**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 June 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
      August 9, 2007 there were 1,721,337 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 JUNE 30, 2007**











**PART
                  I – FINANCIAL INFORMATION****Page**Item
                  1.
              Financial
                  Statements (Unaudited)Consolidated
                  Balance Sheets at June 30, 2007 and December 31, 2006
              2Consolidated
                  Statements of Income for the Three and Six Months Ended June 30,
                  2007, and
                  2006
              3Consolidated
                  Statement of Changes in Stockholders’ Equity For the Six Months Ended June
                  20, 2007 and 2006
              4Consolidated
                  Statements of Cash Flows for the Six Months Ended June 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
                  II – OTHER INFORMATION**Item
                  1.
              Legal
                  Procedures
              20Item
                  2.
              Unregistered
                      Sales of Equity Securities and Use of Proceeds
              20Item
                  3
              Defaults
                  on Senior Securities
              21Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              21Item
                  5.
              Other
                  Information
              21Item
                  6.
              Exhibits
              22Signatures
              23





******ES
        BANCSHARES, INC.** **CONSOLIDATED
          BALANCE SHEET**
 (Unaudited)
 (In
        thousands, except share data)


June
                  30,
              
              
              December
                  31,2007
              
              
              2006ASSETSCash
                  and cash equivalents:Cash
                  and due from banks
              
              $
              2,232
              
              
              $
              2,734Federal
                  funds sold
              
              
              11,886
              
              
              
              11,609Total
                  cash and cash equivalents
              
              
              14,118
              
              
              
              14,343Certificates
                  of deposit at other financial institutions
              
              
              5,497
              
              
              
              5,746Securities:Available
                  for sale, at fair value
              
              
              7,740
              
              
              
              9,443Real
                  estate mortgage loans held for sale
              
              
              266
              
              
              
              215Loans
                  receivable, netReal
                  estate mortgage loans
              
              
              38,143
              
              
              
              35,151Commercial
                  and lines of credit
              
              
              13,146
              
              
              
              10,903Home
                  equity and consumer loans
              
              
              6,735
              
              
              
              6,046Construction
                  loans
              
              
              11,302
              
              
              
              9,128Deferred
                  cost
              
              
              372
              
              
              
              344Allowance
                  for loan losses
              
              
              (590
              )
              
              
              (581
              )Total
                  loans receivable, net
              
              
              69,108
              
              
              
              60,991Accrued
                  interest receivable
              
              
              507
              
              
              
              515Federal
                  Reserve Bank stock
              
              
              324
              
              
              
              335Federal
                  Home Loan Bank stock
              
              
              89
              
              
              
              —Goodwill
              
              
              581
              
              
              
              581Office
                  properties and equipment, net
              
              
              707
              
              
              
              741Prepaid
                  expenses
              
              
              115
              
              
              
              74Other
                  assets
              
              
              55
              
              
              
              55Total
                  assets
              
              $
              99,107
              
              
              $
              93,039LIABILITIES
                  AND STOCKHOLDERS’
                  EQUITYLiabilities:Deposits:Non-interest
                  bearing
              
              $
              9,219
              
              
              $
              8,156Interest
                  bearing
              
              
              78,377
              
              
              
              73,318Borrowed
                  funds
              
              
              84
              
              
              
              53Accrued
                  interest payable
              
              
              124
              
              
              
              130Other
                  liabilities
              
              
              629
              
              
              
              440Total
                  liabilities
              
              
              88,433
              
              
              
              82,097Commitments
                  and contingenciesStockholders’
                  equityCapital
                  stock (par value $0.01; 5,000,000 shares authorized;1,721,237
                  shares of ES Bancshares, Inc.issued
                  at June 30, 2007, and 1,719,227 sharesissued
                  at December 31, 2006)
              
              
              17
              
              
              
              17Additional
                  paid-in-capital
              
              
              16,899
              
              
              
              16,869Accumulated
                  deficit
              
              
              (6,172
              )
              
              
              (5,845
              )Accumulated
                  other comprehensive loss
              
              
              (70
              )
              
              
              (99
              )Total
                  stockholders’ equity
              
              
              10,674
              
              
              
              10,942Total
                  liabilities and stockholders’ equity
              
              $
              99,107
              
              
              $
              93,039


See
      accompanying notes to financial statements




2


**ES
        BANCSHARES, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006**
 (Unaudited)
 (In
        thousands, except per share data)
  **For
                  the Three Months**
              
              
              **For
                  the Six Months****Ended
                  June 30,**
              
              
              **Ended
                  June 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Interest
                  and dividend income:Loans
              
              $
              1,272
              
              
              $
              793
              
              
              $
              2,421
              
              
              $
              1,410Securities
              
              
              92
              
              
              
              99
              
              
              
              191
              
              
              
              182Certificates
                  of deposit
              
              
              78
              
              
              
              30
              
              
              
              162
              
              
              
              62Fed
                  Funds and other earning assets
              
              
              117
              
              
              
              120
              
              
              
              279
              
              
              
              226Total
                  interest and dividend income
              
              
              1,559
              
              
              
              1,042
              
              
              
              3,053
              
              
              
              1,880Interest
                  expense:Deposits
              
              
              892
              
              
              
              533
              
              
              
              1,768
              
              
              
              907Borrowed
                  funds
              
              
              1
              
              
              
              —
              
              
              
              2
              
              
              
              —Total
                  interest expense
              
              
              893
              
              
              
              533
              
              
              
              1,770
              
              
              
