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 March 31, 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 May
12, 2008 there were 1,721,437 issued and outstanding shares of the Registrant’s
Common Stock













ES
BANCSHARES, INC.


FORM
10-Q


FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008








PART
I – FINANCIAL INFORMATION







PageItem
      1.
              Financial
      Statements (Unaudited)Consolidated
      Balance Sheets at March 31, 2008 and December 31, 2007
              2Consolidated
      Statements of Income for the Three Months EndedMarch 31, 2008, and
      2007
              3Consolidated
      Statement of Changes in Stockholders’ Equity For the Three Months Ended
      March 31, 2008 and 2007
              4Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2008 and
      2007
              5Notes
      to Unaudited Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results
      of Operations
              12Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              17Item
      4T.
              Controls
      and Procedures
              17PART
      11 – OTHER INFORMATIONItem
      1.
              Legal
      Procedures
              18Item
      1A.
              Risk
      Factors
              18Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              18Item
      3.
              Defaults
      Upon Senior Securities
              18Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              18Item
      5.
              Other
      Information
              18Item
      6.
              Exhibits
              18Signatures
              20








1


ES
BANCSHARES, INC.


CONSOLIDATED
BALANCE SHEET
 (Unaudited)
 (In
thousands, except share data)
  March
      31,
              
              
              December
      31,ASSETS
              
              2008
              
              
              2007Cash
      and cash equivalents:Cash
      and due from banks
              
              $
              3,034
              
              
              $
              2,021Federal
      funds sold
              
              
              7,144
              
              
              
              4,731Total
      cash and cash equivalents
              
              
              10,178
              
              
              
              6,752Certificates
      of deposit at other financial institutions
              
              
              4,145
              
              
              
              5,794Securities:Available
      for sale, at fair value
              
              
              6,986
              
              
              
              7,037Held
      to maturity, at amortized cost(fair
      value of $4,480 at March 31, 2008)
              
              
              4,486
              
              
              
              —Total
      securities
              
              
              11,472
              
              
              
              7,037Real
      estate mortgage loans held for sale
              
              
              165
              
              
              
              350Loans
      receivable, netReal
      estate mortgage loans
              
              
              42,866
              
              
              
              41,519Commercial
      and lines of credit
              
              
              15,580
              
              
              
              14,335Home
      equity and consumer loans
              
              
              8,830
              
              
              
              8,714Construction
      or development loans
              
              
              6,796
              
              
              
              7,137Deferred
      cost
              
              
              384
              
              
              
              364Allowance
      for loan losses
              
              
              (617
              )
              
              
              (624
              )Total
      loans receivable, net
              
              
              73,839
              
              
              
              71,445Accrued
      interest receivable
              
              
              518
              
              
              
              515Federal
      Reserve Bank stock
              
              
              314
              
              
              
              324Federal
      Home Loan Bank stock
              
              
              89
              
              
              
              89Goodwill
              
              
              581
              
              
              
              581Office
      properties and equipment, net
              
              
              799
              
              
              
              838Other
      assets
              
              
              307
              
              
              
              191Total
      assets
              
              $
              102,407
              
              
              $
              93,916LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Non-interest
      bearing
              
              $
              9,115
              
              
              $
              7,249Interest
      bearing
              
              
              82,152
              
              
              
              75,093Borrowed
      funds
              
              
              89
              
              
              
              89Accrued
      interest payable
              
              
              104
              
              
              
              103Other
      liabilities
              
              
              817
              
              
              
              1,000Total
      liabilities
              
              
              92,277
              
              
              
              83,534Commitments
      and contingenciesStockholders'
      equityCapital
      stock (par value $0.01; 5,000,000 shares authorized;1,721,437
      shares of ES Bancshares, Inc.issued
      at March 31, 2008 and at December 31, 2007)
              
              
              17
              
              
              
              17Additional
      paid-in-capital
              
              
              16,915
              
              
              
              16,911Accumulated
      deficit
              
              
              (6,828
              )
              
              
              (6,553
              )Accumulated
      other comprehensive income
              
              
              26
              
              
              
              7Total
      stockholders' equity
              
              
              10,130
              
              
              
              10,382Total
      liabilities and stockholders' equity
              
              $
              102,407
              
              
              $
              93,916
  See
accompanying notes to financial statements
  2
 ES
BANCSHARES, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
 (Unaudited)
 (In
thousands, except per share data)
 For
      the Three MonthsEnded
      March 31,2008
              
