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**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION **

**Washington,      DC  20549 **

**FORM      10-Q **

**(Mark      One) **

| **x**  | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES **EXCHANGE                ACT OF 1934****                                                                                                                                                                                                                     |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **For                the quarterly period ended March 31, 2007**                                                                                                                                                                                                                                                                                  |
|   | **OR**                                                                                                                                                                                                                                                                                                                                                 |
| **o**  | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES **EXCHANGE                ACT OF 1934****                                                                                                                                                                                                                    |
|   | **For                the transition period                from                     to                         ** |
|   | **Commission                file number: 000-51214**                                                                                                                                                                                                                                                                                                   |

**Prudential        Bancorp, Inc. of Pennsylvania**

| **Pennsylvania**                                                                   |   | **68-0593604**                                      |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or Other Jurisdiction of Incorporation or Organization)      |   | (I.R.S.                Employer Identification No.) |
|                                                                               |   |                                                |
| **1834                Oregon Avenue****Philadelphia,                Pennsylvania** |   | **19145**                                           |
| (Address                of Principal Executive Offices)                            |   | (Zip                Code)                           |

**(215)        755-1500**

| Large                accelerated filer o | Accelerated                filer o | Non-accelerated                filer x |
|------------------------------------------|------------------------------------|----------------------------------------|

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**PRUDENTIAL      BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES**

**TABLE      OF CONTENTS**

|                                             |                                                                                                                                                                                             | PAGE   |
|--------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                             |                                                                                                                                                                                             |   |
| **PART                I FINANCIAL INFORMATION:** |
|                                             |                                                                                                                                                                                             |   |
| Item                1.                           | Condensed                Financial Statements                                                                                                                                                    |   |
|                                             |                                                                                                                                                                                             |   |
|                                             | Unaudited                Consolidated Statements of Financial Condition at March 31, 2007                and                September 30, 2006                                                   | 2      |
|                                             |                                                                                                                                                                                             |   |
|                                             | Unaudited                Consolidated Statements of Income for the Three and Six Months Ended                March                31, 2007 and 2006                                              | 3      |
|                                             |                                                                                                                                                                                             |   |
|                                             | Unaudited                Consolidated Statement of Changes in Stockholders’ Equity and                Comprehensive Income for the Six Months Ended March 31, 2007 and                2006 | 4      |
|                                             |                                                                                                                                                                                             |   |
|                                             | Unaudited                Consolidated Statements of Cash Flows for the Six Months Ended March                31,                2007 and 2006                                                    | 5      |
|                                             |                                                                                                                                                                                             |   |
|                                             | Notes                to Consolidated Unaudited Financial Statements                                                                                                                              | 6      |
|                                             |                                                                                                                                                                                             |   |
| Item                2.                           | Management's                Discussion and Analysis of Financial Condition and Results of Operations                                                                                             | 18     |
|                                             |                                                                                                                                                                                             |   |
| Item                3.                           | Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                        | 26     |
|                                             |                                                                                                                                                                                             |   |
| Item                4.                           | Controls                and Procedures                                                                                                                                                           | 29     |
|                                             |                                                                                                                                                                                             |   |
| **PART                II OTHER INFORMATION**     |
|                                             |                                                                                                                                                                                             |   |
| Item                1.                           | Legal                Proceedings                                                                                                                                                                 | 30     |
|                                             |                                                                                                                                                                                             |   |
| Item                1A.                          | Risk                Factors                                                                                                                                                                      | 30     |
|                                             |                                                                                                                                                                                             |   |
| Item                2.                           | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                       | 30     |
|                                             |                                                                                                                                                                                             |   |
| Item                3.                           | Defaults                Upon Senior Securities                                                                                                                                                   | 31     |
|                                             |                                                                                                                                                                                             |   |
| Item                4.                           | Submission                of Matters to a Vote of Security Holders                                                                                                                               | 31     |
|                                             |                                                                                                                                                                                             |   |
| Item                5.                           | Other                Information                                                                                                                                                                 | 32     |
|                                             |                                                                                                                                                                                             |   |
| Item                6.                           | Exhibits                                                                                                                                                                                         | 32     |
|                                             |                                                                                                                                                                                             |   |
| SIGNATURES                                       | 33                                                                                                                                                                                               |

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| **PRUDENTIAL                  BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES**                                                                                       |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                 |   |   |   |   |   |
| **UNAUDITED                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**                                                                                        |   |   |
|                                                                                                                                                                 |   |   |   |   |   |
|                                                                                                                                                                 |   | **March                  31,** |   | **September                  30,** |   |
|                                                                                                                                                                 |   | **2007** |   | **2006** |   |
|                                                                                                                                                                 |   | **(Dollars                  in Thousands)** |   |
| **ASSETS**                                                                                                                                                           |   |   |   |   |   |   |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| Cash                  and amounts due from depository institutions                                                                                                   |   | $ | 6,597 |   | $ | 5,743 |   |
| Interest-bearing                  deposits                                                                                                                           |   |   | 3,366 |   |   | 7,685 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                  cash and cash equivalents                                                                                                                     |   |   | 9,963 |   |   | 13,428 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| Investment                    securities held to maturity (estimated fair value—March 31, 2007,                    $129,313; September 30, 2006, $129,593)     |   |   | 131,300 |   |   | 132,084 |   |
| Investment                    securities available for sale (amortized cost—March 31, 2007,                    $38,007;  September 30, 2006, $38,007)     |   |   | 38,545 |   |   | 38,747 |   |
| Mortgage-backed                    securities held to maturity (estimated fair value— March 31, 2007,                    $47,997; September 30, 2006, $49,526) |   |   | 48,930 |   |   | 50,360 |   |
| Mortgage-backed                    securities available for sale (amortized cost— March 31, 2007, $4,204;                    September 30, 2006, $4,535)       |   |   | 4,295 |   |   | 4,615 |   |
| Loans                    receivable—net of allowance for loan losses (March 31, 2007, $693;                     September 30, 2006, $618)                 |   |   | 220,555 |   |   | 219,418 |   |
| Accrued                  interest receivable:                                                                                                                        |   |   |   |   |   |   |   |
| Loans                  receivable                                                                                                                                    |   |   | 1,253 |   |   | 1,251 |   |
| Mortgage-backed                  securities                                                                                                                          |   |   | 228 |   |   | 236 |   |
| Investment                  securities                                                                                                                               |   |   | 1,841 |   |   | 1,708 |   |
| Federal                  Home Loan Bank stock—at cost                                                                                                          |   |   | 2,117 |   |   | 2,217 |   |
| Office                  properties and equipment—net                                                                                                           |   |   | 1,631 |   |   | 1,721 |   |
| Prepaid                  expenses and other assets                                                                                                                   |   |   | 7,048 |   |   | 6,596 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| TOTAL                  ASSETS                                                                                                                                        |   | $ | 467,706 |   | $ | 472,381 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| **LIABILITIES                  AND RETAINED EARNINGS**                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| LIABILITIES:                                                                                                                                                         |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                            |   |   |   |   |   |   |   |
| Noninterest-bearing                                                                                                                                                  |   | $ | 4,802 |   | $ | 6,035 |   |
| Interest-bearing                                                                                                                                                     |   |   | 350,849 |   |   | 341,257 |   |
| Total                  deposits                                                                                                                                      |   |   | 355,651 |   |   | 347,292 |   |
| Advances                  from Federal Home Loan Bank                                                                                                                |   |   | 22,764 |   |   | 31,784 |   |
| Accrued                  interest payable                                                                                                                            |   |   | 1,547 |   |   | 2,893 |   |
| Advances                  from borrowers for taxes and insurance                                                                                                     |   |   | 1,268 |   |   | 1,230 |   |
| Accounts                  payable and accrued expenses                                                                                                               |   |   | 622 |   |   | 1,117 |   |
| Accrued                  dividend payable                                                                                                                            |   |   | 566 |   |   | 464 |   |
| Deferred                  income taxes, net                                                                                                                          |   |   | 216 |   |   | 153 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                                                                   |   |   | 382,634 |   |   | 384,933 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| COMMITMENTS                  AND CONTINGENCIES (Note 8)                                                                                                              |   |   |   |   |   |   |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| STOCKHOLDERS'                  EQUITY:                                                                                                                               |   |   |   |   |   |   |   |
| Preferred                  stock, $.01 par value, 10,000,000 shares authorized, none                  issued                                                         |   |   | - |   |   | - |   |
| Common                  stock, $.01 par value, 40,000,000 shares authorized, issued                  12,563,750;                                                     |   |   |   |   |   |   |   |
| outstanding                  - 11,813,950 at March 31, 2007; 12,064,320 at September 30,                  2006                                                       |   |   | 126 |   |   | 126 |   |
| Additional                  paid-in capital                                                                                                                          |   |   | 54,840 |   |   | 54,798 |   |
| Unearned                  ESOP shares                                                                                                                                |   |   | (4,015 | ) |   | (4,127 | ) |
| Treasury                  stock, at cost: 749,800 shares at March 31, 2007;                                                                                          |   |   |   |   |   |   |   |
| 499,430                  shares at September 30, 2006                                                                                                                |   |   | (9,837 | ) |   | (6,422 | ) |
| Retained                  earnings                                                                                                                                   |   |   | 43,543 |   |   | 42,539 |   |
| Accumulated                  other comprehensive income                                                                                                              |   |   | 415 |   |   | 534 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| Total                  stockholders' equity                                                                                                                          |   |   | 85,072 |   |   | 87,448 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| TOTAL                  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                          |   | $ | 467,706 |   | $ | 472,381 |   |
|                                                                                                                                                                 |   |   |   |   |   |   |   |
| See                  notes to unaudited consolidated financial statements.                                                                                           |   |   |   |   |   |   |   |

