**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMISSION**


**WASHINGTON,
      DC 20549**


_______________________________________





**FORM
      10-QSB**


_______________________________________






QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      quarterly period ended September 30, 2007










**ES
      BANCSHARES, INC.**


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







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






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


(Address
      of principal executive offices)







**1
      (866) 646-0003**


Issuer’s
      telephone number, including area code








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





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





As
        of
        November 6, 2007 there were 1,721,437 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-QSB**
 **FOR
          THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007**
 
 
 **PART
          I – FINANCIAL INFORMATION**
   **Page**Item
                      1.
                  
                  Financial
                      Statements (Unaudited)Consolidated
                      Balance Sheets at September 30, 2007 and December 31, 2006
                  2Consolidated
                      Statements of Income for the Three and Nine Months Ended September
                      30,
                      2007, and 2006
                  3Consolidated
                      Statement of Changes in Stockholders’ Equity For the Nine Months Ended
                      September 30, 2007 and 2006
                  4Consolidated
                      Statements of Cash Flows for the Nine Months Ended September
                      30, 2007 and
                      2006
                  5Notes
                      to Unaudited Consolidated Financial Statements
                  6Item
                      2.
                  
                  Management’s
                      Discussion and Analysis of Financial Condition and Results
                      of
                      Operations
                  11Item
                      3.
                  
                  Controls
                      and Procedures
                  20**PART
                      11 – OTHER INFORMATION**Item
                      1.
                  
                  Legal
                      Procedures
                  21Item
                      2.
                  
                  Unregistered
                      Sales of Equity Securities and Use of Proceeds
                  21Item
                      3
                  
                  Defaults
                      on Senior Securities
                  21Item
                      4.
                  
                  Submission
                      of Matters to a Vote of Security Holders
                  21Item
                      5.
                  
                  Other
                      Information
                  21Item
                      6.
                  
                  Exhibits
                  21Signatures
                  23
 
   
 **PART
          I.  Item 1.**
  **ES
            BANCSHARES, INC.**
 **CONSOLIDATED
              BALANCE SHEET**
 **(Unaudited)**
 **(In
                  thousands, except share data)**
  **September
                      30,**
                  ****
                  ****
                  **December
                      31,**
                  ********
                  ****
                  **2007**
                  ****
                  ****
                  **2006**ASSETSCash
                      and cash equivalents:Cash
                      and due from banks
                  
                  $
                  1,412
                  
                  
                  $
                  2,734Federal
                      funds sold
                  
                  
                  6,320
                  
                  
                  
                  11,609Total
                      cash and cash equivalents
                  
                  
                  7,732
                  
                  
                  
                  14,343Certificates
                      of deposit at other financial institutions
                  
                  
                  5,795
                  
                  
                  
                  5,746Securities:Available
                      for sale, at fair value
                  
                  
                  10,067
                  
                  
                  
                  9,443Real
                      estate mortgage loans held for sale
                  
                  
                  354
                  
                  
                  
                  215Loans
                      receivable, netReal
                      estate mortgage loans
                  
                  
                  44,468
                  
                  
                  
                  35,151Commercial
                      and lines of credit
                  
                  
                  13,276
                  
                  
                  
                  10,903Home
                      equity and consumer loans
                  
                  
                  7,164
                  
                  
                  
                  6,046Construction
                      or development loans
                  
                  
                  6,532
                  
                  
                  
                  9,128Deferred
                      cost
                  
                  
                  380
                  
                  
                  
                  344Allowance
                      for loan losses
                  
                  
                  (617
                  )
                  
                  
                  (581
                  )Total
                      loans receivable, net
                  
                  
                  71,203
                  
                  
                  
                  60,991Accrued
                      interest receivable
                  
                  
                  566
                  
                  
                  
                  515Federal
                      Reserve Bank stock
                  
                  
                  324
                  
                  
                  
                  335Federal
                      Home Loan Bank stock
                  
                  
                  89
                  
                  
                  
                  —Goodwill
                  
                  
                  581
                  
                  
                  
                  581Office
                      properties and equipment, net
                  
                  
                  718
                  
                  
                  
                  741Prepaid
                      expenses
                  
                  
                  168
                  
                  
                  
                  74Other
                      assets
                  
                  
                  62
                  
                  
                  
                  55Total
                      assets
                  
                  $
                  97,659
                  
                  
                  $
                  93,039LIABILITIES
                      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Non-interest
                      bearing
                  
                  $
                  9,196
                  
                  
                  $
                  8,156Interest
                      bearing
                  
                  
                  76,773
                  
                  
                  
                  73,318Borrowed
                      funds
                  
                  
                  84
                  
                  
                  
                  53Accrued
                      interest payable
                  
                  
                  130
                  
                  
                  
                  130Other
                      liabilities
                  
                  
                  888
                  
                  
                  
                  440Total
                      liabilities
                  
                  
                  87,071
                  
                  
                  
                  82,097Commitments
                      and contingenciesStockholders’
                      equityCapital
                      stock (par value $0.01; 5,000,000 shares authorized;1,721,437
                      shares issued at September 30, 2007
                  
                  
                  17
                  
                  
                  
                  171,719,227
                      shares issued at December 31, 2006)Additional
                      paid-in-capital
                  
                  
                  16,906
                  
                  
                  
                  16,869Accumulated
                      deficit
                  
                  
                  (6,310
                  )
                  
                  
                  (5,845
                  )Accumulated
                      other comprehensive loss
                  
                  
                  (25
                  )
                  
                  
                  (99
                  )Total
                      stockholders’ equity
                  
                  
                  10,588
                  
                  
                  
                  10,942Total
                      liabilities and stockholders’ equity
                  
                  $
                  97,659
                  
                  
                  $
                  93,039
   See
          accompanying notes to financial statements
 2
 
 **ES
              BANCSHARES, INC.**
 **CONSOLIDATED
              STATEMENTS OF OPERATIONS**
 **FOR
                THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                2006**
 **(Unaudited)**
 **(In
              thousands, except per share data)**
 **For
                      the Three Months**
                  
                  
                  **For
                      the Nine Months****Ended
                      September 30,**
                  
                  
                  **Ended
                      September 30,****2007**
                  
                  
                  **2006**
                  
                  
                  **2007**
                  
                  
                  **2006**Interest
                      and dividend income:Loans
                  
                  $
                  1,317
                  
                  
                  $
                  1,032
                  
                  
                  $
                  3,738
                  
                  
                  $
                  2,442Securities
                  
                  
                  105
                  
                  
                  
                  107
                  
                  
                  
                  296
                  
                  
                  
                  289Certificates
                      of deposit
                  
                  
                  81
                  
                  
                  
                  42
                  
                  
                  
                  243
                  
                  
                  
                  103Fed
                      Funds and other earning assets
                  
                  
                  121
                  
                  
                  
                  141
                  
                  
                  
                  400
                  
                  
                  
                  367Total
                      interest and dividend income
                  
                  
                  1,624
                  
                  
                  
                  1,322
                  
                  
                  
                  4,677
                  
                  
                  
                  3,201Interest
                      expense:Deposits
                  
                  
                  933
                  
                  
                  
                  747
                  
                  
                  
                  2,701
                  
                  
                  
                  1,653Borrowed
                      funds
                  
                  
                  2
                  
                  
                  
                  1
                  
                  
                  
                  4
                  
                  
                  