              
              2007Interest
      and dividend income:Loans
              
              $
              1,225
              
              
              $
              1,149Securities
              
              
              85
              
              
              
              99Certificates
      of deposit
              
              
              67
              
              
              
              84Fed
      Funds and other earning assets
              
              
              58
              
              
              
              162Total
      interest and dividend income
              
              
              1,435
              
              
              
              1,494Interest
      expense:Deposits
              
              
              689
              
              
              
              876Borrowed
      funds
              
              
              1
              
              
              
              1Total
      interest expense
              
              
              690
              
              
              
              877Net
      interest income
              
              
              745
              
              
              
              617Provision
      for (reversal of) loan losses
              
              
              (7
              )
              
              
              4Net
      interest income after provision for loan losses
              
              
              752
              
              
              
              613Non-interest
      income:Service
      charges and fees
              
              
              88
              
              
              
              73Net
      gain on sales of real estate mortgageloans
      held for sale
              
              
              15
              
              
              
              17Net
      gain on sales of securities available for sale
              
              
              7
              
              
              
              —Other
              
              
              22
              
              
              
              13Total
      non-interest income
              
              
              132
              
              
              
              103Non-interest
      expense:Compensation
      and benefits
              
              
              574
              
              
              
              486Occupancy
      and equipment
              
              
              194
              
              
              
              161Data
      processing service fees
              
              
              65
              
              
              
              41Other
              
              
              326
              
              
              
              223Total
      non-interest expense
              
              
              1,159
              
              
              
              911Net
      (loss) before income taxes
              
              
              (275
              )
              
              
              (195
              )Income
      tax expense
              
              
              —
              
              
              
              —Net
      (loss)
              
              $
              (275
              )
              
              $
              (195
              )Other
      comprehensive income (loss):Net
      unrealized gain/(loss) on available-for-sale securities
              
              
              19
              
              
              
              (8
              )Comprehensive
      income (loss)
              
              $
              (256
              )
              
              $
              (203
              )Weighted
      average:Common
      shares
              
              
              1,721,437
              
              
              
              1,719,227(Loss)
      per common share:Basic
      & diluted
              
              $
              (0.16
              )
              
              $
              (0.11
              )
  See
accompanying notes to financial statements
  3
 ES
BANCSHARES, INC.
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
 (Unaudited)
 (In
thousands of dollars except, share data)
 AccumulatedAdditional
              
              
              
              
              
              OtherCapital
      Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Gain
              
              
              TotalBalance
      at January 1, 2007
              
              
              1,719,227
              
              
              $
              17
              
              
              $
              16,869
              
              
              $
              (5,845
              )
              
              $
              (99
              )
              
              $
              10,942Stock
      based compensation
              
              
              —
              
              
              
              —
              
              
              
              5
              
              
              
              —
              
              
              
              —
              
              
              
              5Comprehensive
      loss:Net
      loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (195
              )
              
              
              —
              
              
              
              (195
              )Net
      unrealized (loss) on available-for-sale
      securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (8
              )
              
              
              (8
              )Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (203
              )Balance
      at March 31, 2007
              
              
              1,719,227
              
              
              $
              17
              
              
              $
              16,874
              
              
              $
              (6,040
              )
              
              $
              (107
              )
              
              $
              10,744Balance
      at January 1, 2008
              
              
              1,721,437
              
              
              $
              17
              
              
              $
              16,911
              
              
              $
              (6,553
              )
              
              $
              7
              
              
              $
              10,382Stock
      based compensation
              
              
              —
              
              
              
              —
              
              
              
              4
              
              
              
              —
              
              
              
              —
              
              
              
              4Comprehensive
      loss:Net
      loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (275
              )
              
              
              —
              
              
              
              (275
              )Net
      unrealized gain on available-for-sale
      securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              19
              
              
              
              19Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (256
              )Balance
      at March 31, 2008
              
              
              1,721,437
              
              
              $
              17
              
              
              $
              16,915
              
              
              $
              (6,828
              )
              
              $
              26
              
              
              $
              10,130
   See
accompanying notes to financial statements
  4
 ES
BANCSHARES, INC.
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 (Unaudited)
   For
      the Three MonthsEnded
      March 31,2008
                
                
                2007(In
      thousands)Cash
      flows from operating activities:Net
      loss for period
                
                $
                (275
                )
                
                $
                (195
                )Adjustments
      to reconcile net losses to net cashprovided
      by operating activities:Provision
      for (reversal of) loan losses
                
