UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

F O R M 10-Q

_________________________________________

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2006

COMMISSION FILE NUMBER 000-50105

_________________________________________

BRIDGE STREET FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-4217332
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

300 STATE ROUTE 104, OSWEGO, NEW YORK		13126
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code: (315) 343-4100

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer Accelerated filer Non-accelerated filer X

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

Number of shares of common stock outstanding

as of August 9, 2006

Class	Outstanding
COMMON STOCK, $0.01 PAR VALUE	2,315,834

BRIDGE STREET FINANCIAL, INC.

FORM 10-Q

INDEX

Part I - FINANCIAL INFORMATION

Item 1-Financial Statements (unaudited):

Consolidated Statements of Financial Condition at June 30, 2006 and December 31, 2005

Consolidated Statements of Income for the three-month and six-month periods ended June 30, 2006 and June 30, 2005

Consolidated Statements of Changes in Shareholders’ Equity for the six-month period ended June 30, 2006

Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2006 and June 30, 2005

Notes to Unaudited Condensed Interim Consolidated Financial Statements

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

Item 3 -Quantitative and Qualitative Disclosures about Market Risk

Item 4 -Controls and Procedures

Part II- OTHER INFORMATION

Item 1-Legal Proceedings

Item 1A-Risk Factors

Item 2-Unregistered Sales of Equity Securities and Use of Proceeds

Item 3-Defaults Upon Senior Securities

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

Item 5-Other Information

Item 6- Exhibits

Signatures

BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, except share and per share data)

(unaudited)

					June 30,	December 31,
Assets					2006	2005


Cash and due from banks				$	13,672	12,000
Securities available for sale, at fair value					34,509	38,212
Securities held to maturity (fair value of $4,799 on June 30, 2006, and $5,339 on December 31, 2005)					5,054	5,459
Loans held for sale					92	269

Loans					152,940	149,127
	Less: allowance for loan losses				1,471	1,376

			Loans, net		151,469	147,751

Federal Home Loan Bank stock					1,250	1,248
Premises and equipment, net					10,432	9,007
Accrued interest receivable					977	864
Bank-owned life insurance					6,378	6,257
Goodwill					2,219	1,949
Other intangible assets, net					1,096	1,154
Other assets					4,379	4,334

			Total assets	$	231,527	228,504

Liabilities and Shareholders' Equity

Liabilities:
	Deposits:
		Demand		$	32,860	32,739
		Savings and money market			93,963	90,750
		Time			51,333	51,049

					178,156	174,538

	Escrow deposits				1,118	1,344
	Short-term debt				176	148
	Long-term debt				21,872	21,972
	Other liabilities				4,354	4,355

			Total liabilities		205,676	202,357


Shareholders' equity:
	Preferred stock, $0.01 par value, 1,000,000 shares authorized, at June 30, 2006
		and December 31, 2005, no shares issued			—	—
	Common stock, $0.01 par value, 5,000,000 shares authorized, 2,846,342 and
		2,863,689 shares issued at June 30, 2006 and December 31, 2005			28	29
	Additional paid-in capital				18,242	18,364
	Unvested restricted stock awards, 20,007 shares at December 31, 2005				—	(277)
	Treasury stock, at cost, 554,510 shares at June 30, 2006 and December 31, 2005				(7,251)	(7,251)
	Unallocated common stock held by Employee Stock Ownership Plan (ESOP)
		28,169 and 33,087 shares at June 30, 2006 and December 31, 2005			(85)	(101)
	Retained earnings				15,264	15,465
	Accumulated other comprehensive loss				(347)	(82)

			Total shareholders' equity		25,851	26,147

			Total liabilities and shareholders' equity	$	231,527	228,504

	See accompanying notes to consolidated interim financial statements.

BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except share data)

(unaudited)

				Three Months ended June 30,			Six Months ended June 30,
				2006	2005		2006	2005
Interest and dividend income:
	Loans		$	2,496	2,015	$	4,871	3,905
	Securities			472	615		953	1,242
	Federal funds sold and other short-term investments			52	30		91	43

		Total interest and dividend income		3,020	2,660		5,915	5,190

Interest expense:
	Deposits and escrow accounts			952	604		1,815	1,122
	Borrowings			210	217		419	500

		Total interest expense		1,162	821		2,234	1,622

		Net interest income		1,858	1,839		3,681	3,568

Provision for loan losses				124	126		241	242

		Net interest income after provision for loan losses		1,734	1,713		3,440	3,326

Noninterest income:
	Service charges			641	606		1,272	1,208
	Net (loss) gain on securities transactions			—	70		(5)	70
	Net gains on sale of loans			20	11		31	40
	Increase in value of bank-owned life insurance			61	53		121	106
	Insurance commissions and fees			477	469		856	634
	Other			149	87		283	254

		Total noninterest income		1,348	1,296		2,558	2,312

Noninterest expenses:
	Salaries and employee benefits			1,438	1,314		2,869	2,552
	Occupancy and equipment			372	348		781	690
	Data processing			249	244		490	467
	Office supplies, printing and postage			60	63		125	124
	Professional fees			473	214		624	344
	Director fees			58	38		101	82
	Marketing and advertising			66	59		114	117
	Other			312	324		583	622

		Total noninterest expenses		3,028	2,604		5,687	4,998

Income before income tax expense				54	405		311	640

Income tax expense				65	66		98	111

		Net income (loss)	$	(11)	339	$	213	529

Basic net income per share			$	—	0.14	$	0.09	0.22

Diluted net income per share			$	—	0.14	$	0.09	0.21

BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity

Six months ended June 30, 2006

(In thousands, except share and per share data)

(unaudited)

				Common stock	Additional paid-in capital	Unvested restricted stock awards	Treasury stock	Unallocated common stock held by ESOP	Retained earnings
										Accumulated other compre- hensive income (loss)	Total



