UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2009
o	TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________________ to ________________________
	Commission file number 0-51385

COLONIAL BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

United States of America	90-0183739
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2745 S. Delsea Drive
Vineland, New Jersey	08360
(Address of principal executive offices)	(Zip code)

(856) 205-0058

(Registrant’s telephone number including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

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

(1)      x  Yes          o  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 such shorter period that the registrant was required to submit and post such files).                         o Yes          o No

Indicate by check mark whether the registrant is a large accelerated filer, an 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. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	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).             o  Yes       x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

As of August 10, 2009, 4,422,521 shares of common stock, par value $0.10 per share

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Unaudited Consolidated Statements of Financial Condition	2
	Unaudited Consolidated Statements of Income	3
	Unaudited Consolidated Statements of Stockholders’ Equity	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition And Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4T.	Controls and Procedures	33
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3	Defaults Upon Senior Securities	36
Item 4	Submission of Matters to Vote of Security Holders	37
Item 5	Other Information	37
Item 6	Exhibits	37
	Signatures	38

1

PART I          FINANCIAL INFORMATION

Item 1.          Financial Statements

Colonial Bankshares, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

At June 30, 2009 and December 31, 2008

	June 30, 2009			December 31, 2008
	(Dollars in thousands, except share data)
Assets
Cash and amounts due from banks	$	32,133		$	23,407
Investment securities available for sale		166,442			165,462
Investment securities held to maturity (fair value at June 30, 2009 - $30,353; at December 31, 2008 - $16,332)		30,578			16,897
Loans receivable, net of allowance for loan losses of $2,247 at June 30, 2009 and $2,105 at December 31, 2008		307,321			303,151
Loans available for sale		673			—
Real estate owned		113			113
Federal Home Loan Bank stock, at cost		1,763			1,991
Office properties and equipment, net		11,649			11,563
Bank-owned life insurance		2,726			2,674
Accrued interest receivable		2,126			2,298
Other assets		3,091			3,020
Total Assets	$	558,615		$	530,576
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	17,145		$	18,146
Interest-bearing		473,848			439,085
Total deposits		490,993			457,231
Federal Home Loan Bank short-term borrowings		—			3,000
Federal Home Loan Bank long-term borrowings		22,000			28,227
Advances from borrowers for taxes and insurance		762			620
Accrued interest payable and other liabilities		2,121			868
Total Liabilities		515,876			489,946
Stockholders’ Equity
Preferred stock, 1,000,000 shares authorized and unissued		—			—
Common stock, par value $0.10 per share; authorized 10,000,000 shares; issued 4,521,696 shares; outstanding 4,422,521 shares at June 30, 2009 and 4,428,021 at December 31, 2008		452			452
Additional paid-in capital		20,475			20,290
Unearned shares held by Employee Stock Ownership Plan (“ESOP”)		(1,200	)		(1,200	)
Treasury stock, at cost, 134,625 shares at June 30, 2009 and 129,125 shares at December 31, 2008		(1,596	)		(1,559	)
Retained earnings		23,087			22,439
Accumulated other comprehensive income		1,521			208
Total Stockholders’ Equity		42,739			40,630
Total Liabilities and Stockholders’ Equity	$	558,615		$	530,576

See notes to unaudited consolidated financial statements.

 2

Colonial Bankshares, Inc.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Three and Six Months Ended June 30, 2009 and 2008

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Dollars in thousands except per share data)
Interest Income
Loans, including fees	$	4,588		$	4,122		$	9,179		$	8,047
Mortgage-backed securities		1,456			1,309			2,987			2,398
Securities:
Taxable		583			1,012			1,163			2,309
Tax-exempt		164			144			291			303
Total Interest Income		6,791			6,587			13,620			13,057
Interest Expense
Deposits		3,192			3,514			6,457			7,088
Borrowings		331			364			673			728
Total Interest Expense		3,523			3,878			7,130			7,816
Net Interest Income		3,268			2,709			6,490			5,241
Provision for Loan Losses		—			—			195			—
Net Interest Income after Provision for Loan Losses		3,268			2,709			6,295			5,241
Non-Interest Income
Fees and service charges		304			284			581			542
Gain on sale of loans		41			—			49			7
Impairment charge on investment securities		(249	)		(368	)		(346	)		(518	)
Net gain on sales and calls of investment securities		128			238			285			216
Earnings on life insurance		27			24			52			47
Other		5			5			11			11
Total Non-Interest Income		256			183			632			305
Non-Interest Expenses
Compensation and benefits		1,493			1,343			2,834			2,683
Occupancy and equipment		397			327			770			642
FDIC insurance premium		206			81			597			122
Data processing		181			194			383			376
Office supplies		51			41			97			76
Professional fees		134			108			261			201
Other		827			299			1,143			574
Total Non-Interest Expenses		3,289			2,393			6,085			4,674
Income before Income Tax Expense		235			499			842			872
Income Tax Expense		30			112			194			181
Net Income	$	205		$	387		$	648		$	691
Per Share Data (See Note 3):
Earnings per share – basic	$	0.05		$	0.09		$	0.15		$	0.16
Earnings per share – diluted	$	0.05		$	0.09		$	0.15		$	0.16
Weighted average number of shares outstanding – basic		4,268,761			4,296,855			4,270,232			4,299,169
Weighted average number of shares outstanding - diluted		4,268,761			4,385,480			4,270,232			4,387,794

See notes to unaudited consolidated financial statements.

 3

Colonial Bankshares, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Six Months Ended June 30, 2009 and 2008

	Common Stock		Additional Paid-in Capital		Unearned Shares Held by ESOP			Retained Earnings		Treasury Stock			Accumu- lated Other Compre- hensive Income (Loss)			Total Stock- holders’ Equity
	(Dollars in thousands)
Balance, January 1, 2009	$	452	$	20,290	$	(1,200	)	$	22,439	$	(1,559	)	$	208		$	40,630
Comprehensive income:
Net income		—		—		—			648		—			—			648
Net change in unrealized gain on securities available for sale, net of tax expense of $736		—		—		—			—		—			1,313			1,313
Total Comprehensive Income		—		—		—			—		—			—			1,961
Treasury stock purchased (5,500 shares)		—		—		—			—		(37	)		—			(37	)
Stock-based compensation expense (restricted stock awards)		—		111		—			—		—			—			111
Stock-based compensation expense (stock options)		—		74		—			—		—			—			74
Balance, June 30, 2009	$	452	$	20,475	$	(1,200	)	$	23,087	$	(1,596	)	$	1,521		$	42,739
Balance, January 1, 2008	$	452	$	19,922	$	(1,316	)	$	21,094	$	(1,189	)	$	65		$	39,028
Comprehensive loss:
Net income		—		—		—			691		—			—			691
Net change in unrealized loss on securities available for sale, net of tax benefit of $557		—		—		—			—		—			(934	)		(934	)
Total Comprehensive Loss		—		—		—			—		—			—			(243	)
Treasury stock purchased (15,500 shares)		—		—		—			—		(163	)		—			(163	)
Stock-based compensation expense (restricted stock awards)		—		111		—			—		—			—			111
Stock-based compensation expense (stock options)		—		74		—			—		—			—			74
Balance, June 30, 2008	$	452	$	20,107	$	(1,316	)	$	21,785	$	(1,352	)	$	(869	)	$	38,807

See notes to unaudited consolidated financial statements.

