UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


_______________________________________





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended March 31, 2010








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)





(866)
646-0003


Issuer’s
telephone number, including area code:





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.


YES [X].
NO [  ].





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


YES
[  ]. NO [  ].





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





Large
accelerated filer
[  ]                                                                                                            Accelerated
filer [  ]





Non-accelerated
filer [  ] (Do not check if a smaller reporting
company)             Smaller
reporting company [X]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.


YES
[  ].  NO [X].





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





As of May
5, 2010 there were 2,071,070 issued and outstanding shares of the Registrant’s
Common Stock.







ES
BANCSHARES, INC.


FORM
10-Q


FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2010








PART
I – FINANCIAL INFORMATION





PageItem
      1.
              Financial
      Statements (Unaudited)Consolidated
      Balance Sheets at March 31, 2010 and December 31, 2009
              1Consolidated
      Statements of Operations for the Three Months EndedMarch
      31, 2010, and 2009
              2Consolidated
      Statements of Changes in Stockholders’ EquityFor
      the Three Months Ended March 31, 2010 and 2009
              3Consolidated
      Statements of Cash Flows for the Three Months EndedMarch
      31, 2010 and 2009
              4Notes
      to Unaudited Consolidated Financial Statements
              5Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
              14Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              19Item
      4T.
              Controls
      and Procedures
              19PART II
      – OTHER INFORMATIONItem
      1.
              Legal
      Procedures
              19Item
      1A
              Risk
      Factors
              19Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              19Item
      3
              Defaults
      Upon Senior Securities
              19Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              19Item
      5.
              Other
      Information
              19Item
      6.
              Exhibits
              20Signatures
              22













ES
      BANCSHARES, INC.CONSOLIDATED
      BALANCE SHEETS(Unaudited)(In
      thousands, except share data)  March
      31,
                
                
                December
      31,2010
                
                
                2009ASSETSCash
      and cash equivalents:Cash
      and due from banks
                
                $
                10,648
                
                
                $
                9,785Money
      Market Investments
                
                
                3,000
                
                
                
                5,000Total
      cash and cash equivalents
                
                
                13,648
                
                
                
                14,785Certificates
      of deposit at other financial institutions
                
                
                3,205
                
                
                
                3,685Securities:Available
      for sale, at fair value
                
                
                31,185
                
                
                
                28,756Real
      estate mortgage loans held for sale
                
                
                659
                
                
                
                -Loans
      receivable, netLoans
      receivable
                
                
                112,044
                
                
                
                106,898Deferred
      cost
                
                
                574
                
                
                
                585Allowance
      for loan losses
                
                
                (1,884
                )
                
                
                (1,824
                )Total
      loans receivable, net
                
                
                110,734
                
                
                
                105,659Accrued
      interest receivable
                
                
                643
                
                
                
                627Federal
      Reserve Bank stock
                
                
                339
                
                
                
                308Federal
      Home Loan Bank stock
                
                
                562
                
                
                
                573Goodwill
                
                
                581
                
                
                
                581Office
      properties and equipment, net
                
                
                586
                
                
                
                648Prepaid
      FDIC Assessment
                
                
                747
                
                
                
                815Real
      estate owned
                
                
                149
                
                
                
                149Other
      assets
                
                
                453
                
                
                
                366Total
      assets
                
                $
                163,491
                
                
                $
                156,952LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Non-interest
      bearing
                
                $
                14,391
                
                
                $
                14,007Interest
      bearing
                
                
                126,606
                
                
                
                121,345Total
      deposits
                
                
                140,997
                
                
                
                135,352Borrowed
      funds
                
                
                10,980
                
                
                
                10,123Accrued
      interest payable
                
                
                106
                
                
                
                151Other
      liabilities
                
                
                1,688
                
                
                
                1,845Total
      liabilities
                
                
                153,771
                
                
                
                147,471Commitments
      and contingenciesStockholders'
      equityCapital
      stock (par value $0.01; 5,000,000 shares authorized;2,071,070
      shares issued at March 31, 2010
                
                
                20
                
                
                
                20and
      December 31, 2009)Additional
      paid-in-capital
                
                
                18,970
                
                
                
                18,970Accumulated
      deficit
                
                
                (9,660
                )
                
                
                (9,716
                )Accumulated
      other comprehensive income
                
                
                390
                
                
                
                207Total
      stockholders' equity
                
                
                9,720
                
                
                
                9,481Total
      liabilities and stockholders' equity
                
                $
                163,491
                
                
                $
                156,952
  See
      accompanying notes to financial statements
 1
 ES
      BANCSHARES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009(Unaudited)(In
      thousands, except per share data)  For
      the Three MonthsEnded
      March 31,2010
                  
                  
                  2009Interest
      and dividend income:Loans
                  
                  $
                  1,564
                  
                  
                  $
                  1,365Securities
                  
                  
                  331
                  
                  
                  
                  384Certificates
      of deposit
                  
                  
                  17
                  
                  
                  
                  29Fed
      Funds and other earning assets
                  
                  
                  25
                  
                  
                  
                  16Total
      interest and dividend income
                  
                  
                  1,937
                  
                  
                  
                  1,794Interest
      expense:Deposits
                  
                  
                  642
                  
                  
                  
                  850Borrowed
      funds
                  
                  
                  96
                  
                  
                  
                  88Total
      interest expense
                  
                  
                  738
                  
                  
                  
                  938Net
      interest income
                  
                  
                  1,199
                  
                  
                  
                  856Provision
      for loan losses
                  
                  
                  59
                  
                  
                  
                  83Net
      interest income after provision for loan losses
                  
                  
                  1,140
                  
                  
                  
                  773Non-interest
      income:Service
      charges and fees
                  
                  
                  105
                  
                  
                  
                  100Net
      gain on sales of real estate mortgageloans
      held for sale
                  
                  
                  35
                  
                  
                  
                  65Other
                  
                  
                  25
                  
                  
                  
                  49Total
      non-interest income
                  
                  
                  165
                  
                  
                  
                  214Non-interest
      expense:Compensation
      and benefits
                  
                  
                  582
                  
                  
                  
                  562Occupancy
      and equipment
                  
                  
                  190
                  
                  
                  
                  203Data
      processing service fees
                  
                  
                  73
                  
                  
                  
                  70Other
                  
                  
                  404
                  
                  
                  
                  292Total
      non-interest expense
                  
                  
                  1,249
                  
                  
                  
                  1,127Net
      income (loss) before income taxes
                  
                  
                  56
                  
                  
                  
                  (140
                  )Income
      tax expense
                  
                  
                  -
                  
                  
                  
                  -Net
      income (loss)
                  
                  $
                  56
                  
                  
                  $
                  (140
                  )Other
      comprehensive income (loss):Net
      unrealized gain/(loss) on available-for-sale securities
                  
                  
                  183
                  
                  
                  
                  (63
                  )Comprehensive
      income (loss)
                  
                  $
                  239
                  
                  
                  $
                  (203
                  )Weighted
      average:Common
      shares
                  
                  
                  2,071,070
                  
                  
                  
                  1,868,505Earnings
      (Loss) per common share:Basic
                  
                  $
                  0.03
                  
                  
                  $
                  (0.07
                  )Basic
      & diluted
                  
                  $
                  0.03
                  
                  
                  $
                  (0.07
                  )
  See
      accompanying notes to financial statements


2


ES
      BANCSHARES, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009(In
      thousands, except share data)   AccumulatedAdditional
                
                
                
                
                