                  1Total
                      interest expense
                  
                  
                  935
                  
                  
                  
                  748
                  
                  
                  
                  2,705
                  
                  
                  
                  1,654Net
                      interest income
                  
                  
                  689
                  
                  
                  
                  574
                  
                  
                  
                  1,972
                  
                  
                  
                  1,547Provision
                      for loan losses
                  
                  
                  27
                  
                  
                  
                  344
                  
                  
                  
                  36
                  
                  
                  
                  394Net
                      interest income after provision for loan losses
                  
                  
                  662
                  
                  
                  
                  230
                  
                  
                  
                  1,936
                  
                  
                  
                  1,153Non-interest
                      income:Service
                      charges and fees
                  
                  
                  71
                  
                  
                  
                  58
                  
                  
                  
                  225
                  
                  
                  
                  99Net
                        gain on sales of real estate mortgageloans held for
                        sale
                  
                  
                  69
                  
                  
                  
                  30
                  
                  
                  
                  135
                  
                  
                  
                  144Other
                  
                  
                  33
                  
                  
                  
                  17
                  
                  
                  
                  57
                  
                  
                  
                  21Total
                      non-interest income
                  
                  
                  173
                  
                  
                  
                  105
                  
                  
                  
                  417
                  
                  
                  
                  264Non-interest
                      expense:Compensation
                      and benefits
                  
                  
                  520
                  
                  
                  
                  472
                  
                  
                  
                  1,455
                  
                  
                  
                  1,394Occupancy
                      and equipment
                  
                  
                  156
                  
                  
                  
                  153
                  
                  
                  
                  472
                  
                  
                  
                  473Data
                      processing service fees
                  
                  
                  52
                  
                  
                  
                  37
                  
                  
                  
                  136
                  
                  
                  
                  104Other
                  
                  
                  245
                  
                  
                  
                  254
                  
                  
                  
                  755
                  
                  
                  
                  690Total
                      non-interest expense
                  
                  
                  973
                  
                  
                  
                  916
                  
                  
                  
                  2,818
                  
                  
                  
                  2,661Net
                      (loss) before income taxes
                  
                  
                  (138
                  )
                  
                  
                  (581
                  )
                  
                  
                  (465
                  )
                  
                  
                  (1,244
                  )Income
                      tax expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
                      (loss)
                  
                  $
                  (138
                  )
                  
                  $
                  (581
                  )
                  
                  $
                  (465
                  )
                  
                  $
                  (1,244
                  )Other
                      comprehensive income (loss):Net
                      unrealized gain/(loss) on available-for-sale securities
                  
                  
                  45
                  
                  
                  
                  (70
                  )
                  
                  
                  74
                  
                  
                  
                  (43
                  )Comprehensive
                      income (loss)
                  
                  $
                  (93
                  )
                  
                  $
                  (651
                  )
                  
                  $
                  (391
                  )
                  
                  $
                  (1,287
                  )Weighted
                      average:Common
                      shares
                  
                  
                  1,721,336
                  
                  
                  
                  1,719,227
                  
                  
                  
                  1,720,115
                  
                  
                  
                  1,719,198(Loss)
                      per common share:Basic
                      & diluted
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.34
                  )
                  
                  $
                  (0.27
                  )
                  
                  $
                  (0.72
                  )
 See
            accompanying notes to financial statements
 3
 **ES
                BANCSHARES, INC.**
 **CONSOLIDATED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **FOR
                  THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**
 **(Unaudited)**
 **(In
                  thousands of dollars except, share data)**
 **Accumulated****Additional**
                  
                  
                  
                  
                  
                  **Other****Capital
                      Stock**
                  
                  
                  **Paid-In**
                  
                  
                  **Accumulated**
                  
                  
                  **Comprehensive****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Capital**
                  
                  
                  **Deficit**
                  
                  
                  **(Loss)**
                  
                  
                  **Total**Balance
                      at January 1, 2006
                  
                  
                  1,719,177
                  
                  
                  $
                  8,596
                  
                  
                  $
                  8,276
                  
                  
                  $
                  (4,418
                  )
                  
                  $
                  (122
                  )
                  
                  $
                  12,332Exchange
                      of 1,719,227 shares ofEmpire
                      State Bank, NA $5.00 parvalue
                      for 1,719,227 shares ofES
                      Bancshares, Inc. $0.01 par value
                  
                  
                  —
                  
                  
                  
                  (8,579
                  )
                  
                  
                  8,579
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercise
                      of stock warrants
                  
                  
                  50
                  
                  
                  
                  —
                  
                  
                  
                  1
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1Stock
                      based compensation, net
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  9
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  9Comprehensive
                      loss:Net
                      loss for the period
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,244
                  )
                  
                  
                  —
                  
                  
                  
                  (1,244
                  )Net
                        unrealized (loss) on available-for-sale
                        securities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  20
                  
                  
                  
                  20Total
                      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,224
                  )Balance
                      at September 30, 2006
                  
                  
                  1,719,227
                  
                  
                  $
                  17
                  
                  
                  $
                  16,865
                  
                  
                  $
                  (5,662
                  )
                  
                  $
                  (102
                  )
                  
                  $
                  11,118Balance
                      at January 1, 2007
                  
                  
                  1,719,227
                  
                  
                  $
                  17
                  
                  
                  $
                  16,869
                  
                  
                  $
                  (5,845
                  )
                  
                  $
                  (99
                  )
                  
                  $
                  10,942Exercise
                      of stock warrants
                  
                  
                  2,210
                  
                  
                  
                  —
                  
                  
                  
                  22
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22Stock
                      based compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  15
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  15Comprehensive
                      loss:Net
                      loss for the period
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (465
                  )
                  
                  
                  —
                  
                  
                  
                  (465
                  )Net
                        unrealized gain on available-for-sale
                        securities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  74
                  
                  
                  
                  74Total
                      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (391
                  )Balance
                      at September 30, 2007
                  
                  
                  1,721,437
                  
                  
                  $
                  17
                  
                  
                  $
                  16,906
                  
                  
                  $
                  (6,310
                  )
                  
                  $
                  (25
                  )
                  
                  $
                  10,588
 See
            accompanying notes to financial statements
 4
 
 **ES
              BANCSHARES, INC.**
 **CONSOLIDATED
                STATEMENT OF CASH FLOWS**
 **(Unaudited)**
 **For
                      the Nine Months****Ended
                      September 30,****2007**
                  
                  
                  **2006**(In
                      thousands)Cash
                      flows from operating activities:Net
                      loss for period
                  
                  $
                  (465
                  )
                  
                  $
                  (1,244
                  )Adjustments
                        to reconcile net losses to net cash provided by operating
                        activities:Provision
                      for loan losses
                  
                  
                  36
                  
                  
                  
                  394Depreciation
                      expense
                  
                  
                  130
                  
                  
                  
                  147Amortization
                      of deferred fees, discounts and premiums, net
                  
                  
                  2
                  
                  
                  
                  (5
                  )Net
                      originations on loans held for sale
                  
                  
                  (4
                  )
                  
                  
                  519Net
                      gain on sale of real estate mortgage loans held for sale
                  
                  
                  (135
                  )
                  
                  
                  (144
                  )Stock
                      compensation expense
                  
                  
                  15
                  
                  
                  
                  9Changes
                      in assets and liabilitiesIncrease
                      in other assets
                  
