwriting standards.  Finally, the opening of our
full service Staten Island office in October 2007 has provided us with an
improved platform to conduct banking operations in that attractive
market.





Net
loans.Overall,
net loans, increased $10.1 million, or 14.1%, to $81.5 million at June 30, 2008
from $71.4 million at December 31, 2007.  The increase in net loans
was primarily attributable to the $10.1 million, or 24.3% increase in commercial
and residential real estate mortgage loans, which increased from $41.5 million
to $51.6 million.  The $10.1 million net increase included $8.6
million in primarily fixed rate one-to-four family residential real estate loans
and $1.5 million in commercial real estate loans.  Commercial loans
and commercial lines of credit increased $1.2 million, or 8.4%, from $14.3
million to $15.5 million, and home equity and consumer loans increased $710,000,
or 8.1%, from $8.7 million to $9.4 million.  Management believes that
the significant increase in loans has increased the Company’s interest rate risk
but that the added risk is reasonable as it will result in improved earnings due
to the wider spreads now available, and is manageable, as management believes
the Company’s balance sheet has the capacity for such added
risk.  Over the same six-month period the above increases were
partially offset by a decrease in construction or development loans of $1.8
million, or 25.3%, from $7.1 million to $5.3 million.  Management may
consider slowing loan growth in the future depending on economic, regulatory,
deposit growth and capital considerations.





Total
securities.Total securities
at June 30, 2008 increased $19.1 million, or 272.9%, to $26.1 million from $7.0
million at December 31, 2007.  Securities available for sale decreased
by $947,000, or 13.5%, primarily as the result of prepayments on its Ginnie Mae
mortgage-backed securities portfolio coupled with calls of relatively
higher-yielding government sponsored agency notes that were called as a result
of the recent decline in interest rates.  Securities held to maturity
increased by $20.0 million as the Bank invested approximately $15.3 million of
its excess deposits and borrowed funds from the Federal Home Loan Bank of New
York into Fannie Mae and Freddie Mac pass through mortgage-backed securities and
$4.7 million into government sponsored agency notes.  The expected
weighted average lives and yields of the new mortgage backed securities were
approximately 6.9 years and 5.12%, respectively, on the date of purchase, while
the yield on the government sponsored agency notes was approximately 3.42%, and
mature in less than five years.





Certificates of
deposit at other financial institutions.  Certificates of
deposit at other financial institutions increased $2.8 million, or 48.3%, to
$8.6 million a June 30, 2008 from $5.8 million at December 31,
2007.  All certificates were at original maturity dates of twelve
months or less in order to maintain predictable sources of available funds over
relatively short terms at yields generally superior to other short-term
investments.





Cash and cash
equivalents.Total cash and
cash equivalents at June 30, 2008 increased $3.2 million, or 47.1%, to $10.0
million from $6.8 million at December 31, 2007, to ensure that sufficient
liquidity was readily available to meet the Company’s immediate funding
needs.





12


Federal Home Loan
Bank stock.  As a result of
its utilization of secured advances from the Federal Home Loan Bank of New York,
the Bank increased its investment in Federal Home Loan Bank of New York capital
stock from $89,000 at December 31, 2007 to $548,000 at June 30,
2008.





Deposits.Interest bearing
deposits grew $20.2 million, or 26.9%, to $95.3 million at June 30, 2008 from
$75.1 million at December 31, 2007.  The net growth over the six-month
period consisted of a $25.9 million increase in certificates of deposit, a $4.6
million increase in savings accounts and an $826,000 increase in NOW accounts
that was partially offset by an $11.1 million decrease in money market accounts.
Over the same six-month period non-interest bearing accounts increased $5.6
million, or 76.7%, from $7.3 million to $12.9 million.  The increases
in our various deposit categories reflect our ability to attract and service new
deposit relationships in order to support the increases to our total
assets.  The decline in money market accounts followed decreases in
the interest rate offered on that type of deposit, and depositors elected to
transfer balances into higher-yielding certificates of deposit.  A
significant contributing factor to the increase in total deposits was the
opening of the Bank’s third full service branch office in Staten Island, New
York in November 2007.  Upon opening the new branch, the Bank was able
to close its loan production office in Staten Island by moving those operations
into the same new location.





Borrowings.  Our
borrowings increased from $89,000 at December 31, 2007 to $10.0 million at June
30, 2008 primarily as a result of our borrowing $10.0 million from the Federal
Home Loan Bank of New York in five-year amortizing and structured advances to
purchase mortgage-backed securities.  At June 30, 2008, the weighted
average term to maturity of our borrowings was approximately 3.8
years.