                OtherCapital
      Stock
                
                
                Paid-In
                
                
                Accumulated
                
                
                ComprehensiveShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Gain
      (Loss)
                
                
                TotalBalance
      at January 1, 2009
                
                
                1,868,505
                
                
                $
                19
                
                
                $
                17,911
                
                
                $
                (8,484
                )
                
                $
                (215
                )
                
                $
                9,231Stock
      based compensation, net
                
                
                -
                
                
                
                -
                
                
                
                4
                
                
                
                -
                
                
                
                -
                
                
                
                4Comprehensive
      loss:Net
      loss for the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (140
                )
                
                
                -
                
                
                
                (140
                )Net
      unrealized loss on available-for-sale
      securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (63
                )
                
                
                (63
                )Total
      comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (203
                )Balance
      at March 31, 2009
                
                
                1,868,505
                
                
                $
                19
                
                
                $
                17,915
                
                
                $
                (8,624
                )
                
                $
                (278
                )
                
                $
                9,032Balance
      at January 1, 2010
                
                
                2,071,070
                
                
                $
                20
                
                
                $
                18,970
                
                
                $
                (9,716
                )
                
                $
                207
                
                
                $
                9,481Stock
      based compensation, net
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Comprehensive
      income:Net
      income for the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                56
                
                
                
                -
                
                
                
                56Net
      unrealized gain on available-for-sale
      securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                183
                
                
                
                183Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                239Balance
      at March 31, 2010
                
                
                2,071,070
                
                
                $
                20
                
                
                $
                18,970
                
                
                $
                (9,660
                )
                
                $
                390
                
                
                $
                9,720
  See
      accompanying notes to financial statements





3





ES
      BANCSHARES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)  For
      the Three MonthsEnded
      March 31,(unaudited)2010
                
                
                2009Cash
      flows from operating activities:Net
      income (loss) for period
                
                $
                56
                
                
                $
                (140
                )Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Provision
      for loan losses
                
                
                59
                
                
                
                83Depreciation
      expense
                
                
                68
                
                
                
                70Amortization
      of deferred fees, discounts and premiums, net
                
                
                (33
                )
                
                
                2Net
      originations of loans held for sale
                
                
                (624
                )
                
                
                (1,119
                )Stock
      compensation expense
                
                
                -
                
                
                
                4Net
      gain on sale of real estate mortgage loans held for sale
                
                
                (35
                )
                
                
                (65
                )Changes
      in assets and liabilitiesIncrease
      in other assets
                
                
                (33
                )
                
                
                (118
                )Increase
      in accrued expenses and other liabilities
                
                
                (204
                )
                
                
                223Net
      cash used in operating activities
                
                
                (746
                )
                
                
                (1,060
                )Cash
      flows used in investing activities:Maturity
      of certificates of deposit at other financial institutions
                
                
                480
                
                
                
                4,929Purchase
      of certificates of deposit at other financial institutions
                
                
                -
                
                
                
                (249
                )Purchase
      of available-for-sale securities
                
                
                (4,435
                )
                
                
                -Purchase
      of held-to-maturity securities
                
                
                -
                
                
                
                (9,056
                )Proceeds
      from principal payments and maturities of securities
                
                
                2,160
                
                
                
                3,931Net
      disbursements for loan originations
                
                
                (5,072
                )
                
                
                (1,616
                )Redemption
      of Federal Home Loan Bank stock
                
                
                11
                
                
                
                11Redemption
      (purchase) of Federal Reserve Bank stock
                
                
                (31
                )
                
                
                -Leasehold
      improvements and acquisitions of capital assets
                
                
                (6
                )
                
                
                (93
                )Net
      cash used in investing activities
                
                
                (6,893
                )
                
                
                (2,143
                )Cash
      flows from financing activities:Net
      increase in deposits
                
                
                5,645
                
                
                
                1,434Proceeds
      of advance from line of credit & FHLB
                
                
                1,100
                
                
                
                -Repayment
      of advances
                
                
                (243
                )
                
                
                (234
                )Net
      cash provided by financing activities
                
                
                6,502
                
                
                
                1,200Net
      decrease in cash and cash equivalents
                
                
                (1,137
                )
                
                
                (2,003
                )Cash
      and cash equivalents at beginning of period
                
                
                14,785
                
                
                
                12,459Cash
      and cash equivalents at end of period
                
                $
                13,648
                
                
                $
                10,456Supplemental
      cash flow informationInterest
      paid
                
                $
                783
                
                
                $
                947Income
      taxes paid
                
                $
                -
                
                
                $
                -
  See
      accompanying notes to financial statements





4





ES
BANCSHARES, INC.


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS








Note
1.  Nature of Operations





Empire
State Bank (the “Bank”) was organized under federal law in 2004 as a national
bank regulated by the Office of the Comptroller of the Currency (“OCC”). The
Bank’s deposits are insured up to legal limits by the FDIC. In March 2009, the
Bank converted its charter to a New York State commercial bank charter, with the
New York Banking Department becoming its primary state regulator.





On April
28, 2004, 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
reorganized into a one-bank holding company structure (the “Reorganization”). In
connection with the Reorganization, the Bank formed ES Bancshares, Inc. (the
“Company”) on August 15, 2006, a Maryland corporation, to serve as its holding
company.





The
consolidated financial statements include the accounts of the Company and the
Bank, its wholly owned subsidiary. The Company’s financial condition and
operating results principally reflect those of the Bank. All intercompany
balances and amounts have been eliminated.





The Bank
is a full service commercial bank that offers a variety of financial services to
meet the needs of communities in its market area. The Bank attracts deposits
from the general public and uses such deposits to originate commercial loans,
revolving lines of credit, commercial real estate, mortgage loans secured by
one-to four-family residences, home equity lines, and to a lesser extent
construction, land, and consumer installment loans. The Bank also invests in
mortgage-backed and other securities permissible for a New York State chartered
commercial bank. The Bank also operated two loan production offices, one in
Staten Island, New York, and another in Lynbrook, New York. However, in November
of 2007, the Staten Island loan production office was closed in conjunction with
the opening of the Bank’s new full service branch in that borough. During the
first quarter of 2008, the Bank closed its loan production office in Lynbrook,
Nassau County, New York. The Bank’s primary area for deposits includes the Town
of Newburgh and the Village of New Paltz, in addition to the communities
surrounding those offices, and the borough of Staten Island. The Bank’s primary
market area for its lending activities consists of the communities within Orange
County, Ulster County, the five boroughs of New York City, and portions of
Dutchess, Rockland, Putnam and Westchester Counties, New York.





Note
2.  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 year ending December 31, 2010.  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 year ended December
31, 2009, included in the Company’s Annual Report on Form 10-K filed with the
SEC on March 30, 2010.





5


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.





Stock
Options





The
Company has a stock-based compensation plan as more fully described in Note 4.
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. Total expense
incurred during the three months ended March 31, 2010 and 2009, relating to the
options was $0 and $4 thousand, respectively.





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 warrants or stock options were considered in
computing diluted earnings (loss) per share because to do so would have been
anti-dilutive.





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 $2.4 million at March 31, 2010.  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 limited operating
experience, management recorded a valuation allowance against the total amount
of deferred tax assets.





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.





6


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





Loans
Held for Sale





Loans
originated and intended for sale in the secondary market are carried at the
lower of cost or estimated fair value in the aggregate. All sales are made with
servicing released and without recourse. Gains and losses on the disposition of
loans held for sale are determined on the specific identification basis. Net
unrealized losses on loans held for sale are recognized through a valuation
allowance by charges to income.  There were no valuation allowances as
of March 31, 2010.