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| **PRUDENTIAL                  BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES** |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |   |   |   |   |   |   |   |   |
| **UNAUDITED                  CONSOLIDATED STATEMENTS OF INCOME**               |   |
|                                                                           |   |   |   |   |   |
|                                                                           |   | **Three                  Months Ended****March                  31,** |   | **Six                  Months Ended****March                  31,** |   |
|                                                                           |   | **2007** |   | **2006** |   | **2007** |   | **2006** |   |
|                                                                           |   | **(Dollars                  in Thousands Except Per****Share                  Amounts)** |   | **(Dollars                  in Thousands Except Per****Share                  Amounts)** |   |
| INTEREST                  INCOME:                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  on loans                                             |   | $ | 3,786 |   | $ | 3,075 |   | $ | 7,611 |   | $ | 5,955 |   |
| Interest                  on mortgage-backed securities                        |   |   | 702 |   |   | 807 |   |   | 1,413 |   |   | 1,652 |   |
| Interest                  and dividends on investments                         |   |   | 2,204 |   |   | 2,040 |   |   | 4,351 |   |   | 4,100 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  interest income                                         |   |   | 6,692 |   |   | 5,922 |   |   | 13,375 |   |   | 11,707 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST                  EXPENSE:                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  on deposits                                          |   |   | 3,250 |   |   | 2,563 |   |   | 6,453 |   |   | 4,988 |   |
| Interest                  on borrowings                                        |   |   | 324 |   |   | 191 |   |   | 715 |   |   | 386 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  interest expense                                        |   |   | 3,574 |   |   | 2,754 |   |   | 7,168 |   |   | 5,374 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                  INTEREST INCOME                                           |   |   | 3,118 |   |   | 3,168 |   |   | 6,207 |   |   | 6,333 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PROVISION                  FOR LOAN LOSSES                                     |   |   | 15 |   |   | - |   |   | 75 |   |   | - |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                    INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES         |   |   | 3,103 |   |   | 3,168 |   |   | 6,132 |   |   | 6,333 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST                  INCOME:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fees                  and other service charges                                |   |   | 153 |   |   | 132 |   |   | 298 |   |   | 278 |   |
| Gain                  on sale of real estate owned                             |   |   | - |   |   | 100 |   |   | - |   |   | 100 |   |
| Other                                                                          |   |   | 68 |   |   | 67 |   |   | 233 |   |   | 92 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  non-interest income                                     |   |   | 221 |   |   | 299 |   |   | 531 |   |   | 470 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST                  EXPENSE:                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                  and employee benefits                                |   |   | 1,147 |   |   | 1,126 |   |   | 2,263 |   |   | 2,218 |   |
| Data                  processing                                               |   |   | 134 |   |   | 114 |   |   | 253 |   |   | 241 |   |
| Professional                  services                                         |   |   | 215 |   |   | 151 |   |   | 443 |   |   | 227 |   |
| Office                  occupancy                                              |   |   | 94 |   |   | 79 |   |   | 182 |   |   | 149 |   |
| Depreciation                                                                   |   |   | 56 |   |   | 59 |   |   | 118 |   |   | 121 |   |
| Payroll                  taxes                                                 |   |   | 81 |   |   | 80 |   |   | 148 |   |   | 143 |   |
| Director                  compensation                                         |   |   | 67 |   |   | 70 |   |   | 138 |   |   | 139 |   |
| Other                                                                          |   |   | 328 |   |   | 326 |   |   | 599 |   |   | 595 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  non-interest expense                                    |   |   | 2,122 |   |   | 2,005 |   |   | 4,144 |   |   | 3,833 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME                  BEFORE INCOME TAXES                                    |   |   | 1,202 |   |   | 1,462 |   |   | 2,519 |   |   | 2,970 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME                  TAXES:                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                        |   |   | 261 |   |   | 440 |   |   | 563 |   |   | 955 |   |
| Deferred                  (benefit) expense                                    |   |   | (24 | ) |   | 67 |   |   | 95 |   |   | (26 | ) |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  income tax                                              |   |   | 237 |   |   | 507 |   |   | 658 |   |   | 929 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                  INCOME                                                    |   | $ | 965 |   | $ | 955 |   | $ | 1,861 |   | $ | 2,041 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BASIC                  EARNINGS PER SHARE                                      |   | $ | 0.08 |   | $ | 0.08 |   | $ | 0.16 |   | $ | 0.17 |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DILUTED                  EARNINGS PER SHARE                                    |   | $ | 0.08 |   | $ | 0.08 |   | $ | 0.16 |   | $ | 0.17 |   |
|                                                                           |   |
| See                  notes to unaudited consolidated financial statements.     |   |   |   |   |   |   |   |   |   |   |   |   |   |

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| **PRUDENTIAL                  BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES**                                                           |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **UNAUDITED                  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND                  COMPREHENSIVE INCOME** |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   | **Accumulated** |   |   |   |   |   |
|                                                                                                                                     |   |   |   | **Additional** |   | **Unearned** |   |   |   |   |   | **Other** |   | **Total** |   |   |   |
|                                                                                                                                     |   | **Common** |   | **Paid-In** |   | **ESOP** |   | **Treasury** |   | **Retained** |   | **Comprehensive** |   | **Stockholders'** |   | **Comprehensive** |   |
|                                                                                                                                     |   | **Stock** |   | **Capital** |   | **Shares** |   | **Stock** |   | **Earnings** |   | **Income** |   | **Equity** |   | **Income** |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                     |   | (Dollars                  in thousands) |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE,                  OCTOBER 1, 2006                                                                                                |   | $ | 126 |   | $ | 54,798 |   | $ | (4,127 | ) | $ | (6,422 | ) | $ | 42,539 |   | $ | 534 |   | $ | 87,448 |   |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,861 |   |   |   |   |   | 1,861 |   |   | 1,861 |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  unrealized holding loss on                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available                  for sale securities                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| arising                  during the period, net                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  income tax benefit of $72                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (119 | ) |   | (119 | ) |   | (119 | ) |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 1,742 |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Treasury                  stock purchased                                                                                                |   |   |   |   |   |   |   |   |   |   |   | (3,415 | ) |   |   |   |   |   |   |   | (3,415 | ) |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  dividends declared                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ($.09                  per share)                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,029 | ) |   |   |   |   | (1,029 | ) |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  adjustment related to                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| the                  adoption of SAB 108                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 172 |   |   |   |   |   | 172 |   |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ESOP                  shares committed to                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| be                  released                                                                                                             |   |   | - |   |   | 42 |   |   | 112 |   |   | - |   |   | - |   |   | - |   |   | 154 |   |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE,                  March 31, 2007                                                                                                 |   | $ | 126 |   | $ | 54,840 |   | $ | (4,015 | ) | $ | (9,837 | ) | $ | 43,543 |   | $ | 415 |   | $ | 85,072 |   |   |   |   |

|                                            |   |                                    |   |           |   |         |   |         |   |         |   | **Accumulated**   |   |              |   |              |   |
|-------------------------------------------------|--------|-----------------------------------------|--------|----------------|--------|--------------|--------|--------------|--------|--------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|
|                                            |   |                                    |   | **Additional** |   | **Unearned** |   |         |   |         |   | **Other**         |   | **Total**         |   |              |   |
|                                            |   | **Common**                              |   | **Paid-In**    |   | **ESOP**     |   | **Treasury** |   | **Retained** |   | **Comprehensive** |   | **Stockholders'** |   | **Comprehensive** |   |
|                                            |   | **Stock**                               |   | **Capital**    |   | **Shares**   |   | **Stock**    |   | **Earnings** |   | **Income**        |   | **Equity**        |   | **Income**        |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |
|                                            |   | (Dollars                  in thousands) |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |
| BALANCE,                  OCTOBER 1, 2005       |   | $                                       | 126    |           | $      | 54,734       |   | $            | (4,350 | )            | $      | (655              | )      | $                 | 40,595 |              | $      | 375 |   | $ | 90,825 |   |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:          |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Net                  income                     |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              | 2,041  |              |   |   |   |   | 2,041 |   |   | 2,041 |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Net                  unrealized holding loss on |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| available                  for sale securities  |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| arising                  during the period, net |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| of                  income tax benefit of $31   |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   | (58 | ) |   | (58 | ) |   | (58 | ) |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income           |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   | $ | 1,983 |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Treasury                  stock purchased       |   |                                    |   |           |   |         |   |         |   |         |   | (1,798            | )      |              |   |              |   |   |   |   | (1,798 | ) |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Cash                  dividends declared        |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| ($.08                  per share)               |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              | (957   | )                 |   |   |   |   | (957 | ) |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| ESOP                  shares committed to       |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| be                  released                    |   |                                    | -      |           |   | 26           |   |         | 112    |         |   | -                 |   |              | -      |              |   | - |   |   | 138 |   |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
|                                            |   |                                    |   |           |   |         |   |         |   |         |   |              |   |              |   |              |   |   |   |   |   |   |   |   |   |
| BALANCE,                  March 31, 2006        |   | $                                       | 126    |           | $      | 54,760       |   | $            | (4,238 | )            | $      | (2,453            | )      | $                 | 41,679 |              | $      | 317 |   | $ | 90,191 |   |   |   |   |

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| **PRUDENTIAL                  BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES**                                      |   |                                                                |
|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|
|                                                                                                                |   |                                                                |   |   |   |
| **UNAUDITED                  CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                |   |
|                                                                                                                |   |                                                                |   |
|                                                                                                                |   | **Six                  Months Ended****March                  31,** |   |
|                                                                                                                |   | **2007**                                                            |   | **2006** |   |
|                                                                                                                |   | (Dollars                  in thousands)                             |   |
| OPERATING                  ACTIVITIES:                                                                              |   |                                                                |   |   |   |   |   |
| Net                  income                                                                                         |   | $                                                                   | 1,861 |   | $ | 2,041 |   |
| Adjustments                    to reconcile net income to net cash used in operating                    activities: |   |                                                                |   |   |   |   |   |
| Provision                  for loan losses                                                                          |   |                                                                | 75 |   |   | - |   |
| Depreciation                                                                                                        |   |                                                                | 118 |   |   | 121 |   |
| Net                  accretion of premiums/discounts                                                                |   |                                                                | (40 | ) |   | (23 | ) |
| Net                  accretion of deferred loan fees and costs                                                      |   |                                                                | (201 | ) |   | (156 | ) |
| Amortization                  of ESOP                                                                               |   |                                                                | 153 |   |   | 138 |   |
| Gain                  on sale of real estate owned                                                                  |   |                                                                | - |   |   | (100 | ) |
| Income                  from bank owned life insurance                                                              |   |                                                                | (106 | ) |   | - |   |
| Deferred                  income tax expense (benefit)                                                              |   |                                                                | 95 |   |   | (26 | ) |
| Changes                  in assets and liabilities which (used) provided cash:                                      |   |                                                                |   |   |   |   |   |
| Accounts                  payable and accrued expenses                                                              |   |                                                                | (603 | ) |   | (1,076 | ) |
| Accrued                  interest payable                                                                           |   |                                                                | (1,345 | ) |   | (827 | ) |
| Prepaid                  expenses and other assets                                                                  |   |                                                                | (345 | ) |   | (4,137 | ) |
| Accrued                  interest receivable                                                                        |   |                                                                | (127 | ) |   | (188 | ) |
| Net                  cash used in by operating activities                                                           |   |                                                                | (465 | ) |   | (4,233 | ) |
| INVESTING                  ACTIVITIES:                                                                              |   |                                                                |   |   |   |   |   |
| Purchase                  of investment securities held to maturity                                                 |   |                                                                | (14,994 | ) |   | (6,227 | ) |
| Purchase                  of mortgage-backed securities held to maturity                                            |   |                                                                | (1,992 | ) |   | - |   |
| Loans                  originated or acquired                                                                       |   |                                                                | (31,872 | ) |   | (37,893 | ) |
| Principal                  collected on loans                                                                       |   |                                                                | 30,861 |   |   | 18,741 |   |
| Principal                  payments received on mortgage-backed securities:                                         |   |                                                                |   |   |   |   |   |
| Held-to-maturity                                                                                                    |   |                                                                | 3,769 |   |   | 6,358 |   |
| Available                  for sale                                                                                 |   |                                                                | 336 |   |   | - |   |
| Proceeds                  from calls/maturities of investment securities held to                  maturity          |   |                                                                | 15,787 |   |   | 1,000 |   |
| Purchase                  of Federal Home Loan Bank stock                                                           |   |                                                                | (373 | ) |   | - |   |
| Proceeds                  from redemption of Federal Home Loan Bank stock                                           |   |                                                                | 472 |   |   | 130 |   |
| Proceeds                  from the sale of real estate owned                                                        |   |                                                                | - |   |   | 460 |   |
| Purchases                  of equipment                                                                             |   |                                                                | (28 | ) |   | (50 | ) |
| Net                  cash provided by (used in) investing activities                                                |   |                                                                | 1,966 |   |   | (17,481 | ) |
| FINANCING                  ACTIVITIES:                                                                              |   |                                                                |   |   |   |   |   |
| Net                    decrease in demand deposits, NOW accounts, and savings                    accounts           |   |                                                                | (1,286 | ) |   | (3,793 | ) |
| Net                  increase in certificates of deposit                                                            |   |                                                                | 9,644 |   |   | 10,362 |   |
| Repayment                  of advances from Federal Home Loan Bank                                                  |   |                                                                | (9,020 | ) |   | (20 | ) |
| Increase                  in advances from borrowers for taxes and insurance                                        |   |                                                                | 38 |   |   | 72 |   |
| Cash                  dividends paid                                                                                |   |                                                                | (927 | ) |   | (957 | ) |
| Purchase                  of treasury stock                                                                         |   |                                                                | (3,415 | ) |   | (1,798 | ) |
| Net                  cash (used in) provided by financing activities                                                |   |                                                                | (4,966 | ) |   | 3,866 |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
| NET                  DECREASE IN CASH AND CASH EQUIVALENTS                                                          |   |                                                                | (3,465 | ) |   | (17,848 | ) |
|                                                                                                                |   |                                                                |  |   |   |  |   |
| CASH                  AND CASH EQUIVALENTS—Beginning of year                                                  |   |                                                                | 13,428 |   |   | 26,815 |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS—End of year                                                        |   | $                                                                   | 9,963 |   | $ | 8,967 |   |
| SUPPLEMENTAL                    DISCLOSURES OF CASH FLOW INFORMATION:                                               |   |                                                                |   |   |   |   |   |
| Interest                  paid on deposits and advances from Federal                                                |   |                                                                |   |   |   |   |   |
| Home                  Loan Bank                                                                                     |   | $                                                                   | 8,513 |   | $ | 6,201 |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
| Income                  taxes paid                                                                                  |   | $                                                                   | 653 |   | $ | 1,061 |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |
| See                  notes to unaudited consolidated financial statements.                                          |   |                                                                |   |   |   |   |   |
|                                                                                                                |   |                                                                |   |   |   |   |   |