              907Net
                  interest income
              
              
              666
              
              
              
              509
              
              
              
              1,283
              
              
              
              973Provision
                  for loan losses
              
              
              5
              
              
              
              18
              
              
              
              9
              
              
              
              50Net
                  interest income after provision for loan losses
              
              
              661
              
              
              
              491
              
              
              
              1,274
              
              
              
              923Non-interest
                  income:Service
                  charges and fees
              
              
              81
              
              
              
              22
              
              
              
              154
              
              
              
              41Net
                  gain on sales of real estate mortgageloans
                  held for sale
              
              
              49
              
              
              
              53
              
              
              
              66
              
              
              
              114Other
              
              
              11
              
              
              
              2
              
              
              
              24
              
              
              
              4Total
                  non-interest income
              
              
              141
              
              
              
              77
              
              
              
              244
              
              
              
              159Non-interest
                  expense:Compensation
                  and benefits
              
              
              449
              
              
              
              434
              
              
              
              935
              
              
              
              922Occupancy
                  and equipment
              
              
              155
              
              
              
              168
              
              
              
              316
              
              
              
              320Data
                  processing service fees
              
              
              43
              
              
              
              35
              
              
              
              84
              
              
              
              68Other
              
              
              287
              
              
              
              229
              
              
              
              510
              
              
              
              435Total
                  non-interest expense
              
              
              934
              
              
              
              866
              
              
              
              1,845
              
              
              
              1,745Net
                  (loss) before income taxes
              
              
              (132
              )
              
              
              (298
              )
              
              
              (327
              )
              
              
              (663
              )Income
                  tax expense
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Net
                  (loss)
              
              $
              (132
              )
              
              $
              (298
              )
              
              $
              (327
              )
              
              $
              (663
              )Other
                  comprehensive income (loss):Net
                  unrealized gain/(loss) on available-for-sale securities
              
              
              37
              
              
              
              (32
              )
              
              
              29
              
              
              
              (59
              )Comprehensive
                  income (loss)
              
              $
              (95
              )
              
              $
              (330
              )
              
              $
              (298
              )
              
              $
              (722
              )Weighted
                  average:Common
                  shares
              
              
              1,719,760
              
              
              
              1,719,190
              
              
              
              1,719,495
              
              
              
              1,719,183(Loss)
                  per common share:Basic
              
              $
              (0.08
              )
              
              $
              (0.17
              )
              
              $
              (0.19
              )
              
              $
              (0.39
              )Basic
                  & diluted
              
              $
              (0.08
              )
              
              $
              (0.17
              )
              
              $
              (0.19
              )
              
              $
              (0.39
              )
  See
        accompanying notes to financial statements
  3
 **ES
        BANCSHARES, INC.**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2007 and JUNE 30, 2006**
 (Unaudited)
 (In
            dollars except, share data)
 **Capital
                    Stock**
                  **Shares**
              
              
              **Amount**
              
              
              **Additional**
                    **Paid-In**
                    **Capital**
              
              
              **Accumulated**
                  **Deficit**
              
              
              **Accumulated**
                      **Other**
                      **Comprehensive**
                      **(Loss)**
              
              
              **Total**Balance
                  at January 1, 2006
              
              
              1,719,177
              
              
              $
              8,596
              
              
              $
              8,276
              
              
              $
              (4,418
              )
              
              $
              (122
              )
              
              $
              12,332Exercise
                  of  stock warrants
              
              
              50
              
              
              
              —
              
              
              
              1
              
              
              
              —
              #
              
              
              —
              
              
              
              1Stock
                  based compensation, net
              
              
              —
              
              
              
              —
              
              
              
              5
              
              
              
              —
              
              
              
              —
              
              
              
              5Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (663
              )
              
              
              —
              
              
              
              (663
              )Net
                  unrealized (loss) on available-for-sale
                  securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (59
              )
              
              
              (59
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (722
              )Balance
                  at June 30, 2006
              
              
              1,719,227
              
              
              $
              8,596
              
              
              $
              8,282
              
              
              $
              (5,081
              )
              
              $
              (181
              )
              
              $
              11,616Balance
                  at January 1, 2007
              
              
              1,719,227
              
              
              $
              17
              
              
              $
              16,869
              
              
              $
              (5,845
              )
              
              $
              (99
              )
              
              $
              10,942Exercise
                  of stock warrants
              
              
              2,010
              
              
              
              —
              
              
              
              20
              
              
              
              —
              
              
              
              —
              
              
              
              20Stock
                  based compensation
              
              
              —
              
              
              
              —
              
              
              
              10
              
              
              
              —
              
              
              
              —
              
              
              
              10Comprehensive
                  loss:Net
                  loss for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (327
              )
              
              
              —
              
              
              
              (327
              )Net
                  unrealized gain on available-for-sale
                  securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              29
              
              
              
              29Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (298
              )Balance
                  at June 30, 2007
              
              
              1,721,237
              
              
              $
              17
              
              
              $
              16,899
              
              
              $
              (6,172
              )
              
              $
              (70
              )
              
              $
              10,674
  See
        accompanying notes to financial statements
   4


**ES
          Bancshares, Inc.**
 **CONSOLIDATED
            STATEMENT OF CASH FLOWS**
 (Unaudited)


For
                the Six MonthsEnded
                June 30,2007
            
            
            2006(In
                thousands)Cash
                flows from operating activities:Net
                loss for period
            
            $
            (327
            )
            
            $
            (663
            )Adjustments
                to reconcile net losses to net cashprovided
                by operating activities:Provision
                for loan losses
            