Stockholders’
equity.Stockholders’
equity decreased by $541,000 to $9.8 million at June 30, 2008 from $10.4 million
at December 31, 2007.  The decrease is primarily attributable to a net
loss for the six-month period of $510,000 and a $36,000 increase in net
unrealized loss in market value of securities available-for-sale.  The
ratio of stockholders’ equity to total assets decreased to 7.6% at June 30, 2008
from 11.1% at December 31, 2007.  Book value per share decreased to
$5.72 at June 30, 2008 from $6.03 at December 31, 2007.  See
“Liquidity and Capital Resources” for information regarding the Bank’s
regulatory capital amounts and ratios.





We recently reduced the exercise price
of our two classes of warrants in the hopes of raising a modest amount of
additional capital to support our operations and growth plans.  See
Note 4 of the Notes to our Consolidated Financial Statements.







13


Analysis
of Net Interest Income





The following tables summarize the
Company’s average balance sheets for interest earning assets and interest
bearing liabilities, average yields and costs (on an annualized basis), and
certain other information for the three and six-month periods ended June 30,
2008 as compared to the comparable three and six-month periods ended June 30,
2007.  The yields and costs were derived by dividing interest income
or expense by the average balance of assets and liabilitiesfor the period
shown.  Substantially all average balances were computed based on
daily balances.  The yields include deferred fees and discounts, which
are considered yield adjustments.





For
      the Three Months Ended June 30,2008
              
              
              2007Average
              
              
              
              
              
              
              
              
              AverageAverage
              
              
              
              
              
              Yield
      /
              
              
              Average
              
              
              
              
              
              Yield
      /Balance
              
              
              Interest
              
              
              Cost
              
              
              Balance
              
              
              Interest
              
              
              Cost(Dollars
      in thousands)AssetsInterest-earning
      assets:Loans
              
              $
              77,035
              
              
              $
              1,208
              
              
              
              6.31%
              
              
              $
              68,129
              
              
              $
              1,272
              
              
              
              7.49%Fed
      Funds Sold
              
              
              7,032
              
              
              
              37
              
              
              
              2.12%
              
              
              
              8,653
              
              
              
              112
              
              
              
              5.19%Certificates
      of deposit
              
              
              6,916
              
              
              
              69
              
              
              
              4.01%
              
              
              
              5,807
              
              
              
              78
              
              
              
              5.39%FRB
      & FHLB Stock
              
              
              1,091
              
              
              
              8
              
              
              
              2.95%
              
              
              
              329
              
              
              
              5
              
              
              
              6.10%Investment
      securities
              
              
              23,595
              
              
              
              294
              
              
              
              5.01%
              
              
              
              7,503
              
              
              
              92
              
              
              
              4.92%Total
      interest-earning assets
              
              
              115,669
              
              
              $
              1,616
              
              
              
              5.62%
              
              
              
              90,421
              
              
              $
              1,559
              
              
              
              6.92%Allowance
      for loan losses
              
              
              (620
              )
              
              
              
              
              
              
              
              
              
              
              (586
              )Cash
      & Due from banks
              
              
              2,466
              
              
              
              
              
              
              
              
              
              
              
              2,054Other
      Non-interest earning assets
              
              
              2,117
              
              
              
              
              
              
              
              
              
              
              
              1,978Total
      assets
              
              $
              119,632
              
              
              
              
              
              
              
              
              
              
              $
              93,867Liabilities
      and  Stockholders’ EquityInterest-bearing
      liabilities:NOW
      accounts
              
              $
              2,258
              
              
              $
              6
              
              
              
              1.07%
              
              
              $
              1,187
              
              
              $
              2
              
              
              
              0.68%Money
      Market accounts
              
              
              30,848
              
              
              
              164
              
              
              
              2.14%
              
              
              
              47,621
              
              
              
              595
              
              
              
              5.01%Regular
      savings accounts
              
              
              14,296
              
              
              
              87
              
              
              
              2.45%
              
              
              
              7,117
              
              
              
              64
              
              
              
              3.61%Certficates
      of Deposit
              
              
              42,082
              
              
              
              421
              
              
              
              4.02%
              
              
              
              18,406
              
              
              
              231
              
              
              
              5.03%Total
      interest-bearing deposits
              
              
              89,484
              
              
              
              678
              
              
              
              3.05%
              
              
              
              74,331
              
              
              
              892
              
              
              
              4.81%Borrowings
              
              
              8,537
              
              
              
              68
              
              
              
              3.20%
              
              
              
              68
              
              
              
              1
              
              
              
              8.25%Total
      interest-bearing liabilities
              
              $
              98,021
              
              
              $
              746
              
              
              
              3.06%
              
              
              $
              74,399
              
              
              $
              893
              
              
              