                  
                  (152
                  )
                  
                  
                  (293
                  )Increase
                      in accrued expenses and other liabilities
                  
                  
                  449
                  
                  
                  
                  423Net
                      cash used in operating activities
                  
                  
                  (124
                  )
                  
                  
                  (194
                  )Cash
                      flows from investing activities:Maturity
                      of cerfificates of deposit at other financial institutions
                  
                  
                  6,645
                  
                  
                  
                  3,249Purchase
                      of cerfificates of deposit at other financial institutions
                  
                  
                  (6,694
                  )
                  
                  
                  (4,098
                  )Purchase
                      of available-for-sale securities
                  
                  
                  (3,500
                  )
                  
                  
                  (5,397
                  )Proceeds
                      from principal payments and maturities/calls of securities
                  
                  
                  2,947
                  
                  
                  
                  2,084Net
                      disbursements for loan originations
                  
                  
                  (10,248
                  )
                  
                  
                  (25,898
                  )Purchase
                      of Federal Home Loan Bank stock
                  
                  
                  (89
                  )Redemption
                      of Federal Reserve Bank stock
                  
                  
                  11
                  
                  
                  
                  30Leasehold
                      improvements and acquisitions of capital assets
                  
                  
                  (107
                  )
                  
                  
                  (17
                  )Net
                      cash used in investing activities
                  
                  
                  (11,035
                  )
                  
                  
                  (30,047
                  )Cash
                      flows from financing activities:Net
                      increase in deposits
                  
                  
                  4,495
                  
                  
                  
                  31,494Proceeds
                      of advance from line of credit
                  
                  
                  31
                  
                  
                  
                  50Proceeds
                      from stock issuance
                  
                  
                  22
                  
                  
                  
                  1Net
                      cash provided by financing activities
                  
                  
                  4,548
                  
                  
                  
                  31,545Net
                      increase (decrease) in cash and cash equivalents
                  
                  
                  (6,611
                  )
                  
                  
                  1,304Cash
                      and cash equivalents at beginning of period
                  
                  
                  14,343
                  
                  
                  
                  10,801Cash
                      and cash equivalents at end of period
                  
                  $
                  7,732
                  
                  
                  $
                  12,105Supplemental
                      cash flow informationInterest
                      paid
                  
                  $
                  2,705
                  
                  
                  $
                  1,574Income
                      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 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, 2007.  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, 2006, 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
          date
          from June 28, 2007 to June 28, 2008.  There was no additional expense
          recognized as a result of the modification.  At September 30, 2007 the
          Company had 327,690 stockholder warrants issued and
          outstanding.  Additionally, there were 190,000 issued and outstanding
          organizer warrants as of September
   6
 30,
          2007.  The organizer warrants are convertible into common shares at an
          exercise price of $10.00 and exercisable through June 27, 2009 and their
          original 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 and option
          grants were made for 173,000 shares at an exercise price of $10.50 per
          share.  These options have a 10-year term and may be either
          non-qualified stock options or incentive stock options.  These options
          were not deemed granted until shareholder approval occurred on May 3,
          2005.  Subsequently, incentive options on 10,000 shares at an exercise
          price of $10.00 per share, 6,250 shares at an exercise price of $10.50
          per
          share, 5,000 shares at an exercise price of $10.00 per share, and 10,000
          shares
          at an exercise price of $10.50 per share were awarded on November 15, 2005,
          December 20, 2005, January 12, 2006, and January 16, 2007,
          respectively.  Additionally, 5,000 non-qualified stock options at an
          exercise price of $10.50 were also awarded on January 16, 2007.  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.
 
 Effective
          January 1, 2006, the Company
          adopted Statement of Financial Accounting Standards No. 123 (revised 2004)
          “Share-based Payment” (“SFAS 123(R)”), using the modified prospective transition
          method.  Previously, the Company accounted for stock-based
          compensation under the fair value method of accounting in accordance with
          SFAS
          123 prior to revision.  For accounting purposes, the 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.  The fair values of options granted are
          computed using the Black-Scholes option-pricing model, using the following
          weighted-average assumptions as of the grant dates.
  2007
                  
                  
                  2006
                  
                  
                  2005Risk
                      free interest rate
                  
                  
                  4.74
                  %
                  
                  
                  4.35
                  %
                  
                  
                  3.98
                  %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
                  
                  
                  $
                  1.08
   7
 A
          summary
          of options outstanding under the Company’s Stock Option Plan as of September 30,
          2007, and changes during the nine-month period then ended is presented
          below.
  WeightedWeighted
                
                
                AverageAverage
                
                
                RemainingExercise
                
                
                ContractualShares
                
                
                Price
                
                
                Term
                    (yrs.)Outstanding
                    atJanuary 1, 2007
                
                
                147,750
                
                
                $
                10.47
                
                
                
                7.1Granted
                
                
                15,000
                
                
                
                10.50
                
                
                
                9.3Exercised
                
                
                —
                
                
                
                —
                
                
                
                —Forfeited
                    or expired
                
                
                —
                
                
                
                —
                
                
                
                —Outstanding
                    atSeptember 30, 2007
                
                
                162,750
                
                
                $
                10.47
                
                
                
                7.3Options
                    exerciseable atSeptember 30, 2007
                
                
                97,150
                
                
                $
                10.49
                
                
                
                7.2
 
 
 As
          of September 30, 2007, there was
          $44,036 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 30 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 162,750
          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 September 30, 2007.  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.  The Company currently
          classifies all securities as available-for-sale.
 
 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 September 30,
          2007.
 
 **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 on a regular basis,
          and are placed on non-accrual status when either principal or interest
          is 90
          days or more past due, or, in the opinion of management, there is sufficient
          reason to question the borrower’s ability to continue to meet principal or
          interest payment obligations.  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.  At and for the
          nine-month period ending September 30, 2007, we had one non-accrual loan
          in the
          amount of $10,000.  We did not have any non-accrual loans at and for
          the year ending December 31, 2006.
 
 **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 September 30, 2007, the
          Bank had $275,255 of assets classified as substandard.  There were no
          assets classified as 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.
 
 **Note
                    5.**
                **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 location in New Paltz,
          New
          York.  The leases are for initial terms of 10 years and 15 years,
          respectively and have various renewal options.  Rent expense under
   10
 operating
          leases was $70,000 for the three months ended September 30, 2007.  At
          September 30, 2007, the future minimum rental payments under operating
          lease
          agreements for the fiscal years ending December 31 are $53,000 in 2007,
          $215,000
          in 2008, $219,000 in 2009, $226,000 in 2010, $229,000 in 2011 and a total
          of
          $1.1 million for 2012 and thereafter.****The Bank’s lease
          obligation for its Staten Island, New York and Lynbrook, New York lending
          offices is on a month-to-month basis at $800 per month.
 
 The
          Company also entered into a lease agreement for office space in Staten
          Island,
          New York at a cost of $2,700 per month and applied to the OCC for permission
          to
          open a full service branch banking facility.  Subsequent to the OCC’s
          approval the Company renovated the office, hired and trained a team of
          experienced managers and employees, and will be opening the new branch
          office in
          mid-November 2007.  We currently estimate that the new branch will
          result in a $32,000 increase in our monthly operating expenses.
 