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**PRUDENTIAL      BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

| **1.** | **BASIS                      OF PRESENTATION AND SIGNIFICANT ACCOUNTING                      POLICIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   | Prudential                      Bancorp, Inc. of Pennsylvania (the “Company”) is a Pennsylvania                      corporation, which was organized to be the mid-tier holding                      company for                      Prudential Savings Bank (the “Bank”), which is a Pennsylvania-chartered,                      FDIC-insured savings bank with six full service branches in                      the                      Philadelphia area. The Company was organized in conjunction                      with the                      Bank’s reorganization from a mutual savings bank to the mutual holding                      company structure in March 2005. The Bank is principally in                      the business                      of attracting deposits from its community through its branch                      offices and                      investing those deposits, together with funds from borrowings                      and                      operations, primarily in single-family residential loans and                      construction                      loans.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Prudential                      Mutual Holding Company, a Pennsylvania corporation, is the                      mutual holding                      company parent of the Company. Prudential Mutual Holding Company                      owns                      58.5% (6,910,062 shares) of the Company’s outstanding common stock as of                      March 31, 2007 and must always own at least a majority of the                      voting stock                      of the Company. In addition to the shares of the Company, Prudential                      Mutual Holding Company was capitalized with $100,000 in cash                      from the Bank                      in connection with the completion of the reorganization. The                      consolidated                      financial statements of the Company include the accounts of                      the Company                      and the Bank. In addition, Prudential Mutual Holding Company                      receives                      dividends on the common stock of the Company that it holds,                      and has                      incurred legal expenses related to the legal proceedings described                      in Part                      II, Item 1. All significant intercompany balances and transactions                      have                      been eliminated.                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Prior                      to the reorganization described above, the Board of Directors                      approved a                      plan of charter conversion in May 2004 pursuant to which the                      Bank would                      convert its charter from a Pennsylvania-chartered mutual savings                      and loan                      association to a Pennsylvania-chartered mutual savings bank.                      The                      conversion to a Pennsylvania-chartered mutual savings bank                      was completed                      on August 20, 2004. As a result of the charter conversion,                      the Bank’s                      primary federal banking regulator changed from the Office of                      Thrift                      Supervision to the Federal Deposit Insurance Corporation. The                      Pennsylvania                      Department of Banking remains as the Bank’s state banking                      regulator.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | In                      November 2005, the Bank formed PSB Delaware, Inc., a Delaware                      Corporation,                      as a subsidiary of the Bank. In March 2006, all mortgage-backed                      securities                      owned by the Company were transferred to PSB Delaware, Inc.                      The activity                      of PSB Delaware, Inc. is included as part of the consolidated                      financial                      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The                      accompanying unaudited consolidated financial statements were                      prepared in                      accordance with the instructions to Form 10-Q, and therefore                      do not                      include all the information or footnotes necessary for complete                      financial                      statements in conformity with accounting principles generally                      accepted in                      the United States of America. However, all normal recurring                      adjustments                      that, in the opinion of management, are necessary for a fair                      presentation                      of the financial statements have been included. The results                      for the three                      months and six months ended March 31, 2007 are not necessarily                      indicative                      of the results that may be expected for the fiscal year ending                      September                      30, 2007, or any other period. These financial statements should                      be read                      in conjunction with the audited consolidated financial statements                      of the                      Company and the accompanying notes thereto for the year ended                      September                      30, 2006 included in the Company’s Annual Report on Form 10-K for the                      fiscal year ended September 30, 2006. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ***Use                      of Estimates in the Preparation of Financial                      Statements****—*The                      preparation of financial statements in conformity with accounting                      principles generally accepted in the United States of America                      requires                      management to make estimates and assumptions that affect the                      reported                      amounts of assets and liabilities and the 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.                      The most                      significant estimates and assumptions in the Company’s consolidated                      financial statements are recorded in the allowance for loan                      losses and                      deferred income taxes. Actual results could differ from those                      estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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|   | ***Dividend                        Payable***                        -                        On March 21, 2007, the Company’s Board of Directors declared a quarterly                        cash dividend of $.05 on the common stock of the Company                        payable on April                        27, 2007 to the shareholders of record at the close of business                        on April                        13, 2007 which resulted in a payable of $566,000 at March                        31, 2007. A                        portion of the cash dividend was payable to Prudential Mutual                        Holding                        Company on the shares of the Company’s common stock it owns and totaled                        $346,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | ***Employee                        Stock Ownership Plan -***In                        fiscal 2005, the                        Company established an employee stock ownership plan (“ESOP”) for                        substantially all of its full-time employees.  The ESOP purchased                        452,295 shares of the Company’s common stock for an aggregate cost of                        approximately $4.5 million. Shares of the Company’s common stock purchased                        by the ESOP are held in a suspense account until released                        for allocation                        to participants. Shares are allocated to each eligible participant                        based                        on the ratio of each such participant’s compensation, as defined in the                        ESOP, to the total compensation of all eligible plan participants.                        As the                        unearned shares are released from the suspense account, the                        Company                        recognizes compensation                        expense equal to the fair value of the ESOP shares during                        the periods in                        which they become committed to be released. To the extent                        that the fair                        value of the ESOP shares released differs from the cost of                        such shares,                        the difference is charged or credited to equity as adjustments                        to                        additional paid-in capital. As of March 31, 2007, the Company                        had                        allocated a total of 39,585 shares from the suspense account                        to                        participants and committed to release an additional 5,655                        shares. For the                        six months ended March 31, 2007, the Company recognized $153,000                        in                        compensation expense. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | ***Treasury                        Stock -***Stock                        held in treasury by the Company is accounted for using the                        cost method,                        which treats stock held in treasury as a reduction to total                        stockholders’                        equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | ***Comprehensive                        Income***—The                        Company presents in the unaudited consolidated statement                        of changes in                        stockholders’ equity and comprehensive income those amounts from                        transactions and other events which currently are excluded                        from the                        statement of income and are recorded directly to stockholders’ equity. For                        the six months ended March 31, 2007 and 2006 the only components                        of                        comprehensive income were net income and unrealized holding                        gains and                        losses, net of income tax expense and benefit, on available                        for sale                        securities. Comprehensive income totaled $1,742,000 and $1,983,000                        for the                        six months ended March 31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | ***Recent                        Accounting Pronouncements -***                        On                        July 13, 2006, the FASB issued Interpretation No. 48, "Accounting                        for                        Uncertainty in Income Taxes" ("FIN 48"), which is effective                        for fiscal                        years beginning after December 15, 2006. FIN 48 clarifies                        the accounting                        for uncertainty in income taxes recognized in the financial                        statements in                        accordance with FASB Statement No. 109, "Accounting for Income                        Taxes."                        This Interpretation prescribes a comprehensive model for                        how a company                        should recognize, measure, present and disclose in its financial                        statements uncertain tax positions that the company has taken                        or expects                        to take on a tax return. The Company is currently assessing                        the impact of                        FIN 48 on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In                        September 2006, the the Financial Accounting Standards Board                        (“FASB”)                        issued SFAS No. 157, “Fair Value Measurement.” SFAS No. 157 defines fair                        value, establishes a framework for measuring fair value in                        generally                        accepted accounting principles, and expands disclosures about                        fair value                        measurements. This Statement does not require any new fair                        value                        measurements. SFAS No. 157 is effective for fiscal years                        beginning after                        November 15, 2007 and interim periods within those fiscal                        years. The                        Company is currently assessing the impact of SFAS No. 157                        on its financial                        statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In                        September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for                        Defined Benefit Pension and Other Postretirement Plans—an amendment of                        FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an                        employer to recognize in its statement of financial position                        an asset for                        a plan’s overfunded status or a liability for a plan’s underfunded status,                        measure a plan’s assets and its obligations that determine its funded                        status as of the end of the employer’s fiscal year, and recognize changes                        in the funded status of a defined benefit postretirement                        plan in the year                        in which the changes occur. Those changes will be reported                        in                        comprehensive income and as a separate component of stockholders’ equity.                        SFAS No. 158 is effective for publicly held companies for                        fiscal years                        ending after December 15, 2006. The Bank participates in                        a                        mutiple-employer defined benefit plan. Implementation of                        SFAS No. 158 did                        not have any impact on our financial position, results of                        operations and                        cash flows because it is not applicable to mutiple-employer                        defined                        benefit plans.                                                                                                                                                                                                                                                                                                                                                                                                                   |

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|   | In                        September 2006, the Securities and Exchange Commission (“SEC”) issued SAB                        No. 108 expressing the SEC staff’s views regarding the process of                        quantifying financial statement misstatements and the build                        up of improper                        amounts on the balance sheet. SAB No. 108 requires that registrants                        quantify errors using both a balance sheet and income statement                        approach                        and evaluate whether either approach results in a misstated                        amount that,                        when all relevant quantitative and qualitative factors are                        considered, is                        material. The built up misstatements, while not considered                        material in the                        individual years in which the misstatements were built up,                        may be                        considered material in a subsequent year if a company were                        to correct                        those misstatements through current period earnings. Initial                        application                        of SAB No. 108 allows registrants to elect not to restate                        prior periods                        but to reflect the initial application in their annual financial                        statements covering the first fiscal year ending after November                        15, 2006.                        The cumulative effect of the initial application should be                        reported in the                        carrying amounts of assets and liabilities as of the beginning                        of that                        fiscal year and the offsetting adjustment, net of tax, should                        be made to                        the opening balance of retained earnings for that year. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | The                        Company implemented SAB No. 108 on October 1, 2006 which                        resulted in an                        increase in mortgage-backed securities held to maturity of                        approximately                        $321,000, an increase in income tax liabilities of approximately                        $149,000                        and a cumulative adjustment to increase retained earnings                        as of that date                        by approximately $172,000. The adjustment relates to two                        separate                        accounting entries. The first entry pertains to the method                        of accounting                        that was utilized in past years for the recognition of investment                        income                        on mortgage-backed securities. Prior to fiscal 2006, the                        Company used the                        straight line method over the contractual life of the securities                        rather                        than using the effective yield method prescribed by SFAS                        No. 91,                        “Accounting for Nonrefundable Fees and Costs Associated with                        Originating                        or Acquiring Loans and Initial Direct Costs of Leases”. The impact of this                        entry was the correction of an understatement of mortgage-backed                        securities by approximately $321,000 and a corresponding                        understatement of                        income tax payable of $109,000. The second entry relates                        to a write off of                        a deferred tax asset of approximately $40,000 that was incorrectly                        accounted for in prior periods.                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | In                        prior periods, management performed a quantitative and qualitative                        analysis of the differences between these two methods of                        accounting and                        concluded that there was not a material impact on any past                        individual                        quarter or annual reporting periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | In                        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for                        Financial Assets and Financial Liabilities”. The statement provides                        companies with an option to report selected financial assets                        and                        liabilities at fair value. This statement is effective as                        of the beginning                        of an entity’s first fiscal year that begins after November 15, 2007.                        Early adoption is permitted under certain circumstances.                        The Company is                        currently assessing the impact of SFAS No. 159 on its financial                        statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