              4.82%Non-interest-bearing
      liabilities
              
              
              11,549
              
              
              
              
              
              
              
              
              
              
              
              8,827Total
      liabilities
              
              
              109,570
              
              
              
              
              
              
              
              
              
              
              
              83,226Stockholders’
      equity
              
              
              10,062
              
              
              
              
              
              
              
              
              
              
              
              10,641Total
      liabilities and stockholders’ equity
              
              $
              119,632
              
              
              
              
              
              
              
              
              
              
              $
              93,867Net
      interest income
              
              
              
              
              
              $
              870
              
              
              
              
              
              
              
              
              
              
              $
              666Average interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.56%
              
              
              
              
              
              
              
              
              
              
              
              2.10%Net interest margin(2)
              
              
              
              
              
              
              
              
              
              
              3.01%
              
              
              
              
              
              
              
              
              
              
              
              2.94%Net interest-earning assets(3)
              
              $
              17,648
              
              
              
              
              
              
              
              
              
              
              $
              16,022Ratio
      of average interest-earning assets to average interest-bearing
      liabilities
              
              
              
              
              
              
              
              
              
              
              118.00%
              
              
              
              
              
              
              
              
              
              
              
              121.54%


(1)
              Average
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.
 (2)
                Net
      interest margin represents net interest income divided by average total
      interest-earning
assets.


(3)
              Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing
liabilities.


14


For
      the Six Months Ended June 30,2008
              
              
              2007Average
              
              
              
              
              
              
              
              
              AverageAverage
              
              
              
              
              
              Yield
      /
              
              
              Average
              
              
              
              
              
              Yield
      /Balance
              
              
              Interest
              
              
              Cost
              
              
              Balance
              
              
              Interest
              
              
              Cost(Dollars
      in thousands)AssetsInterest-earning
      assets:Loans
              
              $
              75,241
              
              
              $
              2,432
              
              
              
              6.50%
              
              
              $
              65,251
              
              
              $
              2,421
              
              
              
              7.48%Fed
      Funds Sold
              
              
              6,781
              
              
              
              87
              
              
              
              2.58%
              
              
              
              10,253
              
              
              
              268
              
              
              
              5.20%Certificates
      of deposit
              
              
              5,959
              
              
              
              136
              
              
              
              4.59%
              
              
              
              6,020
              
              
              
              162
              
              
              
              5.43%FRB
      & FHLB Stock
              
              
              787
              
              
              
              16
              
              
              
              4.09%
              
              
              
              351
              
              
              
              11
              
              
              
              6.32%Investment
      securities
              
              
              15,037
              
              
              
              379
              
              
              
              5.07%
              
              
              
              7,897
              
              
              
              191
              
              
              
              4.88%Total
      interest-earning assets
              
              
              103,805
              
              
              $
              3,050
              
              
              
              5.91%
              
              
              
              89,772
              
              
              $
              3,053
              
              
              
              6.86%Allowance
      for loan losses
              
              
              (622
              )
              
              
              
              
              
              
              
              
              
              
              (584
              )Cash
      & Due from banks
              
              
              2,295
              
              
              
              
              
              
              
              
              
              
              
              2,032Other
      Non-interest earning assets
              
              
              2,137
              
              
              
              
              
              
              
              
              
              
              
              1,898Total
      assets
              
              $
              107,615
              
              
              
              
              
              
              
              
              
              
              $
              93,118Liabilities
      and  Stockholders’ EquityInterest-bearing
      liabilities:NOW
      accounts
              
              $
              2,120
              
              
              $
              14
              
              
              
              1.33%
              
              
              $
              1,014
              
              
              $
              3
              
              
              
              0.60%Money
      Market accounts
              
              
              33,801
              
              
              
              457
              
              
              
              2.72%
              
              
              
              48,374
              
              
              
              1,202
              
              
              
              5.01%Regular
      savings accounts
              
              
              12,758
              
              
              
              171
              
              
              
              2.70%
              
              
              
              6,279
              
              
              
              109
              
              
              
              3.50%Certficates
      of Deposit
              
              
              34,058
              
              
              
              725
              
              
              
              4.28%
              
              
              
              18,237
              
              
              
              454
              
              
              
              5.02%Total
      interest-bearing deposits
              
              
              82,737
              
              
              
              1,367
              
              
              
              3.33%
              
              
              
              73,904
              
              
              
              1,768
              
              
              
              4.82%Borrowings
              
              
              4,313
              
              
              
              70
              
              
              
              3.26%
              
              
              
              59
              
              
              
              2
              
              
              
              8.25%Total
      interest-bearing liabilities
              
              $
              87,050
              
              
              $
              1,437
              
              
              
              3.32%
              
              
              $
              73,963
              
              
              $
              1,770
              
              
              