                
                (7
                )
                
                
                4Depreciation
      expense
                
                
                79
                
                
                
                54Amortization
      of deferred fees, discounts and premiums, net
                
                
                1
                
                
                
                1Net
      originations on loans held for sale
                
                
                200
                
                
                
                232Net
      gain on sale of real estate mortgage loans held for sale
                
                
                (15
                )
                
                
                (17
                )Net
      gain on sale of securities available for sale
                
                
                (7
                )
                
                
                —Gain
      on sale of fixed assets
                
                
                (9
                )
                
                
                —Stock
      compensation expense
                
                
                4
                
                
                
                5Changes
      in assets and liabilities(Increase)/decrease
      in other assets
                
                
                (118
                )
                
                
                32Increase
      (decrease) in accrued expenses and other liabilities
                
                
                (181
                )
                
                
                51Net
      cash (used in) provided by operating activities
                
                
                (328
                )
                
                
                167Cash
      flows from investing activities:Maturity
      of certificates of deposit at other financial institutions
                
                
                2,649
                
                
                
                2,399Purchase
      of certificates of deposit at other financial institutions
                
                
                (1,000
                )
                
                
                (2,897
                )Purchase
      of available-for-sale securities
                
                
                (1,653
                )
                
                
                —Purchase
      of held-to-maturity securities
                
                
                (4,486
                )
                
                
                —Proceeds
      on sale of securities available for sale
                
                
                506
                
                
                
                —Proceeds
      from principal payments and maturities of securities
                
                
                1,221
                
                
                
                1,943Proceeds
      on sale of fixed assets
                
                
                9
                
                
                
                —Net
      disbursements for loan originations
                
                
                (2,386
                )
                
                
                (4,472
                )Purchase
      of Federal Home Loan Bank stock
                
                
                —
                
                
                
                (89
                )Redemption
      of Federal Reserve Bank stock
                
                
                10
                
                
                
                5Leasehold
      improvements and acquisitions of capital assets
                
                
                (40
                )
                
                
                (24
                )Net
      cash used in investing activities
                
                
                (5,170
                )
                
                
                (3,135
                )Cash
      flows from financing activities:Net
      increase / (decrease)  in deposits
                
                
                8,924
                
                
                
                (663
                )Proceeds
      of advance from line of credit
                
                
                —
                
                
                
                3Net
      cash provided by (used in) financing activities
                
                
                8,924
                
                
                
                (660
                )Net
      increase/(decrease) in cash and cash equivalents
                
                
                3,426
                
                
                
                (3,628
                )Cash
      and cash equivalents at beginning of period
                
                
                6,752
                
                
                
                14,343Cash
      and cash equivalents at end of period
                
                $
                10,178
                
                
                $
                10,715Supplemental
      cash flow informationInterest
      paid
                
                $
                689
                
                
                $
                855Income
      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, N.A. (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 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.  Summary of Significant Accounting Policies





Warrants





Effective April 15, 2007, the Company
modified the terms of the warrants to purchase common stock of the Company by
reducing the exercise price of $12.50 to $10.00 and extended the expiration term
from June 28, 2007 to June 28, 2008.  There was no additional expense
recognized as a result of the modification.  At March 31, 2008 the
Company had 327,690 stockholder warrants issued and
outstanding.  Additionally, there were 190,000 issuable organizer
warrants as of March 31, 2008.  The organizer


6


warrants
are convertible into common shares at an exercise price of $10.00 and
exercisable through June 27, 2009 and their terms have not been
modified.  The organizer warrants were valued at $323,000 and were
expensed at the time of issuance in accordance with FAS 123. The fair value was
determined using the minimum value method using the following assumptions: Grant
date of June 28, 2004, $10.00 strike price, $10.00 fair value of a share of
capital stock at grant date, risk-free rate of 3.8%, no dividends, five (5) year
life and no volatility.




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.







2007
              
              
              2006Risk
      free interest rate
              
              
              4.74
              %
              
              
              4.35
              %Expected
      option life
              
              
              5.0
              
              
              
              5.0Expected
      stock price volatility
              
              
              0.10
              %
              
              
              0.10
              %Dividend
      yield
              
              
              0.00
              %
              
              
              0.00
              %Weighted
      average fair value of optionsgranted
      during the year
              
              $
              —
              
              
              $
              2.20





7


A summary
of options outstanding under the Bank’s Stock Option Plan as of March 31, 2008,
and changes during the three-month period then ended is presented
below.