Balance at December 31, 2005			$	29	18,364	(277)	(7,251)	(101)	15,465	(82)	26,147
Reclass of unvested restricted stock awards on adoptions of SFAS 123R (20,007 shares)				(1)	(276)	277	—	—	—	—	—
Cash dividends ($0.18 per share)				—	—	—	—	—	(414)	—	(414)
Amortization of restricted stock, net of cancellations (3,700 shares)				—	42	—	—	—	—	—	42
Amortization of stock option expense				—	24	—	—	—	—	—	24
Excess tax benefit on vested restricted stock				—	8	—	—	—	—	—	8
Allocation of ESOP stock (4,918 shares)				—	80	—	—	16	—	—	96
Comprehensive income:
	Net income			—	—	—	—	—	213	—	213
	Other comprehensive loss			—	—	—	—	—	—	(265)	(265)
		Total comprehensive loss									(52)
Balance at June 30, 2006			$	28	18,242	—	(7,251)	(85)	15,264	(347)	25,851

See accompanying notes to consolidated interrim financial statements

BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

							Six months ended June 30,
							2006	2005
Cash flows from operating activities:
	Net income					$	213	529
	Adjustments to reconcile net income to net cash provided by
		operating activities:
			Depreciation				357	343
			Provision for loan losses				241	242
			Net loss (gain) on securities transactions				5	(70)
			Net gain on sale of loans				(31)	(40)
			Net increase in cash surrender value of life insurance				(121)	(106)
			Net amortization of securities premiums				38	68
			Proceeds from sale of loans held for sale				2,980	4,325
			Loans originated for sale				(2,772)	(4,463)
			Amortiztion of stock option expense				24	—
			Excess tax benefit on vested restricted stock and exercised stock options				—	31
			ESOP stock released for allocation and amortization of restricted stock				138	139
			Amortization of other intangible assets				58	40
			Change in:
				Accrued interest receivable			(113)	41
				Other assets			133	(9)
				Other liabilities			(1)	189

					Net cash provided by operating activities		1,149	1,259

Cash flows from investing activities:
	Proceeds from sale of securities available for sale						3,995	5,253
	Proceeds from maturity of and principal collected on securities available for sale						1,381	3,256
	Proceeds from maturity of and principal collected on securities held to maturity						404	525
	Purchases of securities available for sale						(2,158)	—
	Proceeds from (purchase) sale of Federal Home Loan Bank of New York stock						(2)	405
	Net increase in loans net of principal collections						(3,959)	(5,816)
	Purchase of insurance agency						(270)	(1,496)
	Purchases of premises and equipment						(1,782)	(321)

					Net cash (used) provided by investing activities		(2,391)	1,806

Cash flows from financing activities:
	Net increase in demand, savings and money market deposits						3,334	10,111
	Net increase in time deposits						284	2,067
	Net decrease in escrow deposits						(226)	(156)
	Net increase (decrease) in short-term borrowing						28	(3,515)
	Repayment of long-term debt						(100)	(4,284)
	Net proceeds from the exercise of stock options						—	27
	Excess tax benefit on vested restricted stock						8	—
	Purchase of treasury stock						—	(4,953)
	Dividends on common stock						(414)	(354)

					Net cash (used in) provided by financing activities		2,914	(1,057)

Net increase in cash and cash equivalents							1,672	2,008

Cash and cash equivalents at beginning of period							12,000	7,956

Cash and cash equivalents at end of period						$	13,672	9,964

Supplemental disclosure of cash flow information:
	Cash paid during the year for:
		Interest				$	2,236	1,652
		Income taxes					179	88

	Non-cash investing and financing activities:
		Transfer of loans to real estate owned				$	—	35
		Adjustment of securities available for sale to fair value, net of taxes					(265)	(99)

Acquisition of financial service company:
		Fair value of non-cash assets acquired in purchase acquisition				$	—	151
		Fair value of non-cash liabilities assumed in acquisition					—	(1,039)

See accompanying notes to consolidated interim financial statements.

BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Interim Financial Statements

June 30, 2006

(1)	Basis of presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Bridge Street Financial, Inc. (“OCNB” or the “Company”) and its wholly owned subsidiaries, Oswego County National Bank (the “Bank”) and, as of March 1, 2005, Ladd’s Agency, Inc., an insurance agency with offices in North Syracuse and Auburn, New York. All significant intercompany balances and transactions have been eliminated in consolidation. The statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all material adjustments necessary for fair presentation, consisting of normal accruals and adjustments have been made in the accompanying statements. The results of operations for the interim periods presented should not be considered indicative of results that may be expected for an entire fiscal year or any other interim period. The accompanying unaudited condensed consolidated interim financial statements are intended to be read in conjunction with the Company’s audited financial statements and footnotes for the year ended December 31, 2005 included in the annual report on Form 10-K.

(2)	Earnings per share

Basic and diluted earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the period (exclusive of unallocated ESOP shares). Diluted earnings per share is computed by adding to weighted average shares outstanding the number of potentially issuable shares under the Company’s stock option and restricted stock plan, under the treasury stock method. The following table summarizes the number of shares utilized in the Company’s earnings per share calculations for the periods covered in the financial statements.

Number of shares utilized	Three months ended June 30,		Six months ended June 30,
in per share computations	2006	2005	2006	2005
For basic earnings per share	2,260,488	2,423,234	2,258,299	2,458,359

Added for: Stock options	72,269	69,181	73,748	72,196
Restricted stock	3,283	2,829	3,548	3,319

For diluted earnings per share	2,336,040	2,495,244	2,335,595	2,533,874

(3)	Other comprehensive income (loss)

The following summarizes the components of other comprehensive income (loss) for the three-month and six-month periods ended June 30, 2006 and 2005:

	Three months ended June 30,						Six months ended June 30,
	2006			2005			2006			2005
	(In thousands)
Other comprehensive income, before tax:
Net unrealized holding (loss) gain on securities
arising during the period	$	(446	)		605			(446	)		(95	)

Reclassification adjustment for securities
(loss) gains included in net income		-			(70	)		5			(70	)
Other comprehensive income (loss) before tax		(446	)		535			(441	)		(165	)


Income tax benefit (expense) related to items
of other comprehensive income		178			(214	)		176			66
Other comprehensive income (loss), net of tax	$	(268	)		321			(265	)		(99	)

(4)	Stock based compensation

Compensation expense is recognized for the Company’s Employee Stock Ownership Plan (“ESOP”) equal to the average fair value of shares committed to be released for allocation to participant accounts. Any difference between the average fair value of the shares committed to be released for allocation and the ESOP’s original acquisition cost is charged or credited to shareholders’ equity (additional paid-in capital). The cost of unallocated ESOP shares (shares not yet released for allocation) is reflected as a reduction of shareholders’ equity.