              4.83%Non-interest-bearing
      liabilities
              
              
              10,362
              
              
              
              
              
              
              
              
              
              
              
              8,449Total
      liabilities
              
              
              97,412
              
              
              
              
              
              
              
              
              
              
              
              82,412Stockholders’
      equity
              
              
              10,203
              
              
              
              
              
              
              
              
              
              
              
              10,706Total
      liabilities and stockholders’ equity
              
              $
              107,615
              
              
              
              
              
              
              
              
              
              
              $
              93,118Net
      interest income
              
              
              
              
              
              $
              1,613
              
              
              
              
              
              
              
              
              
              
              $
              1,283Average interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.59%
              
              
              
              
              
              
              
              
              
              
              
              2.03%Net interest margin(2)
              
              
              
              
              
              
              
              
              
              
              3.11%
              
              
              
              
              
              
              
              
              
              
              
              2.86%Net interest-earning assets(3)
              
              $
              16,755
              
              
              
              
              
              
              
              
              
              
              $
              15,809Ratio
      of average interest-earning assets to average interest-bearing
      liabilities
              
              
              
              
              
              
              
              
              
              
              119.25%
              
              
              
              
              
              
              
              
              
              
              
              121.37%
 
 (1)
                Average
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.
 (2)
                Net
      interest margin represents net interest income divided by average total
      interest-earning assets.
 (3)
                  Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing liabilities.
  15


Comparisons
of Operating Results for the Quarters Ended June 30, 2008 and June 30,
2007





General.  For
the quarter ended June 30, 2008, the Company recognized a net loss of $235,000,
or ($0.14) per diluted share, as compared to a net loss of $132,000, or ($0.08)
per diluted share, for the quarter ended June 30, 2007.  The increased
net loss was primarily attributable to increased non-interest operating expense
that was mainly related to the opening of a new full service branch during the
fourth quarter of 2007, and an increased provision for loan loss that resulted
from management’s assessment of the adequacy of the allowance for loan and lease
loss.





Interest
Income.Interest income was unchanged at $1.6 million for the
quarter ended June 30, 2008, compared to $1.6 million for the quarter ended June
30, 2007.  Comparatively, average interest-earning assets increased to
$115.7 million for the quarter ended June 30, 2008 from $90.4 million for the
quarter ended June 30, 2007.  However, over the same comparable
quarters, yields were lower in 2008 than those realized in 2007 due to the
decrease in market rates that resulted from the series of well-publicized
reductions in short-term interest rates that commenced in September 2007 by the
Federal Open Market Committee.  The average yield on interest-earning
assets for the quarter ended June 30, 2008 was 5.62%, which was 130 basis points
lower than the 6.92% yield on the Bank’s interest-earning assets for the quarter
ended June 30, 2007.





Average
loan balances increased by $8.9 million from $68.1 million for the quarter ended
June 30, 2007 to $77.0 million for the quarter ended June 30, 2008, while the
average yield decreased from 7.49% to 6.31% over the same respective
periods.  Over the same comparable periods, the average balances of
the Company’s investment securities portfolio increased $16.1 million, from $7.5
million to $23.6 million primarily as the result of our large mortgage backed
securities purchase in 2008..  Part of the increase in average
balances was funded with secured advances obtained from the Federal Home Loan
Bank of New York in order to enhance net interest income.  The average
yield earned by the securities portfolio increased to 5.01% for the quarter
ended June 30, 2008, from 4.92% for the same respective quarter ended one year
earlier, and resulted primarily from the longer-term and higher-yielding
investments purchased since the end of 2007.





The
average balance and yield of the Bank’s certificates of deposit at other
financial institutions for the quarter ended June 30, 2008 was $6.9 million and
4.01%, respectively, as compared to an average balance of $5.8 million and a
yield of 5.39% for the quarter ended June 30, 2007, and the average yield earned
on fed funds sold during the quarter ended June 30, 2008 decreased to 2.12% as
compared to 5.19% earned over the same quarter ended one year
earlier.