 4

Colonial Bankshares, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended June 30, 2009 and 2008

	Six Months Ended June 30,
	2009			2008
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	648		$	691
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		195			—
Depreciation expense		323			285
Stock-based compensation expense		185			185
Impairment charge on investment securities		346			518
Net earnings on bank-owned life insurance		(52	)		(47	)
Loans originated for sale		(4,801	)		(331	)
Proceeds from sale of loans		4,177			338
Gain on sale of loans		(49	)		(7	)
Net amortization of loan costs		20			(8	)
Net (gain) on sales and calls of investment securities		(285	)		(216	)
Accretion of premium and discount on investment securities, net		(268	)		(241	)
Decrease in accrued interest receivable		172			79
Increase in other assets		(808	)		(162	)
Increase (decrease) in accrued interest payable and other liabilities		1,253			(55	)
Net cash provided by operating activities		1,056			1,029
Cash Flows from Investing Activities:
Proceeds from sales of investment securities available-for-sale		602			19,149
Proceeds from sales of mortgage-backed securities available-for-sale		1,674			2,911
Proceeds from calls and maturities of investment securities available-for-sale		27,004			25,912
Proceeds from calls and maturities of investment securities held-to-maturity		4,447			2,000
Purchase of investment securities available-for-sale		(31,997	)		(18,947	)
Purchase of investment securities held-to-maturity		(18,533	)		(3,712	)
Purchase of mortgage-backed securities available-for-sale		(10,877	)		(41,425	)
Purchase of office properties and equipment		(409	)		(1,257	)
Principal repayments from investment securities		823			583
Principal repayments from mortgage-backed securities		14,453			8,232
Net decrease (increase) of Federal Home Loan Bank stock		228			(249	)
Maturity of interest-bearing time deposits in banks		—			208
Net increase in loans receivable		(4,385	)		(34,695	)
Net cash used for investing activities		(16,970	)		(41,290	)
Cash Flows from Financing Activities:
Net increase in deposits		33,762			41,499
Decrease in Federal Home Loan Bank short-term borrowings, net		(3,000	)		(2,705	)
Proceeds from Federal Home Loan Bank long-term borrowings		—			6,000
Repayment of Federal Home Loan Bank long-term borrowings		(6,227	)		(163	)
Increase in advances from borrowers for taxes and insurance		142			173
Acquisition of treasury stock		(37	)		(163	)
Net cash provided by financing activities		24,640			44,641
Increase in cash and cash equivalents		8,726			4,380
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		23,407			15,978
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	32,133		$	20,358
Supplemental Cash Flow Disclosures:
Cash paid:
Interest	$	7,313		$	8,073
Income taxes	$	800		$	331
Supplemental Schedule of Noncash Investing and Financing Activities:
Other real estate acquired in settlement of loans		—		$	155

See notes to unaudited consolidated financial statements.

 5

COLONIAL BANKSHARES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.	Organization and Basis of Presentation
	Colonial Bankshares, Inc. (the “Company”) was organized in January 2003 to serve as the mid-tier stock holding company of Colonial Bank, FSB (the “Bank”). The Company is a federally chartered corporation and owns 100% of the outstanding common stock of the Bank. The Bank is a federally chartered capital stock savings bank. Colonial Bankshares, MHC, a federally chartered mutual holding company, is the parent of the Company and owns approximately 55% of the Company’s outstanding common stock. The Bank is a wholly owned subsidiary of the Company. The Bank has established a Delaware corporation, CB Delaware Investments, Inc. (the “Operating Subsidiary”) whose purpose is to invest in and manage securities.
	The consolidated financial statements include the accounts of the Company, the Bank and the Operating Subsidiary. All material intercompany transactions and balances have been eliminated. The Company prepares its financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2009 (unaudited) are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
	The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.
	The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, evaluation of other-than-temporary impairment of investment securities, the potential impairment of Federal Home Loan Bank (“FHLB”) stock and our ability to realize deferred tax assets.
	The Bank maintains its executive office and main branch in Vineland, New Jersey with branches in Bridgeton, Mantua, Millville, Upper Deerfield, Vineland, Sewell and Cedarville New Jersey. The Bank’s principal business consists of attracting customer deposits and investing these deposits primarily in single-family residential, commercial and consumer loans and investments.
	The Company has evaluated subsequent events for potential recognition and/or disclosure in this Quarterly Report on Form 10-Q through August 10, 2009.

 6

2.	Recent Accounting Pronouncements
	In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4) which amends SFAS No. 157 to provide additional guidance for determining fair value of a financial asset or financial liability when the volume and level of activity for such asset or liability have decreased significantly. FAS 157-4 also provides guidance for determining whether a transaction is an orderly one. FAS 157-4 is effective prospectively for interim periods and annual years ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The application of the provisions of FSP 157-4 did not have a material impact on the Company’s consolidated financial statements as of June 30, 2009.
	In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 clarify the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price. In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The application of the provisions of FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s consolidated financial statements as of June 30, 2009.

 7

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The application of the provisions of FAS 107-1 and APB 28-1 did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140. This statement prescribes the information that a reporting entity must provide in its financial reports 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 in transferred financial assets. Specifically, among other aspects, SFAS 166 amends Statement of Financial Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, or SFAS 140, by removing the concept of a qualifying special-purpose entity from SFAS 140 and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach used in SFAS 140. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company does not anticipate the adoption of FAS 166 to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). This statement amends FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised December 2003) — an interpretation of ARB No. 51, or FIN 46(R), to require an enterprise to determine whether it’s variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. SFAS 167 also amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS 167 is effective for fiscal years beginning after November 15, 2009. The Company does not anticipate the adoption of FAS 167 to have a material impact on its consolidated financial statements.

 8

	In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with generally accepted accounting principles in the United States. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of this standard to have an impact on its consolidated financial statements.
3.	Earnings Per Share
	There are no convertible securities which would affect the net income (numerator) in calculating basic and diluted earnings per share; therefore, for these calculations, the net income for the six months ended June 30, 2009 is $648 thousand and the net income for the six months ended June 30, 2008 is $691 thousand. Net income for the three months ended June 30, 2009 is $205 thousand and the net income for the three months ended June 30, 2008 is $387 thousand. Basic and diluted earnings per share data are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share are further adjusted for potential common shares that were dilutive and outstanding during the period. Potential common shares consist of stock options outstanding and non-vested stock grants under the stock-based incentive plans. The dilutive effect of potential common shares is computed using the treasury stock method. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation. At June 30, 2009 and 2008, respectively there were 249,643 and 196,468 anti-dilutive non-vested awards and options excluded from the computation of diluted earnings per share because the option price was greater than the average market price, respectively.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2009			2008			2009			2008
Net Income	$	205,000		$	387,000		$	648,000		$	691,000
Weighted average common shares issues		4,521,696			4,521,696			4,521,696			4,521,696
Average unearned ESOP shares		(119,986	)		(131,589	)		(119,986	)		(131,589	)
Average treasury stock shares		(132,949	)		(93,252	)		(131,478	)		(90,938	)
Weighted average common shares outstanding-basic		4,268,761			4,296,855			4,270,232			4,299,169
Effect of dilutive non-vested shares and stock options outstanding		—			88,625			—			88,625
Weighted average common shares outstanding-diluted		4,268,761			4,385,480			4,270,232			4,387,794
Basic earnings per share	$	0.05		$	0.09		$	0.15		$	0.16
Diluted earnings per share	$	0.05		$	0.09		$	0.15		$	0.16