The Company applies Statement of Financial Accounting Standards ("SFAS") No. 123R, Accounting for Stock-Based Compensation, and related interpretations in accounting for its stock option plan. As of January 1, 2006, the Company began to expense these grants as required by SFAS No. 123R. Prior to January 1, 2006, the Company accounted for stock options granted in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, for fixed stock option awards, compensation expense was recognized only if the exercise price of the option was less than the fair value of the underlying stock at the grant date. All options granted had exercise prices equal to the stock's fair market value at the time of grant.

The Company elected the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all new awards granted, awards modified after the date of adoption and unvested awards outstanding under previous grants as of January 1, 2006. During the quarter ended June 30, 2006 and for the six months ended June 30, 2006, no stock options were exercised, forfeited or awarded by the Company, and the Company recognized total non-cash stock-based compensation cost of $12,000 and $24,800, respectively, for unvested options outstanding as of January 1, 2006. As of June 30, 2006, the total remaining unrecognized compensation cost related to unvested stock options was $100,000, which has a weighted average remaining life of two years.

A summary of option information for the three months ended June 30, 2006 is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
June 30, 2006	Shares		Price		Term (Yrs)		Value
Outstanding		143,503	$	9.13		5.9	$	1,643,000

Exercisable		89,159	$	7.06		5.2	$	1,205,000

Pro forma disclosures for the three-month and six-month periods ended June 30, 2005, utilizing the estimated fair value of the options granted, are as follows (dollars in thousands, except per share data):

				Three months	Six months
				ended June 30,	ended June 30,
				2005	2005
Net income
	As reported		$	339	529

Add:		Stock based compensation for restricted stock,
		net of tax		15	32

Deduct:		Total stock-based compensation expense
		determined under fair value based method
		for all awards, net of tax		23	50
	Pro forma net income		$	331	511


Basic earnings per share:
	As reported			0.14	0.22
	Pro forma			0.14	0.21

Diluted earnings per share:
	As reported			0.14	0.21
	Pro forma			0.13	0.20

(5) Obligations under guarantees

The Company does not issue any guarantees that would require liability recognition or disclosures, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Since a portion of these instruments will expire unused, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance-sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Outstanding commitments on standby letters of credit at June 30, 2006 and June 30, 2005 were approximately $250,000 and $368,000, respectively. The fair value of the Company’s standby letters of credit at June 30, 2006 and 2005 was insignificant.

(6) Pension and Other Postretirement Plans

The following table sets forth the components of net periodic benefit cost for the Company’s defined benefit pension plan and the other postretirement benefit plan for the three-month and six-month periods ended June 30, 2006 and 2005.

	Three months ended June 30,										Six months ended June 30,

	Pension Benefits						Other Postretirement Benefits				Pension Benefits						Other Postretirement Benefits
	2006			2005			2006		2005		2006			2005			2006		2005
	(In thousands)
Service cost	$	51			56			-		-		102			112			-		-

Interest cost		69			69			12		12		138			138			24		24

Expected return on assets		(104	)		(87	)		-		-		(208	)		(174	)		-		-

Amortization of transition obligation		-			-			3		3		-			-			6		6

Amortization of net loss		13			19			1		-		26			38			2		-

Net periodic benefit cost	$	29			57			16		15		58			114			32		30

For the fiscal year ending December 31, 2006, the Company expects to contribute approximately $95,000 and $52,000 to the defined benefit pension plan and the postretirement plan, respectively.

(7) Segment Information

The Company has two business segments, banking and financial services. The financial service segment consists of the insurance agency business acquired as of March 1, 2005. The banking segment includes the results of the Company excluding the financial services. Selected operating information for those segments follows:

	Three months ended June 30, 2006									Three months ended June 30, 2005
				Financial			Consolidated					Financial			Consolidated
	Bank			services			total			Bank		services			total
	(In thousands)
Net interest income	$	1,868			(10	)		1,858			1,850		(11	)		1,839
Provision for loan losses		124			-			124			126		-			126

Net interest income after provision for loan losses		1,744			(10	)		1,734			1,724		(11	)		1,713

Noninterest income		867			481			1,348			827		469			1,296
Noninterest expense		2,604			424			3,028			2,162		442			2,604

Income before income taxes		7			47			54			389		16			405
Income tax expense (benefit)		47			18			65			60		6			66
Net income (loss)	$	(40	)		29			(11	)		329		10			339

	Six months ended June 30, 2006							Six months ended June 30, 2005
			Financial			Consolidated				Financial			Consolidated
	Bank		services			total		Bank		services			total
	(In thousands)
Net interest income	$	3,701		(20	)		3,681		3,583		(15	)		3,568
Provision for loan losses		241		-			241		242		-			242

Net interest income after provision for loan losses		3,460		(20	)		3,440		3,341		(15	)		3,326

Noninterest income		1,686		872			2,558		1,678		634			2,312
Noninterest expense		4,827		860			5,687		4,410		588			4,998

Income before income taxes		319		(8	)		311		609		31			640
Income tax expense (benefit)		101		(3	)		98		99		12			111
Net income (loss)	$	218		(5	)		213		510		19			529

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

This discussion contains certain forward-looking statements based on current expectations, estimates and projections about the Company’s industry, and management’s beliefs and assumptions. Words such as “should,” “anticipates,” “assumes,” “expects,” “intends,” “plans,” “believes,” “estimates,” “projects” and variations of such words and expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance and are subject to risks and uncertainties that are difficult to forecast. Therefore, actual results may differ materially from those expressed or forecast in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information or otherwise.

Overview

Bridge Street Financial, Inc. (the “Company”) reported a net loss of $11,000 for the quarter ended June 30, 2006 compared to net income of $339,000 for the same period in 2005. The loss in the quarter ended June 30, 2006 was the result of $347,000 of expenses related to the planned acquisition of the Company by Alliance Financial Corporation and an increase in the effective tax rate due to the non-deductibility of acquisition related expenses. Results for the second quarter of 2006 as compared to the same period in 2005 reflect a $19,000 increase in net interest income, a $52,000 increase in noninterest income and a $424,000 increase in noninterest expense. Noninterest income in the second quarter of 2005 included $70,000 of net securities gains on securities transaction as compared to no gains on securities transactions in 2006. For the six-month period ended June 30, 2006, the Company reported net income of $213,000 compared to $529,000 for the same period in 2005.