Interest
Expense.Total interest expense for the quarter ended June 30,
2008 decreased by $146,000 from $893,000 to $747,000 for the same three-month
period one year earlier.  The decrease was primarily due to decreases
in short-term interest rates, notwithstanding the increase in the average
balances of the Company’s interest-bearing deposits and
borrowings.  Average money market account balances decreased $16.8
million, from $47.6 million for the quarter ended June 30, 2007 to $30.8 million
for the quarter ended June 30, 2008, as management chose to emphasize other
funding sources that were deemed more attractive from a cost/duration
standpoint.  Over those respective quarters the average costs for
those balances decreased 287 basis points, from 5.01% to 2.14%.  The
average balances of the Company’s certificates of deposit portfolio increased to
$42.1 million at an average cost of 4.02% over the quarter ended June 30, 2008,
from $18.4 million at an average cost of 5.03% over the same quarter ended
one-year earlier.  Average regular savings account balances increased
$7.2 million to $14.3 million for the quarter ended June 30, 2008, from $7.1
million for the quarter ended June 30, 2007, while the average costs decreased
116 basis points, to 2.45% from 3.61%, over the same respective
periods.  For the quarter ended June 30, 2008, the average balance of
the Company’s borrowed funds was $8.5 million at an average cost of 3.20% as
compared to an average balance of $68,000 at an average cost of 8.25% one
year-earlier.  The increase in borrowed funds was primarily used to
help fund the increase in the investment securities portfolio discussed
above.





16


Net Interest
Income.  Net interest income was approximately $868,000 for the
quarter ended June 30, 2008 as compared to $666,000 for the same quarter in the
prior year, an increase of $202,000.  The Company’s average interest
rate spread increased to 2.56% for the quarter ended June 30, 2008 from 2.10%
for the quarter ended June 30, 2007, while the net interest margin increased to
3.01% from 2.94%, over the same respective periods.





Provision for
Loan Losses.  For the three
months ended June 30, 2008 the provision for loan losses was $90,000 as compared
to $5,000 for the three months ended June 30, 2007.  The increase
resulted primarily because the portfolio’s net loan growth was greater in 2008
than in 2007.  In addition, as a result of management’s analysis of
the adequacy of the allowance for loan losses, the Company determined that an
increased provision was further warranted due to increased credit risk that has
likely resulted from economic weakness in its market area resulting from falling
home values, rising unemployment and the spiraling increases in energy and other
commodity prices.





Non-interest
Income.Non-interest income for the quarter ended June 30,
2008 was approximately $162,000 as compared to $141,000 for the quarter ended
June 30, 2007.  Service charges and fees increased $38,000 from
$81,000 in 2007 to $119,000 in 2008 primarily as a result of the Company’s
increased number of customer relationships.  The net gain on sale of
real estate mortgages held for sale decreased to $23,000 from $49,000 primarily
because of a general softening in the overall housing market evident this year
relative to last, and because the Company elected to retain more of the real
estate mortgage loans that it originated for its own portfolio instead of
selling them.  Other non-interest income categories increased to
$20,000 from $11,000 primarily from increased annuity sales.





Non-interest
Expense.Non-interest expense for the quarter ended June 30,
2008 increased $241,000 when compared to the same quarter in
2007.  Compensation and benefits increased $128,000 primarily from the
increase in personnel needed to staff the new full-service branch in Staten
Island, New York that opened in November 2007.  The new branch office
was also primarily responsible for the increase in occupancy and equipment
expense and contributed to the increase in data processing
fees.  Other non-interest expense increased by $35,000 to $322,000 for
the quarter ended June 30, 2008, from $287,000 for the quarter ended June 30,
2007.  This increase was primarily due to increases in professional
and consulting fees, advertising, FDIC assessments and other operating expenses
related to the expansion of the Bank’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.





Results
of Operations for the Six Months Ended June 30, 2008 and June 30,
2007





General.For
the six months ended June 30, 2008, the Company recognized a net loss of
$510,000, or ($0.30) per diluted share, as compared to a net loss of $327,000,
or ($0.19) per diluted share, for the comparable six-month period ended one year
earlier.  The $183,000 increase in net loss is primarily the result of
increased operating expenses due in part to the opening of the Company’s third
full service branch banking office, that were partially mitigated by increased
net interest income and non-interest income related to the Company’s larger
asset size.





Interest
Income.Compared to the first six months of 2007, interest
income for the six-month period ended June 30, 2008 was unchanged at $3.1
million.  The amount of interest income earned resulted from an
increase in average interest-earning assets to $103.8 million for the six-month
period ended June 30, 2008 from $89.8 million for the comparable six-month
period ended one year earlier, and to the lower overall yield associated with
those assets.  Over the comparable periods average loan balances
increased from $65.3 million to $75.2 million, while their average yield
decreased from 7.48% to 6.50%.  The average balances of the investment
securities portfolio increased by $7.1 million, from $7.9 million to $15.0
million, while the average balances of its fed funds sold decreased by nearly
$3.5




17


million,
from $10.3 million to $6.8 million, over the six-month period ended June 30,
2008 as compared to the same six-month period in the previous
year.  The yield earned by the investments portfolio increased to
5.07% from 4.88% over the six-month period ended June 30, 2008 as compared to
the six-month period ended June 30, 2007 primarily from the longer-term and
higher-yielding investments purchased since the end of 2007.  The
yield earned by the fed funds sold average balances decreased to 2.58% from
5.20% over the same respective periods as a result of the decrease in short-term
interest rates commented on earlier.