----

| **2.** | **EARNINGS              PER              SHARE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Basic                earnings per common share is computed based on the weighted average                number                of shares outstanding. Diluted earnings per share is computed based                on the                weighted average number of shares outstanding and common                share equivalents ("CSEs") that would arise from the exercise of                dilutive                securities. As of March 31, 2007 the Company did not issue and does                not                have outstanding any CSEs. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                calculated basic and diluted earnings per share are as                follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|                                                         |   | **For                  the Quarter Ended****March                  31, 2007** |       | **For                  the Quarter Ended****March                  31, 2006** |   |
|--------------------------------------------------------------|--------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|--------|
|                                                         |   | **Basic**                                                                     |       | **Diluted**                                                                   |   | **Basic** |   | **Diluted** |   |
|                                                         |   | **(Dollars                  in thousands except per share data)**             |       |
| Net                  income                                  |   | $                                                                             | 965        |                                                                          | $      | 965 |   | $ | 955 |   | $ | 955 |   |
|                                                         |   |                                                                          |       |                                                                          |   |   |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding used in |   |                                                                          |       |                                                                          |   |   |   |   |   |   |   |   |   |
| basic                  earnings per share computation        |   |                                                                          | 11,542,235 |                                                                          |   | 11,542,235 |   |   | 12,029,487 |   |   | 12,029,487 |   |
| Effect                  of CSEs                              |   |                                                                          | -          |                                                                          |   | - |   |   | - |   |   | - |   |
| Adjusted                  weighted average shares used in    |   |                                                                          |       |                                                                          |   |   |   |   |   |   |   |   |   |
| diluted                  earnings per share computation      |   |                                                                          | 11,542,235 |                                                                          |   | 11,542,235 |   |   | 12,029,487 |   |   | 12,029,487 |   |
|                                                         |   |                                                                          |       |                                                                          |   |   |   |   |   |   |   |   |   |
| Earnings                  per share - basic and diluted      |   | $                                                                             | 0.08       |                                                                          | $      | 0.08 |   | $ | 0.08 |   | $ | 0.08 |   |
|                                                         |   |                                                                          |       |                                                                          |   |   |   |   |   |   |   |   |   |

|                                                         |   | **For                  the Six Months Ended****March                  31, 2007** |       | **For                  the Six Months Ended****March                  31, 2006** |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|--------|
|                                                         |   | **Basic**                                                                        |       | **Diluted**                                                                      |   | **Basic** |   | **Diluted** |   |
|                                                         |   | **(Dollars                  in thousands except per share data)**                |       |
| Net                  income                                  |   | $                                                                                | 1,861      |                                                                             | $      | 1,861 |   | $ | 2,041 |   | $ | 2,041 |   |
|                                                         |   |                                                                             |       |                                                                             |   |   |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding used in |   |                                                                             |       |                                                                             |   |   |   |   |   |   |   |   |   |
| basic                  earnings per share computation        |   |                                                                             | 11,585,158 |                                                                             |   | 11,585,158 |   |   | 12,044,108 |   |   | 12,044,108 |   |
| Effect                  of CSEs                              |   |                                                                             | -          |                                                                             |   | - |   |   | - |   |   | - |   |
| Adjusted                  weighted average shares used in    |   |                                                                             |       |                                                                             |   |   |   |   |   |   |   |   |   |
| diluted                  earnings per share computation      |   |                                                                             | 11,585,158 |                                                                             |   | 11,585,158 |   |   | 12,044,108 |   |   | 12,044,108 |   |
|                                                         |   |                                                                             |       |                                                                             |   |   |   |   |   |   |   |   |   |
| Earnings                  per share - basic and diluted      |   | $                                                                                | 0.16       |                                                                             | $      | 0.16 |   | $ | 0.17 |   | $ | 0.17 |   |
|                                                         |   |                                                                             |       |                                                                             |   |   |   |   |   |   |   |   |   |

----

| **3.**  | **INVESTMENT                SECURITIES**                                                                                                              |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                  |
|         | The                amortized cost and fair value of securities, with gross unrealized                gains                and losses, are as follows: |

|                                                        |   | **March                  31, 2007**         |    |
|-------------------------------------------------------------|--------|---------------------------------------------|---------|
|                                                        |   |                                        |    | **Gross** |   | **Gross** |   | **Estimated** |   |
|                                                        |   | **Amortized**                               |    | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                                                        |   | **Cost**                                    |    | **Gains** |   | **Losses** |   | **Value** |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |
|                                                        |   | **(Dollars                  in thousands)** |    |
| Securities                  held to maturity:               |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Debt                  securities - U.S. Treasury securities |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| and                  securities of U.S. Government agencies |   | $                                           | 128,416 |   | $ | 12 |   | $ | (1,958 | ) | $ | 126,470 |   |
| Debt                  securities - Municipal bonds          |   |                                        | 2,884   |   |   | 3 |   |   | (44 | ) |   | 2,843 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Total                  securities held to maturity          |   | $                                           | 131,300 |   | $ | 15 |   | $ | (2,002 | ) | $ | 129,313 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Securities                  available for sale:             |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Debt                  securities - U.S. Treasury securities |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| and                  securities of U.S. Government agencies |   | $                                           | 2,999   |   | $ | - |   | $ | (50 | ) | $ | 2,949 |   |
| FNMA                  stock                                 |   |                                        | -       |   |   | 6 |   |   | - |   |   | 6 |   |
| Mutual                  fund                                |   |                                        | 34,982  |   |   | - |   |   | (965 | ) |   | 34,017 |   |
| FHLMC                  preferred stock                      |   |                                        | 26      |   |   | 1,547 |   |   | - |   |   | 1,573 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Total                  securities available for sale        |   | $                                           | 38,007  |   | $ | 1,553 |   | $ | (1,015 | ) | $ | 38,545 |   |

|                                                        |   | **September                  30, 2006**     |    |
|-------------------------------------------------------------|--------|---------------------------------------------|---------|
|                                                        |   |                                        |    | **Gross** |   | **Gross** |   | **Estimated** |   |
|                                                        |   | **Amortized**                               |    | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                                                        |   | **Cost**                                    |    | **Gains** |   | **Losses** |   | **Value** |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |
|                                                        |   | **(Dollars                  in thousands)** |    |
| Securities                  held to maturity:               |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Debt                  securities - U.S. Treasury securities |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| and                  securities of U.S. Government agencies |   | $                                           | 129,199 |   | $ | - |   | $ | (2,459 | ) | $ | 126,740 |   |
| Debt                  securities - Municipal bonds          |   |                                        | 2,885   |   |   | 6 |   |   | (38 | ) |   | 2,853 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Total                  securities held to maturity          |   | $                                           | 132,084 |   | $ | 6 |   | $ | (2,497 | ) | $ | 129,593 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Securities                  available for sale:             |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Debt                  securities - U.S. Treasury securities |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| and                  securities of U.S. Government agencies |   | $                                           | 2,999   |   | $ | - |   | $ | (64 | ) | $ | 2,935 |   |
| FNMA                  stock                                 |   |                                        | -       |   |   | 6 |   |   | - |   |   | 6 |   |
| Mutual                  fund                                |   |                                        | 34,982  |   |   | - |   |   | (930 | ) |   | 34,052 |   |
| FHLMC                  preferred stock                      |   |                                        | 26      |   |   | 1,728 |   |   | - |   |   | 1,754 |   |
|                                                        |   |                                        |    |   |   |   |   |   |   |   |   |   |   |
| Total                  securities available for sale        |   | $                                           | 38,007  |   | $ | 1,734 |   | $ | (994 | ) | $ | 38,747 |   |

----

|   | The                  following table shows the gross unrealized losses and related estimated                  fair values of the Company’s investment and mortgage-backed securities,                  aggregated by investment category and length of time that individual                  securities have been in a continuous loss position at March 31,                  2007: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | **Less                  than 12 months** |   | **More                  than 12 months** |   |
|--------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                                   |   | **Gross**                                |   | **Estimated**                            |   | **Gross** |   | **Estimated** |   |
|                                                   |   | **Unrealized**                           |   | **Fair**                                 |   | **Unrealized** |   | **Fair** |   |
|                                                   |   | **Losses**                               |   | **Value**                                |   | **Losses** |   | **Value** |   |
|                                                   |   | (Dollars                  in thousands)  |   |
| Securities                  held to maturity:          |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| U.S.                  Treasury and Government agencies |   | $                                        | 114    |                                     | $      | 13,881 |   | $ | 1,844 |   | $ | 109,577 |   |
| Municipal                  bonds                       |   |                                     | -      |                                     |   | - |   |   | 44 |   |   | 1,596 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                  securities held to maturity     |   |                                     | 114    |                                     |   | 13,881 |   |   | 1,888 |   |   | 111,173 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Securities                  available for sale:        |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| U.S.                  Treasury and Government agencies |   |                                     | -      |                                     |   | - |   |   | 50 |   |   | 2,949 |   |
| Mutual                  fund                           |   |                                     | -      |                                     |   | - |   |   | 965 |   |   | 34,017 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                  securities available for sale   |   |                                     | -      |                                     |   | - |   |   | 1,015 |   |   | 36,966 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                                                  |   | $                                        | 114    |                                     | $      | 13,881 |   | $ | 2,903 |   | $ | 148,139 |   |

|   | The                    following table shows the gross unrealized losses and related                    estimated                    fair values of the Company’s investment and mortgage-backed securities,                    aggregated by investment category and length of time that individual                    securities have been in a continuous loss position at September                    30,                    2006: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | **Less                  than 12 months** |   | **More                  than 12 months** |   |
|--------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                                   |   | **Gross**                                |   | **Estimated**                            |   | **Gross** |   | **Estimated** |   |
|                                                   |   | **Unrealized**                           |   | **Fair**                                 |   | **Unrealized** |   | **Fair** |   |
|                                                   |   | **Losses**                               |   | **Value**                                |   | **Losses** |   | **Value** |   |
|                                                   |   | (Dollars                  in thousands)  |   |
| Securities                  held to maturity:          |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| U.S.                  Treasury and Government agencies |   |                                     | 76     |                                     |   | 8,919 |   |   | 2,383 |   |   | 114,821 |   |
| Municipal                  bonds                       |   |                                     | -      |                                     |   | - |   |   | 38 |   |   | 1,601 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                  securities held to maturity     |   |                                     | 76     |                                     |   | 8,919 |   |   | 2,421 |   |   | 116,422 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Securities                  available for sale:        |   |                                     |   |                                     |   |   |   |   |  |   |   |   |   |
| U.S.                  Treasury and Government agencies |   |                                     | -      |                                     |   | - |   |   | 64 |   |   | 2,935 |   |
| Mutual                  fund                           |   |                                     | -      |                                     |   | - |   |   | 930 |   |   | 34,052 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                  securities available for sale   |   |                                     | -      |                                     |   | - |   |   | 994 |   |   | 36,987 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                                                  |   | $                                        | 76     |                                     | $      | 8,919 |   | $ | 3,415 |   | $ | 153,409 |   |
|                                                   |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |

----

|   | Management                      evaluates securities for other-than-temporary impairment at                      least on a                      quarterly basis, and more frequently when economic or market                      concerns                      warrant such evaluation.  For all securities that are in an                      unrealized loss position for an extended period of time and                      for all                      securities whose fair value is significantly below amortized                      cost, the                      Company performs an evaluation of the specific events attributable                      to the                      market decline of the security. The Company considers the length                      of time                      and extent to which the security’s market value has been below cost as                      well as the general market conditions, industry characteristics,                      and the                      fundamental operating results of the issuer to determine if                      the decline is                      other-than-temporary. The Company also considers as part of                      the evaluation                      its intent and ability to hold the security until its market                      value has                      recovered to a level at least equal to the amortized cost.                      When the                      Company determines that a security’s unrealized loss is                      other-than-temporary, a realized loss is recognized in the                      period in which                      the decline in value is determined to be other-than-temporary.                      The                      write-downs are measured based on public market prices of the                      security at                      the time the Company determines the decline in value was other-than                      temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | At                      March 31, 2007, securities in a gross unrealized loss position                      for twelve                      months or longer consist of 118 securities having an aggregate                      depreciation of 1.9% from the Company’s amortized cost basis. Securities                      in a gross unrealized loss position for less than twelve months                      consist of                      13 securities having an aggregate depreciation of 0.8% from                      the Company’s                      amortized cost basis. The unrealized losses disclosed above                      are primarily                      related to movement in market interest rates. Although the                      fair value will                      fluctuate as the market interest rates move, the majority of                      the Company’s                      investment portfolio consists of low risk securities from U.S.                      government                      agencies or government sponsored enterprises. If held to maturity,                      the                      contractual principal and interest payments of such securities                      are                      expected to be received in full. As such, no loss in value                      is expected                      over the lives of the securities. Although not all of the securities                      are                      classified as held to maturity, the Company has the ability                      to hold these                      securities until they mature and does not intend to sell the                      securities at                      a loss. The Company also has a significant investment in a                      mutual fund                      that invests in adjustable-rate mortgage-backed securities.                      Management                      believes that the estimated fair value of the mutual fund is                      also                      primarily dependent upon the movement in market interest rates.                      Although                      the investment in the mutual fund is classified as available                      for sale, the                      Company has the intent and ability to hold the mutual fund                      until the fair                      value increases and does not intend to sell it at a loss. Based                      on the                      above, management believes that the unrealized losses are temporary. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The                      amortized cost and estimated fair value of debt securities,                      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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                                              |   | **March                  31, 2007**     |    |
|---------------------------------------------------|--------|-----------------------------------------|---------|
|                                              |   | **Held                  to Maturity**   |    | **Available                  for Sale** |   |
|                                              |   |                                    |    | **Estimated** |   |   |   | **Estimated** |   |
|                                              |   | **Amortized**                           |    | **Fair** |   | **Amortized** |   | **Fair** |   |
|                                              |   | **Cost**                                |    | **Value** |   | **Cost** |   | **Value** |   |
|                                              |   | (Dollars                  in thousands) |    |
| Due                  within one year              |   | $                                       | 7,085   |   | $ | 7,065 |   | $ | - |   | $ | - |   |
| Due                  after one through five years |   |                                    | 28,999  |   |   | 28,681 |   |   | - |   |   | - |   |
| Due                  after five through ten years |   |                                    | 37,290  |   |   | 36,824 |   |   | 1,000 |   |   | 990 |   |
| Due                  after ten years              |   |                                    | 57,926  |   |   | 56,743 |   |   | 1,999 |   |   | 1,959 |   |
|                                              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Total                                             |   | $                                       | 131,300 |   | $ | 129,313 |   | $ | 2,999 |   | $ | 2,949 |   |

|                                              |   | **September                  30, 2006** |    |
|---------------------------------------------------|--------|-----------------------------------------|---------|
|                                              |   | **Held                  to Maturity**   |    | **Available                  for Sale** |   |
|                                              |   |                                    |    | **Estimated** |   |   |   | **Estimated** |   |
|                                              |   | **Amortized**                           |    | **Fair** |   | **Amortized** |   | **Fair** |   |
|                                              |   | **Cost**                                |    | **Value** |   | **Cost** |   | **Value** |   |
|                                              |   | (Dollars                  in thousands) |    |
| Due                  within one year              |   | $                                       | 13,085  |   | $ | 13,034 |   | $ | - |   | $ | - |   |
| Due                  after one through five years |   |                                    | 33,084  |   |   | 32,601 |   |   | - |   |   | - |   |
| Due                  after five through ten years |   |                                    | 39,986  |   |   | 39,356 |   |   | 1,000 |   |   | 985 |   |
| Due                  after ten years              |   |                                    | 45,929  |   |   | 44,602 |   |   | 1,999 |   |   | 1,950 |   |
|                                              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Total                                             |   | $                                       | 132,084 |   | $ | 129,593 |   | $ | 2,999 |   | $ | 2,935 |   |

----

| **4.** | **MORTGAGE-BACKED                SECURITIES**                                       |
|--------|-------------------------------------------------------------------------------------|
|   |                                                                                |
|   | Mortgage-backed                securities are summarized as                follows: |

|                                                   |   | **March                    31, 2007** |                                      |
|--------------------------------------------------------|--------|---------------------------------------|-------------------------------------------|
|                                                   |   |                                  |                                      | **Gross** |   | **Gross** |   | **Estimated** |   |
|                                                   |   | **Amortized**                         |                                      | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                                                   |   | **Cost**                              |                                      | **Gains** |   | **Losses** |   | **Value** |   |
| Securities                    held to maturity         |   |                                  | (Dollars                    in thousands) |   |
| GNMA                    pass-through certificates      |   | $                                     | 45,736                                    |   | $ | 58 |   | $ | (924 | ) | $ | 44,870 |   |
| FNMA                    pass-through certificates      |   |                                  | 1,432                                     |   |   | - |   |   | (44 | ) |   | 1,388 |   |
| FHLMC                    pass-through certificates     |   |                                  | 1,762                                     |   |   |    |   |   | (23 | ) |   | 1,739 |   |
|                                                   |   |                                  |                                      |   |   |   |   |   |   |   |   |   |   |
| Total                    securities held to maturity   |   | $                                     | 48,930                                    |   | $ | 58 |   | $ | (991 | ) | $ | 47,997 |   |
|                                                   |   |                                  |                                      |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |                                  |                                      |   |   |   |   |   |   |   |   |   |   |
| Securities                    available for sale       |   |                                  |                                      |   |   |   |   |   |   |   |   |   |   |
| FNMA                    pass-through certificates      |   | $                                     | 4,204                                     |   | $ | 91 |   | $ | - |   | $ | 4,295 |   |
| Total                    securities available for sale |   | $                                     | 4,204                                     |   | $ | 91 |   | $ | - |   | $ | 4,295 |   |
|                                                   |   |                                  |                                      |   |   |   |   |   |   |   |   |   |   |

|                                                   |   | **September                    30, 2006** |   |
|--------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                   |   |                                      |   | **Gross** |   | **Gross** |   | **Estimated** |   |
|                                                   |   | **Amortized**                             |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                                                   |   | **Cost**                                  |   | **Gains** |   | **Losses** |   | **Value** |   |
|                                                   |   | (Dollars                    in thousands) |   |
| Securities                    held to maturity         |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| GNMA                    pass-through certificates      |   | $                                         | 46,992 |   | $ | 157 |   | $ | (896 | ) | $ | 46,253 |   |
| FNMA                    pass-through certificates      |   |                                      | 1,448  |   |   | - |   |   | (53 | ) |   | 1,395 |   |
| FHLMC                    pass-through certificates     |   |                                      | 1,920  |   |   |      |   |   | (42 | ) |   | 1,878 |   |
|                                                   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Total                    securities held to maturity   |   | $                                         | 50,360 |   | $ | 157 |   | $ | (991 | ) | $ | 49,526 |   |
|                                                   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Securities                    available for sale       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| FNMA                    pass-through certificates      |   | $                                         | 4,535  |   | $ | 80 |   | $ | - |   | $ | 4,615 |   |
| Total                    securities available for sale |   | $                                         | 4,535  |   | $ | 80 |   | $ | - |   | $ | 4,615 |   |

----

|   | The                    following table shows the gross unrealized losses and related                    estimated                    fair values of the Company’s mortgage-backed securities and length of time                    that individual securities have been in a continuous loss position                    at                    March 31, 2007: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                             |   | **Less                  than 12 months** |   | **More                  than 12 months** |   |
|--------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                             |   | **Gross**                                |   | **Estimated**                            |   | **Gross** |   | **Estimated** |   |
|                                             |   | **Unrealized**                           |   | **Fair**                                 |   | **Unrealized** |   | **Fair** |   |
|                                             |   | **Losses**                               |   | **Value**                                |   | **Losses** |   | **Value** |   |
|                                             |   | (Dollars                  in thousands)  |   |
| Securities                  held to maturity:    |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| GNMA                  pass-through certificates  |   | $                                        | 467    |                                     | $      | 22,919 |   | $ | 457 |   | $ | 17,354 |   |
| FNMA                  pass-through certificates  |   |                                     | -      |                                     |   | - |   |   | 44 |   |   | 1,388 |   |
| FHLMC                  pass-through certificates |   |                                     | 23     |                                     |   | 1,739 |   |   | - |   |   | - |   |
|                                             |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
|                                             |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                                        | 490    |                                     | $      | 24,658 |   | $ | 501 |   | $ | 18,742 |   |

|   | At                    March 31, 2007, all mortgage-backed-securities available-for-sale                    were in                    an unrealized gain position.                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | The                    following table shows the gross unrealized losses and related                    estimated                    fair values of the Company’s mortgage-backed securities, and length of                    time that individual securities have been in a continuous loss                    position at                    September 30, 2006: |

|                                             |   | **Less                  than 12 months** |   | **More                  than 12 months** |   |
|--------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                             |   | **Gross**                                |   | **Estimated**                            |   | **Gross** |   | **Estimated** |   |
|                                             |   | **Unrealized**                           |   | **Fair**                                 |   | **Unrealized** |   | **Fair** |   |
|                                             |   | **Losses**                               |   | **Value**                                |   | **Losses** |   | **Value** |   |
|                                             |   | (Dollars                  in thousands)  |   |
| Securities                  held to maturity:    |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| GNMA                  pass-through certificates  |   | $                                        | 526    |                                     | $      | 25,602 |   | $ | 370 |   | $ | 11,200 |   |
| FNMA                  pass-through certificates  |   |                                     | 52     |                                     |   | 1,395 |   |   | 1 |   |   |  |   |
| FHLMC                  pass-through certificates |   |                                     | 42     |                                     |   | 1,877 |   |   | - |   |   | - |   |
|                                             |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
|                                             |   |                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Total                                            |   | $                                        | 620    |                                     | $      | 28,874 |   | $ | 371 |   | $ | 11,200 |   |

|   | At                      September 30, 2006, all mortgage-backed securities available-for-sale                      were                      in an unrealized gain position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Management                      evaluates securities for other-than-temporary impairment at                      least on a                      quarterly basis, and more frequently when economic or market                      concerns                      warrant such evaluation. For all securities that are in an                      unrealized loss                      position for an extended period of time and for all securities                      whose fair                      value is significantly below amortized cost, the Company performs                      an                      evaluation of the specific events attributable to the market                      decline of                      the security. The Company considers the length of time and                      extent to which                      the security’s market value has been below cost as well as the general                      market conditions, industry characteristics, and the fundamental                      operating                      results of the issuer to determine if the decline is other-than-temporary.                      The Company also considers as part of the evaluation its intent                      and                      ability to hold the security until its market value has recovered                      to a                      level at least equal to the amortized cost. When the Company                      determines                      that a security’s unrealized loss is other-than-temporary, a realized loss                      is recognized in the period in which the decline in value is                      determined to                      be other-than-temporary. The write-downs are measured based                      on public                      market prices of the security at the time the Company determines                      the                      decline in value was other-than-temporary. |