            
            9
            
            
            
            50Depreciation
                expense
            
            
            80
            
            
            
            100Amortization
                of deferred fees, discounts and premiums, net
            
            
            1
            
            
            
            (5
            )Net
                originations on loans held for sale
            
            
            15
            
            
            
            450Stock
                compensation expense
            
            
            10
            
            
            
            6Net
                gain on sale of real estate mortgage loans held for sale
            
            
            (66
            )
            
            
            (114
            )Changes
                in assets and liabilitiesIncrease
                in other assets
            
            
            (32
            )
            
            
            (275
            )Increase
                in accrued expenses and other liabilities
            
            
            184
            
            
            
            91Net
                cash used in operating activities
            
            
            (126
            )
            
            
            (360
            )Cash
                flows from investing activities:Maturity
                of certificates of deposit at other financial institutions
            
            
            4,146
            
            
            
            3,249Purchase
                of certificates of deposit at other financial institutions
            
            
            (3,897
            )
            
            
            (3,249
            )Purchase
                of available-for-sale securities
            
            
            (1,000
            )
            
            
            (2,999
            )Proceeds
                from principal payments and maturities of securities
            
            
            2,731
            
            
            
            565Net
                disbursements for loan originations
            
            
            (8,126
            )
            
            
            (19,249
            )Purchase
                of Federal Home Loan Bank stock
            
            
            (89
            )
            
            
            —Redemption
                of Federal Reserve Bank stock
            
            
            11
            
            
            
            20Leasehold
                improvements and acquisitions of capital assets
            
            
            (46
            )
            
            
            (15
            )Net
                cash used in investing activities
            
            
            (6,270
            )
            
            
            (21,678
            )Cash
                flows from financing activities:Net
                increase in deposits
            
            
            6,120
            
            
            
            20,728Proceeds
                of advance from line of credit
            
            
            31
            
            
            
            —Proceeds
                from stock issuance
            
            
            20
            
            
            
            1Net
                cash provided by financing activities
            
            
            6,171
            
            
            
            20,729Net
                decrease in cash and cash equivalents
            
            
            (225
            )
            
            
            (1,309
            )Cash
                and cash equivalents at beginning of period
            
            
            14,343
            
            
            
            10,801Cash
                and cash equivalents at end of period
            
            $
            14,118
            
            
            $
            9,492Supplemental
                cash flow informationInterest
                paid
            
            $
            1,776
            
            
            $
            858Income
                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 June 30, 2007 the
      Company had 327,890 stockholder warrants issued and
      outstanding.  Additionally, there were 190,000 issued and outstanding
      organizer warrants as of June 30, 2007.  The




6


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 optionsgranted
              
              $
              —
              
              
              $
              2.20
              
              
              $
              1.08





7


A
      summary of options outstanding under
      the Bank’s Stock Option Plan as of June 30, 2007, and changes during the
      six-month period then ended is presented below.


WeightedWeighted
                
                
                AverageAverage
                
                
                RemainingExercise
                
                
                ContractualShares
                
                
                Price
                
                
                Term
                    (yrs.)Outstanding
                    atJanuary
                    1, 2007
                
                
                147,750
                
                
                $
                10.47
                
                
                
                7.9Granted
                
                
                15,000
                
                
                
                10.50
                
                
                
                10.0Exercised
                
                
                —
                
                
                
                —
                
                
                
                —Forfieited
                    or expired
                
                
                —
                
                
                
                —
                
                
                
                —Outstanding
                    atJune
                    30, 2007
                
                
                162,750
                
                
                $
                10.47
                
                
                
                7.6Options
                    exerciseable atJune
                    30, 2007
                
                
                97,150
                
                
                $
                10.49
                
                
                
                7.5


As
      of June 30, 2007, there was $48,844
      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 33 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
      327,890 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 June 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 June 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
      six-month period ending June 30, 2007, we had no non-accrual loans, nor did
      we
      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, OCC examiners have the authority to identify problem assets,
      and if appropriate, require that they be classified. There are three
      classifications for problem assets: substandard, doubtful, and
      loss.  Substandard assets have one or more defined weaknesses and are
      characterized by the distinct possibility that the institution will sustain
      some
      loss if the deficiencies are not corrected.  Doubtful assets have the
      weaknesses of substandard assets, with the additional characteristics that
      the
      weaknesses make collection or liquidation in full on the basis of currently
      existing facts, conditions and values questionable, and there is a high
      possibility of loss.  An asset classified loss is considered
      uncollectible and of such little value




9


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 Company 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 June 30, 2007, the Bank had $275,686 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
      operating leases was $70,000 for the three months ended June 30,
      2007.  At June 30, 2007, the future minimum rental payments under
      operating lease agreements for the fiscal years ending December 31 are $106,000
      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.





10


The
      Company also entered into a lease agreement for office space in Staten Island,
      New York at a cost of $2,700 per month where it plans on opening a full service
      branch banking facility, pending regulatory approval, prior to
      year-end.





**Off-Balance
      Sheet Financial Instruments**





The
      Company’s off-balance sheet
      financial instruments at June 30, 2007 were limited to loan origination
      commitments of $19.5 million (including one-to-four family loans held for sale
      of $1.9 million) and unused lines of credit (principally commercial and home
      equity lines) extended to customers of $11.1 million.  Substantially
      all of these commitments and lines of credit have been provided to customers
      within the Bank’s primary lending area.  Loan origination commitments
      at June 30, 2007 consisted of adjustable and fixed rate commitments of $14.3
      million and $5.2 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 June 30, 2007 and December 31,
      2006**





Total
      assets at June 30, 2007 amounted
      to $99.1 million, representing an increase of $6.1 million, or 6.6%, from $93.0
      million at December 31, 2006.  Asset growth during the period
      primarily reflected increases in total loans that were funded by deposit growth
      and decreases in securities available for sale.