The Company’s total assets increased $3.0 million to $231.5 million at June 30, 2006 compared to $228.5 million at December 31, 2005. The increase in total assets resulted from a $3.8 million increase in loans, a $1.7 million increase in cash and due from banks, and a $1.4 million increase in premises and equipment, net, which were partially offset by a $4.1 million decrease in securities. Deposits increased $3.6 million to $178.1 million at June 30, 2006 compared to $174.5 million at December 31, 2005.

Financial Condition

Bridge Street Financial’s total assets increased $3.0 million or 1.3% to $231.5 million at June 30, 2006 compared to total assets of $228.5 million at December 31, 2005. The increase in total assets during the six months ended June 30, 2006 was due primarily to a $1.7 million increase in cash, a $3.8 million increase in loans, a $270,000 increase in goodwill and a $1.4 million increase in premises and equipment, net, which were partially offset by a $4.1 million decrease in securities. The increase in goodwill was the result of a first year performance payment to Ladds Agency’s previous shareholder as required under the Ladds Agency purchase agreement. The increase in premises and equipment, net was due to capital funding for a replacement branch being constructed in Oswego, New York. Total liabilities increased $3.3 million at June 30, 2006 compared to December 31, 2005 primarily due to a $3.6 million increase in deposits, which were partially offset by a seasonal decrease in escrow deposits of $226,000 and a reduction in borrowing of $72,000.

Total securities decreased $4.1 million to $39.6 million at June 30, 2006 compared to $43.7 million at December 31, 2005. Other equity securities available for sale decreased $3.9 million and municipal securities decreased $0.2 million. The decrease in securities is primarily the result of the sale of securities to provide funds for loan growth.

The following table presents the composition of the Company’s securities portfolio at the dates indicated.

	June 30,		December 31,
	2006		2005
	(In thousands)
Securities available for sale (fair value)
U.S. Government sponsored enterprises obligations	$	3,348		3,405
Municipal securities		16,575		16,812
Mortgage-backed securities		14,206		13,727
Other equity securities		380		4,268

Total securities	$	34,509		38,212

Securities held to maturity (amortized cost)
Mortgage-backed securities	$	5,054		5,459

Total loans increased by $3.8 million or 2.6% to $152.9 million at June 30, 2006 from $149.1 million at December 31, 2005. Commercial mortgages and commercial loans increased $4.6 million or 6.9% to $70.3 million at June 30, 2006 from $65.7 million at December 31, 2005 and consumer loans increased $0.2 million, which were partially offset by a $1.0 million decrease in residential mortgages at June 30, 2006 as compared to December 31, 2005. The decrease in residential mortgage loans is due primarily to principal payments and a reduction in new loan originations as a result of the current regional and national softening of residential mortgage activity.

The following table presents the composition of the Company’s loan portfolio by type of loan at the dates indicated.

	June 30,		December 31,
Loans	2006		2005
	(In thousands)
Residential mortgage
and home equity	$	72,198		73,206
Commercial mortgage		41,547		38,179
Commercial		28,752		27,558
Consumer		10,443		10,184

	$	152,940		149,127

In addition to the previously mentioned loan balances, the Company had $92,000 of loans held for sale on June 30, 2006 compared to $269,000 at December 31, 2005. The loans held for sale consisted of fixed rate residential mortgages and are carried at the lower of aggregate cost or market value.

The Company's deposits increased by $3.6 million to $178.2 million at June 30, 2006 compared to $174.5 million at December 31, 2005. Savings and money market deposits increased $3.2 million, time deposits increased $0.3 million and demand deposits increased $0.1 million. Additionally, escrow deposits reflect a seasonal decrease of $0.2 million at June 30, 2006 compared to December 31, 2005.

Shareholders' equity decreased $296,000 at June 30, 2006 to $25.9 million from $26.1 million at December 31, 2005. The decrease in shareholders' equity was primarily due to a $265,000 increase in other comprehensive loss and a $201,000 reduction in retained earnings that resulted from dividend payments exceeding net income, which were partially offset by an increase of $170,000 from the allocation of ESOP shares and the amortization of restricted stock and stock options.

At June 30, 2006, nonperforming assets were 0.54% of total assets as compared to 0.45% at December 31, 2005. The following table presents a breakdown of the Company’s nonperforming assets.

Nonperforming assets	June 30,			December 31,
(Dollars in thousands)	2006			2005
Nonaccrual loans	$	1,239			1,030
Restructured commercial mortgage loans		-			-
Nonperforming loans		1,239			1,030

Other real estate		0			6
Nonperforming assets	$	1,239			1,036

Nonperforming assets to total assets		0.54	%		0.45	%
Allowance for loan losses to nonperforming loans		118.72	%		133.59	%

While management views the current level of nonperforming assets to be manageable, future experience may be affected by regional and national economic conditions, underwriting judgments and business and personal factors affecting the Company’s customers. The increase in nonperforming loans at June 30, 2006 compared to December 31, 2005 is primarily the result of two commercial accounts which management believes have temporally moved to a nonaccrual status. Although the allowance for loan losses is maintained at a level that management believes, to the best of its knowledge, is at a level at June 30, 2006, to cover known and inherent losses in the loan portfolio that are both probable and reasonably estimable, similar factors will determine the level of the allowance in future periods. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examinations.

Results of Operations for the Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005

The Company incurred a net loss of $11,000 for the three months ended June 30, 2006 compared to net income of $339,000 for the three months ended June 30, 2005. The net loss for the three months ended June 30, 2006 was the result of $347,000 of expenses related to the acquisition of the Company by Alliance Financial Corporation and an increase in the effective tax rate due to the non-deductibility of the acquisition expenses. For the three months ended June 30, 2006 compared to the three months ended June 30, 2005, net interest income increased $19,000 and noninterest income increased $52,000, which were partially offset by a $424,000 increase in noninterest expenses. Return on average equity was negative 0.17% in the three-month period of 2006 compared to 4.82% in the three-month period ended June 30, 2005. Return on average assets was negative 0.02% for the three-month period ended June 30, 2006 compared to 0.61% in the same period of 2005.