----

|   | At                      March 31, 2007, mortgage-backed securities in a gross unrealized                      loss                      position for twelve months or longer consist of 14 securities                      having an                      aggregate depreciation of 2.6% from the Company’s amortized cost basis.                      Mortgage-backed securities in a gross unrealized loss position                      for less                      than twelve months consist of 23 securities having an aggregate                      depreciation of 2.1% from the Company’s amortized cost basis. The                      unrealized losses disclosed above are primarily related to                      movement in                      market interest rates. Although the fair value will fluctuate                      as the                      market interest rates move, the Company’s entire mortgage-backed                      securities portfolio consists of low-risk securities issued                      by U.S.                      government sponsored enterprises. If held to maturity, the                      contractual                      principal and interest payments of such securities are expected                      to be                      received in full. As such, no loss in value is expected over                      the lives of                      the securities. The Company has the ability to hold these securities                      until                      they mature and does not intend to sell the securities at a                      loss. Based on                      the above, management believes that the unrealized losses are                      temporary.                      The determination of whether a decline in market value is temporary                      is                      necessarily a matter of subjective judgment. The timing and                      amount of any                      realized losses reported in the Company’s financial statements could vary                      if conclusions other than those made by management were to                      determine                      whether an other-than-temporary impairment exists. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **5.** | **LOANS                      RECEIVABLE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Loans                      receivable consist of the                      following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|                                                     |   | **March                  31,**          |    | **September                  30,** |   |
|----------------------------------------------------------|--------|-----------------------------------------|---------|------------------------------------|--------|
|                                                     |   | **2007**                                |    | **2006**                           |   |
|                                                     |   | (Dollars                  in thousands) |    |
| One-to-four                  family residential          |   | $                                       | 155,894 |                               | $      | 155,454 |   |
| Multi-family                  residential                |   |                                    | 4,712   |                               |   | 5,074 |   |
| Commercial                  real estate                  |   |                                    | 15,572  |                               |   | 11,339 |   |
| Construction                  and land development       |   |                                    | 70,319  |                               |   | 82,801 |   |
| Commercial                  business                     |   |                                    | 160     |                               |   | 234 |   |
| Consumer                                                 |   |                                    | 838     |                               |   | 1,239 |   |
|                                                     |   |                                    |    |                               |   |   |   |
| Total                  loans                             |   |                                    | 247,495 |                               |   | 256,141 |   |
|                                                     |   |                                    |    |                               |   |   |   |
| Undisbursed                  portion of loans-in-process |   |                                    | (26,547 | )                                  |   | (36,258 | ) |
| Deferred                  loan fees                      |   |                                    | 300     |                               |   | 153 |   |
| Allowance                  for loan losses               |   |                                    | (693    | )                                  |   | (618 | ) |
|                                                     |   |                                    |    |                               |   |   |   |
| Net                                                      |   | $                                       | 220,555 |                               | $      | 219,418 |   |
|                                                     |   |                                    |    |                               |   |   |   |

|   | The                  following schedule summarizes the changes in the allowance for                  loan                  losses: |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | **Six                  Months Ended March 31,** |   |
|-----------------------------------------------|--------|-------------------------------------------------|--------|
|                                          |   | **2007**                                        |   | **2006** |   |
|                                          |   | (Dollars                  in thousands)         |   |
|                                          |   |                                            |   |   |   |
| Balance,                  beginning of period |   | $                                               | 618    |   | $ | 558 |   |
| Provision                  for loan losses    |   |                                            | 75     |   |   | - |   |
| Charge-offs                                   |   |                                            | -      |   |   | - |   |
| Recoveries                                    |   |                                            | -      |   |   | - |   |
|                                          |   |                                            |   |   |   |   |   |
| Balance,                  end of period       |   | $                                               | 693    |   | $ | 558 |   |

----

|         | Nonperforming                    loans (which consist of nonaccrual loans and loans in excess                    of 90 days                    delinquent and still accruing interest) at March 31, 2007 and                    September                    30, 2006 amounted to approximately $559,000 and $151,000,                    respectively. |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                    |
| **6.**  | **DEPOSITS**                                                                                                                                                                                                                                                                                                                                            |
|         |                                                                                                                                                                                                                                                                                                                                                    |
|         | Deposits                    consist of the following major classifications:                                                                                                                                                                                                                                                                             |
|         |                                                                                                                                                                                                                                                                                                                                                    |

|                                                           |   | **March                  31,**              |    | **September                  30,** |   |
|----------------------------------------------------------------|--------|---------------------------------------------|---------|------------------------------------|--------|
|                                                           |   | **2007**                                    |    | **2006**                           |   |
|                                                           |   | **(Dollars                  in thousands)** |    |
|                                                           |   | **Amount**                                  |    | **Percent**                        |   | **Amount** |   | **Percent** |   |
|                                                           |   |                                        |    |                               |   |   |   |   |   |
|                                                           |   |                                        |    |                               |   |   |   |   |   |
| Money                  market deposit accounts                 |   | $                                           | 69,590  |                               |   | 19.6 | % | $ | 64,498 |   |   | 18.6 | % |
| NOW                  accounts                                  |   |                                        | 31,069  |                               |   | 8.7 |   |   | 34,203 |   |   | 9.8 |   |
| Passbook,                  club and statement savings          |   |                                        | 73,746  |                               |   | 20.7 |   |   | 76,989 |   |   | 22.2 |   |
| Certificates                  maturing in six months or less   |   |                                        | 105,575 |                               |   | 29.7 |   |   | 77,904 |   |   | 22.4 |   |
| Certificates                  maturing in more than six months |   |                                        | 75,671  |                               |   | 21.3 |   |   | 93,698 |   |   | 27.0 |   |
|                                                           |   |                                        |    |                               |   |  |   |   |   |   |   |  |   |
| Total                                                          |   | $                                           | 355,651 |                               |   | 100.0 | % | $ | 347,292 |   |   | 100.0 | % |

|   | At                    March 31, 2007 and September 30, 2006, the weighted average cost                    of funds                    was 3.7% and 3.5%,                    respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **7.** | **INCOME                      TAXES**                                                                                                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                           |
|   | Items                    that gave rise to significant portions of deferred income taxes                    are as                    follows: |

|                                                              |   | **March                  31,** |                                    | **September                  30,** |   |
|-------------------------------------------------------------------|--------|--------------------------------|-----------------------------------------|------------------------------------|--------|
|                                                              |   | **2007**                       |                                    | **2006**                           |   |
| Deferred                  tax assets:                             |   |                           | (Dollars                  in thousands) |                               |
| Deposit                  premium                                  |   | $                              | 290                                     |                               | $      | 314 |   |
| Allowance                  for loan losses                        |   |                           | 171                                     |                               |   | 247 |   |
| Employee                  stock ownership plan                    |   |                           | 62                                      |                               |   | - |   |
| Other                                                             |   |                           | -                                       |                               |   | 40 |   |
|                                                              |   |                           |                                    |                               |   |   |   |
| Total                                                             |   |                           | 523                                     |                               |   | 601 |   |
| Deferred                  tax liabilities:                        |   |                           |                                    |                               |   |   |   |
| Unrealized                  gain on available for sale securities |   |                           | 214                                     |                               |   | 286 |   |
| Property                                                          |   |                           | 414                                     |                               |   | 407 |   |
| Mortgage                  servicing rights                        |   |                           | 10                                      |                               |   | 10 |   |
| Deferred                  loan fees                               |   |                           | 101                                     |                               |   | 51 |   |
|                                                              |   |                           |                                    |                               |   |   |   |
| Total                                                             |   |                           | 739                                     |                               |   | 754 |   |
|                                                              |   |                           |                                    |                               |   |   |   |
| Net                  deferred tax liability                       |   | $                              | (216                                    | )                                  | $      | (153 | ) |

| **8.** | **COMMITMENTS                        AND CONTINGENT LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | At                        March 31, 2007, the Company had $5,584,000 in outstanding                        commitments to                        originate fixed and variable- rate loans with market interest                        rates                        ranging from 5.88% to 9.25%. At September 30, 2006, the Company had                        $4,933,000 in outstanding commitments to originate fixed                        and variable-rate                        loans with market interest rates ranging from 6.00% to 9.25%.                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The                        Company also had commitments under unused lines of credit                        of $6,365,000                        and $6,706,000 at March 31, 2007 and September 30, 2006,                        respectively, and                        letters of credit outstanding of $110,000 at both March 31,                        2007 and                        September 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Among                        the Company’s contingent liabilities are exposures to limited recourse                        arrangements with respect to the Company’s sales of whole loans and                        participation interests. At March 31, 2007, the exposure,                        which represents                        a portion of credit risk associated with the interests sold,                        amounted to                        $64,451. This exposure is for the life of the related loans                        and payables,                        on our proportionate share, as actual losses are                        incurred.                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The                        Company is involved in various legal proceedings occurring                        in the ordinary                        course of business. Management of the Company, based on discussions                        with                        litigation counsel, believes that such proceedings will not                        have a                        material adverse effect on the financial condition or operations                        of the                        Company. There can be no assurance that any of the outstanding                        legal                        proceedings to which the Company is a party will not be decided                        adversely                        to the Company's interests and have a material adverse effect                        on the                        financial condition and operations of the                        Company. |