During
the six-month period ended June 30, 2008 the Company continued to maintain an
approximate $6.0 million average balance invested in a variety of certificates
of deposit at other financial institutions with maturities ranging from three to
twelve months.  Due to the decrease in short-term interest rates
available in the marketplace, the average yield of this asset segment decreased
as certificates were renewed from 5.43% for the six-month period ended June 30,
2007 to 4.59% earned over the comparable six-month period in 2008.





Interest
Expense.Total interest expense for the six-month period ended
June 30, 2008 decreased by $333,000 when compared to the six-month period ended
June 30, 2007.  The decrease resulted from the decreases in short-term
interest rates, notwithstanding the increase in the average balances of the
Bank’s interest-bearing deposits and borrowings.  Average money market
account balances decreased $14.6 million, from $48.4 million for the six-month
period ended June 30, 2007 to $33.8 million for the six-month period ended June
30, 2008.  Over those respective periods the average costs for those
balances decreased 229 basis points, from 5.01% to 2.72%.  The average
balances of the Bank’s certificates of deposit portfolio increased to $34.1
million at an average cost of 4.28% over the six-month period ended June 30,
2008, from $18.2 million at an average cost of 5.02% over the same six-month
period ended one-year earlier.  Average regular savings account
balances increased $6.5 million to $12.8 million for the six-month period ended
June 30, 2008, from $6.3 million for the six-month period ended June 30, 2007,
while the average costs decreased 80 basis points, to 2.70% from 3.50%, over the
same respective periods.  For the six-month period ended June 30,
2008, the average balance of the Company’s borrowed funds was $4.3 million at an
average cost of 3.26% as compared to an average balance of $59,000 at an average
cost of 8.25% one year-earlier.  The increase in borrowed funds was
primarily used to help fund the increase in the investment securities portfolio
discussed above.





Provision for
Loan Losses.  The provision for loan losses for the six months
ended June 30, 2008 increased $74,000 compared to the six months ended June 30,
2007 primarily because the portfolio’s net loan growth was greater in 2008 than
in 2007, and, as discussed previously, following management’s analysis of the
adequacy of the allowance for loan losses, the Company determined that an
increased provision was warranted because of an increase in the loan portfolio’s
overall risk profile under current market conditions at June 30, 2008, as
compared to June 30, 2007, and from economic weakness in its market
areas.





Net Interest
Income.Net interest income was approximately $1.6 million for
the six-month period ended June 30, 2008 as compared to $1.3 million for the
six-month period ended June 30, 2007.  The average interest rate
spread increased to 2.59% from 2.03%, while the net interest margin increased to
3.11% from 2.86%, over the same comparable periods





Non-Interest
Income.Non-interest income for the six-month period ended
June 30, 2008 totaled $294,000, which represented an increase of $50,000 from
the $244,000 earned over the six-month period ended June 30,
2007.  Most of the change resulted from a $53,000 increase in service
charges and fees earned from an increased number of deposit and loan customer
relationships that was mitigated by a $28,000 decrease in the net gain on the
sale of real estate mortgage loans held for sale that decreased because of a
decrease in real estate mortgage loan sale activity.  There was also
an $18,000 increase in other categories of non-interest income, attributable,
primarily, to increased earnings from the sale of annuities.





18


Non-Interest
Expense.Non-interest expense for the six-month period ended
June 30, 2008 increased $489,000 to $2.3 million from $1.8 million for the
six-month period ended June 30, 2007.  Compensation and benefits
increased $216,000, or 23.1%, from the increase in personnel needed to staff the
previously mentioned new full-service branch in Staten Island, New York that
opened in November 2007.  The new branch office was also primarily
responsible for the increase in occupancy and equipment expense and contributed
to the increase in data processing fees.  Other non-interest expense
increased to $648,000 for the six-month period ended June 30, 2008 from $510,000
for the comparable six-month period ended June 30, 2007.  The $138,000
increase was primarily due to increases in professional and consulting fees,
advertising, FDIC assessments, shareholder communications, and other operating
expenses related to the expansion of the Bank’s business
activities.





Liquidity
and Capital Resources





The primary sources of funds are
deposits, wholesale funding from the Federal Home Loan Bank of New York or other
bank borrowings, capital, proceeds from the sale of loans, and principal and
interest payments on loans and securities.  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.