Overall,
      total loans (loans receivable,
      net and mortgage loans held for sale) increased $8.2 million, or 13.4%, to
      $69.4
      million at June 30, 2007 from $61.2 million at December 31,
      2006.  During the six-month period commercial loans and commercial
      lines of credit increased $2.2 million, from $10.9 million to $13.1 million,
      home equity and consumer loans increased $689,000 from $6.0 million to $6.7
      million, and construction loans increased $2.2 million, from $9.1 million to
      $11.3 million.  Commercial real estate mortgage loans increased $3.0
      million, or 8.9%, from $33.6 million at December 31, 2006 to




11


$36.6
      million at June 30, 2007, while residential mortgage loans, excluding mortgage
      loans held for sale, decreased $51,000 from $1.6 million to $1.5 million over
      the same six- month period.  Management may consider slowing loan
      growth in the future depending on economic, regulatory, deposit growth and
      capital considerations.





Total
      cash and cash equivalents at June 30, 2007 decreased $225,000 to $14.1 million
      from $14.3 million at December 31, 2006, while certificates of deposit at other
      financial institutions decreased $249,000 from $5.7 million to $5.5 million
      during the same period.  Total securities at June 30, 2007 decreased
      $1.7 million from $9.4 million at December 31, 2006 to $7.7
      million.  Funds derived from the decreases in these asset classes were
      utilized towards the net increase in higher-yielding loans discussed above,
      in
      lieu of relying only on incremental higher-costing funding
      liabilities.





Interest
      earning deposits grew $5.1
      million, or 7.0%, to $78.4 million at June 30, 2007 from $73.3 million at
      December 31, 2006.  The growth over the six-month period consisted of
      increases of $2.7 million in savings accounts and $2.7 million in certificates
      of deposit that were partially offset by decreases of $331,000 in money market
      accounts and $8,000 in NOW accounts.  Over the same six-month period
      non-interest bearing accounts increased from $8.2 million to $9.2
      million.





Stockholders’
equity
      decreased by
      $268,000 to $10.7 million at June 30, 2007 from $10.9 million at December 31,
      2006.  The decrease is primarily attributable to a net loss for the
      six-month period of $327,000 that was partially mitigated by a $30,000 increase
      in additional paid-in-capital that resulted mostly from the exercise of 2,010
      shareholder warrants, and a decrease of $29,000 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 June 30, 2007 from
      11.8% at December 31, 2006.  Book value per share decreased to $6.20
      at June 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 six-month periods ended June 30,
      2007 as compared to the comparable three and six-month periods ended June 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 June 30,****2007**
              
              
              **2006****Average**
              
              
              
              
              
              
              
              
              **Average****Average**
              
              
              
              
              
              **Yield
                  /**
              
              
              **Average**
              
              
              
              
              
              **Yield
                  /****Balance**
              
              
              **Interest**
              
              
              **Cost**
              
              
              **Balance**
              
              
              **Interest**
              
              
              **Cost****(Dollars
                  in thousands)****Assets**Interest-earning
                  assets:Loans
              
              $
              68,129
              
              
              $
              1,272
              
              
              
              7.49
              %
              
              $
              45,285
              
              
              $
              793
              
              
              
              7.02
              %Fed
                  Funds
              
              
              8,653
              
              
              
              112
              
              
              
              5.19
              %
              
              
              9,276
              
              
              
              114
              
              
              
              4.93
              %Certificates
                  of deposit
              
              
              5,807
              
              
              
              78
              
              
              
              5.39
              %
              
              
              2,343
              
              
              
              30
              
              
              
              5.14
              %FRB
                  Stock & FHLB Stock
              
              
              329
              
              
              
              5
              
              
              
              6.10
              %
              
              
              367
              
              
              
              6
              
              
              
              6.56
              %Securities-available
                  for sale
              
              
              7,503
              
              
              
              92
              
              
              
              4.92
              %
              
              
              8,944
              
              
              
              99
              
              
              
              4.44
              %Total
                  interest-earning assets
              
              
              90,421
              
              
              $
              1,559
              
              
              
              6.92
              %
              
              
              66,215
              
              
              $
              1,042
              
              
              
              6.31
              %Allowance
                  for loan losses
              
              
              (586
              )
              
              
              
              
              
              
              
              
              
              
              (139
              )Cash
                  & Due from banks
              
              
              2,054
              
              
              
              
              
              
              
              
              
              
              
              1,913Other
                  Non-interest earning assets
              
              
              1,978
              
              
              
              
              
              
              
              
              
              
              
              1,884Total
                  assets
              
              $
              93,867
              
              
              
              
              
              
              
              
              
              
              $
              69,873**Liabilities
                  and  Stockholders’ Equity**Interest-bearing
                  liabilities:NOW
                  accounts
              
              $
              1,187
              
              
              $
              2
              
              
              
              0.68
              %
              
              $
              629
              
              
              $
              1
              
              
              
              0.64
              %Money
                  Market accounts
              
              
              47,621
              
              
              
              595
              
              
              
              5.01
              %
              
              
              28,822
              
              
              