WeightedWeighted
              
              
              AverageAverage
              
              
              RemainingExercise
              
              
              Contractual
              
              
              IntrinsicShares
              
              
              Price
              
              
              Term
      (yrs.)
              
              
              ValueOutstanding
      atJanuary
      1, 2008
              
              
              157,750
              
              
              $
              10.47
              
              
              
              7.3
              
              
              
              —Granted
              
              
              —
              
              
              
              —
              
              
              
              —Exercised
              
              
              —
              
              
              
              —
              
              
              
              —Forfieited
      or expired
              
              
              —
              
              
              
              —
              
              
              
              —Outstanding
      atMarch
      31, 2008
              
              
              157,750
              
              
              $
              10.47
              
              
              
              6.8
              
              
              
              —Options
      exerciseable atMarch
      31, 2008
              
              
              109,700
              
              
              $
              10.48
              
              
              
              6.7
              
              
              
              —Vested
      and expectedto
      vest
              
              
              157,750
              
              
              $
              10.47
              
              
              
              6.8




As of March 31, 2008, there was $34,420
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 25 months.





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.





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 March 31, 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


Securities





The
Company is required to report readily-marketable equity and debt securities in
one of the following categories: (i) “held-to-maturity” (management has the
positive intent and ability to hold to maturity), which are reported at
amortized cost; (ii) “trading” (held for current resale), which are to be
reported at fair value, with unrealized gain and losses included in earnings;
and (iii) “available for sale” (all other debt and marketable equity
securities), which are to be reported at fair value, with unrealized gains and
losses reported net of taxes, as accumulated other comprehensive income, a
separate component of stockholders’ equity.





Premiums
and discounts on investments in debt and equity securities are amortized to
expense or accreted to income over the estimated life of the respective
securities using methods approximating the effective interest method. Gains and
losses on the sales of securities are recognized upon realization based on the
specific identification method.





Loans
Held for Sale





Loans originated and intended for sale
in the secondary market are carried at the lower of cost or estimated fair value
in the aggregate. All sales are made with servicing released and without
recourse. Gains and losses on the disposition of loans held for sale are
determined on the specific identification basis. Net unrealized losses on loans
held for sale are recognized through a valuation allowance by charges to
income.  There were no valuation allowances as of March 31,
2008.





Loans





Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their unpaid
principal adjusted for any charge-offs, the allowance for loan losses, and any
deferred fees and costs on originated loans and any unamortized premiums or
discounts on purchased loans. Loan origination and commitment fees and certain
direct loan origination costs will be deferred and the net amount amortized as
an adjustment of the related loan’s yield using methods that approximate the
interest method over the contractual life of the loan. Loan interest income is
accrued daily on outstanding balances.





Non-Performing
Assets





Loans are
reviewed monthly and any loan whose collectibility is doubtful is placed on
non-accrual status.  Loans are placed on non-accrual status when
either principal or interest is 90 days or more past due, unless, in the
judgment of management, the loan is well collateralized and in the process of
collection.  Interest accrued and unpaid at the time a loan is placed
on non-accrual status is 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 collectibility 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 three-month periods ending March 31, 2008 and March 31, 2007.





Classification
of Assets





Regulations require that the Company
classify its own assets on a regular basis and establish prudent valuation
allowances based on such classifications.  In addition, in connection
with examinations, Office of the Comptroller of the Currency (the “OCC”)
examiners have the authority to identify problem assets, and if appropriate,
require that they be classified. There are three classifications for problem
assets: substandard, doubtful, and loss Substandard assets have one or more
defined weaknesses and are


9


characterized
by the distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.  Doubtful assets have the weaknesses
of substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of
loss.  An asset classified loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution is not warranted.  Assets classified as substandard or
doubtful require the Company to establish general allowances for loan
losses.  If an asset or portion thereof is classified as loss, the
Company must either establish specific allowances for loan losses in the amount
of 100% of the portion of the asset classified loss, or charge off such
amount.  If a bank does not agree with an examiner's classification of
an asset, it may appeal this determination to the Regional Director of the
OCC.  On the basis of management's review, at March 31, 2008, none of
the Bank’s assets were classified as substandard, doubtful or loss.





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.





Cash
Flows





Cash and cash equivalents include cash,
deposits with other financial institutions, and federal funds
sold.  Net cash flows are reported for customer loan and deposit
transactions, interest-bearing deposits in other financial institutions, and
federal funds purchased.