 9

4.	Stock Based Compensation
	The Company’s Board of Directors and stockholders have adopted the 2006 Colonial Bankshares, Inc. Stock-Based Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the grant of shares of common stock and the grant of stock options to officers, employees and directors of the Company. Under the 2006 Plan, the Company may grant options to purchase 221,563 shares of Company stock and may grant up to 88,625 shares of common stock as restricted stock awards.
	The 2006 Plan enables the Board of Directors to grant stock options to executives, other key employees and nonemployee directors. The options granted under the 2006 Plan may be either non-qualified stock options (NQOs) or incentive stock options (ISOs). Only NQOs may be granted to nonemployee directors under the 2006 Plan and ISOs may be granted to employees. The Company has reserved 221,563 shares of common stock for issuance upon the exercise of options granted under the 2006 Plan. The 2006 Plan will terminate ten years from the date of adoption. Options may not be granted with an exercise price that is less than 100% of the fair market value of the Company’s common stock on the date of grant. Options may not be granted with a term longer than 10 years. Stock options granted under the 2006 Plan are subject to limitations under Section 422 of the Internal Revenue Code. The number of shares available under the 2006 Plan, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of the Company’s outstanding shares. At June 30, 2009, there were 25,095 options available for grant under the 2006 Plan.
	On October 19, 2006, 88,625 shares of restricted stock were awarded. The restricted shares awarded had a grant date fair value of $12.47 per share. The restricted stock awarded vests 20% annually beginning October 19, 2007. For the three months and six months ended June 30, 2009, $56 thousand and $111 thousand, respectively, in compensation expense was recognized in regard to these restricted stock awards with a related tax benefit of $19 thousand and $37 thousand, respectively. As of June 30, 2009, there was $507 thousand of unrecognized compensation expense related to the restricted stock awards which is expected to be recognized over a period of 2.25 years. At June 30, 2008, there was $728 thousand of unrecognized compensation expense related to the restricted stock awards which is expected to be recognized over a period of 3.25 years.
	Activity in issued but unvested award shares during the six months ended June 30, 2009 was as follows:

Award Shares	Number of Shares		Weighted Average Grant Date Fair Value
Restricted, beginning of period		53,175	$	12.47
Granted		—		—
Forfeitures		—		—
Vested		—		—
Restricted stock, end of period		53,175	$	12.47

 10

On October 19, 2006, options to purchase 196,468 shares of common stock at $12.47 per share were awarded. The options awarded vest 20% annually beginning October 19, 2007. The following is a summary of the Company’s stock option activity for the six months ended June 30, 2009:

	Shares		Weighted Average Exercise Price
Options outstanding, beginning of period		196,468	$	12.47
Granted		—		—
Exercised		—		—
Forfeitures		—		—
Options outstanding, end of period		196,468	$	12.47
Exercisable at end of period		78,588	$	12.47

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in 2006: dividend yield of 0%, risk-free interest rate of 4.79%, expected life of 6.5 years, and expected volatility of 15.00%. The calculated fair value of options granted in 2006 was $3.79 per option. The weighted average contractual term of options outstanding and exercisable were 7.25 years at June 30, 2009 and 8.25 years at June 30, 2008.

Stock-based compensation expense related to stock options for the three and six months ended June 30, 2009, were $37 thousand and $74 thousand, respectively, with a related tax benefit of $13 thousand and $26 thousand, respectively. As of June 30, 2009, there was approximately $341 thousand of unrecognized compensation cost related to unvested stock options granted in 2006. The cost will be recognized in a straight line method over a period of 2.25 years. At June 30, 2008, there was approximately $490 thousand of unrecognized compensation cost related to unvested stock options granted in 2006.

The Company has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements as defined in the plan. The ESOP trust purchased 166,398 shares of common stock in the initial public offering using proceeds of a loan from the Company. The Bank will make cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 6.00% with principal and interest payable annually in equal installments over 15 years. The loan is secured by the shares of the stock purchased.

As the debt is repaid, shares are released from the collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Statements of Financial Condition. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. The compensation expense is recorded on a monthly basis. The Company’s contribution expense for the ESOP was $20 thousand and $41 thousand for the three and six months ended June 30, 2009, respectively.

 11

The following table presents the components of the ESOP shares:

	June 30, 2009		June 30, 2008
Shares released for allocation		46,412		34,809
Unreleased shares		119,986		131,589
Total ESOP shares		166,398		166,398

5.	Comprehensive Income
	Comprehensive income for the Company consists of net income and unrealized gains and losses on available for sale securities. Other comprehensive income for the three and six months ended June 30, 2009 and 2008 was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Dollars in thousands)
Other comprehensive income (loss):
Unrealized holding gains (loss) on available for sale securities	$	763		$	(2,385	)	$	2,334		$	(1,275	)
Reclassification adjustment for net (gains) losses realized in net income		(128	)		(238	)		(285	)		(216	)
Net unrealized gains (losses)		635			(2,623	)		2,049			(1,491	)
Income tax expense (benefit)		251			(941	)		736			(557	)
Net of tax amount	$	384		$	(1,682	)	$	1,313		$	(934	)

6.	Contingent Liabilities and Guarantees
	In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit that are not reflected in the accompanying financial statements. No material losses are anticipated as a result of those transactions on either a completed or uncompleted basis.
	The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting those commitments. The Company had $4.3 million of standby letters of credit outstanding as of June 30, 2009. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of June 30, 2009 for guarantees under standby letters of credit is not material.

 12

7.	Investment Securities
	Investment securities are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale:
June 30, 2009
U. S. Government obligations	$	29,468	$	162	$	(58	)	$	29,572
Corporate		13,130		120		(1,163	)		12,087
Mutual funds		2,056		—		—			2,056
Municipal securities		3,331		34		(63	)		3,302
SBA pools		5,805		34		(53	)		5,786
Mortgage-backed securities		110,367		3,423		(151	)		113,639
	$	164,157	$	3,773	$	(1,488	)	$	166,442
December 31, 2008
U. S. Government obligations	$	21,963	$	331	$	(49	)	$	22,245
Corporate		15,249		67		(1,833	)		13,483
Mutual funds		2,643		—		—			2,643
Municipal securities		3,659		49		(76	)		3,632
SBA pools		6,453		58		(62	)		6,449
Mortgage-backed securities		115,245		2,172		(407	)		117,010
	$	165,212	$	2,677	$	(2,427	)	$	165,462
Held to Maturity:
June 30, 2009
Corporate	$	4,772	$	8	$	(497	)	$	4,283
Municipal securities		22,936		198		(65	)		23,069
Mortgage-backed securities		2,870		131		—			3,001
	$	30,578	$	337	$	(562	)	$	30,353
December 31, 2008
U. S. Government obligations	$	932	$	38	$	—		$	970
Corporate		3,969		19		(729	)		3,259
Municipal securities		8,853		217		(223	)		8,847
Mortgage-backed securities		3,143		113		—			3,256
	$	16,897	$	387	$	(952	)	$	16,332

All of the Company’s mortgage-backed securities at June 30, 2009 and December 31, 2008 have been issued by government agencies or government sponsored enterprises.

 13

The amortized cost and estimated fair value of investment securities at June 30, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	17,688	$	17,694	$	5,058	$	5,075
Due after one year through five years		3,136		3,205		36,503		36,514
Due after five year through ten years		3,477		3,012		16,847		15,977
Due thereafter		6,277		6,442		105,749		108,876
	$	30,578	$	30,353	$	164,157	$	166,442

At June 30, 2009 and December 31, 2008, $64.4 million and $74.2 million, respectively, of securities were pledged as collateral to secure certain deposits and FHLB advances.