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.





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.





Subsequent
Events





Events occurring subsequent to March
31, 2010 have been evaluated as to their potential impact to the financial
statements through the date of filing.





7


Cash
Flows





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





Adoption
of New Accounting Standards





In  January
2010, the Financial Accounting Standards Board (“FASB”) amended
existing  guidance to improve disclosure requirements related to fair
value measurements. New disclosures are required for significant transfers in
and out  of Level 1 and Level 2 fair value measurements and the
reasons for the transfers.  In addition, the FASB clarified guidance
related to disclosures for  each  class of assets and
liabilities as well as disclosures about the valuation techniques and  inputs  used  to  measure  fair  value
for both
recurring  and  nonrecurring  fair  value  measurements
that fall in either
Level  2  or  Level  3.  The  impact
of adoption on January 1, 2010 was not material as it required only disclosures
which are included in the Fair Value footnote.




In  June
2009, the FASB amended existing guidance to improve the relevance,
representational  faithfulness, and comparability of the information
that a reporting  entity  provides in its financial
statements about a transfer of financial assets ;  the  effects  of  a
transfer on its financial position,
financial  performance,  and  cash  flows;  and  a  transferor’s
continuing
involvement,  if  any,  in  transferred  financial  assets.   This amended
guidance addresses (1) practices that are
not consistent with the intent and key requirements of the original guidance and
(2) concerns of financial statement users that many of the financial assets (and
related obligations) that have been derecognized should continue to be reported
in the financial statements  of  transferors.  The
impact of adoption on January 1, 2010 was not material.





In  June  2009,  the  FASB  amended  guidance
for consolidation of variable
interest  entities  by  replacing  the
quantitative-based risks and rewards
calculation  for  determining  which  enterprise,
if any, has a controlling financial interest in a
variable interest entity. The new approach focuses on identifying which
enterprise has the power to direct the activities of a
variable  interest  entity  that  most  significantly  impact  the
entity’s economic  performance and (1) the obligation to absorb losses
of the entity
or   (2)  the  right  to  receive  benefits  from  the  entity.  Additional
disclosures about an enterprise’s involvement in variable interest entities are
also required.  The impact of adoption on January 1, 2010 was not
material.




In December 2007, the
FASB enhanced existing guidance for the use of the
acquisition method of accounting (formerly the purchase
method) for all business combinations, for an acquirer to be
identified for each business combination and for intangible assets to be
identified and recognized separately from goodwill.  An entity in
a business combination is required
to recognize the assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree at the acquisition date, measured
at their fair values as of that date, with limited exceptions.
Additionally, there were changes  in requirements for
recognizing assets acquired and liabilities assumed arising from contingencies
and recognizing
and   measuring  contingent  consideration.   Disclosure  requirements for
business combinations were also enhanced.  The impact of adoption on
January 1, 2009 was not material




In April
2009, the FASB issued amended
clarifying guidance to address application issues
raised by preparers, auditors, and members of the legal
profession on initial recognition and measurement, subsequent measurement and
accounting , and disclosure
of assets
and liabilities arising from contingencies in a business
combination.  The  impact of adoption on January 1, 2009 was
not material. In January 2010, the FASB
issued amended clarifying guidance addressing
implementation issues related to the changes in ownership provisions.
The impact of adoption on January 1, 2010 was not material.





8


Newly
Issued But Not Yet Effective Accounting Guidance








Note
3 – Investment Securities





The following is a summary of the
amortized cost, gross unrealized gains and losses, and estimated fair market
value of investment securities available-for-sale at March 31, 2010 and December
31, 2009.





March
      31, 2010(in
      thousands)Amortized
            
            
            Gross
      Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            ValueMortgage-backed
      securities*
            
            $
            28,895
            
            
            $
            471
            
            
            $
            (131
            )
            
            $
            29,235U.S.
      Government Agencies
            
            
            600
            
            
            
            22
            
            
            
            --
            
            
            
            622Trust
      Preferred Securities
            
            
            1,300
            
            
            
            32
            
            
            
            (4
            )
            
            
            1,328Total
            
            $
            30,795
            
            
            $
            525
            
            
            $
            (135
            )
            
            $
            31,185










December
      31, 2009(in
      thousands)Amortized
            
            
            Gross
      Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            ValueMortgage-backed
      securities*
            
            $
            25,649
            
            
            $
            399
            
            
            $
            (202
            )
            
            $
            25,846U.S.
      Government Agencies
            
            
            1,600
            
            
            
            26
            
            
            
            --
            
            
            
            1,626Trust
      Preferred Securities
            
            
            1,300
            
            
            
            4
            
            
            
            (20
            )
            
            
            1,284Total
            
            $
            28,549
            
            
            $
            429
            
            
            $
            (222
            )
            
            $
            28,756





*
Consists of government agency securities





There
were no securities held to maturity at March 31, 2010 or December 31,
2009.





9


The
following is a summary of the amortized cost and estimated fair market value of
investment securities available-for-sale at March 31, 2010, with amounts shown
by remaining term to contractual maturity.  Securities not due at a
single maturity date, primarily mortgaged-backed securities, are shown
separately.





March
      31, 2010(in
      thousands)Amortized
            
            
            FairCost
            
            
            ValueAvailable-for-Sale:Mortgaged-backed
      securities
            
            $
            28,895
            
            
            $
            29,235U.S.
      Government AgenciesDue
      less than one year
            
            
            --
            
            
            
            --One
      year to less than three years
            
            
            600
            
            
            
            622Three
      years to less than five years
            
            
            --
            
            
            
            --Five
      years to ten years
            
            
            --
            
            
            
            --More
      than ten years
            
            
            --
            
            
            
            --Trust
      Preferred Securities
            
            
            1,300
            
            
            
            1,328Total
            
            $
            30,795
            
            
            $
            31,185




The
following tables summarize, for all securities in an unrealized loss position at
March 31, 2010 and December 31, 2009, the aggregate fair values and gross
unrealized losses by the length of time those securities had been in a
continuous loss position.





March
      31, 2010Less
      Than 12 Months
            
            
            12
      Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            Loss
            
            
            Value
            
            
            Loss
            
            
            Value
            
            
            Loss(In
      thousands)Mortgage-backed
      securities
            
            $
            7,039
            
            
            $
            40
            
            
            $
            6,031
            
            
            $
            91
            
            
            $
            13,070
            
            
            $
            131U.S.
      Government Agencies
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Trust
      Preferred Securities
            
            
            346
            
            
            
            3
            
            
            
            149
            
            
            
            1
            
            
            
            495
            
            
            
            4Total
      temporarily impaired
            
            $
            7,385
            
            
            $
            43
            
            
            $
            6,180
            
            
            $
            92
            
            
            $
            13,565
            
            
            $
            135








10




December
      31, 2009Less
      Than 12 Months
            
            
            12
      Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            Loss
            
            
            Value
            
            
            Loss
            
            
            Value
            
            
            Loss(In
      thousands)Mortgage-backed
      securities
            
            $
            5,294
            
            
            $
            30
            
            
            $
            6,044
            
            
            $
            172
            
            
            $
            11,338
            
            
            $
            202U.S.
      Government Agencies
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Trust
      Preferred Securities
            
            
            347
            
            
            
            3
            
            
            
            433
            
            
            
            17
            
            
            
            780
            
            
            
            20Total
      temporarily impaired
            
            $
            5,641
            
            
            $
            33
            
            
            $
            6,477
            
            
            $
            189
            
            
            $
            12,118
            
            
            $
            222




The Bank
evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such
evaluation.  Consideration is given to the length of time and the
extent to which the fair value has been less than cost, the financial condition
and near term prospects of the issuer, and the intent and ability of the Bank to
retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value.  In analyzing an issuer’s
financial condition, the Bank may consider whether the securities are issued by
the federal government or its agencies, whether downgrades by bond rating
agencies have occurred, and the results of reviews of the issuer’s financial
condition.