Net Interest Income

Net interest income increased $19,000 to $1,858,000 in the three months ended June 30, 2006 from $1,839,000 in the three months ended June 30, 2005. The increase in net interest income during the three-month period was the result of increased interest income which exceeded an increase in interest expense. Interest income increased $360,000 and interest expense increased $341,000. The Company's net interest rate margin on a tax equivalent basis of 4.04% for the second quarter of 2006 decreased 12 basis points from the same three-month period of 2005 and decreased 3 basis points from the first quarter of 2006. For the three months ended June 30, 2006, net interest income on a tax equivalent basis increased $104,000 due to increases in volume of interest earning assets and interest bearing liabilities and decreased $108,000 from changes in interest rates.

Interest Income

Interest income increased $360,000 to $3.0 million for the three months ended June 31, 2006 compared to $2.7 million for the same period in 2005. The increase in interest income is due primarily to a 52 basis point improvement in yield on average interest earning assets on a tax equivalent basis in 2006 compared to 2005 and a $5.4 million increase in average interest earning assets. Interest income on a tax equivalent basis increased by $337,000, or 12.0%, to $3.2 million in the three months ended June 30, 2006 compared to the same period in 2005. The increase in interest income resulted from a $485,000 increase in interest income on loans and a $22,000 increase in income from federal funds sold and other short-term investments, which were partially offset by a $170,000 decrease in income from investments. The increase in loan interest income resulted from a $15.6 million increase in the balances of average loans and an increase in the average yield on loans to 6.66% in 2006 from 6.00% in 2005. The decrease in securities interest income resulted from a decrease of $10.4 million in average securities in 2006 compared to the same period in 2005, and a 19 basis point decrease in average yield in 2006 to 5.60% from 5.79% in the same period in 2005.

Interest Expense

Interest expense increased by $341,000 to $1.2 million for the three months ended June 30, 2006 compared to $821,000 for the three months ended June 30, 2005. The increase in interest expense primarily resulted from higher average balances of deposits and higher rates on deposits and borrowings, which was partially offset by lower average balances on borrowings. Average interest bearing deposit balances increased $8.3 million or 6.1% compared to 2005. The average balance for borrowings decreased $1.4 million for the second quarter of 2006 compared to the same period in 2005. The average rate on deposits increased 87 basis points and the average rate on borrowing increased 10 basis points for the three months ended June 30, 2006 compared the same period in 2005. The increase in deposit and borrowing rates is the result of the current interest rate trends.

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

	For the three months ended June 30, 2006								For the three months ended June 30, 2005
(Dollars in thousands)	Average					Average			Average					Average
	Balance		Interest			Yield/Rates			Balance		Interest			Yield/Rates
Interest earnings assets:
Loan, gross (1)	$	151,563	$	2,517			6.66	%	$	135,931	$	2,032			6.00	%
Securities, at amortized cost (2)		41,649		581			5.60	%		52,014		751			5.79	%
Federal funds sold and other		4,274		52			4.88	%		4,094		30			2.94	%

Total interest earning assets		197,486		3,150			6.40	%		192,039		2,813			5.88	%

Noninterest earning assets		30,796								29,877

Total assets		228,282								221,916

Interest bearing liabilities;
Savings, NOW, money market (3)		92,394		467			2.03	%		81,360		216			1.06	%
Time deposits		51,155		485			3.80	%		53,875		388			2.89	%
Borrowings		22,082		210			3.81	%		23,450		217			3.71	%

Total interest bearing liabilities		165,631		1,162			2.81	%		158,685		821			2.08	%

Noninterest bearing deposits		31,916								31,040
Other noninterest liabilities		4,475								3,993

Total liabilities		202,022								193,718
Shareholders' equity		26,260								28,198

Total liabilities and equity		228,282								221,916

Excess of earnings assets over interest bearing liabilities		31,855								33,354

Net interest income				1,988								1,992

Tax equivalent adjustment				(130	)							(153	)

Net interest income per consolidated financial statements				1,858								1,839

Net interest rate spread							3.58	%							3.80	%
Net interest rate margin (4)							4.04	%							4.16	%
Average interest-earning assets to average interest-bearing liabilities							119.23	%							121.02	%

___________________________________________________________________________________________

(1)	Includes nonaccruing loans.

(2)	Includes tax equivalent adjustment for tax-exempt loans and securities income assuming a 40% combinedfederal and state income tax rate. Average balance represents the mortized cost of securities excluding net unrealized gains or losses.

(3)	Includes advance payments by borrowers for taxes and insurance (mortgage escrow deposits).

(4)	Equals net interest income divided by average interest-earning assets.

Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected the Company’s interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), and (ii) changes in rate (change in rate multiplied by prior year volume). The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

	Three Months Ended
	June 30, 2006
	Compared to
	Three Months Ended
	June 30, 2005
	Increase/(Decrease)
(In thousands)	Due to
	Volume			Rate			Net
Interest income:
Loans	$	248		$	237		$	485
Securities		(146	)		(24	)		(170	)
Federal funds sold and other		1			21			22
Total interest income		103			234			337


Interest expense
Savings, NOW and money
market deposits		32			219			251
Time deposits		(20	)		117			97
Borrowings		(13	)		6			(7	)
Total interest expense		(1	)		342			341

Increase (decrease) in net
interest income	$	104		$	(108	)	$	(4	)

Provision for Loan Losses

The provision for loan losses was $124,000 in the three month ended June 30, 2006, compared to $126,000 for the same period in 2005. Charge-offs net of recoveries during the three months ended June 30, 2006 were $91,000 compared to $82,000 in the same in 2005. The Company records charge-offs as a result of loan customers on various commercial and consumer loans being delinquent with future payment doubtful. Requirements for allowance provisions are based on management's assessment of inherent losses in these portfolios based upon specific credit review and analysis of past-due, non-performing, historical losses and local economic trends. The allowance for loan losses as a percentage of ending loans was 0.96% at June 30, 2006 compared to 0.92% at December 31, 2005.