 **Off-Balance
          Sheet Financial Instruments**
 
 The
          Company’s off-balance sheet
          financial instruments at September 30, 2007 were limited to loan origination
          commitments of $14.4 million (including one- to four-family loans held
          for sale
          of $3.2 million) and unused lines of credit (principally commercial and
          home
          equity lines) extended to customers of $12.3 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 September 30, 2007 consisted of adjustable and fixed rate commitments
          of
          $10.0 million and $4.4 million respectively, with interest rates ranging
          from
          5.00% to 10.00%.
 
 **Item
          2.** **Management’s
          Discussion and Analysis of Financial Condition and Results of
          Operations**
 
 **Forward-Looking
          Statements**
 
 This
          Report on Form 10-QSB 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, and other factors.  The Company does not intend to
          update these forward-looking 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 September 30, 2007 and December 31,
          2006**
 
 Total
          assets at September 30, 2007
          amounted to nearly $97.7 million, representing an increase of approximately
          $4.7
          million, or 5.0%, from $93.0 million at December 31, 2006.  Asset
          growth during the
  11
 period
          primarily reflected increases in total loans and securities that were funded
          by
          deposit growth and decreases in cash and cash equivalents.
 
 Overall,
          total loans (loans receivable,
          net and mortgage loans held for sale) increased $10.4 million, or 17.0%,
          from
          $61.2 million at December 31, 2006 to $71.6 million at September 30,
          2007.  During that nine-month period commercial real estate mortgage
          loans increased $6.0 million, or 17.9%, from $33.6 million to $39.6 million,
          while residential mortgage loans, excluding mortgage loans held for sale,
          remained unchanged at $1.5 million.  Commercial loans and commercial
          lines of credit increased $2.4 million, or 22.0% from $10.9 million at
          December
          31, 2006, to $13.3 million at September 30, 2007, and home equity and consumer
          loans increased nearly $1.2 million, or 20.0% from $6.0 million to $7.2
          million
          over the same nine-month period.  Concurrently, construction loan
          balances decreased $2.6 million, or 28.6%, to $6.5 million at September
          30, 2007
          from $9.1 million at December 31, 2006, as a result of contractual repayments
          of
          principal that occurred upon the completion of a number of associated
          projects.  Future growth in construction loans as well as in the other
          loan categories will depend on economic conditions (including prevailing
          real
          estate values) as well as regulatory, deposit growth and capital
          considerations.
 
 Total
          securities, which are comprised solely of U.S. government agency and U.S.
          government sponsored agency debt obligations, increased $624,000, or 6.6%
          from
          $9.4 million at December 31, 2006 to $10.1 million at September 30, 2007,
          while
          certificates of deposit at other financial institutions increased from
          $5.7
          million to $5.8 million during the same period.  At September 30, 2007
          the balance of cash and cash equivalents totaled $7.7 million as compared
          to
          $14.3 million at December 31, 2006.  The decrease of $6.6 million, or
          46.2% resulted as those available funds were deployed into the relatively
          higher-yielding loans and investments discussed above, in lieu of relying
          primarily on incremental higher-costing liabilities.
 
 Funding
          for the growth in total assets
          was provided primarily by a $4.5 million increase in total
          deposits.  Interest bearing deposits grew $3.5 million, or 4.8%, to
          $76.8 million at September 30, 2007 from $73.3 million at December 31,
          2006.  That growth over the nine-month period consisted of increases
          of $4.3 million in savings accounts and $2.3 million in certificates of
          deposit
          that were partially offset by decreases of $3.1 million in money market
          accounts
          and $19,000 in NOW accounts.  Over the same nine-month period
          non-interest bearing accounts increased $1.0 million, or 12.2% from $8.2
          million
          to $9.2 million.
 
 Stockholders’
equity
          decreased by
          $354,000 to $10.6 million at September 30, 2007 from $10.9 million at December
          31, 2006.  The decrease is primarily attributable to a net loss for
          the nine-month period of $465,000 that was partially mitigated by a $37,000
          increase in additional paid-in-capital that resulted mostly from the exercise
          of
          2,210 shareholder warrants, and a decrease of $74,000 in the net unrealized
          loss
          in the market value of securities available-for-sale.
 
 The
          ratio
          of stockholders’ equity to total assets decreased to 10.8% at September 30, 2007
          from 11.8% at December 31, 2006.  Book value per share decreased to
          $6.15 at September 30, 2007 from $6.36 at December 31, 2006.  See
“Liquidity and Capital Resources” for information regarding the Bank’s
          regulatory capital amounts and ratios.
    
 12
 **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 nine-month
          periods ended September 30, 2007 as compared to the comparable three and
          nine-month periods ended September 30, 2006.  The yields and costs
          were derived by dividing interest income or expense by the average balance
          of
          assets and liabilities****for 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 September 30,****2007**
                  
                  
                  **2006****Average**
                  
                  
                  
                  
                  
                  
                  
                  
                  **Average****Average**
                  
                  
                  
                  
                  
                  **Yield
                      /**
                  
                  
                  **Average**
                  
                  
                  
                  
                  
                  **Yield
                      /****Balance**
                  
                  
                  **Interest**
                  
                  
                  **Cost**
                  
                  
                  **Balance**
                  
                  
                  **Interest**
                  
                  
                  **Cost****(Dollars
                      in thousands)****Assets**Interest-earning
                      assets:Loans
                  
                  $
                  71,504
                  
                  
                  $
                  1,317
                  
                  
                  
                  7.37%
                  
                  
                  $
                  56,599
                  
                  
                  $
                  1,032
                  
                  
                  
                  7.29%Fed
                      Funds
                  
                  
                  8,772
                  
                  
                  
                  114
                  
                  
                  
                  5.16%
                  
                  
                  
                  10,362
                  
                  
                  
                  136
                  
                  
                  
                  5.21%Certificates
                      of deposit
                  
                  
                  5,917
                  
                  
                  
                  81
                  
                  
                  
                  5.43%
                  
                  
                  
                  3,059
                  
                  
                  
                  42
                  
                  
                  
                  5.45%FRB
                      Stock
                  
                  
                  468
                  
                  
                  
                  7
                  
                  
                  
                  5.98%
                  
                  
                  
                  356
                  
                  
                  
                  5
                  
                  
                  
                  6.07%Securities-available
                      for sale
                  
                  
                  8,297
                  
                  
                  
                  105
                  
                  
                  
                  5.06%
                  
                  
                  
                  9,232
                  
                  
                  
                  107
                  
                  
                  
                  4.62%Total
                      interest-earning assets
                  
                  
                  94,958
                  
                  
                  $
                  1,624
                  
                  
                  
                  6.84%
                  
                  
                  
                  79,608
                  
                  
                  $
                  1,322
                  
                  
                  
                  6.59%Allowance
                      for loan losses
                  
                  
                  (607
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (180
                  )Cash
                      & Due from banks
                  
                  
                  1,983
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,840Other
                      Non-interest earning assets
                  
                  
                  1,915
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,086Total
                      assets
                  
                  $
                  98,249
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  83,354**Liabilities
                      and  Stockholders’ Equity**Interest-bearing
                      liabilities:NOW
                      accounts
                  
                  $
                  1,657
                  
                  
                  $
                  5
                  
                  
                  
                  1.20%
                  
                  
                  $
                  1,080
                  
                  
                  $
                  1
                  
                  
                  
                  0.37%Money
                      Market accounts
                  
                  
                  46,958
                  
                  
                  
                  583
                  
                  
                  