At March
31, 2010, five debt securities had unrealized losses of approximately $43
thousand, and three others had unrealized losses of approximately $92 thousand,
that have existed for less than twelve months, and more than twelve months,
respectively, from the Bank’s cost basis, and are largely due to changes in
interest rates.  The fair value is expected to recover as the
securities approach their maturity date or reset date.





There
were no sales of securities during either of the three months ended March 31,
2010 or 2009.





Note
4.  Stock-Based Compensation Plans





Stock
Options





On
October 19, 2004, the Board of Directors approved the adoption of the Company’s
Stock Option Plan which allows for a total of 180,000 shares of authorized but
unissued common stock reserved for issuance under the Stock Option Plan,
although option exercises may also be funded using treasury shares or shares
acquired in open market purchases. These options have a 10-year term and may be
either non-qualified stock options or incentive stock options. These options
were not deemed granted until shareholder approval occurred on May 3, 2005. The
options vest at a rate of 20% on each of five annual vesting dates except for
65,000 options granted to Directors, which vested immediately. Each option
entitles the holder to purchase one share of common stock at an exercise price
equal to the fair market value of the stock on the grant date.





The
Company accounts for stock options using the modified prospective transition
method. For accounting purposes, the Company recognizes expense for shares of
common stock awarded under the Company’s Stock Option Plan over the vesting
period at the fair market value of the shares on the date they are
awarded.





A summary
of options outstanding under the Company’s Stock Option Plan as of March 31,
2010, and changes during the period then ended is presented below.





11
 
 WeightedWeighted
                
                
                AverageAverage
                
                
                RemainingExercise
                
                
                Contractual
                
                
                IntrinsicShares
                
                
                Price
                
                
                Term (years)
                
                
                ValueOutstanding
      at January 1, 2010
                
                
                152,250
                
                
                $
                10.42Granted
                
                
                15,000
                
                
                
                6.00Exercised
                
                
                -
                
                
                
                -Forfeited
      or expired
                
                
                -
                
                
                
                -Outstanding
      at March 31, 2010
                
                
                167,250
                
                
                $
                10.02
                
                
                
                5.4
                
                
                
                -Options
      exercisable at March 31, 2010
                
                
                122,850
                
                
                $
                10.46
                
                
                
                4.8
                
                
                
                -Vested
      and expected to vest
                
                
                167,250
                
                
                $
                10.02
                
                
                
                5.4


As of
March 31, 2010, there was $13 thousand of total unrecognized compensation cost
related to non-vested stock options granted under the Stock Option
Plan.  The cost is expected to be recognized over a period of
approximately 57 months.





At March
31, 2010, there were 12,750 shares available for future grant under the Stock
Option Plan.





401(k)
Plan





A 401(k) benefit plan allows employees
to contribute up to 15% of their compensation. The Bank did not make any
matching contributions in 2010 or 2009.





Note
5. Fair Value





Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Fair value hierarchy requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standards describe three levels of inputs
that may be used to measure fair values:





Level
      1 – Quoted prices (unadjusted) for identical assets or liabilities in
      active markets that the entity has the ability to access as of the
      measurement date.Level
      2 – Significant other observable inputs other than Level 1 prices such as
      quoted prices for similar assets or liabilities; quoted prices in market
      that are not active; or other inputs that are observable or can be
      corroborated by observable market
data.


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





The
Company used the following methods and significant assumptions to estimate the
fair value of each type of financial instrument:




Investment
Securities: The fair values for investment securities are determined by quoted
market prices, if available (Level 1). For securities where quoted prices are
not available, fair values are calculated based on market prices of similar
securities (Level 2). For securities where quoted prices or market prices of
similar securities are not available, fair values are calculated using
discounted cash flows or other market indicators (Level 3).




Impaired
Loans: The fair value of impaired loans with specific allocations of the
allowance for loan losses is generally based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the appraisers to adjust for
differences between the comparable sales and income data available. Such
adjustments are typically significant and result in a Level 3 classification of
the inputs for determining fair value.





12


Assets
and liabilities measured at fair value as required by FASB Accounting
Standards Codification and the hierarchy of Generally Accepted Accounting
Principles, are summarized below:





Fair
      Value Measurements atMarch
      31, 2010 Using:SignificantQuoted
      Prices in
            
            Other
            
            SignificantActive
      Markets for
            
            Observable
            
            UnobservableCarrying
            
            Identical
      Assets
            
            Inputs
            
            InputsValue
            
            (Level
      1)
            
            (Level
      2)
            
            (Level
      3)(Dollars
      in thousands)Financial
      Assets:Investment
      securities available-for saleMortgage-backed
      securities – residential
            
            $
            29,235
            
            
            
            $
            29,235U.S.
      government agencies
            
            
            622
            
            
            
            
            622Other
      securities
            
            
            1,328
            
            
            
            
            1,328Total
      available- for-sale
            
            
            31,185
            
            
            
            
            31,185







Fair
      Value Measurements atDecember
      31, 2009 Using:SignificantQuoted
      Prices in
            
            Other
            
            SignificantActive
      Markets for
            
            Observable
            
            UnobservableCarrying
            
            Identical
      Assets
            
            Inputs
            
            InputsValue
            
            (Level
      1)
            
            (Level
      2)
            
            (Level
      3)(Dollars
      in thousands)Financial
      Assets:Investment
      securities available-for saleMortgage-backed
      securities – residential
            
            $
            25,846
            
            
            
            $
            25,846U.S.
      government agencies
            
            
            1,626
            
            
            
            
            1,626Other
      securities
            
            
            1,284
            
            
            
            
            1,284Total
      available- for-sale
            
            
            28,756
            
            
            
            
            28,756





Assets
measured at fair value on a non-recurring basis are summarized
below:





13


There
were no collateral dependent impaired loans with an allowance allocated at March
31, 2010 or December 31, 2009.


Fair
      Value Measurements(in
      thousands)at March 31, 2010
    UsingIdentical
                
                
                Observable
                
                
                UnobservableAssets
                
                
                Inputs
                
                
                Inputs(Level 1)
                
                
                (Level 2)
                
                
                (Level 3)Assets:REO
      Property
                
                $
                -
                
                
                $
                -
                
                
                $
                149




Fair
      Value Measurements(in
      thousands)at December 31, 2009
      UsingIdentical
                
                
                Observable
                
                
                UnobservableAssets
                
                
                Inputs
                
                
                Inputs(Level 1)
                
                
                (Level 2)
                
                
                (Level 3)Assets:REO
      Property
                
                $
                -
                
                
                $
                -
                
                
                $
                149


Real Estate
Owned:  Nonrecurring adjustments to certain commercial real
estate properties classified as real estate owned (REO) are measured at the
lower of carrying amount or fair value, less costs to sell. Fair values are
generally based on third party appraisals of the property, resulting in a Level
3 classification.   In cases where the carrying amount exceeds
the fair value, less costs to sell, an impairment loss is
recognized.  Real estate owned had a net carrying amount of $149
thousand, which is made up of the outstanding balance of $649 thousand, net of a
valuation allowance of $500 thousand at March 31, 2010 and December 31, 2009. A
write-down of $500 thousand was recorded during the year ending December 31,
2009.