              332
              
              
              
              4.62
              %Regular
                  savings accounts
              
              
              7,117
              
              
              
              64
              
              
              
              3.61
              %
              
              
              3,509
              
              
              
              24
              
              
              
              2.74
              %Certficates
                  of Deposit
              
              
              18,406
              
              
              
              231
              
              
              
              5.03
              %
              
              
              15,604
              
              
              
              176
              
              
              
              4.52
              %Total
                  interest-bearing deposits
              
              
              74,331
              
              
              
              892
              
              
              
              4.81
              %
              
              
              48,564
              
              
              
              533
              
              
              
              4.40
              %Borrowings
              
              
              68
              
              
              
              1
              
              
              
              8.25
              %
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  interest-bearing liabilities
              
              $
              74,399
              
              
              $
              893
              
              
              
              4.82
              %
              
              $
              48,564
              
              
              $
              533
              
              
              
              4.40
              %Non-interest-bearing
                  liabilities
              
              
              8,827
              
              
              
              
              
              
              
              
              
              
              
              9,514Total
                  liabilities
              
              
              83,226
              
              
              
              
              
              
              
              
              
              
              
              58,078Stockholders’
                  equity
              
              
              10,641
              
              
              
              
              
              
              
              
              
              
              
              11,795Total
                  liabilities and stockholders’ equity
              
              $
              93,867
              
              
              
              
              
              
              
              
              
              
              $
              69,873Net
                  interest income
              
              
              
              
              
              $
              666
              
              
              
              
              
              
              
              
              
              
              $
              509Average
                  interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.10
              %
              
              
              
              
              
              
              
              
              
              
              1.91
              %Net
                  interest margin(2)
              
              
              
              
              
              
              
              
              
              
              2.94
              %
              
              
              
              
              
              
              
              
              
              
              3.07
              %Net
                  interest-earning assets(3)
              
              $
              16,022
              
              
              
              
              
              
              
              
              
              
              $
              17,651Ratio
                  of average interest-earning assets toaverage
                  interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              121.54
              %
              
              
              
              
              
              
              
              
              
              
              136.35
              %
 
 (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 Six Months Ended June 30,****2007**
              
              
              **2006****Average**
              
              
              
              
              
              
              
              
              **Average****Average**
              
              
              
              
              
              **Yield
                  /**
              
              
              **Average**
              
              
              
              
              
              **Yield
                  /****Balance**
              
              
              **Interest**
              
              
              **Cost**
              
              
              **Balance**
              
              
              **Interest**
              
              
              **Cost****(Dollars
                  in thousands)****Assets**Interest-earning
                  assets:Loans
              
              $
              65,251
              
              
              $
              2,421
              
              
              
              7.48
              %
              
              $
              40,974
              
              
              $
              1,410
              
              
              
              6.94
              %Fed
                  Funds & other investments
              
              
              10,253
              
              
              
              268
              
              
              
              5.20
              %
              
              
              9,145
              
              
              
              215
              
              
              
              4.74
              %Certificates
                  of deposit
              
              
              6,020
              
              
              
              162
              
              
              
              5.43
              %
              
              
              2,541
              
              
              
              62
              
              
              
              4.92
              %FRB
                  Stock & FHLB Stock
              
              
              351
              
              
              
              11
              
              
              
              6.32
              %
              
              
              372
              
              
              
              11
              
              
              
              5.96
              %Securities-available
                  for sale
              
              
              7,897
              
              
              
              191
              
              
              
              4.88
              %
              
              
              8,332
              
              
              
              182
              
              
              
              4.40
              %Total
                  interest-earning assets
              
              
              89,772
              
              
              $
              3,053
              
              
              
              6.86
              %
              
              
              61,364
              
              
              $
              1,880
              
              
              
              6.18
              %Allowance
                  for loan losses
              
              
              (584
              )
              
              
              
              
              
              
              
              
              
              
              (126
              )Cash
                  & Due from banks
              
              
              2,032
              
              
              
              
              
              
              
              
              
              
              
              1,906Other
                  Non-interest earning assets
              
              
              1,898
              
              
              
              
              
              
              
              
              
              
              
              1,942Total
                  assets
              
              $
              93,118
              
              
              
              
              
              
              
              
              
              
              $
              65,086**Liabilities
                  and  Stockholders’ Equity**Interest-bearing
                  liabilities:NOW
                  accounts
              
              $
              1,014
              
              
              $
              3
              
              
              
              0.60
              %
              
              $
              643
              
              
              $
              1
              
              
              
              0.33
              %Money
                  Market accounts
              
              
              48,374
              
              
              
              1,202
              
              
              
              5.01
              %
              
              
              23,985
              
              
              
              521
              
              
              
              4.38
              %Regular
                  savings accounts
              
              
              6,279
              
              
              
              109
              
              
              
              3.50
              %
              
              
              3,638
              
              
              
              50
              
              
              
              2.77
              %Certficates
                  of Deposit
              
              
              18,237
              
              
              
              454
              
              
              
              5.02
              %
              
              
              15,068
              
              
              
              335
              
              
              
              4.48
              %Total
                  interest-bearing deposits
              
              
              73,904
              
              
              
              1,768
              
              
              
              4.82
              %
              
              
              43,334
              
              
              
              907
              
              
              
              4.22
              %Borrowings
              
              
              59
              
              
              
              2
              
              
              
              8.25
              %
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  interest-bearing liabilities
              
              $
              73,963
              
              
              $
              1,770
              
              
              