                  4.93%
                  
                  
                  
                  39,940
                  
                  
                  
                  494
                  
                  
                  
                  4.91%Regular
                      savings accounts
                  
                  
                  8,399
                  
                  
                  
                  76
                  
                  
                  
                  3.59%
                  
                  
                  
                  3,596
                  
                  
                  
                  25
                  
                  
                  
                  2.76%Certficates
                      of Deposit
                  
                  
                  21,294
                  
                  
                  
                  269
                  
                  
                  
                  5.01%
                  
                  
                  
                  18,590
                  
                  
                  
                  227
                  
                  
                  
                  4.84%Total
                      interest-bearing deposits
                  
                  
                  78,308
                  
                  
                  
                  933
                  
                  
                  
                  4.73%
                  
                  
                  
                  63,206
                  
                  
                  
                  747
                  
                  
                  
                  4.69%Borrowings
                  
                  
                  84
                  
                  
                  
                  2
                  
                  
                  
                  8.25%
                  
                  
                  
                  41
                  
                  
                  
                  1
                  
                  
                  
                  8.75%Total
                      interest-bearing liabilities
                  
                  $
                  78,392
                  
                  
                  $
                  935
                  
                  
                  
                  4.73%
                  
                  
                  $
                  63,247
                  
                  
                  $
                  748
                  
                  
                  
                  4.69%Non-interest-bearing
                      liabilities
                  
                  
                  9,003
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,626Total
                      liabilities
                  
                  
                  87,395
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  71,873Stockholders’
                      equity
                  
                  
                  10,854
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  11,481Total
                      liabilities and stockholders’ equity
                  
                  $
                  98,249
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  83,354Net
                      interest income
                  
                  
                  
                  
                  
                  $
                  689
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  574Average
                      interest rate spread(1)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.11%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.90%Net
                      interest margin(2)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.90%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.89%Net
                      interest-earning assets(3)
                  
                  $
                  16,566
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  16,361Ratio
                        of average interest-earning assets to average interest-bearing
                        liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  121.13%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  125.87%
  
 (1)
                    Average
                        interest rate spread represents the difference between the
                        yield on
                        average interest-earning assets and 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.
 13
 **For
                      the Nine Months Ended September 30,****2007**
                  
                  
                  **2006****Average**
                  
                  
                  
                  
                  
                  
                  
                  
                  **Average****Average**
                  
                  
                  
                  
                  
                  **Yield
                      /**
                  
                  
                  **Average**
                  
                  
                  
                  
                  
                  **Yield
                      /****Balance**
                  
                  
                  **Interest**
                  
                  
                  **Cost**
                  
                  
                  **Balance**
                  
                  
                  **Interest**
                  
                  
                  **Cost****(Dollars
                      in thousands)****Assets**Interest-earning
                      assets:Loans
                  
                  $
                  67,737
                  
                  
                  $
                  3,738
                  
                  
                  
                  7.36%
                  
                  
                  $
                  46,183
                  
                  
                  $
                  2,443
                  
                  
                  
                  7.05%Fed
                      Funds & other investments
                  
                  
                  9,734
                  
                  
                  
                  383
                  
                  
                  
                  5.19%
                  
                  
                  
                  9,550
                  
                  
                  
                  350
                  
                  
                  
                  4.90%Certificates
                      of deposit
                  
                  
                  5,985
                  
                  
                  
                  243
                  
                  
                  
                  5.43%
                  
                  
                  
                  2,714
                  
                  
                  
                  104
                  
                  
                  
                  5.12%FRB
                      Stock
                  
                  
                  418
                  
                  
                  
                  17
                  
                  
                  
                  5.42%
                  
                  
                  
                  367
                  
                  
                  
                  16
                  
                  
                  
                  5.99%Securities-available
                      for sale
                  
                  
                  8,034
                  
                  
                  
                  296
                  
                  
                  
                  4.91%
                  
                  
                  
                  8,632
                  
                  
                  
                  289
                  
                  
                  
                  4.46%Total
                      interest-earning assets
                  
                  
                  91,908
                  
                  
                  $
                  4,677
                  
                  
                  
                  6.80%
                  
                  
                  
                  67,446
                  
                  
                  $
                  3,202
                  
                  
                  
                  6.35%Allowance
                      for loan losses
                  
                  
                  (592
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (144
                  )Cash
                      & Due from banks
                  
                  
                  2,018
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,884Other
                      Non-interest earning assets
                  
                  
                  1,898
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,990Total
                      assets
                  
                  $
                  95,232
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  71,176**Liabilities
                      and  Stockholders’ Equity**Interest-bearing
                      liabilities:NOW
                      accounts
                  
                  $
                  1,232
                  
                  
                  $
                  8
                  
                  
                  
                  0.87%
                  
                  
                  $
                  789
                  
                  
                  $
                  1
                  
                  
                  
                  0.31%Money
                      Market accounts
                  
                  
                  47,888
                  
                  
                  
                  1,785
                  
                  
                  
                  4.98%
                  
                  
                  
                  29,304
                  
                  
                  
                  1,015
                  
                  
                  
                  4.63%Regular
                      savings accounts
                  
                  
                  6,997
                  
                  
                  
                  185
                  
                  
                  
                  3.54%
                  
                  
                  
                  3,623
                  
                  
                  
                  75
                  
                  
                  
                  2.77%Certficates
                      of Deposit
                  
                  
                  19,267
                  
                  
                  
                  723
                  
                  
                  
                  5.02%
                  
                  
                  
                  16,242
                  
                  
                  
                  562
                  
                  
                  
                  4.63%Total
                      interest-bearing deposits
                  
                  
                  75,384
                  
                  
                  
                  2,701
                  
                  
                  
                  4.79%
                  
                  
                  
                  49,958
                  
                  
                  
                  1,653
                  
                  
                  
                  4.42%Borrowings
                  
                  
                  67
                  
                  
                  
                  4
                  
                  
                  
                  8.75%
                  
                  
                  
                  41
                  
                  
                  
                  1
                  
                  
                  
                  0Total
                      interest-bearing liabilities
                  
                  $
                  75,451
                  
                  
                  $
                  2,705
                  
                  
                  
                  4.79%
                  
                  
                  $
                  49,999
                  
                  
                  $
                  1,654
                  
                  
                  
                  4.42%Non-interest-bearing
                      liabilities
                  
                  
                  8,660
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,376Total
                      liabilities
                  
                  
                  84,111
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  59,375Stockholders’
                      equity
                  
                  
                  11,121
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  11,801Total
                      liabilities and stockholders’ equity
                  
                  $
                  95,232
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  71,176Net
                      interest income
                  
                  
                  
                  
                  
                  $
                  1,972
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,548Average
                      interest rate spread(1)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.01%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.93%Net
                      interest margin
                      (2)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.87%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.07%Net
                      interest-earning assets(3)
                  
                  $
                  16,457
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  17,447Ratio
                        of average interest-earning assets to average interest-bearing
                        liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  121.81%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  134.89%
  
 (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 September 30, 2007 and September 30,
          2006**
 
 ***General.***  For
          the quarter ended September 30, 2007, the Company recognized a net loss
          of
          $138,000, or ($0.08) per diluted share, as compared to a net loss of $581,000,
          or ($0.34) per diluted share, for the comparable quarter ended one year
          earlier.  The decreased loss is primarily the result of a decrease to
          the provision for loan losses, and, to a lesser extent, to increases in
          net
          interest income and non-interest income, that were partially mitigated
          by an
          increase in non-interest expense.  Losses from operations are expected
          to continue until the Bank achieves a higher sustainable level of loans
          and core
          deposits.
 