Total
non-accrual loans were $3.1 million at both March 31, 2010 and December 31,
2009.





Carrying
amounts and estimated fair values of financial instruments at March 31, 2010 and
December 31, 2009 were as follows:





March
      31,
            
            
            December
      31,2010
            
            
            2009Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            ValueFinancial
      assets:Cash
      and due from banks
            
            $
            10,648
            
            
            $
            10,648
            
            
            $
            9,785
            
            
            $
            9,785Federal
      Funds Sold and money market investments
            
            
            3,000
            
            
            
            3,000
            
            
            
            5,000
            
            
            
            5,000Securities
      available for sale
            
            
            31,185
            
            
            
            31,185
            
            
            
            28,756
            
            
            
            28,756Loans,
      net
            
            
            110,734
            
            
            
            111,321
            
            
            
            105,659
            
            
            
            106,337Federal
      Home Loan Bank stock
            
            
            562
            
            
            
            N/A
            
            
            
            573
            
            
            
            N/AFederal
      Reserve Bank stock
            
            
            339
            
            
            
            N/A
            
            
            
            308
            
            
            
            N/AAccrued
      interest receivable
            
            
            643
            
            
            
            643
            
            
            
            627
            
            
            
            627Financial
      Liabilities:Deposits
            
            
            140,997
            
            
            
            142,195
            
            
            
            135,352
            
            
            
            136,610Federal
      Home Loan Bank advances
            
            
            8,265
            
            
            
            8,287
            
            
            
            8,508
            
            
            
            8,605Other
      borrowings
            
            
            2,715
            
            
            
            2,722
            
            
            
            1,615
            
            
            
            1,633Accrued
      interest payable
            
            
            106
            
            
            
            106
            
            
            
            151
            
            
            
            151




14


The
methods and assumptions used to estimate fair value are described as
follows:





Carrying
amount is the estimated fair value for cash and cash equivalents, interest
bearing deposits, accrued interest receivable and payable, demand deposits,
short-term debt, and variable rate loans or deposits that reprice frequently and
fully. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and credit
risk. Fair value of debt is based on current rates for similar financing. It was
not practicable to determine the fair value of FHLB or FRB stock due to
restrictions placed on its transferability. The fair value of off-balance-sheet
items is not considered material.





Note
6.  Commitments and Contingencies





Legal
Proceedings





The
Company has not been a party to any legal proceedings that may have a material
effect on the Company’s results of operations and financial
condition.  However, in the normal course of its business, the Company
may become involved as plaintiff or defendant in proceedings such as judicial
mortgage foreclosures and proceedings to collect on loan obligations and to
enforce contractual obligations.





Operating
Lease Commitments





The
Company is obligated under non-cancelable operating leases for its main office
location in Newburgh, New York, and its branch office locations in New Paltz,
New York, and Staten Island, New York.  The leases are for initial
terms of 10 years, 15 years, and 10 years, respectively and have various renewal
options.  Rent expense under operating leases was $84,000 for the
three months ended March 31, 2010.  At March 31, 2010, the future
minimum rental payments under operating lease agreements for the fiscal years
ending December 31 are $205,000 in 2010; $276,000 in 2011; $262,000 in 2012;
$183,000 in 2013; $187,000 in 2014; and a total of $640,000
thereafter.





Off-Balance
Sheet Financial Instruments





The
Company’s off-balance sheet financial instruments at March 31, 2010 were limited
to loan origination commitments of $2.2 million (including one-to-four family
loans held for sale of $200 thousand) and unused lines of credit (principally
commercial and home equity lines) extended to customers of $11.3
million.  Substantially all of these commitments and lines of credit
have been provided to customers within the Bank’s primary lending
area.  Loan origination commitments at March 31, 2010, consisted of
adjustable and fixed rate commitments of $2.0 million and $230 thousand
respectively, with interest rates ranging from 4.25% to 6.50%.





Item
2.





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





General




We expect
our directors shortly to enter into a memorandum of understanding (“Memorandum”)
among the board of directors of the Company, the board of directors of the Bank,
the Federal Reserve Bank of New York (“FRBNY”) and the New York State Banking
Department (“Banking Department”) (with the Banking Department and FRBNY
together referred to as the “Supervisors”) pursuant to which such boards will
undertake to ensure that, among other things, written plans are submitted to the
Supervisors to strengthen the Bank’s supervision over operational matters in the
areas of credit risk management practices, credit administration, and Bank
Secrecy and Anti-Money Laundering compliance.




15


Other
matters referenced include revising the Bank’s allowance for loan and lease
losses methodology, amending its policy to require a Uniform Bank Performance
Report of each financial institution from which it purchases a certificate of
deposit, enhancing the Bank’s internal audit function, installing back-up power
for its Newburgh data center, and establishing a compliance committee of the
Bank’s board of directors and periodically review compliance with the
Memorandum.





Forward-Looking
Statements





This Report on Form 10-Q of the Company
includes “forward-looking statements” within the meaning of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended, that
are based on the current beliefs of, as well as assumptions made by and
information currently available to, the management of the
Company.  All statements other than statements of historical facts
included in this Report, including, without limitation, statements contained
under the caption “Management’s Discussion and Analysis” regarding the Company’s
business strategy and plans and objectives of the management of the Company for
future operations, are forward-looking statements.  When used in this
Report, the words “anticipate,” “believe,” “estimate,” “project,” “predict,”
“expect,” “intend” or words or phrases of similar import, as they relate to the
Company or the Company’s management, are intended to identify forward-looking
statements.  Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, such expectations
may not prove to be correct.All forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated, believed, estimated, projected, predicted,
expected or intended including: statements of our goals, intentions and
expectations; statements regarding our business plans and prospects and growth
and operating strategies; statements regarding the asset quality of our loan and
investment portfolios and estimates of our risks and future costs and benefits.
Among the factors which could cause our actual results of financial condition to
differ materially are those set forth in Item 1A of our Form 10-K as well as the
following: our ability to manage the risk in our loan portfolio; significantly
increased competition among depository and other financial institutions; our
ability to execute our plan to grow our assets on a profitable basis; our
ability to execute on a favorable basis any plan we may have to acquire other
institutions or branches or establish new offices; changes in the interest rate
environment that reduce our margins or reduce the fair value of financial
instruments and inflation; general economic conditions, either nationally or in
our market area, future deposit premium levels, adverse changes in the
securities and national and local real estate markets (including real estate
values); our ability to grow our new Staten Island office; legislative or
regulatory changes that adversely affect our business; our ability to enter new
markets successfully and take advantage of growth opportunities; changes in
consumer spending, borrowing and savings habits; the effect of a dramatically
slowing economy on our lending portfolio including our commercial real estate,
business, construction, multifamily, and home equity loans; the impact of the
U.S. government’s economic stimulus program and its various financial
institution rescue plans, changes in accounting policies and practices, as may
be adopted by the bank regulatory agencies and the authoritative accounting and
auditing bodies; and changes in our organization, compensation and benefit
plans.
 
 16
 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 March 31, 2010 and December 31, 2009





Total
assets at March 31, 2010, amounted to $163.5 million, representing an increase
of $6.5 million, or 4.2%, from $157.0 million at December 31,
2009.  The increase in assets consisted of a $2.4 million increase in
total securities, a $659 thousand increase in real estate loans for sale, and a
$5.1 million increase in total loans receivable, net, that were partially offset
by a $480 thousand decrease in certificates of deposit at other financial
institutions, and a $1.1 million decrease in total cash and cash equivalents.
These increases reflect our efforts to increase the proportion of our assets
carrying a higher yield than liquid assets.