Gross gains and losses of $289 thousand and $4 thousand, respectively, for the six months ended June 30, 2009, and $357 thousand and $141 thousand, respectively, for the six months ended June 30, 2008, were realized on sales and calls of investment securities.

The following table shows the Company’s available for sale investments’ gross unrealized losses and fair value, and length of time that individual securities have been in a continuous unrealized loss position:

At June 30, 2009	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	11,918	$	58	$	—	$	—	$	11,918	$	58
Corporate		2,159		59		5,344		1,104		7,503		1,163
Municipal securities		1,225		63		—		—		1,225		63
SBA pools		0		—		2,547		53		2,547		53
Mortgage-backed securities		8,107		142		844		9		8,951		151
Total	$	23,409	$	322	$	8,735	$	1,166	$	32,144	$	1,488

At December 31, 2008	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	451	$	13	$	1,931	$	36	$	2,382	$	49
Corporate		8,889		1,157		2,748		676		11,637		1,833
Municipal securities		1,373		76		—		—		1,373		76
SBA pools		1,609		38		1,316		24		2,925		62
Mortgage-backed securities		31,136		357		2,046		50		33,182		407
Total	$	43,458	$	1,641	$	8,041	$	786	$	51,499	$	2,427

 14

The following table shows the Company’s held to maturity investments’ gross unrealized losses and fair value, and length of time that individual securities have been in a continuous unrealized loss position:

At June 30, 2009	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Corporate	$	2,880	$	122	$	457	$	375	$	3,337	$	497
Municipal securities		1,539		65		—		—		1,539		65
Total	$	4,419	$	187	$	457	$	375	$	4,876	$	562

At December 31, 2008	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Corporate	$	1,474	$	351	$	605	$	378	$	2,079	$	729
Municipal securities		2,367		223		—		—		2,367		223
Total	$	3,841	$	574	$	605	$	378	$	4,446	$	952

The Company’s investment in mortgage-backed securities consists of government sponsored enterprise (GSE) securities. The change in market value is attributable to changes in interest rates and widening credit spreads, and not due to underlying credit deterioration. The contractual cash flows for the investments are performing as expected. As the change in market value is attributable to changes in interest rates and credit spread and not underlying credit deterioration, and because the Company has the intent to hold the securities and will not be required to sell the securities before recovery occurs, the Company does not consider the investments to be other-than-temporarily impaired at June 30, 2009.

The Company’s investment in U. S. Government agency securities and SBA loan pools consist of debt obligations of government sponsored enterprises and pools of loans from the Small Business Administration. All principal and interest payments are current in regards to the investments. The contractual cash flows of these investments are guaranteed by an agency of the United States government. The change in market value is attributable to current interest rate levels relative to the Company’s cost and not credit quality. As noted above as to the ability and intent of the Company to hold the investments, the Company does not consider the investments to be other-than-temporarily impaired at June 30, 2009.

 15

	The Company’s investment in corporate bonds consists of debt obligations of corporations mostly in the financial and insurance sectors of the economy. All interest payments are current in regards to the investments and all of the bonds except an AMBAC Financial Group, Inc. (“AMBAC”) corporate bond are still rated as investment grade by at least one of the rating agencies. In the second quarter of 2009, the AMBAC bond was downgraded and was not considered investment grade as a result of the downgrade. With the downgrade, the Company determined that the AMBAC bond was other-than-temporarily impaired and wrote-down the bond by $246 thousand to its estimated fair market value. In regards to the other corporate investments as the Company has the intent to hold the investments and will not be required to sell the securities before recovery occurs, the Company does not consider the other corporate investments to be other-than-temporarily impaired at June 30, 2009.
	The Company’s investment in municipal bonds consist of general obligations and revenue obligations of municipalities in the United States and bond anticipation notes of entities located in New Jersey. The change in market value is attributable to the changes in interest rates relative to the Company’s cost and because the Company has the intent to hold the investments and will not be required to sell the securities before recovery occurs, the Company does not consider the investments to be other-than-temporarily impaired at June 30, 2009.
	The Company recognized an other-than-temporarily impairment charge for the AMBAC corporate bond and an AMF mutual fund. For the three and six months ended June 30, 2009, the Company took total impairment charges of $249 thousand (pre-tax) and $346 thousand (pre-tax), respectively, or an after-tax charge of $149 thousand and $208 thousand, respectively.
	During the second quarter of 2009, the Company redeemed $250 thousand of the mutual fund at a pre-tax gain of approximately $3 thousand, or an after-tax gain of $2 thousand.
8.	Loans
	The components of loans at June 30, 2009 and December 31, 2008 are as follows:

	At June 30, 2009						At December 31, 2008
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	145,999			47.1	%	$	145,329			47.6	%
Home equity loans and lines of credit		38,589			12.4			41,293			13.5
Multi-family		4,910			1.6			4,942			1.6
Commercial		89,080			28.7			81,983			26.8
Construction		9,815			3.2			12,223			4.0
Commercial		18,860			6.1			17,177			5.6
Consumer and other		2,641			0.9			2,616			0.9
Total loans receivable	$	309,894			100.0	%	$	305,563			100.0	%
Deferred loan fees		(326	)					(307	)
Allowance for loan losses		(2,247	)					(2,105	)
Total loans receivable, net	$	307,321					$	303,151

 16

	Our loans are originated and administered through our loan policies. We originate one-to four-family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, commercial business loans, construction loans, consumer loans and multi-family loans. We offer fixed-rate, adjustable-rate and balloon loans that fully amortize with monthly loan payments.
	We have not originated or purchased any sub-prime or Alt-A loans. We have not originated or purchased payment-option ARMs or negative amortizing loans.
	Nonaccrual loans amounted to approximately $2.8 million and $1.9 million at June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, the nonaccrual loans were comprised of $2.1 million of one- to-four family residential loans, $278 thousand of home equity loans and $452 thousand of commercial loans. At June 30, 2009, the valuation allowances set up for the nonaccrual loans totaled $122 thousand for one- to-four family residential loans, $34 thousand for the home equity loans and $172 thousand for the commercial loans, respectively.
	Loans are reviewed on a regular basis, and generally are placed on nonaccrual status when either principal or interest is 90 days or more past due or if we believe that there is sufficient reason to question the borrower’s ability to continue to meet contractual principal or interest payment obligations.
9.	Deposits
	Deposit accounts, by type, at June 30, 2009 and December 31, 2008 are summarized as follows:

	At June 30, 2009								At December 31, 2008
	Balance		Percent			Wtd. Avg. Rate			Balance		Percent			Wtd. Avg. Rate
	(Dollars in thousands)
Deposit type:
Non-interest bearing demand	$	17,145		3.49	%		—	%	$	18,146		3.97	%		—	%
Savings		85,521		17.42			2.59			81,050		17.73			2.76
NOW accounts		87,642		17.85			1.01			55,439		12.12			0.72
Super NOW accounts		17,771		3.62			1.45			15,532		3.40			1.75
Money market deposit		53,418		10.88			1.93			45,404		9.93			3.26
Total transaction accounts		261,497		53.26			1.68			215,571		47.15			2.06
Certificates of deposit		229,496		46.74			3.71			241,660		52.85			3.97
Total deposits	$	490,993		100.00	%		2.63	%	$	457,231		100.00	%		3.06	%