 ***Interest
          Income.***Interest income amounted to $1.6 million for
          the quarter ended September 30, 2007, as compared to $1.3 million for the
          quarter ended September 30, 2006.  The increase of $302,000, or 22.8%,
          was primarily attributable to the increase in average interest-earning
          assets,
          which increased to $95.0 million for the quarter ended September 30, 2007
          from
          $79.6 million for the comparable quarter ended one year earlier, and to
          the
          higher overall yields over the same respective periods.  During the
          quarter ended September 30, 2007 short-term interest rates decreased prior
          to
          and after the Federal Open Market Committee formally lowered its Federal
          Funds
          target rate from 5.25% to 4.75% at its September meeting.  That
          decision had a more immediate impact on the yields earned by the Company’s
          federal funds sold, which fell to 5.16%, and certificates of deposit at
          other
          financial institutions, which decreased to 5.43%, than on the yields of
          its
          generally longer-term loans and securities available for sale, which increased
          to 7.37% and 5.06%, respectively.  Average loan balances and the
          average balance of certificates of deposit at other financial institutions
          grew
          by $14.9 million and $2.9 million, respectively, for the quarter ended
          September
          30, 2007, as compared to the quarter ended September 30, 2006, while the
          average
          balances of fed funds sold and securities available for sale decreased
          $1.6
          million and $900,000, respectively, over the same comparable
          quarters.
 
 ***Interest
          Expense.***Total interest expense for the quarter ended
          September 30, 2007 increased by $187,000, or 25.0%, when compared to the
          same
          three-month period one year earlier.  The increase was primarily due
          to the increase in the average balances of the Company’s interest-bearing
          liabilities, which increased $15.2 million, or 24.1%, from $63.2 million
          for the
          quarter ended September 30, 2006 to $78.4 million for the quarter ended
          September 30, 2007, and to the generally higher costs associated with those
          liabilities leading up to the reduction to the Federal Open Market Committee’s
          Federal Funds target rate mentioned above.  For the quarter ended
          September 30, 2007, average money market account balances increased $7.0
          million, or 17.6%, to $47.0 million as compared to the quarter ended September
          30, 2006.  The cost of those average balances increased to 4.93% from
          4.91%, respectively, for the quarter ended September 30, 2007 as compared
          to the
          same quarter ended one year earlier.  Over the same respective
          periods, the average balances and costs of regular savings accounts increased
          $4.8 million, or 133% from $3.6 million at a cost of 2.76%, to $8.4 million,
          at
          an average cost of 3.59%.  The average balances and costs of the
          Bank’s certificates of deposit portfolio increased $2.7 million, or 14.5% to
          $21.3 million at an average cost of 5.01% over the quarter ended September
          30,
          2007, from $18.6 million at an average cost of 4.84% over the same quarter
          ended
          one-year earlier.  For the quarter ended September 30, 2007, the
          average balance of the Company’s borrowed funds was $84,000 and its average cost
          was 8.25%.  These borrowed funds were used primarily for expenses that
          pertained to the Company’s formation during the quarter ended September 30,
          2006, and, to a lesser degree, for various expenses incurred by the Company
          for
          its annual meeting and the production and distribution of its annual report
          and
          proxy statement to the shareholders of record.
 
 ***Net
          Interest
          Income.***  Net interest income was approximately $689,000
          for the quarter ended September 30, 2007 as compared to $574,000 for the
          same
          quarter in the prior year.  The Bank’s average interest rate spread
          increased to 2.11% for the quarter ended September 30, 2007 from 1.90%
          for the
          quarter ended September 30, 2006, while the net interest margin increased
          to
          2.90% from 2.89%, over the same respective periods.
 
 
 15
 ***Provision
          for Loan Losses*****.**  For the three months
          ended September 30, 2007 the provision for loan losses decreased $317,000
          as
          compared to the three months ended September 30, 2006.  The provision
          in 2006 resulted primarily from a changed and enhanced methodology for
          establishing provisions for the allowance of loan losses that the Company
          adopted at that time.
 
 Prior
          to
          the quarter ended September 30, 2006, the Company, as a de novo institution,
          did
          not have any historical loan losses to enable management to estimate the
          probable credit losses imbedded within the portfolio.  Alternatively,
          along with other criteria, the Company previously considered peer group
          credit
          loss data each period in providing the provision, which, based on the moderate
          growth exhibited by the loan portfolio, was deemed
          appropriate.  However, in consideration of the significant increase in
          commercial real estate loan, commercial business loan, and construction
          loan
          balances, the Company believed it appropriate to change its methods for
          establishing provisions and expanded its risk analysis
          methodologies.  Management bifurcated the loan portfolio segments into
          various pools in order to better evaluate the risks to credits associated
          by
          distinct geographic and business type concentrations.  Additional risk
          was associated to portions of the increase in commercial real estate loan
          balances that resulted from loan participations because of potential different
          lead-bank underwriting standards, and to the absence of a direct relationship
          between the Company and those borrowers.  Moreover, management
          determined that the weakening local economy probably had a detrimental
          impact on
          the Company’s business borrowers, most of which had only a short-term
          relationship with the Company.  Accordingly, based on that
          quantitative and qualitative overall assessment, the Company concluded
          that a
          more significant provision was appropriate given the relatively unseasoned
          nature of the loan portfolio.
 
 ***Non-interest
          Income.***Non-interest income for the quarter ended
          September 30, 2007 was approximately $173,000 as compared to $105,000 for
          the
          comparable quarter ended one year earlier.  The increased income
          resulted primarily from servicing an increased number of loan and deposit
          customers.   For the quarter ended September 30, 2007, income
          earned from the net gain on sale of real estate mortgage loans held for
          sale
          increased to $69,000 from $30,000, income from service charges and fees
          increased to $71,000 from $58,000, and other non-interest income, comprised
          principally of income earned from the sale of annuities, increased to $33,000
          from $17,000 as compared to the quarter ended September 30, 2006.
 
 ***Non-interest
          Expense.***Non-interest expense for the quarter ended
          September 30, 2007 increased $57,000 when compared to the same quarter
          in
          2006.  Compensation and benefits increased $48,000 primarily due to
          merit salary increases over the prior period’s base level and sales related
          commissions.  Data processing service fees increased contractually by
          $15,000 primarily as a result of the increased number of loan and deposit
          customer relationships that are now serviced.  Other non-interest
          expense decreased $9,000 primarily from decreases in advertising expenses
          and
          professional and consulting fees that were partially offset by increases
          in most
          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 Nine Months Ended September 30, 2007 and September
          30,
          2006**
 
 ***General.***For
          the nine months ended September 30, 2007, the Bank recognized a net loss
          of
          $465,000, or ($0.27) per diluted share, as compared to a net loss of $1.2
          million, or ($0.72) per diluted share, for the comparable nine-month period
          ended one year earlier.  The $779,000 improvement is primarily the
          result of increased net interest****income attributable to
          the Bank’s larger asset size, the decreased provision for loan losses discussed
          earlier related to the revised methodology that management adopted during
          the
          third quarter of 2006, and increased non-interest income related to the
          Bank’s
          growing business activities that were mitigated by increased operating
          expenses.
 