              4.83
              %
              
              $
              43,334
              
              
              $
              907
              
              
              
              4.22
              %Non-interest-bearing
                  liabilities
              
              
              8,449
              
              
              
              
              
              
              
              
              
              
              
              9,751Total
                  liabilities
              
              
              82,412
              
              
              
              
              
              
              
              
              
              
              
              53,085Stockholders’
                  equity
              
              
              10,706
              
              
              
              
              
              
              
              
              
              
              
              12,001Total
                  liabilities and stockholders’ equity
              
              $
              93,118
              
              
              
              
              
              
              
              
              
              
              $
              65,086Net
                  interest income
              
              
              
              
              
              $
              1,283
              
              
              
              
              
              
              
              
              
              
              $
              973Average
                  interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.03
              %
              
              
              
              
              
              
              
              
              
              
              1.96
              %Net
                  interest margin(2)
              
              
              
              
              
              
              
              
              
              
              2.86
              %
              
              
              
              
              
              
              
              
              
              
              3.20
              %Net
                  interest-earning assets(3)
              
              $
              15,809
              
              
              
              
              
              
              
              
              
              
              $
              18,030Ratio
                  of average interest-earning assets toaverage
                  interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              121.37
              %
              
              
              
              
              
              
              
              
              
              
              141.61
              %
 
 (1)
                Average
                    interest rate spread represents the difference between the yield
                    on
                    average interest-earning assets andand
                    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 June 30, 2007 and June 30,
              2006**





***General.***  For
      the quarter ended June 30, 2007, the Company recognized a net loss of $132,000,
      or ($0.08) per diluted share, as compared to a net loss of $298,000, or ($0.17)
      per diluted share, for the quarter ended June 30, 2006.





***Interest
      Income.***Interest income amounted to $1.6 million for
      the quarter ended June 30, 2007, as compared to $1.0 million for the quarter
      ended June 30, 2006.  The increase was primarily attributable to the
      increase in average interest-earning assets, which increased to $90.4 million
      for the quarter ended June 30, 2007 from $66.2 million for the comparable
      quarter ended one year earlier, and to the higher yields that were realized
      in
      2007 as compared to 2006 that resulted from higher market rates subsequent
      to
      the series of well-publicized increases in short-term interest rates up to
      June
      2006 by the Federal Open Market Committee.  The average yield on
      interest-earning assets for the quarter ended June 30, 2007 was 6.92%, which
      was
      61 basis points higher than the 6.31% yield on the Bank’s interest-earning
      assets for the quarter ended June 30, 2006.





Average
      loan balances increased by $22.8 million, from $45.3 million for the quarter
      ended June 30, 2006 to $68.1 million for the quarter ended June 30, 2007, while
      the average yield increased from 7.02% to 7.49% over the same respective
      periods.  The average balances of the Bank’s securities available for
      sale and its fed funds decreased by $1.4 million and $623,000, respectively,
      over the quarter ended June 30, 2007 as compared to the quarter ended June
      30,
      2006.  The average yields on those respective interest-earning assets
      increased to 4.92% from 4.44%, and to 5.19% from 4.93%, over the same comparable
      periods primarily as a result of higher interest rates that were available
      to
      these short-term assets during the latter period.  The average balance
      and yield of the Bank’s certificates of deposit at other financial institutions
      for the quarter ended June 30, 2007 was $5.8 million and 5.39%, respectively,
      as
      compared to an average balance of $2.3 million and a yield of 5.14% for the
      comparable quarter ended one-year earlier.





***Interest
      Expense.***Total interest expense for the quarter ended
      June 30, 2007 increased by $359,000 when compared to the same three-month period
      one year earlier.  The increase was primarily due to increases in
      short-term interest rates, and to the increase in the average balances of the
      Bank’s interest-bearing deposits.  Average money market account
      balances increased $18.8 million, from $28.8 million for the quarter ended
      June
      30, 2006 to $47.6 million for the quarter ended June 30, 2007.  Over
      those respective quarters the average costs for those balances increased 39
      basis points, from 4.62% to 5.01%.  The average balances and costs of
      the Bank’s certificates of deposit portfolio increased to $18.4 million at an
      average cost of 5.03% over the quarter ended June 30, 2007, from $15.6 million
      at an average cost of 4.52% over the same quarter ended one-year
      earlier.  For the quarter ended June 30, 2007, the average balance of
      the Company’s borrowed funds was $68,000 and its average cost was
      8.25%.  These borrowed funds were used by the Company to fund its
      formation costs and subsequent expenses.  Since the Company was formed
      during the quarter ended September 30, 2006, there were no borrowed funds during
      the quarter ended June 30, 2006.





***Net
      Interest
      Income.***  Net interest income was approximately $666,000
      for the quarter ended June 30, 2007 as compared to $509,000 for the same quarter
      in the prior year.  The Bank’s average interest rate spread increased
      to 2.10% for the quarter ended June 30, 2007 from 1.91% for the quarter ended
      June 30, 2006, while the net interest margin decreased to 2.94% from 3.07%,
      over
      the same respective periods.





***Provision
      for Loan Losses*****.**  For the three months
      ended June 30, 2007 the provision for loan losses was $5,000 as compared to
      $18,000 for the three months ended June 30, 2006, which was higher primarily
      because the portfolio’s net loan growth was greater in 2006 than in
      2007.  Moreover, as a result of its analysis of the adequacy of the
      allowance for loan losses, the Company also determined that an increased
      provision was not warranted because the loan portfolio’s overall risk profile at
      June 30, 2007 had improved as compared to June 30, 2006.