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.


10


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.





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.





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 March 31, 2008 UsingSignificantQuoted
      Prices in
              
              
              Other
              
              
              SignificantActive
      Markets for
              
              
              Observable
              
              
              UnobservableMarch
      31
              
              
              Identical
      Assets
              
              
              Inputs
              
              
              Inputs2008
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)AssetsAvailable
      for sale securities
              
              $
              6,986
              
              
              $
              —
              
              
              $
              6,986
              
              
              $
              —




11


Note
5.  Commitments and Contingencies





Legal
Proceedings





The
Company has not been a party to any legal proceedings that 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 1 year, respectively and have various renewal
options.  Rent expense under operating leases was $74,000 for the
three months ended March 31, 2008.  At March 31, 2008, the future
minimum rental payments under operating lease agreements for the fiscal years
ending December 31 are $170,000 in 2008, $219,000 in 2009, $226,000 in 2010,
$229,000 in 2011, $217,000 in 2012 and a total of $915,000 for 2013 and
thereafter.





Off-Balance
Sheet Financial Instruments





The Company’s off-balance sheet
financial instruments at March 31, 2008 were limited to loan origination
commitments of $13.2 million (including one-to-four family loans held for sale
of $1.6 million) and unused lines of credit (principally commercial and home
equity lines) extended to customers of $13.3 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 March 31, 2008 consisted of adjustable and fixed rate commitments of $7.1
million and $6.1 million respectively, with interest rates ranging from 4.75% to
7.75%.








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 attain
profitability, our ability to expand operations in our new Staten Island office
and other factors.  The Company does not intend to


12


Comparison
of Financial Condition at March 31, 2008 and December 31, 2007





Total assets at March 31, 2008 amounted
to $102.4 million, representing an increase of $8.5 million, or 9.1%, from $93.9
million at December 31, 2007.  The increase in assets was primarily
attributable to a $4.4 million increase in total securities, a $3.4 million
increase in total cash and cash equivalents, and a $2.4 million increase in
total loans receivable, net, that were partially offset by a $1.6 million
decrease in certificates of deposit at other financial
institutions.  These increases reflect our recent decision to increase
our growth somewhat in light of favorable changes to the yield curve and the
Bank’s opening of a new office in Staten Island.





Overall, total loans receivable, net,
increased $2.4 million, or 3.4%, to $73.8 million at March 31, 2008 from $71.4
million at December 31, 2007.  Commercial and residential real estate
mortgage loans, excluding mortgage loans held for sale, increased $1.4 million,
or 3.3%, from $41.5 million to $42.9 million.  Commercial loans and
commercial lines of credit increased $1.3 million, or 9.1%, from $14.3 million
to $15.6 million, and home equity and consumer loans increased $116,000, or
1.3%, from $8.7 million to $8.8 million, while construction or development loans
decreased $341,000, or 4.8%, from $7.1 million to $6.8 million over the same
three-month period.  Management may consider slowing loan growth in
the future depending on economic, regulatory, deposit growth and capital
considerations.





Total
cash and cash equivalents at March 31, 2008 increased $3.4 million, or 50.0%, to
$10.2 million from $6.8 million at December 31, 2007, while certificates of
deposit at other financial institutions decreased $1.7 million, or 29.3%, to
$4.1 million from $5.8 million during the same period.  Total
securities at March 31, 2008 increased $4.5 million, or 64.3%, to $11.5 million
from $7.0 million at December 31, 2007.





Interest bearing deposits grew $7.1
million, or 9.5%, to $82.2 million at March 31, 2008 from $75.1 million at
December 31, 2007.  The net growth over the three-month period
consisted of a $10.5 million increase in certificates of deposit, a $2.3 million
increase in savings accounts, and a $338,000 increase in NOW accounts that was
partially offset by a $6.0 million decrease in money market accounts. Over the
same three-month period non-interest bearing accounts increased $1.8 million, or
24.7%, from $7.3 million to $9.1 million.  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.  Having operated a loan production office in the New York City
borough of Staten Island since the Bank commenced operations on June 28, 2004,
management determined that having a branch presence would enable the Bank to
successfully market its array of deposit products in those communities where it
already enjoyed considerable name recognition.  Moreover, upon opening
the new branch, the Bank closed the loan production office by moving those
operations into the same new location.