Overall,
loans receivable, net, increased $5.1 million, or 4.8%, to $110.7 million at
March 31, 2010, from $105.7 million at December 31, 2009. Residential real
estate mortgage loans, excluding mortgage loans held for sale, increased $1.8
million, or 6.7%, from $26.8 million to $28.6 million. Commercial and
multifamily real estate loans decreased $500 thousand, or 1.0%, from $51.5
million to $51.0 million. Commercial loans and commercial lines of credit
increased $3.9 million, or 19.4%, from $20.1 million to $24.0 million, and home
equity and consumer loans decreased $16 thousand or 0.19%, from $8.5 million to
$8.4 million, over the same three-month period.  Management continues
to emphasize the origination of high quality loans to the loan
portfolio.





Total
cash and cash equivalents at March 31, 2010, decreased $1.2 million, or 8.1%, to
$13.6 million from $14.8 million at December 31, 2009, while certificates of
deposit at other financial institutions decreased $480 thousand, or 13.0%, to
$3.2 million from $3.7 million during the same period.  Total
securities at March 31, 2010, increased $2.4 million, or 8.3%, to $31.2 million
from $28.8million at December 31, 2009.





Interest
bearing deposits increased $5.3 million or 4.3% from December 31, 2009 to March
31, 2010. The net deposit activity over the period consisted largely of a $1.6
million increase in certificates of deposit and a $2.1 million increase in
savings and money market accounts, and a $1.9 million increase in transaction
accounts.





Stockholders’
equity increased by $239 thousand to $9.7 million at March 31, 2010, from $9.5
million at December 31, 2009.  The increase was primarily attributable
to a net income for the quarter of $56 thousand and a $183 thousand increase in
accumulated other comprehensive income .  The ratio of stockholders’
equity to total assets remained unchanged, at 6.0%, at both March 31, 2010 and
December 31, 2009.  Book value per share increased to $4.69 at March
31, 2010, from $4.58 at December 31, 2009.  See “Liquidity and Capital
Resources” for information regarding the Bank’s regulatory capital amounts and
ratios.





Non-Performing
Assets





The following table summarizes the
Company’s non-performing assets for the periods March 31, 2010 and December 31,
2009:




17




At
      March 31,
              
              
              At
      December 31,2010
              
              
              2009(Dollars
      in thousands)Non-accrual
      loans:Real
      estate loans:One-to-four
      family
              
              $
              472
              
              
              $
              472Commercial
              
              
              1,108
              
              
              
              1,108Multi-family
              
              
              -
              
              
              
              -Construction
      or development
              
              
              1,034
              
              
              
              1,034Home
      equity
              
              
              -
              
              
              
              -Total
      real estate loans
              
              
              2,614
              
              
              
              2,614Other
      Loans:Commercial
      business
              
              
              451
              
              
              
              451Consumer
              
              
              -
              
              
              
              -Total
      non-performing loans
              
              $
              3,065
              
              
              $
              3,065REO,
      net
              
              
              149
              
              
              
              149Total
      non-performing assets
              
              $
              3,214
              
              
              $
              3,214Ratios:Non-performing
      loans to total loans
              
              
              2.74
              %
              
              
              2.87
              %Non-performing
      loans to total assets
              
              
              1.87
              %
              
              
              1.95
              %Non-performing
      assets to total assets
              
              
              1.97
              %
              
              
              2.04
              %





Allowance
for Loan Losses





The following table summarizes the
activity in the Company’s allowance for loan losses for the three month periods
ended March 31, 2010 and March 31, 2009:




Three
      Months EndedMarch
      31,2010
              
              
              2009(Dollars
      in thousands)Balance
      at beginning of year
              
              $
              1,824
              
              
              $
              862Charge-offsReal
      estate mortgage loans
              
              
              -
              
              
              
              -Commercial
      loans and lines of credit
              
              
              -
              
              
              
              (11
              )Home
      Equity and consumer loans
              
              
              -
              
              
              
              -Construction
      loansTotal
      charge-offs
              
              
              -
              
              
              
              (11
              )RecoveriesReal
      Estate mortgage loans
              
              
              -
              
              
              
              -Commercial
      loans and lines of credit
              
              
              -
              
              
              
              -Home
      Equity and consumer loans
              
              
              1
              
              
              
              -Construction
      loans
              
              
              -
              
              
              
              -Total
      recoveries
              
              
              1
              
              
              
              -Provision
      for losses
              
              
              59
              
              
              
              83Balance
      at end of period
              
              $
              1,884
              
              
              $
              934Ratio
      of net charge-offs to average total loans
              
              
              0.00
              %
              
              
              0.01
              %Ratio
      of allowance for loan losses to toal loans
              
              
              1.68
              %
              
              
              0.97
              %







18


Analysis
of Net Interest Income





The
following tables summarize the Company’s average balance sheets for interest
earning assets and interest bearing liabilities, average yields and costs (on an
annualized basis), and certain other information for the three-month period
ended March 31, 2010, as compared to the comparable three-month period ended
March 31, 2009.  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.








19


Quarter
      Ended March 31,
              
              
              Quarter
      Ended March 31,2010
              
              
              2009Average
              
              
              
              
              
              Average
              
              
              Average
              
              
              
              
              
              AverageBalance
              
              
              Interest
              
              
              Yield/Cost
              
              
              Balance
              
              
              Interest
              
              
              Yield/CostAssetsInterest-earning
      assets:Loans
              
              
              109,420
              
              
              $
              1,564
              
              
              
              5.72
              %
              
              
              96,574
              
              
              $
              1,365
              
              
              
              5.65
              %Fed
      Funds & other investments
              
              
              11,454
              
              
              
              11
              
              
              
              0.39
              %
              
              
              9,994
              
              
              
              7
              
              
              
              0.28
              %Certificates
      of deposit
              
              
              3,411
              
              
              
              17
              
              
              
              1.99
              %
              
              
              3,635
              
              
              
              29
              
              
              
              3.19
              %FRB
      & FHLB stock
              
              
              898
              
              
              
              14
              
              
              
              6.24
              %
              
              
              819
              
              
              
              9
              
              
              
              4.40
              %Securities
              
              
              31,274
              
              
              
              331
              
              
              
              4.23
              %
              
              
              30,417
              
              
              
              384
              
              
              
              5.05
              %Total
      interest-earning assets
              
              $
              156,457
              
              
              $
              1,937
              
              
              
              4.95
              %
              
              $
              141,439
              
              
              $
              1,794
              
              
              
              5.07
              %Allowance
      for loan losses
              
              
              (1,880
              )
              
              
              
              
              
              
              
              
              
              
              (913
              )Cash
      & Due from banks
              
              
              1,264
              
              
              
              
              
              
              
              
              
              
              
              2,062Other
      Non-interest earning assets
              
              
              3,780
              
              
              
              
              
              
              
              
              
              
              
              2,883Total
      assets
              
              $
              159,621
              
              
              
              
              
              
              
              
              
              
              $
              145,471Liabilities
      and  Stockholders' EquityInterest-bearing
      liabilities:NOW
      accounts
              
              $
              6,129
              
              
              $
              7
              
              
              
              0.46
              %
              
              $
              2,111
              
              
              $
              3
              
              
              
              0.57
              %Money
      Market accounts
              
              
              36,971
              
              
              
              113
              
              
              