 17

10.	Federal Home Loan Bank Borrowings
	The following table sets forth information concerning advances from the Federal Home Loan Bank (“FHLB”) of New York, at June 30, 2009 and December 31, 2008:

Maturity	Interest Rate			June 30, 2009		December 31, 2008
				(Dollars in thousands)
June 23, 2009		3.35	%	$	—	$	3,000
October 19, 2009		4.65			4,000		4,000
November 20, 2009		4.23			4,000		4,000
December 3, 2009		3.89			4,000		4,000
June 23, 2010		3.88			3,000		3,000
October 18, 2010		4.70			4,000		4,000
June 23, 2011		4.31			3,000		3,000
June 30, 2021		5.57			—		6,227
				$	22,000	$	31,227

	At June 30, 2009, the Bank had a borrowing capacity of $118.3 million available from the FHLB of New York, which is based on the amount of FHLB stock held or levels of other assets, including investment securities, which are available for collateral. At June 30, 2009, the Bank had $22.0 million in outstanding borrowings from the FHLB of New York.
11.	Fair Value Measurements
	Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective dates and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period.
	In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements.
	SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
	The three levels of the fair value hierarchy under SFAS 157 are as follows:
		Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 18

	Level 2: Quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
	Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2009 and December 31, 2008 are as follows:

	June 30, 2009		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Securities available-for-sale	$	166,442	$	—	$	166,442	$	—
	December 31, 2008		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Securities available-for-sale	$	165,462	$	—	$	165,462	$	—

The fair value of investment securities available-for-sale is based on quoted market prices for similar or identical assets or other observable inputs that are provided by recognized broker dealers or an independent third party.

 19

For assets measured at fair value on a nonrecurrent basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2009 and December 31, 2008 are as follow:

	June 30, 2009		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	280	$	—	$	—	$	280
Real estate owned	$	113	$	—	$	—	$	113
	December 31, 2008		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	257	$	—	$	—	$	257
Real estate owned	$	113	$	—	$	—	$	113

The fair value of impaired loans is based on the fair value of the collateral less specific valuation allowances.

At June 30, 2009 and December 31, 2008, impaired loans totaled $452 thousand and $370 thousand, respectively. The amounts of related valuation allowances were $172 thousand and $113 thousand, respectively, at those dates.

Real estate owned is based on the fair value of the collateral less estimated costs to sell the property.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2009 and December 31, 2008:

Cash and Amounts Due From Banks (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and amounts due from banks approximate those assets’ fair values.

 20

Investment Securities

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

Loans Receivable (Carried at Cost)

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those that are accounted for under FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS 114”), in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. At June 30, 2009 the fair value consists of the loan balances of $452 thousand, net of a valuation allowance of $172 thousand.

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of restricted investment in Company stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

 21

Long-Term Borrowings (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair value of the Company’s financial instruments at June 30, 2009 and December 31, 2008 are as follows:

	2009				2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Assets:
Cash and amounts due from banks	$	32,133	$	32,133	$	23,407	$	23,407
Investment securities available-for-sale		166,442		166,442		165,462		165,462
Investment securities held-to-maturity		30,578		30,353		16,897		16,332
Federal Home Loan Bank stock		1,763		1,763		1,991		1,991
Loans receivable, net		307,321		320,168		303,151		311,796
Accrued interest receivable		2,126		2,126		2,298		2,298
Liabilities:
Deposits		490,993		498,432		457,231		467,070
Federal Home Loan Bank short-term borrowings		—		—		3,000		3,000
Federal Home Loan Bank long-term borrowings		22,000		22,484		28,227		30,896
Accrued interest payable		250		250		433		433
Off-balance sheet financial instruments:
Commitments to extend credit and letters of credit		—		—		—		—

 22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provision, growth opportunities, interest rates and deposit growth. Words such as “may,” “could,” “should,” “would,” “will,” “will likely result,” “believe,” “expect,” “plan,” “will continue,” “is anticipated,” “estimate,” “intend,” “project,” and similar expressions are intended to identify these forward-looking statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings than those presently anticipated or projected.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U. S. Government, including policies of the U. S. Treasury and the Federal Reserve Board, the quality and composition of our loan or investment portfolios, demand for our loan products, deposit flows, competition, demand for financial services in our market area, changes in real estate values in our area, and changes in relevant accounting principles and guidelines.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, the evaluation of other-than-temporary impairment of investments securities and the valuation of and our ability to realize deferred tax assets.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance sufficient to absorb estimated probable loan losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish the allowance for loan losses. The allowance for loan losses is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date.

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The allowance for loan losses consists of specific, general and unallocated components. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses.

The allowance for losses on loans is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance is adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in our lending policies and procedures, changes in current general economic conditions and business conditions affecting our primary lending areas, credit quality trends, collateral values, loans volumes and concentrations, seasoning of the loan portfolio, loss experience, and duration of the current business cycle. The applied loss factors are re-evaluated each reporting period to ensure their relevance in the current economic environment.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Future provisions for loan losses may include an unallocated component as we re-evaluate our estimates including, but not limited to changes in economic conditions in our market area, declines in local property values and concentrations of risk. Included in our estimate and evaluation is an analysis of our mortgage loans, both current and delinquent, that may have private mortgage insurance. With the recent downgrades of insurance companies, this is another factor management will review as it assesses its allowance for loan losses.

Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters. Historically, we believe our estimates and assumptions have proven to be relatively accurate. Nevertheless, because a small number of non-performing loans could result in net charge-offs significantly in excess of the estimated losses inherent in our loan portfolio, additional provisions to the allowance for loan losses may be required that would adversely impact earnings for future periods.

Other-Than-Temporary Impairment. In estimating other-than-temporary impairment of investment securities, securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management reviews current economic conditions, the length of time and extent to which the fair value has been less than cost, the current level and spreads in interest rates, the bond rating of each security and the fact that the Company will not be required to sell the security before recovery occurs. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

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Management’s determination of whether FHLB stock is impaired is based on our assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment is necessary related to the FHLB stock at June 30, 2009.

Valuation of Deferred Tax Assets. In evaluating our ability to realize deferred tax assets, management considers all positive and negative information, including our past operating results and our forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets which would result in additional income tax expense in the period.

Comparison of Financial Condition at June 30, 2009 and December 31, 2008

Total assets increased $28.0 million, or 5.3%, to $558.6 million at June 30, 2009, from $530.6 million at December 31, 2008. The increase was the result of increases in cash and amounts due from banks, investment securities available-for-sale, investment securities held-to-maturity and loans available for sale.

Net loans receivable increased $4.1 million, or 1.4%, to $307.3 million at June 30, 2009 from $303.2 million at December 31, 2008. One-to four-family residential real estate loans increased $670 thousand to $146.0 million at June 30, 2009 from $145.3 million at December 31, 2008. Commercial real estate loans increased $7.1 million, or 8.7%, to $89.1 million at June 30, 2009 from $82.0 million at December 31, 2008. Home equity loans and lines of credit decreased $2.7 million to $38.6 million at June 30, 2009 from $41.3 million at December 31, 2008. Multi-family mortgage loans remained constant at $4.9 million at June 30, 2009 and December 31, 2008. Construction loans decreased $2.4 million to $9.8 million at June 30, 2009 from $12.2 million at December 31, 2008. Commercial loans increased by $1.7 million to $18.9 million at June 30, 2009 from $17.2 million at December 31, 2008.