The
primary investing activities of the Company are the origination of loans and the
purchase of investment securities.  Investing activities are funded
primarily by net deposit inflows, sales of loans, principal repayments on loans
and securities, and borrowed funds.  For the six months ended June 30,
2008, the Company originated loans of approximately $27.0 million including real
estate mortgage loans held for sale.  At June 30, 2008, the Company
had outstanding loan origination commitments of $16.6 million (including
one-to-four-family real estate mortgage loans held for sale of $3.5 million) and
undisbursed lines of credit and construction loans in process of $13.1
million.  The Company anticipates that it will have sufficient funds
available to meet its current loan originations and other
commitments.





At June
30, 2008, total deposits were approximately $108.2 million of which
approximately $49.4 million was in certificates of
deposit.  Certificates of deposit scheduled to mature in one year or
less from June 30, 2008 totaled $33.2 million.  Based on past
experience the Company anticipates that most such certificates of deposit can be
renewed upon their expiration.





As stated
earlier, the Company completed the holding company formation during the quarter
ended September 30, 2006.  In order to pay the various costs
associated with the 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 the Company had
exercised $114,000 at June 30, 2008.





In
general the Bank monitors and manages its liquidity on a regular basis by
maintaining appropriate levels of liquid assets so that funds are available when
needed.  Excess liquidity is invested in overnight federal funds sold
and other short-term investments.  As a member of the Federal Home
Loan Bank of New York, the Bank has the availability of credit secured by
qualifying collateral.  At June 30, 2008 the Bank had $11.5 million of
such unencumbered collateral available.  Additionally, the Bank has
unused credit lines of $5.0 million if the need arises with its correspondent
bank, Atlantic Central Bankers Bank, which is separate from the Company’s credit
facility mentioned above.





Applicable 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 prompt corrective action regulations,
our regulator is required to take certain supervisory actions with respect to an
undercapitalized institution.  The regulations establish a framework
for the classification of depository institutions into five categories: (1)
well-capitalized, (2) adequately capitalized, (3) undercapitalized, (4)
significantly undercapitalized, and (5) critically
undercapitalized.




19


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%.  As of
June 30, 2008, 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 June
30, 2008 and December 31, 2007, 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 requirements for minimum capital adequacy and for classification as a
well-capitalized institution at June 30, 2008 and December 31,
2007.  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
      asBank
      Actual
            
            
            Adequacy
            
            
            Well
      CapitalizedAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
      in thousands)June 30, 2008Tier
      I (core)capital
            
            $
            9,397
            
            
            
            7.9
            %
            
            $
            3,572
            
            
            
            3.0
            %
            
            $
            5,953
            
            
            
            5.0
            %Risk-based
      capital:Tier
      I
            
            
            9,397
            
            
            
            10.3
            
            
            
            N/A
            
            
            
            N/A
            
            
            
            5,469
            
            
            
            6.0Total
            
            
            10,103
            
            
            
            11.1
            
            
            
            7,292
            
            
            
            8.0
            
            
            
            9,116
            
            
            
            10.0






Minimum
      Capital
              
              
              Classification
      asBank
      Actual
              
              
              Adequacy
              
              
              Well
      CapitalizedAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio(Dollars
      in thousands)December 31, 2007Tier
      I (core)capital
              
              $
              9,886
              
              
              
              11.5
              %
              
              $
              2,818
              
              
              
              3.0
              %
              
              $
              4,696
              
              
              
              5.0
              %Risk-based
      capital:Tier
      I
              
              
              9,886
              
              
              
              12.5
              
              
              
              N/A
              
              
              
              N/A
              
              
              
              3,865
              
              
              
              6.0Total
              
              
              10,510
              
              
              
              13.3
              
              
              
              5,153
              
              
              
              8.0
              
              
              
              6,441
              
              
              
              10.0







Item
3.   Quantitative and Qualitative Disclosure About Market
Risk





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 areinfluenced by inflationary
expectations.  We generally do not seek to match the interest
sensitivity of our financial assets to the interest sensitivity of our financial




20


liabilities
as part of our interest rate risk management program.  However,
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 a portion of our assets as
rates change.  Whereas the Company has increased its total assets
during this reporting period, particularly in longer-term loans and mortgage
backed security investments, it has also increased its levels of short-term
certificates of deposit at other financial institutions, its cash and cash
equivalents, its level of non-interest bearing deposits, and funded significant
portions of its asset growth with longer-term interest-bearing liabilities in an
effect to manage the vulnerability of its operating results to change in
interest rates.





A
commonly used tool to manage and analyze the interest rate sensitivity of a bank
is a computer simulation model.  To quantify the extent of risks in both
the Company’s current position and in transactions it might make in the future,
the Company uses a model to simulate the impact of different interest rate
scenarios on net interest income.  The hypothetical impact of a 12 month
horizontal and instantaneous interest rate shift (generally, a horizontal change
in interest rates of +2.00% or –1.00%) and smaller incremental interest rate
changes are modeled at least quarterly, representing the primary means the
Company uses for interest rate risk management decisions.