Noninterest Income

Noninterest income increased $52,000 to $1,348,000 for the three months ended June 30, 2006 compared to $1,296,000 for the same period in 2005. The increase in noninterest income was due primarily to a $35,000 increase in service charges, a $9,000 increase in net gains on sale of loans, a $8,000 increase in the value of bank-owned life insurance, a $8,000 increase in insurance commissions and a $62,000 increase in other income, which was partially offset by a $70,000 reduction in net gains on securities transactions.

Noninterest Expense

Noninterest expense increased during the three months ended June 30, 2006 by $424,000 to $3.0 million compared $2.6 million for the three months ended June 30, 2005. The increase in noninterest expense is primarily the result of a $347,000 of expense incurred for costs associated with the acquisition of the Company by Alliance Financial Corporation.

Income Taxes

Income tax expense for the three months ended June 30, 2006 was $65,000 compared to income tax expense of $66,000 for the same period in 2005. The decrease in income tax expense was due to a lower income before income tax expense and a higher effective income tax rate in 2006 compared to the same period in 2005. The effective income tax rate is higher in 2006 due to the non-deductibility of the previously mentioned cost associated with the acquisition of the Company by Alliance Financial Corporation. The expected 2006 income tax rate is below statutory rates due primarily to favorable tax benefits from tax-exempt income on securities and income from bank-owned life insurance.

Results of Operations for the Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Net income was $213,000 for the six months ended June 30, 2006 compared to net income of $529,000 for the six months ended June 30, 2005. The reduction in net income for the six months ended June 30, 2006 was primarily the result of $347,000 of expenses related to the acquisition of the Company by Alliance Financial Corporation and an increase in the effective tax rate due to the non-deductibility of the acquisition expenses. For the six months ended June 30, 2006 compared to the six months ended June 30, 2005, net interest income increased $113,000 and noninterest income increased $246,000, which were partially offset by a $689,000 increase in noninterest expenses. Return on average equity was 1.62% in the six-month period of 2006 compared to 3.64% in the six-month period ended June 30, 2005. Return on average assets was 0.19% for the six-month period ended June 30, 2006 compared to 0.49% in the same period of 2005.

Net Interest Income

Net interest income increased $113,000 to $3,681,000 in the six months ended June 30, 2006 from $3,568,000 in the six months ended June 30, 2005. The increase in net interest income during the six-month period was the result of increased interest income which exceeded an increase in interest expense. Interest income increased $725,000 and interest expense increased $612,000. The Company's net interest rate margin on a tax equivalent basis of 4.06% for the six months ended June 30, 2006 reflected an increase of 1 basis point from the same six-month period of 2005. For the six months ended June 30, 2006, net interest income on a tax equivalent basis increased $162,000 due to increases in volume of interest earning assets and interest bearing liabilities and decreased $89,000 from changes in interest rates.

Interest Income

Interest income increased $725,000 to $5.9 million for the six months ended June 30, 2006 compared to $5.2 million for the same period in 2005. The increase in interest income is due primarily to a 60 basis point improvement in yield on average interest earning assets on a tax equivalent basis in 2006 compared to 2005 and a $3.5 million increase in average interest earning assets. Interest income on a tax equivalent basis increased by $685,000, or 12.5%, to $6.2 million in the six months ended June 30, 2006 compared to the same period in 2005. The increase in interest income resulted from a $979,000 increase in interest income on loans and a $48,000 increase in income from federal funds sold and other short-term investments, which were partially offset by a $342,000 decrease in income from investments. The increase in loan interest income resulted from a $15.3 million increase in the balances of average loans and an increase in the average yield on loans to 6.60% in 2006 from 5.89% in 2005. The decrease in securities interest income resulted from a decrease of $12.5 million in average securities in 2006 compared to the same period in 2005, which was partially offset by 2 basis point increase in average yield in 2006 to 5.62% from 5.60% in the same period in 2005.

Interest Expense

Interest expense increased by $612,000 to $2.2 million for the six months ended June 30, 2006 compared to $1.6 million for the six months ended June 30, 2005. The increase in interest expense primarily resulted from higher average balances of deposits and higher rates on deposits, which was partially offset by lower average balances on borrowings. Average interest bearing deposit balances increased $12.5 million or 9.6% compared to 2005. The average balance for borrowings decreased $3.8 million for the six-month period ended June 30, 2006 compared to the same period in 2005. The average rate on deposits increased 83 basis points and the average rate on borrowing decreased 8 basis points for the six months ended June 30, 2006 compared the same period in 2005. The increase in deposit and borrowing rates is the result of the current interest rate trends.

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

	For the six months ended June 30, 2006								For the six months ended June 30, 2005
(Dollars in thousands)	Average					Average			Average					Average
	Balance		Interest			Yield/Rates			Balance		Interest			Yield/Rates
Interest earnings assets:
Loan, gross (1)	$	150,143	$	4,915			6.60	%	$	134,821	$	3,936			5.89	%
Securities, at amortized cost (2)		42,206		1,177			5.62	%		54,708		1,519			5.60	%
Federal funds sold and other		3,966		91			4.63	%		3,254		43			2.66	%

Total interest earning assets		196,315		6,183			6.35	%		192,783		5,498			5.75	%

Noninterest earning assets		30,575								26,979

Total assets		226,890								219,762

Interest bearing liabilities;
Savings, NOW, money market (3)		91,844		885			1.94	%		76,782		378			0.99	%
Time deposits		50,697		930			3.70	%		53,308		744			2.81	%
Borrowings		22,179		419			3.81	%		25,949		500			3.89	%

Total interest bearing liabilities		164,720		2,234			2.73	%		156,039		1,622			2.10	%

Noninterest bearing deposits		31,372								30,450
Other noninterest liabilities		4,356								3,949

Total liabilities		200,448								190,438
Shareholders' equity		26,442								29,324

Total liabilities and equity		226,890								219,762

Excess of earnings assets over interest bearing liabilities		31,595								36,744

Net interest income				3,949								3,876

Tax equivalent adjustment on securities				(268	)							(308	)
Net interest income per consolidated financial statements				3,681								3,568

Net interest rate spread							3.62	%							3.65	%
Net interest rate margin (4)							4.06	%							4.05	%
Average interest-earning assets to average interest-bearing liabilities							119.18	%							123.55	%

___________________________________________________________________

(1)	Includes nonaccruing loans.