Securities available-for-sale increased $980 thousand to $166.4 million at June 30, 2009 from $165.5 million at December 31, 2008. The increase was the result of purchases in the amount of $42.9 million and increases in market value of $2.0 million offset by $14.8 million in principal amortization and $29.3 million in sales, calls and maturities. In addition, securities held-to-maturity increased by $13.7 million, to $30.6 million at June 30, 2009 from $16.9 million at December 31, 2008. This increase was the result of purchases of $18.5 million offset by principal amortization of $277 thousand and maturities of $4.4 million.

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Deposits increased $33.8 million, or 7.4%, to $491.0 million at June 30, 2009 from $457.2 million at December 31, 2008. The largest increase was in NOW accounts, which increased $32.2 million, or 58.1%, to $87.6 million at June 30, 2009 from $55.4 million at December 31, 2008. Savings accounts increased $4.4 million, or 5.4%, to $85.5 million at June 30, 2009 from $81.1 million at December 31, 2008. Money market deposit accounts increased by $8.0 million, or 17.6%, to $53.4 million at June 30, 2009 from $45.4 million at December 31, 2008. Super NOW accounts increased by $2.3 million to $17.8 million at June 30, 2009 from $15.5 million at December 31, 2008, non-interest bearing demand accounts decreased by $1.0 million to $17.1 million at June 30, 2009 from $18.1 million at December 31, 2008 and certificates of deposit decreased by $12.2 million to $229.5 million at June 30, 2009 from $241.7 million at December 31, 2008.

Federal Home Loan Bank borrowings totaled $22.0 million at June 30, 2009 compared to $31.2 million at December 31, 2008.

Total stockholders’ equity increased $2.1 million to $42.7 million at June 30, 2009 from $40.6 million at December 31, 2008. This increase was attributable to net income of $648 thousand and an increase in other accumulated comprehensive income of $1.3 million. Because of interest rate volatility, accumulated other comprehensive income could materially fluctuate for future interim periods and years depending on economic and interest rate conditions.

Comparison of Operating Results for the Three Months Ended June 30, 2009 and June 30, 2008

General. Net income decreased $182 thousand to $205 thousand for the three months ended June 30, 2009 from $387 thousand for the three months ended June 30, 2008. The principal reasons for the decrease were an increase in non-interest expense of $896 thousand offset by an increase of $559 thousand in net interest income, an increase in non-interest income of $73 thousand and a decrease in income tax expense of $82 thousand.

Interest Income.Interest income increased $204 thousand, or 3.1%, to $6.8 million for the three months ended June 30, 2009 from $6.6 million for the three months ended June 30, 2008. The increase in interest income resulted from a $466 thousand increase in interest income on loans offset by a decrease of $262 thousand in interest income on securities.

Interest income on loans increased $466 thousand, or 11.3%, to $4.6 million for the three months ended June 30, 2009 from $4.1 million for the three months ended June 30, 2008. The average balance of loans increased $41.4 million, or 15.5%, to $307.7 million for the three months ended June 30, 2009 from $266.3 million for the three months ended June 30, 2008. As an offset, the average yield decreased to 5.96% for the three months ended June 30, 2009 from 6.19% for the three months ended June 30, 2008. The increase in the average balance of loans resulted primarily from increases across the mortgage loan and commercial loan categories.

Interest income on securities decreased $262 thousand, or 10.6% to $2.2 million for the three months ended June 30, 2009 from $2.5 million for the three months ended June 30, 2008. This decrease in the interest income on securities was due to a decrease in the average yield on the securities portfolio of 48 basis points to 5.45% for the three months ended June 30, 2009 from 5.93% for the three months ended June 30, 2008 which was offset by an increase in the average balance of the securities portfolio to $190.6 million for the three months ended June 30, 2009 from $177.9 million for the three months ended June 30, 2008.

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Interest Expense.Interest expense decreased $355 thousand, or 9.2%, to $3.5 million for the three months ended June 30, 2009 from $3.9 million for the three months ended June 30, 2008.

Interest expense on interest-bearing deposits decreased by $322 thousand, or 9.2%, to $3.2 million for the three months ended June 30, 2009 from $3.5 million for the three months ended June 30, 2008. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average rate paid on interest-bearing deposits to 2.91% for the three months ended June 30, 2009 from 3.67% for the three months ended June 30, 2008, offset by an increase in the average balance of interest-bearing deposits to $439.2 million for the three months ended June 30, 2009 from $383.5 million for the three months ended June 30, 2008. We experienced increases in the average balances of certificates of deposits, savings accounts, money market deposit accounts, NOW and Super-NOW accounts.

Interest expense on borrowings decreased $33 thousand to $331 thousand for the three months ended June 30, 2009 from $364 thousand for the three months ended June 30, 2008. This decrease was primarily due to a $5.4 million decrease in the average balance of borrowings to $30.0 million for the three months ended June 30, 2009 from $35.4 million for the three months ended June 30, 2008 which was offset by an increase in the average rate paid on borrowings to 4.42% for the three months ended June 30, 2009 from 4.11% for the three months ended June 30, 2008.

Provision for Loan Losses.We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider sufficient to absorb estimated probable loan losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluation of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or later events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. We did not record a provision for loan losses for the three months ended June 30, 2009 and 2008. For the three months ended June 30, 2009, there was a net charge-off of $10 thousand. For the three months ended June 30, 2008, there was a net charge-off of $29 thousand. The allowance for loan losses as a percentage of total loans was 0.73% and 0.69% at June 30, 2009 and December 31, 2008, respectively.

Non-interest Income.Non-interest income was $256 thousand for the three months ended June 30, 2009 and $183 thousand for the three months ended June 30, 2008. There was a net gain on the sale and call of securities of $128 thousand for the three months ended June 30, 2009, compared to a gain of $238 thousand during the same quarter in 2008. Fees and service charges on deposit accounts increased by $20 thousand to $304 thousand for the three months ended June 30, 2009 from $284 thousand for the three months ended June 30, 2008. The increase in fees and service charges was attributed to increases in volume of overdraft fees and ATM fees. Non-interest income for the three months ended June 30, 2009 was reduced by an other-than-temporary impairment of a mutual fund and a corporate bond in our available-for-sale investment security portfolio in the amount of $249 thousand (pre-tax). For the three months ended June 30, 2008, the other-than-temporary impairment of the mutual fund was $368 thousand (pre-tax).

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Non-interest Expense. Non-interest expense increased $896 thousand to $3.3 million for the three months ended June 30, 2009 from $2.4 million for the three months ended June 30, 2008. Compensation and benefits expense increased slightly to $1.5 million for the three months ended June 30, 2009 from $1.3 million for the three months ended June 30, 2008. Occupancy and equipment expense increased $70 thousand mainly due to increases in heat, light and utilities, depreciation expense, maintenance and real estate taxes which are attributable to the new branch locations. Federal deposit insurance premiums increased to $206 thousand for the three months ended June 30, 2009 from $81 thousand for the three months ended June 30, 2008. This increase was mainly due to increases in the balance and insurance rates of insurable accounts and in the FDIC special assessment. Data processing expense decreased $13 thousand. Professional fees increased $26 thousand mainly due to increases in legal fees and accounting and audit expenses. Other miscellaneous non-interest expense increased $528 thousand. This increase was mainly due to a pre-payment penalty in the amount of $459 thousand paid on the pay-off of a long-term FHLB advance along with increases in advertising and promotion expense, supervisory examination expense, insurance and surety bond expense and correspondent bank fees.