----

**ITEM      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF      OPERATIONS **

**Overview.**
*** ***

**Critical      Accounting Policies.**
*** ***

*Allowance      for Loan Losses*

----

*Income      Taxes.*

**Forward-looking      Statements**

**COMPARISON      OF FINANCIAL CONDITION AT MARCH 31, 2007 AND SEPTEMBER 30, 2006**

----

**COMPARISON      OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2007      AND      2006**

**Net      income. **

**Net      interest income. **

----

**Average      Balances, Net Interest Income, and Yields Earned and Rates      Paid.**

|                                                          |   | Three                    Months           |    |
|---------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                          |   | Ended                    March 31,        |    |
|                                                          |   | 2007                                      |    | 2006 |   |
|                                                          |   | Average                                   |    |   |   | Average |   | Average |   |   |   | Average |   |
|                                                          |   | Balance                                   |    | Interest |   | Yield/Rate |   | Balance |   | Interest |   | Yield/Rate |   |
|                                                          |   |                                      |    |   |   |   |   |   |   |   |   |   |   |
|                                                          |   | (Dollars                    in Thousands) |    |
| Interest-earning                    assets:                   |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment                    securities                      |   | $                                         | 171,141 |   | $ | 2,153 |   |   | 5.03 | % | $ | 175,420 |   | $ | 1,988 |   |   | 4.53 | % |
| Mortgage-backed                    securities                 |   |                                      | 53,732  |   |   | 702 |   |   | 5.23 |   |   | 62,311 |   |   | 806 |   |   | 5.17 |   |
| Loans                    receivable(1)                        |   |                                      | 220,080 |   |   | 3,786 |   |   | 6.88 |   |   | 189,107 |   |   | 3,075 |   |   | 6.50 |   |
| Other                    interest-earning assets              |   |                                      | 5,868   |   |   | 51 |   |   | 3.48 |   |   | 4,816 |   |   | 52 |   |   | 4.32 |   |
| Total                    interest-earning assets              |   |                                      | 450,821 |   |   | 6,692 |   |   | 5.94 |   |   | 431,654 |   |   | 5,921 |   |   | 5.49 |   |
| Cash                    and non-interest-bearing balances     |   |                                      | 4,883   |   |   |   |   |   |   |   |   | 4,738 |   |   |   |   |   |   |   |
| Other                    non-interest-earning assets          |   |                                      | 11,300  |   |   |   |   |   |   |   |   | 11,199 |   |   |   |   |   |   |   |
| Total                    assets                               |   | $                                         | 467,004 |   |   |   |   |   |   |   | $ | 447,591 |   |   |   |   |   |   |   |
| Interest-bearing                    liabilities:              |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                    accounts                           |   | $                                         | 72,223  |   |   | 526 |   |   | 2.91 |   | $ | 83,224 |   |   | 626 |   |   | 3.01 |   |
| Money                    market deposit and NOW accounts      |   |                                      | 95,909  |   |   | 837 |   |   | 3.49 |   |   | 100,531 |   |   | 745 |   |   | 2.96 |   |
| Certificates                    of deposit                    |   |                                      | 179,347 |   |   | 1,884 |   |   | 4.20 |   |   | 152,036 |   |   | 1,189 |   |   | 3.13 |   |
| Total                    deposits                             |   |                                      | 347,479 |   |   | 3,247 |   |   | 3.74 |   |   | 335,791 |   |   | 2,560 |   |   | 3.05 |   |
| Advances                    from Federal Home Loan Bank       |   |                                      | 23,611  |   |   | 324 |   |   | 5.49 |   |   | 13,807 |   |   | 191 |   |   | 5.53 |   |
| Advances                    from borrowers for taxes and      |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| insurance                                                     |   |                                      | 1,782   |   |   | 3 |   |   | 0.67 |   |   | 1,690 |   |   | 3 |   |   | 0.71 |   |
| Total                    interest-bearing liabilities         |   |                                      | 372,872 |   |   | 3,574 |   |   | 3.83 |   |   | 351,288 |   |   | 2,754 |   |   | 3.14 |   |
| Non-interest-bearing                    liabilities:          |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                    demand accounts       |   |                                      | 4,850   |   |   |   |   |   |   |   |   | 3,678 |   |   |   |   |   |   |   |
| Other                    liabilities                          |   |                                      | 2,181   |   |   |   |   |   |   |   |   | 1,861 |   |   |   |   |   |   |   |
| Total                    liabilities                          |   |                                      | 379,903 |   |   |   |   |   |   |   |   | 356,827 |   |   |   |   |   |   |   |
| Stockholders'                    equity                       |   |                                      | 87,101  |   |   |   |   |   |   |   |   | 90,764 |   |   |   |   |   |   |   |
| Total                    liabilities and stockholders' equity |   | $                                         | 467,004 |   |   |   |   |   |   |   | $ | 447,591 |   |   |   |   |   |   |   |
| Net                    interest-earning assets                |   | $                                         | 77,949  |   |   |   |   |   |   |   | $ | 80,366 |   |   |   |   |   |   |   |
| Net                    interest income; interest rate spread  |   |                                      |    |   | $ | 3,118 |   |   | 2.11 | % |   |   |   | $ | 3,167 |   |   | 2.35 | % |
| Net                    interest margin(2)                     |   |                                      |         |   |   |  |   |   | 2.77 | % |   |  |   |   |  |   |   | 2.93 | % |
|                                                          |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                    interest-earning assets to average |   |                                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-bearing                    liabilities               |   |                                      |    |   |   | 120.91 | % |   |   |   |   |   |   |   | 122.88 | % |   |   |   |

| (1)    | Includes non-accrual loans. Calculated              net of              unamortized deferred fees, undisbursed portion of loans-in-process              and              allowance for loan losses. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                |
| (2)    | Equals net interest income divided by              average              interest-earning assets.                                                                                                    |

----

|                                                        |   |   | Six                  Months             |   |
|-------------------------------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                        |   |   | Ended                  March 31,        |   |
|                                                        |   |   | 2007                                    |   |   | 2006 |   |
|                                                        |   |   | Average                                 |   |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                                        |   |   | Balance                                 |   |   | Interest |   |   | Yield/Rate |   |   | Balance |   |   | Interest |   |   | Yield/Rate |   |
|                                                        |   |   | (Dollars                  in Thousands) |   |
| Interest-earning                  assets:                   |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment                  securities                      |   | $      | 172,196                                 |   | $ | 4,258 |   |   | 4.95 | % | $ | 173,443 |   | $ | 3,884 |   |   | 4.48 | % |
| Mortgage-backed                  securities                 |   |   | 54,035                                  |   |   | 1,413 |   |   | 5.23 | % |   | 63,878 |   |   | 1,652 |   |   | 5.17 | % |
| Loans                  receivable(1)                        |   |   | 220,652                                 |   |   | 7,611 |   |   | 6.90 | % |   | 184,504 |   |   | 5,955 |   |   | 6.46 | % |
| Other                  interest-earning assets              |   |   | 5,530                                   |   |   | 93 |   |   | 3.36 | % |   | 10,966 |   |   | 216 |   |   | 3.94 | % |
| Total                  interest-earning assets              |   |   | 452,413                                 |   |   | 13,375 |   |   | 5.91 | % |   | 432,791 |   |   | 11,707 |   |   | 5.41 | % |
| Cash                  and non-interest-bearing balances     |   |   | 4,636                                   |   |   |   |   |   |   |   |   | 4,620 |   |   |   |   |   |   |   |
| Other                  non-interest-earning assets          |   |   | 11,368                                  |   |   |   |   |   |   |   |   | 9,300 |   |   |   |   |   |   |   |
| Total                  assets                               |   | $      | 468,417                                 |   |   |   |   |   |   |   | $ | 446,711 |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                  accounts                           |   | $      | 73,667                                  |   |   | 1,114 |   |   | 3.02 | % | $ | 84,014 |   |   | 1,198 |   |   | 2.85 | % |
| Money                  market deposit and NOW accounts      |   |   | 95,060                                  |   |   | 1,673 |   |   | 3.52 | % |   | 101,614 |   |   | 1,479 |   |   | 2.91 | % |
| Certificates                  of deposit                    |   |   | 176,495                                 |   |   | 3,662 |   |   | 4.15 | % |   | 148,489 |   |   | 2,306 |   |   | 3.11 | % |
| Total                  deposits                             |   |   | 345,222                                 |   |   | 6,449 |   |   | 3.74 | % |   | 334,117 |   |   | 4,983 |   |   | 2.98 | % |
| Advances                  from Federal Home Loan Bank       |   |   | 25,792                                  |   |   | 715 |   |   | 5.54 | % |   | 13,812 |   |   | 386 |   |   | 5.59 | % |
| Advances                  from borrowers for taxes and      |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| insurance                                                   |   |   | 1,614                                   |   |   | 4 |   |   | 0.50 | % |   | 1,544 |   |   | 5 |   |   | 0.65 | % |
| Total                  interest-bearing liabilities         |   |   | 372,628                                 |   |   | 7,168 |   |   | 3.85 | % |   | 349,473 |   |   | 5,374 |   |   | 3.08 | % |
| Non-interest-bearing                  liabilities:          |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                  demand accounts       |   |   | 5,201                                   |   |   |   |   |   |   |   |   | 2,981 |   |   |   |   |   |   |   |
| Other                  liabilities                          |   |   | 3,138                                   |   |   |   |   |   |   |   |   | 3,006 |   |   |   |   |   |   |   |
| Total                  liabilities                          |   |   | 380,967                                 |   |   |   |   |   |   |   |   | 355,460 |   |   |   |   |   |   |   |
| Stockholders'                  equity                       |   |   | 87,450                                  |   |   |   |   |   |   |   |   | 91,251 |   |   |   |   |   |   |   |
| Total                  liabilities and Stockholders' equity |   | $      | 468,417                                 |   |   |   |   |   |   |   | $ | 446,711 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                |   | $      | 79,785                                  |   |   |   |   |   |   |   | $ | 83,318 |   |   |   |   |   |   |   |
| Net                  interest income; interest rate spread  |   |   |                                    |   | $ | 6,207 |   |   | 2.06 | % |   |   |   | $ | 6,333 |   |   | 2.33 | % |
| Net                  interest margin(2)                     |   |   |                                         |   |   |  |   |   | 2.74 | % |   |  |   |   |  |   |   | 2.93 | % |
|                                                        |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                  interest-earning assets to average |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-bearing                  liabilities               |   |   |                                    |   |   | 121.41 | % |   |   |   |   |   |   |   | 123.84 | % |   |   |   |

| (1)    | Includes non-accrual loans. Calculated                net of                unamortized deferred fees, undisbursed portion of loans-in-process                and                allowance for loan losses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                        |
| (2)    | Equals net interest income divided                by average                interest-earning assets.                                                                                                        |

----

**Provisions      for loan losses.**

**Non-interest      income**

**Non-interest      expenses**

**Income      tax expense**

----

**LIQUIDITY      AND CAPITAL RESOURCES**

----

|                                                      |   |                              |   |                                  |   | **To                  Be**             |   |
|-----------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------------|--------|----------------------------------------|--------|
|                                                      |   |                              |   |                                  |   | **Well                  Capitalized**  |   |
|                                                      |   |                              |   | **Required                  for**     |   | **Under                  Prompt**      |   |
|                                                      |   |                              |   | **Capital                  Adequacy** |   | **Corrective                  Action** |   |
|                                                      |   | **Actual                  Ratio** |   | **Purposes**                          |   | **Provisions**                         |   |
|                                                      |   |                              |   |                                  |   |                                   |   |
| March                  31, 2007:                          |   |                              |   |                                  |   |                                   |   |
| Tier                  1 capital (to average assets)       |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 18.13% |                                  |   | 4.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 15.26% |                                  |   | 4.0%                                   |   |   | 5.0% |   |
|                                                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| Tier                  1 capital (to risk weighted assets) |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 38.72% |                                  |   | 4.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 32.60% |                                  |   | 4.0%                                   |   |   | 6.0% |   |
|                                                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| Total                  capital (to risk weighted assets)  |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 39.16% |                                  |   | 8.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 33.03% |                                  |   | 8.0%                                   |   |   | 10.0% |   |
|                                                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| September                  30, 2006:                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| Tier                  1 capital (to average assets)       |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 18.64% |                                  |   | 4.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 14.74% |                                  |   | 4.0%                                   |   |   | 5.0% |   |
|                                                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| Tier                  1 capital (to risk weighted assets) |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 39.23% |                                  |   | 4.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 31.12% |                                  |   | 4.0%                                   |   |   | 6.0% |   |
|                                                      |   |                              |   |                                  |   |                                   |   |   |   |   |
| Total                  capital (to risk weighted assets)  |   |                              |   |                                  |   |                                   |   |   |   |   |
| The                  Company                              |   |                              | 39.68% |                                  |   | 8.0%                                   |   |   | N/A |   |
| The                  Bank                                 |   |                              | 31.56% |                                  |   | 8.0%                                   |   |   | 10.0% |   |

**IMPACT      OF INFLATION AND CHANGING PRICES**

----

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**How      we Manage Market Risk**

|   | · | we                  have increased our originations of shorter term loans and/or loans                  with                  adjustable rates of interest, particularly construction and land                  development loans;          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                        |
|   | · | we                  have invested in securities with “step-up” rate features providing for                  increased interest rates prior to maturity according to a pre-determined                  schedule and formula; and |
|   |   |                                                                                                                                                                                                                                        |
|   | · | we                  have maintained moderate levels of short-term liquid                  assets.                                                                                                                                           |