Stockholders’ equity decreased by
$252,000 to $10.1 million at March 31, 2008 from $10.4 million at December 31,
2007.  The decrease is primarily attributable to a net loss for the
quarter of $275,000 and a $19,000 increase in net unrealized gain in market
value of securities available-for-sale.  The ratio of stockholders’
equity to total assets decreased to 9.9% at March 31, 2008 from 11.1% at
December 31, 2007.  Book value per share decreased to $5.88 at March
31, 2008 from $6.03 at December 31, 2007.  See “Liquidity and Capital
Resources” for information regarding the Bank’s regulatory capital amounts and
ratios.


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-month period
ended March 31, 2008 as compared to the comparable three-month period ended
March 31, 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 March 31,2008
              
              2007Average
              
              
              
              
              
              
              
              AverageAverage
              
              
              
              
              
              Yield
      /
              
              Average
              
              
              
              
              
              Yield
      /Balance
              
              
              Interest
              
              
              Cost
              
              Balance
              
              
              Interest
              
              
              Cost(Dollars
      in thousands)AssetsInterest-earning
      assets:Loans
              
              $
              73,471
              
              
              $
              1,225
              
              
              
              6.67
              %
              
              $
              62,384
              
              
              $
              1,149
              
              
              
              7.37
              %Fed
      Funds
              
              
              6,530
              
              
              
              50
              
              
              
              3.08
              %
              
              
              11,811
              
              
              
              155
              
              
              
              5.24
              %Certificates
      of deposit
              
              
              5,000
              
              
              
              67
              
              
              
              5.39
              %
              
              
              6,233
              
              
              
              84
              
              
              
              5.48
              %FRB
      & FHLB Stock
              
              
              483
              
              
              
              8
              
              
              
              6.63
              %
              
              
              334
              
              
              
              7
              
              
              
              7.78
              %Investment
      securities
              
              
              6,480
              
              
              
              85
              
              
              
              5.25
              %
              
              
              8,303
              
              
              
              99
              
              
              
              4.79
              %Total
      interest-earning assets
              
              
              91,964
              
              
              $
              1,435
              
              
              
              6.28
              %
              
              
              89,065
              
              
              $
              1,494
              
              
              
              6.65
              %Allowance
      for loan losses
              
              
              (624
              )
              
              
              
              
              
              
              
              
              
              
              (583
              )Cash
      & Due from banks
              
              
              2,124
              
              
              
              
              
              
              
              
              
              
              
              2,010Other
      Non-interest earning assets
              
              
              2,101
              
              
              
              
              
              
              
              
              
              
              
              1,920Total
      assets
              
              $
              95,565
              
              
              
              
              
              
              
              
              
              
              $
              92,412Liabilities
      and  Stockholders' EquityInterest-bearing
      liabilities:NOW
      accounts
              
              $
              1,981
              
              
              $
              8
              
              
              
              1.62
              %
              
              $
              843
              
              
              $
              1
              
              
              
              0.38
              %Money
      Market accounts
              
              
              36,754
              
              
              
              294
              
              
              
              3.22
              %
              
              
              49,108
              
              
              
              607
              
              
              
              4.90
              %Regular
      savings accounts
              
              
              11,221
              
              
              
              84
              
              
              
              3.01
              %
              
              
              5,440
              
              
              
              44
              
              
              
              3.21
              %Certficates
      of Deposit
              
              
              26,032
              
              
              
              303
              
              
              
              4.68
              %
              
              
              18,067
              
              
              
              224
              
              
              
              4.92
              %Total
      interest-bearing deposits
              
              
              75,988
              
              
              
              689
              
              
              
              3.65
              %
              
              
              73,458
              
              
              
              876
              
              
              
              4.73
              %Borrowings
              
              
              89
              
              
              
              1
              
              
              
              6.22
              %
              
              
              54
              
              
              
              1
              
              
              
              8.25
              %Total
      interest-bearing liabilities
              
              $
              76,077
              
              
              $
              690
              
              
              
              3.65
              %
              
              $
              73,512
              
              
              $
              877
              
              
              
              4.73
              %Non-interest-bearing
      liabilities
              
              
              9,162
              
              
              
              
              
              
              
              
              
              
              
              8,052Total
      liabilities
              
              
              85,239
              
              
              
              
              
              
              
              
              
              
              
              81,564Stockholders'
      equity
              
              
              10,326
              
              
              
              
              
              
              
              
              
              
              
              10,848Total
      liabilities and stockholders' equity
              
              $
              95,565
              
              
              
              
              
              
              
              
              
              
              $
              92,412Net
      interest income
              
              
              