Income Tax Expense.We recorded income tax expense of $30 thousand for the three months ended June 30, 2009, compared to $112 thousand for the three months ended June 30, 2008. Our effective tax rates for the three months ended June 30, 2009 and 2008 were 12.8% and 22.4%, respectively, and are below the combined state and federal statutory rate. This was attributable to the formation of the Delaware operating subsidiary in September 2006, which has resulted in the Bank being in a net operating loss position for state tax purposes. The reason for the decrease in the percentage noted above is due to the increase in the percentage of tax-exempt income to net income for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008.

During the three months ended June 30, 2009 and 2008, the Bank incurred a net operating loss of approximately $1.3 million and $1.2 million, respectively, for state tax purposes but has not recorded a deferred tax benefit for the three months ended June 30, 2009 and 2008.

Comparison of Operating Results for the Six Months Ended June 30, 2009 and June 30, 2008

General. Net income decreased $43 thousand to $648 thousand for the six months ended June 30, 2009 from $691 thousand for the six months ended June 30, 2008. The principal reason for the decrease was a $1.4 million increase in non-interest expense offset by an increase of $1.1 million in net interest income after provision for loan losses and a $327 thousand increase in non-interest income.

Interest Income.Interest income increased $563 thousand to $13.6 million for the six months ended June 30, 2009 from $13.1 million for the six months ended June 30, 2008. The increase in interest income resulted from a $1.1 million increase in interest income on loans offset by a $569 thousand decrease in interest income on securities.

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Interest income on loans increased $1.1 million to $9.2 million for the six months ended June 30, 2009 from $8.0 million for the six months ended June 30, 2008. The average balance of loans increased $48.5 million to $305.9 million for the six months ended June 30, 2009 from $257.4 million for the six months ended June 30, 2008. The increase in average balance of loans accounted for the increase in interest income. The increase in the average balance of loans resulted primarily from increases across the mortgage loan and commercial loan categories.

Interest income on securities decreased $569 thousand to $4.4 million for the six months ended June 30, 2009 from $5.0 million for the six months ended June 30, 2008. This decrease was due to a decrease in the average yield on investment securities to 4.82% for the six months ended June 30, 2009 from 5.57% for the six months ended June 30, 2008, which was offset by an increase in the average balance of investment securities to $184.3 million for the six months ended June 30, 2009 from $180.0 million for the six months ended June 30, 2008.

Interest Expense.Interest expense decreased $686 thousand to $7.1 million for the six months ended June 30, 2009 from $7.8 million for the six months ended June 30, 2008.

Interest expense on interest-bearing deposits decreased by $631 thousand to $6.5 million for the six months ended June 30, 2009 from $7.1 million for the six months ended June 30, 2008. The decrease in interest expense on interest-bearing deposits was due to a decrease in the average rate paid on interest-bearing deposits to 2.98% for the six months ended June 30, 2009 from 3.91% for the six months ended June 30, 2008 which was offset by an increase in the average balance of interest-bearing deposits to $434.1 million for the six months ended June 30, 2009 from $374.5 million for the six months ended June 30, 2008. We experienced increases in the average balances of each category of interest-bearing deposit: certificates of deposits, savings accounts, money market deposit accounts, NOW and Super-NOW accounts. The average cost of all deposit accounts decreased for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

Interest expense on borrowings decreased $55 thousand to $673 thousand for the six months ended June 30, 2009 from $728 thousand for the six months ended June 30, 2008. This decrease was primarily due to a $3.1 million decrease in the average balance of borrowings to $30.6 million for the six months ended June 30, 2009 from $33.7 million for the six months ended June 30, 2008 and a decrease on the average rate paid on borrowings to 4.40% for the six months ended June 30, 2009 from 4.57% for the six months ended June 30, 2008.

Provision for Loan Losses.We recorded a provision for loan losses in the amount of $195 thousand for the six months ended June 30, 2009 while we recorded no provision for loan losses for the six months ended June 30, 2008. We had net charge-offs of $53 thousand for the six months ended June 30, 2009 and net charge-offs of $31 thousand for the six months ended June 30, 2008. The allowance for loan losses as a percentage of total loans was 0.73% and 0.69% at June 30, 2009 and December 31, 2008, respectively. We used the same methodology in calculating the provision for loan losses during each of the six months ended June 30, 2009 and 2008.

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Non-interest Income.Non-interest income was $632 thousand for the six months ended June 30, 2009 and $305 thousand for the six months ended June 30, 2008. Fees and service charges on deposit accounts increased by $39 thousand to $581 thousand for the six months ended June 30, 2009 from $542 thousand for the six months ended June 30, 2008. The increase in fees and service charges is attributed to increases in volume in overdraft fees and ATM fees. Gains on sales of loans totaled $49 thousand for the six months ended June 30, 2009 compared to $7 thousand for the six months ended June 30, 2008. Non-interest income for the six months ended June 30, 2009 was reduced by an other-than-temporary impairment of a mutual fund and a corporate bond in our investment security portfolio. This charge totaled $346 thousand (pre-tax) for the six months ended June 30, 2009. For the six months ended June 30, 2008, non-interest income was reduced by an other-than-temporary impairment of the AMF mutual fund in the amount of $518 thousand (pre-tax).

Non-interest Expense. Non-interest expense increased $1.4 million to $6.1 million for the six months ended June 30, 2009 from $4.7 million for the six months ended June 30, 2008. Compensation and benefits expense increased $151 thousand to $2.8 million for the six months ended June 30, 2009 from $2.7 million for the six months ended June 30, 2008. Normal salary increases, the hiring of personnel to staff our newly opened branch locations, increases in payroll taxes and increases in pension expense offset by a decrease in ESOP expense account for the increase in compensation and benefit expense. Occupancy and equipment expense increased $128 thousand mainly due to increases in heat, light and utilities, repair and maintenance expense and depreciation expense. Federal deposit insurance premiums increased to $597 thousand for the six months ended June 30, 2009 from $122 thousand for the six months ended June 30, 2008. This increase was mainly due to increases in the balance and insurance rates of insurable accounts and in the FDIC special assessment. Data processing expense increased $7 thousand. This increase in data processing costs was due to the increase in the number of savings accounts and loan accounts with our service bureau and line costs associated with the opening of new branches. Professional fees increased $60 thousand. Increases in legal fees and accounting and auditing fees account for the increase in professional fees. Other miscellaneous non-interest expense increased $569 thousand. This was mainly due to a pre-payment penalty in the amount of $459 thousand paid on the pay-off of a long-term FHLB advance along with increases in advertising and promotion expense, supervisory examination expense, insurance and surety bond expense, customer check printing charges and correspondent bank expense.

Income Tax Expense. We recorded income tax expense of $194 thousand for the six months ended June 30, 2009, compared to a tax expense of $181 thousand for the six months ended June 30, 2008. Our effective tax rate for the six months ended June 30, 2009 and 2008 were 23.0% and 20.8%, respectively.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

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We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2009, cash and cash equivalents totaled $32.1 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $166.4 million at June 30, 2009. In addition, at June 30, 2009, we had the ability to borrow a total of approximately $118.3 million from the Federal Home Loan Bank of New York. On that date, we had $22.0 million in advances outstanding.