At June
30, 2008, given a +2.00% or –1.00% shock in interest rates, our model results in
the Company’s net interest income for the next twelve months changing by
$23,000, or 2.35%, and $(106,000), or (0.99)%, respectively.




The
Company measures its economic value of equity at risk on a quarterly basis using
the computer model referred to above.  Economic value of equity at risk
measures the Company’s exposure to equity due to changes in a forecast interest
rate environment.  At June 30, 2008, given a +2.00% or -2.00% shock in
interest rates, our model results in the Company’s economic value of equity at
risk for the next twelve months changing by $(3,479,000), or (28.89)%, and
$2,230,000, or 18.52%, respectively.




In its
modeling, the Company makes significant assumptions about the lag in the rate of
change in various asset and liability categories.  The Company bases its
assumptions on past experience and comparisons with other banks, and tests the
validity of its assumptions by reviewing actual results with projected
expectations.




Item
4T.  Controls and Procedures





The
Company has adopted interim disclosure controls and procedures designed to
facilitate the Company’s financial reporting.  The interim disclosure
controls currently consist of communications among the Chief Executive Officer,
the Chief Operations Officer, the Chief Financial Officer and each department
head to identify any transactions, events, trends, risks or contingencies which
may be material to the Company’s operations.  In addition, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and the
Audit Committee meet on a quarterly basis and discuss the Company’s material
accounting policies.  The Company’s Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of these interim disclosure
controls as of June 30, 2008 and found them to be adequate.





The Company maintains 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, the Company’s internal
control over financial reporting.







PART
II





Item
1.    Legal Proceedings





The Company is not involved in any
pending legal proceedings other than routine legal proceedings occurring in the
ordinary course of business.  At June 30, 2008, we were not involved
in any legal proceedings, the outcome of which would be material to our
financial condition or results of operations.





21


Item
1A.  Risk Factors





A smaller reporting company is not
required to provide information required of this item.





Item
2.   Unregistered Sales of Securities and Use of Proceeds





None





Item
3.   Defaults Upon Senior Securities





None





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





The
annual meeting of stockholders was held on May 1, 2008.  The matters
considered and voted on at the annual meeting and the vote of the stockholders
were as follows:





Proposal No.
1





The
election of directors, each for a three-year term.




For
              
              Withheld
              
              Broker
      Non-VotesAnthony
      P. Costa
              
              951,120
              
              93,308
              
              - 0
      -Philip
      Guarnieri
              
              952,120
              
              92,308
              
              - 0
      -David
      Freer, Jr.
              
              1,002,120
              
              42,308
              
              - 0
      -






Proposal No.
2





The
ratification of the appointment of Crowe Chizek and Company LLC as auditors for
the Company for the year ending December 31, 2008.




For
              
              Against
              
              Abstain
              
              Broker
      Non-VotesNumber
      of Votes
              
              1,030,170
              
              1,958
              
              12,300
              
              - 0
      -Percentage
      of shares voted
              
              98.63%
              
              - 0
      -
              
              - 0
      -


Item
5.  Other Information





None





Item
6.  Exhibits




Exhibit
      Number
              
              Document
              
              Reference to
                Previous
      Filing
                If
      Applicable3.1
              
              Articles
      of Incorporation
              *3.2
              
              Amended
      Bylaws
              *
  22
   4
              
              Form
      of Stock Certificate
              **10.1
              
              Employment
      Agreement dated September 23, 2004
              **Between
      the Bank and Anthony P. Costa.10.2
              
              Employment
      Agreement dated September 23, 2004
              **Between
      the Bank and Philip Guarnieri10.3
              
              Employment
      Agreement dated October 20, 2005
              **Between
      the Bank and Arthur Budich10.4
              
              Empire
      State Bank, N.A. 2004 Stock Option Plan
              **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 200232.1
              
              Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
              
              Certification
      of Chief Financial Officer 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 on
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 and May 23, 2006 and a post-effective amendment filed on
June 9, 2006.  All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of Regulation
S-B.















































23


SIGNATURES





In accordance with the requirements of
the Securities Exchange Act of 1934 (the “Exchange Act”), the registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized, as of August 14, 2008.






Empire
      State Bank, National AssociationDate:  August
      14, 2008
              By:
              /s/ Anthony
      P. CostaAnthony
      P. CostaChairman
      and Chief Executive Officer




Date:  August
      14, 2008
                By:
                /s/ Arthur
      W. BudichArthur
      W. BudichExecutive
      Vice President and Chief Financial Officer































24