15


***Non-interest
      Income.***Non-interest income for the quarter ended June
      30, 2007 was approximately $141,000 as compared to $77,000 for the quarter
      ended
      June 30, 2006.  Service charges and fees increased $59,000 from
      $22,000 in 2006 to $81,000 in 2007 primarily as a result of the Bank’s increased
      number of customer relationships.  The net gain on sale of real estate
      mortgages held for sale decreased to $49,000 from $53,000 primarily because
      of a
      general softening in the overall housing market evident this year relative
      to
      last.  Other non-interest income categories increased to $11,000 from
      $2,000 primarily from annuity sales and rent earned from subletting excess
      office space.





***Non-interest
      Expense.***Non-interest expense for the quarter ended
      June 30, 2007 increased $68,000 when compared to the same quarter in
      2006.  Compensation and benefits increased $15,000 primarily from
      salary increases necessary to attract and retain an experienced staff committed
      to originating and servicing an increased number of loan and deposit customer
      relationships.  Data processing service fees increased $8,000 because
      of the added expense required to service the Bank’s larger customer
      base.  Occupancy and equipment expense decreased $13,000 primarily
      because higher maintenance costs incurred in the quarter ended June 30, 2006
      were unnecessary in the same quarter of the current year.  Other
      non-interest expense increased to $287,000 for the quarter ended June 30, 2007
      from $229,000 for the quarter ended June 30, 2006.  The $58,000
      increase was primarily due to increases in professional and consulting fees,
      advertising, shareholder communications, and other operating expenses related
      to
      the expansion of the Bank’s business activities, and the introduction of online
      banking to the Bank’s account holders.





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





**Results
      of Operations for the Six Months Ended June 30, 2007 and June 30,
      2006**





***General.***For
      the six months ended June 30, 2007, the Bank recognized a net loss of $327,000,
      or ($0.19) per diluted share, as compared to a net loss of $663,000, or ($0.39)
      per diluted share, for the comparable six-month period ended one year
      earlier.  The $336,000 improvement is primarily the result of
      increased interest****and non-interest income attributable to
      the Bank’s larger asset size and the investment of cash into higher yielding
      assets, which was partially mitigated by higher funding costs and increased
      operating expenses.





***Interest
      Income.***Compared to the first six months of 2006,
      interest income for the six-month period ended June 30, 2007 increased $1.2
      million, or 63.2%, to $3.1 million from $1.9 million.  The increase
      was primarily attributable to the increase in average interest-earning assets
      to
      $89.8 million for the six-month period ended June 30, 2007 from $61.4 million
      for the comparable six-month period ended one year earlier, and to the higher
      yields associated with those assets.  Over the comparable periods
      average loan balances increased from $41.0 million to $65.3 million, while
      their
      average yield increased from 6.94% to 7.48%.  The average balances of
      the securities available for sale decreased by $435,000 from $8.3 million to
      $7.9 million, while the average balances of its fed funds and other investments
      increased by nearly $1.2 million from $9.1 million to $10.3 million, over the
      six-month period ended June 30, 2007 as compared to the same six-month period
      in
      the previous year.  As a result of higher yields, the interest earned
      by both asset categories increased $9,000 and $53,000, respectively, over the
      comparable six-month periods.  During the six-month period ended June
      30, 2007 the Bank increased its investment in a variety of certificates of
      deposit at other financial institutions with maturities ranging from three
      to
      twelve months.  The average balance and average yield of this asset
      segment was $6.0 million and 5.43%, respectively.  By comparison, the
      average balance and average yield of the Bank’s certificates of deposit was $2.5
      million and 4.92%, respectively, for the six-month period ended June 30,
      2006.





***Interest
      Expense.***Total interest expense for the six-month
      period ended June 30, 2007 increased by $863,000 when compared to the six-month
      period ended June 30, 2006.  The increase was primarily due to an
      increase in the average balances of interest-bearing deposits, which increased
      from $43.3




16


million
      over the six-month period ended June 30, 2006 to nearly $74.0 million over
      the
      six-month period ended June 30, 2007, and an increase in the average costs
      from
      4.22% to 4.82% associated with those deposits over the same respective
      periods.  Average money market account balances increased $24.4
      million, from $24.0 million for the six-month period ended June 30, 2006 to
      $48.4 million for the same six-month period ended one year
      later.  Over those respective periods, the average costs for those
      balances increased 63 basis points, from 4.38% to 5.01%.  The average
      balances of the Bank’s certificates of deposit increased $3.1 million, from
      $15.1 million over the six-month period ended June 30, 2006 to $18.2 million
      over the six-month period ended June 30, 2007.  The average cost of
      those deposits increased to 5.02% from 4.48% over the same respective
      periods.





***Provision
      for Loan Losses***.  The provision for loan losses for the
      six months ended June 30, 2007 decreased $41,000 compared to the six months
      ended June 30, 2006 primarily because the portfolio’s net loan growth was
      greater in 2006 than in 2007, and, as discussed previously, following its
      analysis of the adequacy of the allowance for loan losses, the Company
      determined that an increased provision was not warranted because the loan
      portfolio’s overall risk profile at June 30, 2007 had improved as compared to
      June 30, 2006.