 16
 ***Interest
          Income.***Compared to the first nine months of 2006,
          interest income for the nine-month period ended September 30, 2007 increased
          $1.5 million, or 46.1%, to $4.7 million.  The increase was primarily
          attributable to the increase in average interest-earning assets to $91.9
          million
          for the nine-month period ended September 30, 2007 from $67.4 million for
          the
          comparable nine-month period ended one year earlier, and to the higher
          yields
          associated with those assets.  Over the comparable periods average
          loan balances increased from $46.2 million to $67.7 million, while their
          average
          yield increased from 7.05% to 7.36%.  The average balances of
          certificates of deposit at other financial institutions with maturities
          ranging
          from three to 15 months increased $3.3 million, or 122%, from $2.7 million
          to
          $6.0 million.  Over the nine-month period ending September 30, 2007
          the average yield of this asset segment increased to 5.43% as compared
          to an
          average yield of 5.12% over the same nine-month period ended one year
          earlier.  Over the comparable nine-month periods ended September 30,
          2007 and 2006, the average balances of the Company’s fed funds and other
          investments increased to $9.7 million from $9.6 million, respectively,
          and their
          respective average yields increased to 5.19% from 4.90%.  The average
          balance of securities available for sale decreased $598,000 from $8.6 million
          for the nine-month period ended September 30, 2006 to $8.0 million for
          the
          comparable period ended September 30, 2007.  The average yield of
          these investments increased from 4.46% to 4.91% over the same respective
          periods.
 
 ***Interest
          Expense.***Total interest expense for the nine-month
          period ended September 30, 2007 increased by $1.0 million when compared
          to the
          nine-month period ended September 30, 2006.  The increase was
          primarily due to an increase in the average balances of interest-bearing
          deposits, which increased from $50.0 million over the nine-month period
          ended
          September 30, 2006 to $75.4 million over the nine-month period ended September
          30, 2006, and an increase in the average costs from 4.42% to 4.79% associated
          with those deposits over the same respective periods.  Average money
          market account balances increased $18.6 million, from $29.3 million for
          the
          nine-month period ended September 30, 2006 to $47.9 million for the same
          nine-month period ended one year later.  Over those respective
          periods, the average costs for those balances increased 35 basis points,
          from
          4.63% to 4.98%.  The average balances of the Bank’s certificates of
          deposit increased to $19.3 million over the nine-month period ended September
          30, 2007 from $16.2 million over the nine-month period ended September
          30,
          2006.  The average cost of those deposits increased to 5.02% from
          4.63% over the same respective periods.
 
 ***Provision
          for Loan Losses***.  The provision for loan losses for the
          nine months ended September 30, 2007 decreased $358,000 compared to the
          nine
          months ended September 30, 2006.  As discussed previously, the
          decrease in the provision was a result of management’s assessment of the loan
          portfolio and its assessment of the local economy and market conditions,
          and the
          adequacy of the allowance for loan losses at September 30, 2006 as compared
          to
          September 30, 2007.
 
 ***Net
          Interest
          Income.***Net interest income was approximately $2.0
          million for the nine-month period ended September 30, 2007 as compared
          to $1.5
          million for the nine-month period ended September 30, 2006.  The
          average interest rate spread increased to 2.01% from 1.93%,
          while****the net interest margin decreased to 2.87% from
          3.07%, which was primarily attributable to an approximate $700,000 decrease
          in
          average non-interest-bearing liabilities over the same comparable
          periods.
 
 ***Non-Interest
          Income.***Non-interest income for the nine-month period
          ended September 30, 2007 increased $153,000 in comparison to the nine-month
          period ended September 30, 2006 primarily as a result of the increases
          in the
          number of loan and deposit customers served by the Bank.  Deposit
          service charges and loan fees increased to $225,000 for the current nine-month
          period, which was an increase of $126,000, or 127.3%, over the same period
          last
          year.  Other income, which consists mainly of income earned on the
          sale of annuities, increased by 36,000, or 171.4%, to $57,000 for the nine-month
          period ended September 30, 2007, from $21,000 for the same nine-month period
          ended one year earlier.  Over the same comparable periods net gain on
          the sales of real estate mortgage loans held for sale decreased by $9,000
          from
          $144,000 to $135,000 primarily as a result of the general softening in
          the
          overall housing market in 2007 as compared to 2006.
  17
 ***Non-Interest
          Expense.***Non-interest expense for the nine-month period
          ended September 30, 2007 increased $157,000 to $2.8 million from $2.7 million
          for the nine-month period ended September 30, 2006.  Compensation and
          benefits increased $61,000 primarily as a result of annual merit
          increases.  Data processing fees, which increased to $136,000 from
          $104,000 over the same respective periods, increased primarily as a result
          of
          timed contractual increases predicated on the number of loan and deposit
          customers serviced by the Bank.  Other non-interest expense increased
          $65,000, or 9.4%, from $690,000 for the nine-month period ended September
          30,
          2006 to $755,000 for the first nine months of 2007.  Growth related
          increases in this category included increased professional and consulting
          fees,
          advertising, supplies expense and general overhead, and higher regulatory
          assessments imposed by the OCC and the Federal Deposit Insurance Corporation
          (“FDIC”).
 
 **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 nine months ended
          September 30, 2007, the Company originated loans of approximately $35.7
          million
          including real estate mortgage loans held for sale.  At September 30,
          2007, the Company had outstanding loan origination commitments of $14.4
          million
          (including one-to-four-family real estate mortgage loans held for sale
          of $3.2
          million) and undisbursed lines of credit and construction loans in process
          of
          $12.3 million.  The Company anticipates that it will have sufficient
          funds available to meet its current loan originations and other
          commitments.
 
 At
          September 30, 2007, total deposits were approximately $86.0 million of
          which
          approximately $21.6 million were in certificates of
          deposit.  Certificates of deposit scheduled to mature in one year or
          less from September 30, 2008 totaled $15.0 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 and has outstanding $84,000.
 
 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.
 
 OCC
          regulations require banks to
          maintain a minimum leverage ratio of core (Tier 1) capital to total adjusted
          tangible assets of 3.0%, and a minimum ratio of total capital (core capital
          and
          supplementary capital) to risk-weighted assets of 8.0%, of which 4.0% must
          be
          core (Tier 1) capital. Under
          its
          prompt corrective action regulations, the OCC is required to take certain
          supervisory actions with respect to an undercapitalized
          institution.  The regulations establish a framework for the
          classification of depository institutions into five categories: (1)
          well-capitalized, (2) adequately capitalized, (3) undercapitalized, (4)
          significantly undercapitalized, and (5) critically
          undercapitalized.  Generally an institution is considered well
          capitalized if it has a core (Tier 1) capital ratio of at least 5.0%, a
          core
          (Tier 1) risk-based capital ratio of at least 6.0%, and a total risk-based
          capital ratio of a least 10.0%.
   18
 As
          of
          September 30, 2007, 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
          September 30, 2007 and December 31, 2006, the Bank met all capital adequacy
          requirements to which it was subject.
 
 The
          following is a summary of the Bank’s actual capital amounts and ratios, compared
          to the OCC requirements for minimum capital adequacy and for classification
          as a
          well-capitalized institution at September 30, 2007 and December 31,
          2006.  The capital ratios of the Company are not significantly
          different than those shown in the table below for the Bank and exceed the
          requirements to be well capitalized.  In accordance with the
          applicable regulatory requirements, the Bank’s actual tangible and Tier 1
          capital amounts exclude goodwill, while the total risk-based capital amounts
          include the allowance for loan losses.
 