**Gap      Analysis.**

----

|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
|--------------------------------------------------------------------|--------|--------|-------------------------------------------|--------|--------|------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|--------|------------------------------|--------|--------|---------|--------|
|                                                               |   |   |                                      |   |   | More                    than |   |   | More                    than  |   |   | More                    than  |   |   |                         |   |   |    |   |
|                                                               |   |   | 3                    Months               |   |   | 3                    Months  |   |   | 1                    Year     |   |   | 3                    Years    |   |   | More                    than |   |   | Total   |   |
|                                                               |   |   | or                    Less                |   |   | to                    1 Year |   |   | to                    3 Years |   |   | to                    5 Years |   |   | 5                    Years   |   |   | Amount  |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
|                                                               |   |   | (Dollars                    in Thousands) |   |
| Interest-earning                    assets(1):                     |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Investment                    securities(2)                        |   | $      | 18,319                                    |   | $      | 23,322                       |   | $      | 22,381                        |   | $      | 12,007                        |   | $      | 93,278                       |   | $      | 169,307 |   |
| Mortgage-backed                    securities                      |   |   | 1,476                                     |   |   | 4,433                        |   |   | 10,805                        |   |   | 8,940                         |   |   | 27,480                       |   |   | 53,134  |   |
| Loans                    receivable(3)                             |   |   | 60,116                                    |   |   | 28,665                       |   |   | 49,453                        |   |   | 30,730                        |   |   | 51,984                       |   |   | 220,948 |   |
| Other                    interest earning assets                   |   |   | 5,483                                     |   |   | -                            |   |   | -                             |   |   | -                             |   |   | -                            |   |   | 5,483   |   |
| Total                    interest-earning assets                   |   | $      | 85,394                                    |   | $      | 56,420                       |   | $      | 82,639                        |   | $      | 51,677                        |   | $      | 172,742                      |   | $      | 448,872 |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Interest-bearing                    liabilities:                   |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Savings                    accounts                                |   | $      | 368                                       |   | $      | 257                          |   | $      | 43,226                        |   | $      | 14,409                        |   | $      | 14,409                       |   | $      | 72,669  |   |
| Money                    market deposit and NOW accounts           |   |   | -                                         |   |   | 34,795                       |   |   | 51,201                        |   |   | 5,469                         |   |   | 5,469                        |   |   | 96,934  |   |
| Certificates                    of deposits                        |   |   | 43,330                                    |   |   | 93,657                       |   |   | 26,613                        |   |   | 17,646                        |   |   | -                            |   |   | 181,246 |   |
| Advances                    from Federal Home Loan Bank            |   |   | 9,018                                     |   |   | 56                           |   |   | 153                           |   |   | 13,157                        |   |   | 380                          |   |   | 22,764  |   |
| Advances                    from borrowers for taxes and insurance |   |   | -                                         |   |   | -                            |   |   | -                             |   |   | -                             |   |   | 1,268                        |   |   | 1,268   |   |
| Total                    interest-bearing liabilities              |   | $      | 52,716                                    |   | $      | 128,765                      |   | $      | 121,193                       |   | $      | 50,681                        |   | $      | 21,526                       |   | $      | 374,881 |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Interest-earning                    assets                         |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| less                    interest-bearing liabilities               |   | $      | 32,678                                    |   |   | ($72,345                     | )      |   | ($38,554                      | )      | $      | 996                           |   | $      | 151,216                      |   | $      | 73,991  |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Cumulative                    interest-rate sensitivity gap (4)    |   | $      | 32,678                                    |   |   | ($39,667                     | )      |   | ($78,221                      | )      |   | ($77,225                      | )      | $      | 73,991                       |   |   |    |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Cumulative                    interest-rate gap as a               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| percentage                    of total assets at March 31, 2007    |   |   | 6.99                                      | %      |   | -8.48                        | %      |   | -16.72                        | %      |   | -16.51                        | %      |   | 15.82                        | %      |   |    |   |
|                                                               |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| Cumulative                    interest-earning assets              |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| as                    a percentage of cumulative interest-         |   |   |                                      |   |   |                         |   |   |                          |   |   |                          |   |   |                         |   |   |    |   |
| bearing                    liabilities at March 31, 2007           |   |   | 161.99                                    | %      |   | 78.14                        | %      |   | 74.16                         | %      |   | 78.15                         | %      |   | 119.74                       | %      |   |    |   |

| (1)    | Interest-earning assets are included              in the              period in which the balances are expected to be redeployed and/or repriced              as a result of anticipated prepayments, scheduled rate adjustments              and              contractual maturities. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                   |
| (2)    | For purposes of the gap analysis, investment              securities are stated at amortized cost.                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                   |
| (3)    | For purposes of the gap analysis, loans              receivable includes non-performing loans and is gross of the allowance              for              loan losses, but net of undisbursed portion of loans-in-process and              unamortized deferred loan fees.             |
|   |                                                                                                                                                                                                                                                                                   |
| (4)    | Interest-rate sensitivity gap represents              the              difference between net interest-earning assets and interest-bearing              liabilities.                                                                                                                   |

----

**Net      Portfolio Value Analysis.**

| Change                  in                    |   |                                 |   |                             |   |                      |   | NPV                  as % of Portfolio |     |
|-----------------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|---------------------------|--------|----------------------------------------|----------|
| Interest                  Rates               |   | Net                  Portfolio Value |   | Value                  of Assets |   |
| In                  Basis Points              |   |                                 |   |                             |   |                      |   |                                   |     |   |   |
| (Rate                  Shock)                 |   | Amount                               |   | $                  Change        |   | %                  Change |   | NPV                  Ratio             |     | Change |   |
|                                          |   |                                 |   |                             |   |                      |   |                                   |     |   |   |
|  (Dollars                  in Thousands) |   |
|                                          |   |                                 |   |                             |   |                      |   |                                   |     |   |   |
| 300                                           |   | $                                    | 58,558 |                             | $      | (35,056)                  |   |                                   | (37.45)% |   |   | 14.10% |   |   | (6.06)% |  |
| 200                                           |   |                                 | 69,550 |                             |   | (24,064)                  |   |                                   | (25.71)% |   |   | 16.14% |   |   | (4.02)% |   |
| 100                                           |   |                                 | 81,530 |                             |   | (12,084)                  |   |                                   | (12.91)% |   |   | 18.22% |   |   | (1.94)% |   |
| Static                                        |   |                                 | 93,614 |                             |   | -                         |   |                                   | -        |   |   | 20.16% |   |   | - |   |
| (100)                                         |   |                                 | 97,133 |                             |   | 3,519                     |   |                                   | 3.76%    |  |   | 20.54% |   |   | 0.38% |   |
| (200)                                         |   |                                 | 94,050 |                             |   | 436                       |   |                                   | 0.47%    |   |   | 19.80% |   |   | (0.36)% |   |
| (300)                                         |   |                                 | 92,067 |                             |   | (1,547)                   |   |                                   | (1.65)%  |   |   | 19.25% |   |   | (0.91)% |   |

----

**ITEM      4. CONTROLS AND PROCEDURES **

----

**PART      II**

**Item      1. Legal Proceedings**

**Item      1A. Risk Factors **

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

|   | (a)    | Not                applicable                 |
|--------|--------|-----------------------------------------------|
|   |   |                                          |
|   | (b)    | Not                applicable                 |
|   |   |                                          |
|   | (c)    | Purchases                of Equity Securities |

----

| **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)(2)** |    |
|-----------------------------------------------|--------|--------------------------------------------------------------|---------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
| January                1 - January 31, 2007   |   |                                                         | -       |                                                              | $      | -                                                                                                                                                                        |   |                                                                                                                                                         | -       |   |   | 255,384 |   |
| February                1 - February 28, 2007 |   |                                                         | 85,000  |                                                              |   | 13.61                                                                                                                                                                    |   |                                                                                                                                                         | 85,000  |   |   | 170,384 |   |
| March                1 - March 31, 2007       |   |                                                         | 118,800 |                                                              |   | 13.65                                                                                                                                                                    |   |                                                                                                                                                         | 118,800 |   |   | 51,584 |   |
|                                          |   |                                                         |    |                                                              |   |                                                                                                                                                                     |   |                                                                                                                                                         |    |   |   |   |   |
| Total                                         |   |                                                         | 203,800 |                                                              | $      | 13.63                                                                                                                                                                    |   |                                                                                                                                                         | 203,800 |   |   | 51,584 |   |

|   | (1)    | On                  January 17, 2007, the Company announced its third stock repurchase                  program                  to repurchase up to 255,384 shares or approximately 5% of the Company’s                  outstanding common stock held by shareholders other than Prudential                  Mutual                  Holding Company. The program will expire one year after it commenced,                  unless extended, as necessary, to complete such buyback                  program.                                                                                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | (2)    | On                March 21, 2007, the Company announced its fourth stock repurchase                program                to repurchase up to 242,000 shares or approximately 5% of the Company’s                outstanding common stock held by shareholders other than Prudential                Mutual                Holding Company, commencing after the completion of third repurchase                plan.                The program will expire one year after it commences, unless extended,                as                necessary, to complete such buyback                program. |

**Item      3. Defaults Upon Senior Securities**

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

On      February 7, 2007, the Company held its annual meeting of shareholders to obtain      approval for two proxy proposals (the election of directors and the ratification      of the appointment of the Company’s independent registered public accounting      firm) submitted on behalf of the Company's Board of Directors. Shareholders      of      record as of December 22, 2006, received proxy materials and were considered      eligible to vote on these proposals. The Stilwell Group conducted a solicitation      in opposition to the nominees for re-election as directors nominated by the      Company’s Board of Directors and in connection therewith solicited proxies      withholding votes in favor of management’s nominees. The Stilwell Group did not      oppose the ratification of the appointment of Deloitte & Touche LLP as the      Company’s independent registered public accounting firm.

----

| Nominees                             |   |   | For       |   |   | Withheld  |   |
|--------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
| Jerome                R. Balka, Esq. |   |   | 7,911,615 |   |   | 3,197,126 |   |
| A.                J. Fanelli         |   |   | 7,951,676 |   |   | 3,157,065 |   |

| For        |   | Against |   | Abstain |
|------------|--------|---------|--------|---------|
| 10,964,505 |   | 88,210  |   | 56,027  |

**Item      5. Other Information **

**Item      6. Exhibits**

| Exhibit No. |   | Description                                                                                            |
|-------------|--------|-------------------------------------------------------------------------------------------------------------|
| 31.1        |   | Rule                      13a-14(a)/15d-14(a) Certification of Chief Executive                      Officer |
| 31.2        |   | Rule                  13a-14(a)/15d-14(a) Certification of Chief Financial                  Officer         |
| 32.0        |   | Section                  1350 Certifications                                                                |

----

**SIGNATURES**

**PRUDENTIAL      BANCORP, INC. OF PENNSYLVANIA **

|                              |   |                                                                                                                                                                                                 |   |
|-----------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                              | By:    | /s/                Thomas A. Vento                                                                                                                                                                   |   |
|                              |   | Name:                  Thomas A. Vento                                                                                                                                                     |   |
|                              |   | Title:                    President and Chief Executive                Officer                                                                                                   |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
| Date:                May 15, 2007 |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              | By:    | /s/                Joseph R. Corrato                                                                                                                                                                 |   |
|                              |   | Name:                  Joseph R. Corrato                                                                                                                                                   |   |
|                              |   | Title:                    Executive Vice President and              Chief                Financial Officer |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |
| Date:                May 15, 2007 |   |                                                                                                                                                                                                 |   |
|                              |   |                                                                                                                                                                                                 |   |