              1.22
              %
              
              
              31,824
              
              
              
              168
              
              
              
              2.11
              %Regular
      savings accounts
              
              
              9,910
              
              
              
              26
              
              
              
              1.05
              %
              
              
              12,552
              
              
              
              56
              
              
              
              1.78
              %Certficates
      of Deposit
              
              
              71,270
              
              
              
              496
              
              
              
              2.78
              %
              
              
              65,808
              
              
              
              623
              
              
              
              3.79
              %Total
      interest-bearing deposits
              
              $
              124,280
              
              
              
              642
              
              
              
              2.07
              %
              
              $
              112,295
              
              
              
              850
              
              
              
              3.03
              %Borrowings
              
              
              10,000
              
              
              
              96
              
              
              
              3.89
              %
              
              
              9,227
              
              
              
              88
              
              
              
              3.87
              %Total
      interest-bearing liabilities
              
              $
              134,280
              
              
              $
              738
              
              
              
              2.20
              %
              
              $
              121,522
              
              
              $
              938
              
              
              
              3.13
              %Non-interest-bearing
      liabilities
              
              
              15,713
              
              
              
              
              
              
              
              .
              
              
              
              14,547
              
              
              
              
              
              
              
              .Total
      liabilities
              
              
              149,993
              
              
              
              
              
              
              
              
              
              
              
              136,069Stockholders'
      equity
              
              
              9,629
              
              
              
              
              
              
              
              
              
              
              
              9,402Total
      liabilities and stockholders' equity
              
              $
              159,621
              
              
              
              
              
              
              
              
              
              
              $
              145,471Net
      interest income
              
              
              
              
              
              $
              1,199
              
              
              
              
              
              
              
              
              
              
              $
              856Average interest rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.75
              %
              
              
              
              
              
              
              
              
              
              
              1.94
              %Net
      interest margin (3)
              
              
              
              
              
              
              
              
              
              
              3.07
              %
              
              
              
              
              
              
              
              
              
              
              2.42
              %Net interest-earning assets(4)
              
              $
              22,177
              
              
              
              
              
              
              
              
              
              
              $
              19,917Ratio
      of average interest-earning assetsto
      average interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              116.52
              %
              
              
              
              
              
              
              
              
              
              
              116.39
              %





(1)
            Average
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.


(2)
            Net
      interest margin represents net interest income divided by average total
      interest-earning assets.


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





20




Results
of Operations for the Quarters Ended March 31, 2010 and March 31,
2009





General.For the quarter ended March 31, 2010, the Company recognized net income
of $56,000, or $0.03 per basic and diluted share, as compared to a net loss of
$140,000, or ($0.07) per basic and diluted share, for the quarter ended March
31, 2009.





Interest
Income.Interest income amounted to $1.9 million for the
quarter ended March 31, 2010, as compared to $1.8 million for the quarter ended
March 31, 2009.  The increase of $143,000 was primarily attributable
to a $15 million increase in average interest-earning assets from $141.4 million
to $156.4 million in the first quarter of 2010, as compared to the same period
in 2009. The average yield on earning assets increased 12 basis points from
5.07% for the quarter ended March 31, 2009, to 4.95% for the same period in
2010.





Average
loan balances increased by $12 million, from $96.6 million for the quarter ended
March 31, 2009, to $109.4 million for the quarter ended March 31, 2010, while
the average yield increased from 5.65% to 5.72% over the same respective
periods.  The average balances of the Bank’s federal funds increased
by $1.5 million, over the quarter ended March 31, 2010, as compared to the
quarter ended March 31, 2009. The average yield on these respective
interest-earning assets increased to 0.39% from 0.28% over the same comparable
periods as a result of selectively placing excess liquidity in more competitive
money market instruments which are insured by the FDIC. The average balance and
yield of the Bank’s investment securities for the quarter ended March 31, 2010,
was $31.3 million and 4.23%, respectively, as compared to an average balance of
$30.4 million and a yield of 5.05% for the comparable quarter ended one-year
earlier. The average balance on certificates of deposit at other financial
institutions decreased from $3.6 million for the quarter ended March 31, 2009,
to $3.4 million in the respective period in 2010. The average yield declined to
1.99% for the quarter ended March 31, 2010, as compared to 3.19% at the quarter
ended March 31, 2009, or 120 basis points.





Interest
Expense.Total interest expense for the quarter ended March
31, 2010, decreased by $200 thousand, from $938 thousand to $738 thousand, when
compared to the same three-month period one year earlier.  The average
balances of total interest-bearing liabilities increased $12.8 million to $134.3
million for the quarter ended March 31, 2010, from $121.5 million for the
quarter ended March 31, 2009, but the average costs for those liabilities
decreased to 2.20% from 3.13% for the same respective periods.





The
average balances of the Bank’s certificates of deposit portfolio increased to
$71.3 million at an average cost of 2.78% over the quarter ended March 31, 2010,
from $65.8 million at an average cost of 3.79% over the same quarter ended
one-year earlier.  The $5.5 million increase was primarily
attributable to the continued increase in the number of customers that followed
the opening of the Bank’s third full service branch in Staten Island, New York,
in November 2007, and the general increase in funds deposited due to the
increase in FDIC guarantee thresholds.  Regular savings account
average balances decreased by $2.6 million from $12.5 million at an average cost
of 1.78% for the quarter ended March 31, 2009, to $9.9 million at an average
cost of 1.05% for the quarter ended March 31, 2010.





Average
money market account balances increased $5.2 million, or 16.4% to $37.0 million
at an average cost of 1.22% for the quarter ended March 31, 2010, from $31.8
million at an average cost of 2.11% for the quarter ended March 31,
2009.  The increased balances were primarily attributable to
management’s focus on attracting deposits of this type, as well as the increase
in FDIC guarantee thresholds.





21


For the
quarter ended March 31, 2010, the average balance of the Company’s borrowed
funds was $10.0 million and its average cost was 3.89%, as compared to $9.2
million and an average cost of 3.87% for the quarter ended March 31, 2009. The
increase was primarily a result of our drawing down approximately $2.1 million
from a line of credit with a correspondent bank partially offset by pay downs on
existing FHLB borrowings. At March 31, 2009, the weighted average term to
maturity of our borrowings was approximately 2.5 years.





Net Interest
Income.  Net interest income was approximately $1.2 million for
the quarter ended March 31, 2010, as compared to $856,000 for the same quarter
in the prior year.  The Bank’s average interest rate spread increased
to 2.75% for the quarter ended March 31, 2010, from 1.94% for the quarter ended
March 31, 2009, while the net interest margin increased to 3.07% from 2.42%,
over the same respective periods.





Provision for
Loan Losses.  For the three
months ended March 31, 2010, management recorded a provision of $59 thousand to
the provision. The Company is still too new to have developed enough internal
historical loan loss experience. As a result, management felt it prudent to
increase the loan loss allowance to reflect the overall growth in the portfolio
as well as its evaluated risk in the portfolio. Comparatively, the provision was
$83 thousand for the quarter ended March 31, 2009.





Non-Interest
Income.Non-interest income for the quarter ended March 31,
2010 decreased $49 thousand to approximately $165 thousand as compared to $214
thousand for the quarter ended March 31, 2009.  Service charges and
fees increased by $8 thousand, from $100 thousand for the quarter ended March
31, 2009, to $108 thousand for the quarter ended March 31, 2010, primarily as a
result of servicing a greater number of deposit and loan
customers.  The net gain on the sales of real estate mortgage loans
decreased $30 thousand to $35 thousand at March 31, 2010, as compared to $65
thousand at March 31, 2009. This is due to a decrease in the level of refinance
activity from the comparable period in 2009. Other non-interest income
categories decreased to $22 thousand for the quarter ended March 31, 2010, from
$49 thousand for the same quarter in 2009, a decrease of $27 thousand, primarily
relating to a decrease in annuity sales and a recovery during 2009 from the loss
on deposit placed with a correspondent bank.