 **Minimum
                      Capital**
                  
                  
                  **Classification
                      as****Bank
                      Actual**
                  
                  
                  **Adequacy**
                  
                  
                  **Well
                      Capitalized****Amount**
                  
                  
                  **Ratio**
                  
                  
                  **Amount**
                  
                  
                  **Ratio**
                  
                  
                  **Amount**
                  
                  
                  **Ratio****(Dollars
                      in thousands)**September
                      30, 2007Tier
                      I (core)capital
                  
                  $
                  10,115
                  
                  
                  
                  10.4
                  %
                  
                  $
                  2,930
                  
                  
                  
                  3.0
                  %
                  
                  $
                  4,883
                  
                  
                  
                  5.0
                  %Risk-based
                      capital:Tier
                      I
                  
                  
                  10,115
                  
                  
                  
                  12.8
                  
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  
                  4,732
                  
                  
                  
                  6.0Total
                  
                  
                  10,732
                  
                  
                  
                  13.6
                  
                  
                  
                  6,309
                  
                  
                  
                  8.0
                  
                  
                  
                  7,887
                  
                  
                  
                  10.0
 
 **Minimum
                      Capital**
                  
                  
                  **Classification
                      as****Bank
                      Actual**
                  
                  
                  **Adequacy**
                  
                  
                  **Well
                      Capitalized****Amount**
                  
                  
                  **Ratio**
                  
                  
                  **Amount**
                  
                  
                  **Ratio**
                  
                  
                  **Amount**
                  
                  
                  **Ratio****(Dollars
                      in thousands)**December
                      31, 2006Tier
                      I (core)capital
                  
                  $
                  10,522
                  
                  
                  
                  11.3
                  %
                  
                  $
                  2,791
                  
                  
                  
                  3.0
                  %
                  
                  $
                  4,652
                  
                  
                  
                  5.0
                  %Risk-based
                      capital:Tier
                      I
                  
                  
                  10,522
                  
                  
                  
                  15.2
                  
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  
                  4,145
                  
                  
                  
                  6.0Total
                  
                  
                  11,103
                  
                  
                  
                  16.1
                  
                  
                  
                  5,527
                  
                  
                  
                  8.0
                  
                  
                  
                  6,908
                  
                  
                  
                  10.0
 
 **Recent
          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
   19
 use
          of an
          asset.  The standard is effective for fiscal years beginning after
          November 15, 2007.  The Company has not completed its evaluation of
          the impact of the adoption of this standard.
 
 In
          February 2006, the Financial Accounting Standards Board (FASB) issued Statement
          No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment to
          FASB Statements No. 133 and 140.”  This Statement permits fair value
          re-measurement for any hybrid financial instruments, clarifies which instruments
          are subject to the requirements of Statement No. 133, and establishes a
          requirement to evaluate interest in securitized financial assets and other
          items.  The new standard is effective for financial assets acquired or
          issued after the beginning of the entity’s first fiscal year that begins after
          September 15, 2006.  The Company has determined the adoption of this
          Statement does not have a material impact on the Company’s consolidated
          financial position or results of operations.
 
 In
          March
          2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
          Assets – an amendment of FASB Statement No. 140.”  This Statement
          provides the following:  1) revised guidance on when a servicing asset
          and servicing liability should be recognized; 2) requires all separately
          recognized servicing assets and servicing liabilities to be initially measured
          at fair value, if practicable; 3) permits an entity to elect to measure
          servicing assets and servicing liabilities at fair value each reporting
          date and
          report changes inn fair value in earnings in the period in which the changes
          occur; 4) upon initial adoption, permits a one time reclassification of
          available-for-sale securities to trading securities for securities which
          are
          identified as offsetting the entity’s exposure to change in the fair value of
          servicing assets or liabilities that a servicer elects to subsequently
          measure
          at fair value; and 5) requires separate presentation of servicing assets
          and
          servicing liabilities subsequently measured at fair value in the statement
          of
          financial position and additional footnote disclosures.  This standard
          is effective as of the beginning of an entity’s first fiscal year that begins
          after September 15, 2006 with the effects of initial adoption being reported
          as
          a cumulative effect adjustment to retained earnings.  The Company has
          determined the adoption of this Statement does not have a material impact
          on the
          Company’s consolidated financial position or results of operations.
 
 In
          February 2007, the FASB issued Statement of Financial Accounting Standards
          No.
          159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115” (“SFAS No.
          159”).  SFAS No. 159 permits entities to choose to measure certain
          financial assts and financial liabilities at fair value.  SFAS No. 159
          is effective as of the beginning of an entity’s first fiscal year beginning
          after November 15, 2007.  The Company has not completed its evaluation
          of the impact of this Statement on the Company’s consolidated financial position
          or results of operations.
 
 In
          July
          2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
          Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which
          prescribes a recognition threshold and measurement attribute for a tax
          position
          taken or expected to be taken in a tax return.  FIN 48 also provides
          guidance on derecognition, classification, interest and penalties, accounting
          in
          interim periods, disclosure and transition.  The Company adopted FIN
          48 as of January 1, 2007.  A tax position is recognized as a benefit
          only if it is “more likely than not” that the tax position would be sustained in
          a tax examination, with a tax examination being presumed to
          occur.  The amount recognized is the largest amount of tax benefit
          that is greater than 50% likely of being realized on examination.  For
          tax positions not meeting the “more likely than not” test, no tax benefit is
          recorded.  The adoption had no affect on the Company’s consolidated
          financial position or results of operations.  The Company is no longer
          subject to examination by taxing authorities for years before
          2002.  The Company does not expect the total amount of unrecognized
          tax benefits to significantly increase in the next twelve months.
 
 The
          Company and its subsidiary are subject to U.S. federal income tax as well
          as
          income tax of the state of New York.  The Company does not expect the
          total amount of tax benefits to significantly increase in the next twelve
          months.
 
 
 20
 
 **Item
          3.  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 September 30, 2007 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 September 30, 2007, we were not
          involved in any legal proceedings, the outcome of which would be material
          to our
          financial condition or results of operations.
 
 
 **Item
          2.    Unregistered Sales of Securities and Use of
          Proceeds**
 
 None
 
 
 **Item
          3.    Defaults on Senior Securities**
 
 None
 
  **Item
          4.    Submission of Matters to a Vote of Security
          Holders**
 
 None
 
  **Item
          5.    Other Information**
 
 None
 
  **Item
          6.    Exhibits**
 **&
#160;**
 **Exhibit
                      Number**
                  **Document**
                  **Reference
                      to Previous Filing**
                    **If
                      Applicable**3.1
                  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.
   21
  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.
 
 
 
 
 
 
 
     
 
 
 
 
 22
 **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 November 8, 2007.
   **ES
                    Bancshares,
                    Inc.**Date:      
                        November 8, 2007
                  By:
                  /s/ Anthony
                    P. CostaAnthony
                      P. CostaChairman
                      and Chief Executive Officer  Date:      
                          November 8, 2007
                    By:
                    /s/ Arthur W. BudichArthur
                        W. BudichExecutive
                        Vice President and Chief Financial Officer
  
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 23