              
              
              $
              745
              
              
              
              
              
              
              
              
              
              
              $
              617Average interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.63
              %
              
              
              
              
              
              
              
              
              
              
              1.92
              %Net
      interest margin (2)
              
              
              
              
              
              
              
              
              
              
              3.24
              %
              
              
              
              
              
              
              
              
              
              
              2.77
              %Net interest-earning assets(3)
              
              $
              15,887
              
              
              
              
              
              
              
              
              
              
              $
              15,553Ratio
      of average interest-earning assets toaverage
      interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              120.88
              %
              
              
              
              
              
              
              
              
              
              
              121.16
              %





(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


Results
of Operations for the Quarters Ended March 31, 2008 and March 31,
2007





General.  For
the quarter ended March 31, 2008, the Company recognized a net loss of $275,000,
or ($0.16) per diluted share, as compared to a net loss of $195,000, or ($0.11)
per diluted share, for the quarter ended March 31, 2007.





Interest
Income.Interest income amounted to $1.4 million for the
quarter ended March 31, 2008, as compared to $1.5 million for the quarter ended
March 31, 2007.  The decrease of $100,000 was primarily attributable
to the lower yields that were realized in 2008 as compared to 2007, for although
average interest-earning assets increased $3.0 million to $92.0 million for the
quarter ended March 31, 2008 from $89.0 million for the quarter ended March 31,
2007, the average yield decreased 37 basis points to 6.28% from 6.65% over the
same respective periods.





Average
loan balances increased by $11.1 million, from $62.4 million for the quarter
ended March 31, 2007 to $73.5 million for the quarter ended March 31, 2008,
while the average yield decreased from 7.37% to 6.67% over the same respective
periods.  The average balances of the Bank’s Fed Funds and
certificates of deposit at other financial institutions decreased by $5.3
million and $1.2 million, respectively, over the quarter ended March 31, 2008 as
compared to the quarter ended March 31, 2007.  The average yields on
those respective interest-earning assets decreased to 3.08% from 5.24%, and to
5.39% from 5.48% over the same comparable periods primarily as a result of lower
interest rates that were available to these short-term assets during the latter
period.  The average balance and yield of the Bank’s investment
securities for the quarter ended March 31, 2008 was $6.5 million and 5.25%,
respectively, as compared to an average balance of $8.3 million and a yield of
4.79% for the comparable quarter ended one-year earlier.





Interest
Expense.Total interest expense for the quarter ended March
31, 2008 decreased by $187,000, from $877,000 to $690,000, when compared to the
same three-month period one year earlier.  The average balances of
total interest-bearing liabilities increased $2.6 million to $76.1 million for
the quarter ended March 31, 2008 from $73.5 million for the quarter ended March
31, 2007, but the average costs for those liabilities decreased to 3.65% from
4.73% for the same respective periods.





The
average balances of the Bank’s certificates of deposit portfolio increased to
$26.0 million at an average cost of 4.68% over the quarter ended March 31, 2008,
from $18.1 million at an average cost of 4.92% over the same quarter ended
one-year earlier.  The $7.9 million increase was primarily
attributable to the higher interest rates available to the Bank’s depositors on
certificates of deposit in comparison to the interest rates offered on the
Bank’s other interest bearing deposits, and to an increase in the number of
customers that followed the opening of the Bank’s third full service branch in
Staten Island, New York in November 2007.  The new branch was also
primarily attributable for the increase in regular savings account average
balances that increased $5.8 million from $5.4 million at an average cost of
3.21% for the quarter ended March 31, 2007 to $11.2 million at an average cost
of 3.01% for the quarter ended March 31, 2008.





Average
money market account balances decreased $12.3 million, or 25.1% to $36.8 million
at an average cost of 3.22% for the quarter ended March 31, 2008 from $49.1
million at an average cost of 4.90% for the quarter ended March 31,
2007.  The decreased balances were primarily attributable to the
comparatively lower interest rates offered for this deposit category that
followed the Federal Open Market Committee’s series of short-term interest rate
reductions that commenced in September 2007.





For the
quarter ended March 31, 2008, the average balance of the Company’s borrowed
funds was $89,000 and its average cost was 6.22%, as compared to $54,000 and an
average cost of 8.25% for the quarter ended March 31, 2007.  These
borrowed funds were used by the Company to fund its formation costs and
subsequent expenses.