(2)	Includes tax equivalent adjustment for tax-exempt loans and securities income assuming a 40% combined federal and state income tax rate. Average balance represents the amortized cost of securities excluding net unrealized gains or losses.

(3)	Includes advance payments by borrowers for taxes and insurance (mortgage escrow deposits).

(4)	Equals net interest income divided by average interest-earning assets.

Rate/Volume Analysis

	Six Months Ended
	June 30, 2006
	Compared to
	Six Months Ended
	June 30, 2005
	Increase/(Decrease)
(In thousands)	Due to
	Volume			Rate			Net
Interest income:
Loans	$	475		$	504		$	979
Securities		(347	)		5			(342	)
Federal funds sold and other		11			37			48
Total interest income		139			546			685


Interest expense
Savings, NOW and money
market deposits		86			421			507
Time deposits		(38	)		224			186
Borrowings		(71	)		(10	)		(81	)
Total interest expense		(23	)		635			612

Increase (decrease) in net
interest income	$	162		$	(89	)	$	73

Provision for Loan Losses

The provision for loan losses was $241,000 in the six month ended June 30, 2006, as compared to $242,000 for the same period in 2005. Charge-offs net of recoveries during the six months ended June 30, 2006 were $147,000 as compared to $206,000 in the same in 2005. The Company records charge-offs as a result of loan customers on various commercial and consumer loans being delinquent with future payment doubtful. Requirements for allowance provisions are based on management's assessment of inherent losses in these portfolios based upon specific credit review and analysis of past-due, non-performing, historical losses and local economic trends. The allowance for loan losses as a percentage of ending loans was 0.96% at June 30, 2006 as compared to 0.92% at December 31, 2005.

Noninterest Income

Noninterest income increased $246,000 to $2,558,000 for the six months ended June 30, 2006 compared to $2,312,000 for the same period in 2005. The increase in noninterest income was due primarily to a $222,000 increase in insurance commissions, a $64,000 increase in service fees and a $29,000 increase in other income, which were partial offset by a $75,000 reduction in net gains on securities transactions. The increase in insurance commission income was primarily the result of there being two additional months on income in the six month period of 2006 as compared to the period in 2005.

Noninterest Expense

Noninterest expense increased during the six months ended June 30, 2006 by $689,000 to $5.7 million compared $5.0 million for the six months ended June 30, 2005. The increase in noninterest expense is primarily the result of a $347,000 of expense incurred for costs associated with the acquisition of the Company by Alliance Financial Corporation and a $278,000 increase in expense from Ladds Agency. The increase in the Ladds Agency noninterest expense was primarily the result of there being two additional months of noninterest expense in the six-month period ended June 30, 2006 compared to the same period in 2005.

Income Taxes

Income tax expense for the six months ended June 30, 2006 was $98,000 compared to income tax expense of $111,000 for the same period in 2005. The decrease in income tax expense was due to a lower income before income tax expense and a higher effective income tax rate in 2006 compared to the same period in 2005. The effective income tax rate is higher in 2006 due to the non-deductibility of the previously mentioned cost associated with the acquisition of the Company by Alliance Financial Corporation. The expected 2006 income tax rate is below statutory rates due primarily to favorable tax benefits from tax-exempt income on securities and income from bank-owned life insurance.

Liquidity and Capital Resources

The Company’s liquidity, represented by cash, cash equivalents, securities available for sale and potential borrowings, is a product of its operating, investing and financing activities. The primary sources of funds are deposits and borrowings; the amortization, prepayment and maturity of outstanding loans, securities and other short-term investments; and funds provided from operations. While scheduled payments from the amortization of loans, maturing securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, the Company invests excess funds in federal funds sold and other short-term interest-earning assets that provide liquidity to meet lending requirements. The Company also utilizes borrowings to fund a portion of its asset growth.

Excess liquidity is generally invested in short-term investments such as federal funds sold or U.S. Treasury securities. On a longer term basis, the Company maintains a strategy of investing in various lending products. Such products frequently have short terms (five years or less) or interest rates that adjust at least every five years. Funds are utilized to meet ongoing commitments to pay maturing certificates of deposit and savings withdrawals, fund loan commitments and to maintain a portfolio of investment securities. At June 30, 2006, the Company had outstanding commitments to originate loans of approximately $16.4 million and unused standby letters of credit of approximately $250,000. At June 30, 2006, the Company also had certificates of deposit scheduled to mature in one year or less totaling $35.8 million. Based on historical experience, management believes that a significant portion of maturing deposits will remain with the Company. It is anticipated that the Company will continue to have sufficient deposit funds and available borrowings to meet its current commitments.

At June 30, 2006, the Company had total borrowings from the FHLB of $21.6 million. Also available to the Company are overnight and one-month borrowing facilities with the FHLB, each in the amount of $21.9 million, an overnight credit plus line of $4.6 million with the FHLB and a $5.0 million overnight line of credit with a commercial bank.

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking regulators. Failure to meet minimum capital requirements could result in certain mandatory and discretionary responses by regulators that could have a material effect on the Company's financial condition and results of operations. In addition, the ability of the Company and the Bank to pay dividends is subject to regulations administered by the banking agencies. At June 30, 2006, the Company and the Bank exceeded the capital requirements set forth by the regulators for well capitalized organizations.

Off Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements that have, or in management’s opinion, are reasonably likely to have, a current or future effect on the Company’s financial condition, revenue or expenses, results of operations, liquidity, capital resources or expenditures that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s most significant type of market risk is interest rate risk. The primary focus of the Company’s interest rate risk policy is to manage the exposure of net interest income to changes in interest rates. The Company monitors interest rate sensitivity through the use of a net interest income model, which projects estimates of changes in net income over a range of interest rate scenarios.

The following table as of June 30, 2006 presents the estimated impact on the Company’s net interest income resulting from changes in the interest rates during the next twelve months. These estimates require making certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities. These assumptions are inherently uncertain and therefore the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may be significantly different due to timing, magnitude and frequency of interest rate changes and changes in market conditions.