***Net
      Interest
      Income.***Net interest income was approximately $1.3
      million for the six-month period ended June 30, 2007 as compared to $973,000
      for
      the six-month period ended June 30, 2006.  The average interest rate
      spread increased to 2.03% from 1.96%, while the net interest margin decreased
      to
      2.86% from 3.20%, over the same comparable periods





***Non-Interest
      Income.***Non-interest income for the six-month period
      ended June 30, 2007 totaled $244,000, which represented an increase of $85,000
      from the $159,000 earned over the six-month period ended June 30,
      2006.  Most of the change resulted from a $113,000 increase in service
      charges and fees earned from an increased number of deposit and loan customer
      relationships that was mitigated by a $48,000 decrease in the net gain on the
      sale of real estate mortgage loans held for sale that decreased because of
      a
      decrease in real estate mortgage loan sale activity.  There was also a
      $20,000 increase in other categories of non-interest income, attributable,
      primarily, to increased earnings from the sale of annuities and rent earned
      from
      subletting excess office space





***Non-Interest
      Expense.***Non-interest expense for the six-month period
      ended June 30, 2007 increased $100,000 to $1.8 million from $1.7 million for
      the
      six-month period ended June 30, 2006.  Compensation and benefits
      increased $13,000, or 1.4%, from salary increases necessary to attract and
      retain an experienced staff committed to originating and servicing an increased
      number of loan and deposit customer relationships.  Occupancy and
      equipment expense decreased $4,000 primarily because higher maintenance costs
      incurred over the six-month period ended June 30, 2006 were unnecessary in
      the
      same six-month period of the current year.  Data processing service
      fees increased $16,000 because of the added expense required to service the
      Bank’s larger customer base.  Other non-interest expense increased to
      $510,000 for the six-month period ended June 30, 2007 from $435,000 for the
      comparable six-month period ended June 30, 2006.  The $75,000 increase
      was primarily due to increases in professional and consulting fees, advertising,
      shareholder communications, and other operating expenses related to the
      expansion of the Bank’s business activities and introduction of online banking
      as stated earlier.





**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 six months ended June 30,
      2007, the Company originated loans of




17


approximately
      $21.5 million including real estate mortgage loans held for sale.  At
      June 30, 2007, the Company had outstanding loan origination commitments of
      $19.5
      million (including one-to-four-family real estate mortgage loans held for sale
      of $1.9 million) and undisbursed lines of credit and construction loans in
      process of $11.1 million.  The Company anticipates that it will have
      sufficient funds available to meet its current loan originations and other
      commitments.





At
      June
      30, 2007, total deposits were approximately $87.6 million of which approximately
      $22.0 million was in certificates of deposit.  Certificates of deposit
      scheduled to mature in one year or less from June 30, 2008 totaled $13.7
      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 $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%.  As of June 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 June
      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 June 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.




18


**Minimum
                  Capital**
              
              
              **Classification
                  as****Bank
                  Actual**
              
              
              **Adequacy**
              
              
              **Well
                  Capitalized****Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio**
              
              
              **Amount**
              
              
              **Ratio****(Dollars
                  in thousands)**June
                  30, 2007Tier
                  I (core)capital
              
              $
              10,239
              
              
              
              10.3
              %
              
              $
              2,973
              
              
              
              3.0
              %
              
              $
              4,955
              
              
              
              5.0
              %Risk-based
                  capital:Tier
                  I
              
              
              10,239
              
              
              
              13.2
              
              
              N/A
              
              
              N/A
              
              
              
              4,657
              
              
              
              6.0Total
              
              
              10,829
              
              
              
              14.0
              
              
              
              6,209
              
              
              
              8.0
              
              
              
              7,761
              
              
              
              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 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




19


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.





**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 June 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 June 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.





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**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**





The
      annual meeting of stockholders
      was held on May 3, 2007.  The matters considered and voted on at the
      annual meeting and the vote of the stockholders were as follows:





**Proposal
      No. 1**





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




For
              WithheldWilliam
                  W. Davenport
              989,294
              6,750Peter
                  B. Ferrante
              994,294
              1,750Andrew
                  G. Finkelstein
              994,294
              1,750Gale
                  L. Foster
              994,294
              1,750Thomas
                  D. Weddell
              994,294
              1,750


**Proposal
      No. 2**





The
      ratification of the appointment
      of Crowe Chizek and Company LLC as auditors for the Company for the year ending
      December 31, 2007.




For
              Against
              AbstainNumber
                  of Votes
              991,044
              250
              4,750Percentage
                  of shares voted
              99.50%
              0.02%
              0.48%


**Item
      5.   Other Information**





None





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**Item
      6.   Exhibits**


**Reference
                  to Previous Filing****Exhibit
                  Number**
              **Document**
              **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.
              **10.2
              Employment
                  Agreement dated September 23, 2004 Between
                  the Bank and Philip Guarnieri
              **10.3
              Employment
                  Agreement dated October 20, 2005 Between
                  the Bank and Arthur Budich
              **10.4
              Empire
                  State Bank, N.A. 2004 Stock Option Plan
              **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.








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**SIGNATURES**





In
      accordance with the requirements of
      the Securities Exchange Act of 1934 (the “Exchange Act”), the registrant caused
      this report to be signed on its behalf by the undersigned, hereunto duly
      authorized, as of August 13, 2007.




Empire
              State Bank, National
              AssociationDate:  August
                  13, 2007
            By:
            /s/ Anthony
              P. CostaAnthony
                P. CostaChairman
                and Chief Executive Officer  Date:  August
                    13, 2007
              By:
              /s/ Arthur W. BudichArthur
                  W. BudichExecutive
                  Vice President and Chief Financial Officer














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