15


Net Interest
Income.  Net interest income was approximately $745,000 for the
quarter ended March 31, 2008 as compared to $617,000 for the same quarter in the
prior year.  The Bank’s average interest rate spread increased to
2.63% for the quarter ended March 31, 2008 from 1.92% for the quarter ended
March 31, 2007, while the net interest margin increased to 3.24% from 2.77%,
over the same respective periods.





Provision for
Loan Losses.  For the three
months ended March 31, 2008 management reversed a $7,000 provision for loan
losses in conjunction with its analysis of the adequacy of the allowance for
loan losses, which determined the loan portfolio’s overall risk profile at March
31, 2008 had improved as compared to December 31,
2007.  Comparatively, the provision was $4,000 for the quarter ended
March 31, 2007.





Non-interest
Income.Non-interest income for the quarter ended March 31,
2008 increased $29,000 to approximately $132,000 as compared to $103,000 for the
quarter ended March 31, 2007.  Service charges and fees increased by
$15,000, from $73,000 for the quarter ended March 31, 2007 to $88,000 for the
quarter ended March 31, 2008, primarily as a result of servicing a greater
number of deposit and loan customers.  That increase was partially
mitigated by a $2,000 decrease in the net gain on sales of real estate mortgage
loans held for sale over the same comparable quarters, primarily because of the
general softening in the overall housing market evident this year relative to
last.  Other non-interest income categories increased to $22,000 for
the quarter ended March 31, 2008 from $13,000 for the same quarter in 2007
primarily from a one-time $9,000 gain realized on the sale of a Bank owned
courier car.  The Bank also realized a $7,000 gain on the sale of
securities available for sale early in the quarter ended March 31, 2008 that
were sold in order to help fund growth in the loan portfolio.





Non-interest
Expense.Non-interest expense for the quarter ended March 31,
2008 increased $248,000 when compared to the same quarter in
2007.  Compensation and benefits increased $88,000 primarily as a
result of the increase in personnel needed to staff the previously mentioned new
full-service branch in Staten Island, New York.  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 $326,000 for the
quarter ended March 31, 2008, from $223,000 for the quarter ended March 31,
2007.  The $103,000 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.





Liquidity
and Capital Resources





The primary sources of funds are
deposits, 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.  For the three months ended March
31 2008, the Company originated loans of approximately $9.4 million including
real estate mortgage loans held for sale.  At March 31, 2008, the
Company had outstanding loan origination commitments of $13.2 million (including
one-to-four-family real estate mortgage loans held for sale of $5.0 million) and
undisbursed lines of credit and construction loans in process of $13.3
million.  The Company anticipates that it will have sufficient funds
available to meet its current loan originations and other
commitments.


16


At March
31, 2008, total deposits were approximately $91.3 million of which approximately
$33.9 million was in certificates of deposit.  Certificates of deposit
scheduled to mature in one year or less from March 31, 2008 totaled $25.1
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
exercised $89,000.





While the
Bank has not borrowed funds since it commenced operations, it may do so in the
future based upon its need for funds and the cost of deposits as an alternative
source of funds.  In general the Bank manages its liquidity by
maintaining sufficient levels of short-term investments so that funds are
available for investment in loans when needed.  The Bank monitors its
liquidity on a regular basis.  Excess liquidity is invested in
overnight federal funds sold and other short-term investments.  The
Bank has unused credit lines of $5.0 million with its correspondent bank,
Atlantic Central Bankers Bank, which is separate from the Company’s credit
facility mentioned above.





Item
3.  Quantitative and Qualitative Disclosure About Market
Risk





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





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 March 31, 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.


17


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 March 31, 2008, we were not involved
in any legal proceedings, the outcome of which would be material to our
financial condition or results of operations.





Item
1A.  Risk Factors





A smaller reporting company is not
required to provide the 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





None





Item
5.  Other Information





None








Item
6.  Exhibits


Reference to Previous
      FilingExhibit
      Number
              Document
              If
      Applicable3.1
              Articles of
      Incorporation
              *3.2
              Amended
      Bylaws
              *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
    Guarnieri
              **10.3
              Employment Agreement
      dated October 20, 2005 Between the Bank and Arthur Budich
              **10.4
              Empire State Bank,
      N.A. 2004 Stock Option Plan
              **
  18
  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.














19


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 May 14, 2008.






ES
      Bancshares, Inc.Date:
      May 14, 2008
              By:
              /s/ Anthony
      P. CostaAnthony
      P. CostaChairman
      and Chief Executive Officer


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




















20