				Net Interest Income
					Dollar	Percentage
Change in Interest Rates				Estimated	Change	Change
in Basis Points				Amount	from Base	From Base
	+	200	$	8,302	(15)	(0.18)	%
	+	100		8,314	(3)	(0.04)
		Base		8,317	-	0.00
	-	100		8,272	(45)	(0.54)
	-	200		8,236	(81)	(0.97)

Item 4. Controls and Procedures

Management, including the Company’s President and Chief Executive Officer and the Company’s Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Company’s management, including the Company’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

The following risk factors are in addition to the risk factors set forth in the Company’s Form 10-K for the year ended December 31, 2005.

Completion of the proposed merger with Alliance Financial Corporation is subject to various closing conditions, involves significant costs and will require considerable attention from our management.

The completion of the proposed merger with Alliance Financial Corporation is subject to the satisfaction of various closing conditions, including the approval by our shareholders as well as the shareholders of Alliance Financial Corporation. Although our board of directors will, subject to fiduciary exceptions, recommend that the our shareholders approve and adopt the merger agreement by and between the Company and Alliance, we cannot assure you that the merger agreement and the merger will be approved, or that the other conditions to the completion of the merger will be satisfied. Successful completion of the merger will require the attention of our management and may divert their attention away from our operations. In addition, the merger agreement restricts us from taking specified actions without Alliance Financial Corporation approval. These restrictions could prevent us from pursuing attractive business opportunities that may arise prior to the completion of the merger.

Failure to complete the proposed merger could negatively impact stock price, future business and financial results

If the merger is not completed, we will be subject to several risks, including the following:

·	under certain circumstances, if the merger is not completed, we may be required to pay Alliance a termination fee of $2,200,000;

·	certain costs relating to the merger, such as legal, accounting and financial advisory fees, will be payable by us whether or not the merger is completed; and

the current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could have a negative impact on our reputation in the financial services industry, in the investment community and with our depositors and borrowers and, as a result, the market price of our common stock could decline.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company made no repurchases of the Company’s stock during the second quarter of 2006.

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit	Description
2.1	Amended Plan of Conversion and Agreement and Plan of Reorganization. (1)
2.2	Agreement and Plan of Merger by and between Alliance Financial Corporation and Bridge Street Financial, Inc. (4)
3.1	Certificate of Incorporation of Bridge Street Financial, Inc. (1)
3.2	Bylaws of Bridge Street Financial, Inc. (1)
3.3	Articles of Association of Oswego County National Bank. (1)
3.4	Bylaws of Oswego County National Bank. (1)
4.1	Certificate of Incorporation of Bridge Street Financial, Inc. (1)
4.2	Bylaws of Bridge Street Financial, Inc. (1)
4.3	Form of Stock Certificate of Bridge Street Financial, Inc. (1)
10.1	Employee Stock Ownership Plan of Oswego County Bancorp, Inc. (1)
10.2	Stock Purchase Agreement, dated as of March 1, 2005, by and among Bridge Street Financial, Inc., and Robert J. Rowe, Christine Romagnoli, Eileen Cassidy, and Michael Monica.(4)
10.3	Form of Employment Agreement between Bridge Street Financial, Inc. and Gregory J. Kreis. (1)
10.4	Form of One Year Change in Control Agreement by and among certain officers and Bridge Street Financial, Inc. and Oswego County National Bank. (1)
10.5	Directors Supplemental Retirement Benefit Plan, dated March 15, 2000 (2)
10.6	Executive Supplemental Retirement Income Agreement, dated March 15, 2000, between Oswego County National Bank and Gregory J. Kreis. (2)
10.7	Trust Agreement dated as of February 1, 2000 between Oswego County National Bank and Security Federal Savings Bank. (2)
10.8	First Amendment to the Executive Supplemental Retirement Income Agreement between Oswego County National Bank and Gregory J. Kreis, dated May 18, 2000. (1)
10.9	Oswego County Bancorp, Inc. Stock Option Plan. (1)
10.10	Oswego County Bancorp, Inc. Restricted Stock Plan. (1)
10.11	Second Amendment to the Executive Supplemental Retirement Income Agreement between Oswego County National Bank and Gregory J. Kreis, dated January 4, 2006. (5)
31	Rule 13a - 14(a)/15d - 14(a) Certifications
32	Section 1350 Certifications

(1)	Incorporated herein by reference to the Registration Statement on Form S-1, No. 333-99347, of Bridge Street Financial filed with the SEC on September 9, 2002, as amended.

(2)	Incorporated herein by reference to the Registration Statement on Form S-8, No. 333-101421, filed with the SEC on November 22, 2002, as amended.

(3)	Incorporated by reference to the Annual Report on Form 10-KSB filed with the SEC on March 30, 2004.

(4)	Incorporated by reference to the Current Report on Form 8-K filed with the SEC on April 25, 2006.

(5)	Incorporated by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2006.

SIGNATURES

Pursuant to the requirements 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.

		Bridge Street Financial, Inc.


Date:	August 11, 2006	By:	/s/ Gregory J. Kreis
			Gregory J. Kreis
			President and Chief Executive Officer

Date:	August 11, 2006	By:	/s/ Eugene R. Sunderhaft
			Eugene R. Sunderhaft
			Senior Vice President and Chief Financial Officer

EXHIBIT 31

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gregory J. Kreis, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bridge Street Financial, Inc. (the “Company”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5.	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	August 11, 2006	By:	/s/ Gregory J. Kreis
			Gregory J. Kreis
			President and Chief Executive Officer

EXHIBIT 31

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eugene R. Sunderhaft, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bridge Street Financial, Inc. (the “Company”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and

5.	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	August 11, 2006	By:	/s/ Eugene R. Sunderhaft
			Eugene R. Sunderhaft
			Chief Financial Officer

EXHIBIT 32

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, Gregory J. Kreis, is the President and Chief Executive Officer of Bridge Street Financial, Inc. (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the “Report”).

By execution of this statement, I certify that:

A)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), and

B)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date:	August 11, 2006	By:	/s/ Gregory J. Kreis
			Gregory J. Kreis
			President and Chief Executive Officer

EXHIBIT 32

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, Eugene R. Sunderhaft, is the Senior Vice President and Chief Financial Officer of Bridge Street Financial, Inc. (the “Company”).

This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the “Report”).

By execution of this statement, I certify that:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	August 11, 2006	By:	/s/ Eugene R. Sunderhaft
			Eugene R. Sunderhaft
			Senior Vice President and Chief Financial Officer

BRIDGE STREET FINANCIAL INC 10-Q