Non-Interest
Expense.Non-interest expense for the quarter ended March 31,
2010 increased $122 thousand when compared to the same quarter in
2009.  Compensation and benefits increased $18 thousand primarily as a
result of new employee hires. Other non-interest expense increased to $404
thousand for the quarter ended March 31, 2010, from $292 thousand for the
quarter ended March 31, 2009.  The $112 thousand increase was
primarily due to the rise in FDIC assessments, advertising, and other operating
expenses related to the expansion of the Bank’s business
activities.





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





Liquidity
and Capital Resources





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





The
primary investing activities of the Company are the origination of loans and the
purchase of investment securities.  For the three months ended March
31, 2010, the Company originated loans, net of sales and principal payments, of
approximately $5.1 million including real estate mortgage loans held for
sale.  At March 31, 2010, the Company had outstanding loan origination
commitments of $2.2 million (including one-to-four-family real estate mortgage
loans held for sale of $200 thousand) and undisbursed lines of credit and
construction loans in process of $11.3 million.  The Company
anticipates that it will have sufficient funds available to meet its current
loan originations and other commitments.





22


At March
31, 2010, total deposits were approximately $141.0 million of which
approximately $71.1 million were in certificates of
deposit.  Certificates of deposit scheduled to mature in one year or
less from March 31, 2010, totaled $34.6 million.  Based on past
experience the Company anticipates that most such certificates of deposit can be
renewed upon their expiration.





The
Company has a line of credit with a correspondent bank for an amount of up to
$3.2 million.  This credit facility is secured by 100% of the
outstanding shares of the Bank for a period of two years.  As of March
31, 2010, the outstanding balance is $2.7 million.  The Company
utilized this credit facility  primarily to provide funds to the
Company to downstream to the Bank to enable it to maintain strong capital ratios
and leverage the balance sheet by increasing assets.  The line of
credit also repaid the amounts due to the same correspondent bank on its
previously drawn line of credit, to fund operating expenses and to provide funds
for an interest reserve to be applied toward monthly interest
payments.  Under the debt covenants on this line of credit, the Bank
is required to remain well capitalized under the regulatory
definition.





The Bank
does borrow 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 a line of credit with the same
correspondent bank for an amount of up to $5.0 million.  This credit
facility is on a secured basis for $2.5 million for a period of one hundred
eighty (180) calendar days and an unsecured basis of $2.5 million for a period
of fourteen (14) calendar days.  The Bank did not utilize this credit
facility at any time during the quarter ending March 31, 2010.





The Bank
is subject to the risk based capital guidelines administered by bank regulatory
agencies.  The guidelines require the Bank 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.  As of March 31, 2010, the Bank’s risk weighted capital to
risk weighted assets was 11.9%; its Tier I capital to risk weighted assets was
10.7% and its Tier I capital to average assets capital ratios was
7.2%.  As of December 31, 2009, the Bank’s risk weighted capital to
risk weighted assets, Tier I capital to risk weighted assets Tier I capital to
average assets capital ratios were 11.3%, 10.1% and 6.5%.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





This item
is not applicable to Smaller Reporting Company.





Item
4T.  Controls and Procedures





The
Company has adopted interim disclosure controls and procedures designed to
facilitate the Company’s financial reporting. The interim disclosure controls
currently consist of communications among the Co-Chief Executive Officers, 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 Co-Chief Executive Officers, Chief Financial
Officer and the Audit Committee meet on a quarterly basis and discuss the
Company’s material accounting policies.  The Company’s Co-Chief
Executive Officers and Chief Financial Officer have evaluated the effectiveness
of these interim disclosure controls as of March 31, 2010, and found them to be
adequate.





23


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 March 31, 2010, we were not involved
in any legal proceedings, the outcome of which would be material to our
financial condition or results of operations.





Item
1A.  Risk Factors





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





Item
2.  Unregistered Sales of Securities and Use of Proceeds





None





Item
3.  Defaults Upon Senior Securities





None





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





None





Item
5.  Other Information





None





Item
6.  Exhibits





Exhibit
      Number
            
            Document
            
            Reference
      to
                Previous
      Filing,
                If
      Applicable3(1)
            
            Articles
      of Incorporation
            
            *3(2)
            
            Amended
      and Restated Bylaws
            
            *4
            
            Form
      of Stock Certificate
            
            **10.1
            
            Employment
      Agreement between ES Bancshares, Inc. and Anthony P. Costa, dated December
      29, 2008
            
            ***10.2
            
            Employment
      Agreement between Empire State Bank, N.A. and Anthony P. Costa, dated
      December 29, 2008
            
            ***10.3
            
            Employment
      Agreement between ES Bancshares, Inc. and Philip Guarnieri, dated December
      29, 2008
            
            ***  24
 10.4
            
            Employment
      Agreement between Empire State Bank, N.A. and Philip Guarnieri, dated
      December 29, 2008
            
            ***10.7
            
            Employment
      Agreement between ES Bancshares, Inc. and Joseph L. Macchia, dated
      December 29, 2008.
            
            ***10.8
            
            Employment
      Agreement between Empire State Bank, N.A. and Joseph L. Macchia, dated
      December 29, 2008
            
            ***10.9
            
            Empire
      State Bank, N.A. 2004 Stock Option Plan
            
            **10.10
            
            Empire
      State Bank, N.A. 2004 Stock Option Plan Stock Option Agreement-
      Employee
            
            ****10.11
            
            Empire
      State Bank, N.A. 2004 Stock Option Plan Stock Option Agreement- Outside
      Directors
            
            ****10.12
            
            Employment
      Agreement between ES Bancshares, Inc. and Thomas Sperzel, dated March 31,
      2010.
            
            *****10.13
            
            Employment
      Agreement between Empire State Bank, N.A.. and Thomas Sperzel, dated March
      31, 2010.
            
            *****23
            
            Consent
      of Crowe Horwath LLP31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
            
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002







*
            Incorporated
      by reference to the Company’s Quarterly Report of Form 10-QSB for the
      period ended September 30, 2006 filed with the SEC on November 14,
      2006.





**
            Incorporated
      by reference to the Company’s Registration Statement on Form S-4 filed on
      April 14, 2006 and subsequently amended on April 18, 2006, May 1, 2006,
      May 16, 2006, and May 23, 2006 and a post-effective amendment filed on
      June 9, 2006.





***
            Incorporated
      by reference to the Company Current Report on Form 8-K filed with the SEC
      on January 5, 2009.





****
            Incorporated
      by reference to the Company’s Annual Report of Form 10-KSB for the year
      ended December 31, 2007 filed with the SEC on March 31,
    2008.





*****
            Incorporated
      by reference to the Company Current Report on Form 8-K filed with the SEC
      on April 28, 2010.





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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 May 5, 2010.




ES
      Bancshares, Inc.Date:  May
      5, 2010
              By:
              /s/ Anthony
      P. CostaAnthony
      P. Costa

                Chairman
      and Co-Chief Executive OfficerDate:  May
      5, 2010
              By:
              /s/
      Thomas SperzelThomas
      Sperzel

                Senior
      Vice President and Chief Financial Officer






26