At June 30, 2009, loan commitments outstanding totaled $11.7 million. In addition to commitments to originate loans, we had $20.7 million in unadvanced funds to borrowers. Total certificates of deposit due within one year of June 30, 2009 totaled $169.2 million. Total certificates of deposit due within one year of June 30, 2009 represent 34.5% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2010. We believe based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth above. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we would access our borrowing capacity with the Federal Home Loan Bank of New York.

Our primary investing activities are the origination of loans and the purchase of securities. For the six months ended June 30, 2009, we originated $42.8 million of loans and purchased $61.4 million of securities. For the six months ended June 30, 2008, we originated $70.8 million of loans and purchased $64.1 million of securities.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $33.8 million and $41.5 million for the six months ended June 30, 2009 and 2008, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive.

Total borrowings, which include Federal Home Loan Bank advances, decreased $9.2 million, net, for the six months ended June 30, 2009 and increased $3.1 million, net for the six months ended June 30, 2008. Federal Home Loan Bank advances have primarily been used to fund loan demand and purchase securities.

In January 2009, we opened our ninth branch office, in Cedarville, Lawrence Township, New Jersey.

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We have spent $360 thousand for the acquisition and development of land in the Borough of Buena, New Jersey, $1.3 million for the acquisition and development of land in Harrison Township, New Jersey and $792 thousand for the acquisition and development of land in Millville, New Jersey. However, because building these offices is subject to state and local government approval, we cannot assure you that we will be able to open these facilities, or that we will be able to complete construction even if we expend significant funds on the construction projects.

Colonial Bank, FSB is subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2009, Colonial Bank, FSB exceeded all of the Office of Thrift Supervision regulatory capital requirements. Colonial Bank, FSB is considered “well capitalized” under regulatory guidelines.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk
	Not applicable, as the Company is a Smaller Reporting Company.
Item 4.	Controls and Procedures
	Not applicable.
Item 4T.	Controls and Procedures
(a)	Evaluation of disclosure controls and procedures.
	Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b)	Changes in internal control over financial reporting.
	There were no changes made in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.	Legal Proceedings
	The Company or the Bank is periodically involved in various claims and lawsuits in the ordinary course of business. Management of the Company believes that such proceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Item 1A.	Risk Factors
	In addition to the other information contained this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factor previously disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2008, as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.
	Any Future FDIC Insurance Premiums Will Adversely Impact Our Earnings.
	On May 22, 2009, the FDIC adopted a final rule levying a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The special assessment is payable on September 30, 2009. We recorded an expense of $259 thousand during the quarter ended June 30, 2009, to reflect the special assessment. The final rule permits the FDIC’s Board of Directors to levy up to two additional special assessments of up to five basis points each during 2009 if the FDIC estimates that the Deposit Insurance Fund reserve ratio will fall to a level that the FDIC’s Board of Directors believes would adversely affect public confidence or to a level that will be close to or below zero. The FDIC has publicly announced that it is probable that it will levy an additional special assessment of up to five basis points later in 2009, the amount and timing of which are currently uncertain. Any further special assessments that the FDIC levies will be recorded as an expense during the appropriate period. In addition, the FDIC materially increased the general assessment rate and, therefore, our FDIC general insurance premium expense will increase substantially compared to prior periods.

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A Legislative Proposal Has Been Introduced That Would Eliminate our Primary Federal Regulator, Require the Bank to Convert to a National Bank or State Bank, and Require Colonial Bankshares, MHC and the Company to Become Bank Holding Companies.

The U.S. Treasury Department recently released a legislative proposal that would implement sweeping changes to the current bank regulatory structure. The proposal would create a new federal banking regulator, the National Bank Supervisor, and merge our current primary federal regulator, the Office of Thrift Supervision, as well as the Office of the Comptroller of the Currency (the primary federal regulator for national banks) into this new federal bank regulator. The proposal would also eliminate federal savings banks and require all federal savings banks, such as the Bank, to elect, within six months of the effective date of the legislation, to convert to either a national bank, state bank or state savings bank. A federal savings bank that does not make the election would, by operation of law, be converted into a national bank within one year of the effect date of the legislation.

If the Bank is required to convert to a national bank, Colonial Bankshares, MHC and the Company would become bank holding companies subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) as opposed to the Office of Thrift Supervision. The Federal Reserve has historically looked to Office of Thrift Supervision regulations in its regulation of mutual holding companies and processing of mutual holding company applications; however, it is not obligated to follow such regulations. One important Office of Thrift Supervision regulation that the Federal Reserve does not follow relates to the ability of mutual holding companies to waive the receipt of dividends declared on the common stock of their stock holding company or savings bank subsidiaries. While Office of Thrift Supervision regulations permit mutual holding companies to waive the receipt of dividends, subject to filing a notice with the Office of Thrift Supervision and receiving its non-objection, the Federal Reserve’s current policy is to prohibit mutual holding companies from waiving the receipt of dividends so long as the subsidiary savings bank is well capitalized. Moreover, Office of Thrift Supervision regulations provide that it will not take into account the amount of waived dividends in determining an appropriate exchange ratio for minority shares in the event of the conversion of a mutual holding company to stock form. If the Office of Thrift Supervision is eliminated, the Federal Reserve becomes the exclusive regulator of mutual holding companies, and the Federal Reserve retains its current policy regarding dividend waivers by mutual holding companies, Colonial Bankshares, MHC would not be permitted to waive the receipt of dividends declared by the Company. This would have an adverse impact on our ability to pay dividends and, consequently, the value of our common stock.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	(a)	Not applicable
	(b)	Not applicable
	(c)	Purchases of Equity Securities
		The Company’s repurchases of its common stock made during the quarter are set forth in the following table:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May yet be Purchased Under the Plan or Programs (1)
April 1 – April 30		—	$	—		—		56,954
May 1 – May 31		—		—		—		56,954
June 1 – June 30		2,500	$	7.00		2,500		54,454
Total		2,500	$	7.00		2,500		54,454

(1) On March 24, 2008, the Company announced its second stock repurchase program to repurchase 100,454 shares or approximately 5.0% of the Company’s outstanding common stock held by stockholders other than Colonial Bankshares, MHC.

Item 3.	Defaults Upon Senior Securities
	None

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Item 4.	Submission of Matters to Vote of Security Holders
	On May 21, 2009 the Company held its Annual Meeting of Stockholders to obtain approval for two proposals submitted on behalf of the Company’s Board of Directors. Stockholders of record as of March 27, 2009, were eligible to vote on these proposals. The following is a summary of each proposal and the result of the vote.
	1.	The following directors were elected by the requisite plurality of the votes cast to serve on the Company’s Board of Directors for a three-year term:

	For	Withheld
Frank M. Hankins, Jr.	3,969,056	33,137
Gregory J. Facemyer, CPA	3,971,357	30,836

2. To ratify the appointment of Beard Miller Company LLP as the independent registered public accounting firm for the year ending December 31, 2009:

For	Against	Abstain	Broker non-votes
4,001,587	506	100	—

Item 5.	Other Information
	None
Item 6.	Exhibits
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	Exhibit 32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	COLONIAL BANKSHARES, INC.
	Registrant
Date: August 13, 2009	By: /s/ Edward J. Geletka
	Edward J. Geletka
	President and Chief Executive Officer (Principal Executive Officer)
Date: August 13, 2009	By: /s/ L. Joseph Stella, III, CPA
	L. Joseph Stella, III, CPA
	Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)

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