----

----

| x      | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT OF 1934                                                                                                                                                                                                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | For      the quarterly period ended December 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                                                                                                                                                                                                                                                                                         |

 

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

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

Yes  o    Nox

----

|         |                        |                                                                                                                                                                    | PAGE   |
|--------------|-----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|         |                        |                                                                                                                                                                    |   |
| PART      I  | FINANCIAL      INFORMATION: |                                                                                                                                                                    |
|         |                        |                                                                                                                                                                    |   |
|         | Item      1.                | Condensed      Financial Statements                                                                                                                                     |   |
|         |                        |                                                                                                                                                                    |   |
|         |                        | Unaudited      Consolidated Statements of Financial Condition December 31, 2007 and      September 30, 2007                                                             | 2      |
|         |                        |                                                                                                                                                                    |   |
|         |                        | Unaudited      Consolidated Statements of Income for the Three Months Ended December 31,      2007 and 2006                                                             | 3      |
|         |                        |                                                                                                                                                                    |   |
|         |                        | Unaudited      Consolidated Statement of Changes in Stockholders’ Equity and      Comprehensive Income for the Three Months Ended December 31, 2007 and      2006 | 4      |
|         |                        |                                                                                                                                                                    |   |
|         |                        | Unaudited      Consolidated Statements of Cash Flows for the Three Months Ended December      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                                                                                                         | 25     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      4.                | Controls      and Procedures                                                                                                                                            | 28     |
|         |                        |                                                                                                                                                                    |   |
| PART      II | OTHER      INFORMATION      |                                                                                                                                                                    |
|         |                        |                                                                                                                                                                    |   |
|         | Item      1.                | Legal      Proceedings                                                                                                                                                  | 29     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      1A.               | Risk      Factors                                                                                                                                                       | 29     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      2.                | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                                                        | 29     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      3.                | Defaults      Upon Senior Securities                                                                                                                                    | 30     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      4.                | Submission      of Matters to a Vote of Security Holders                                                                                                                | 30     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      5.                | Other      Information                                                                                                                                                  | 30     |
|         |                        |                                                                                                                                                                    |   |
|         | Item      6.                | Exhibits                                                                                                                                                                | 31     |
|         |                        |                                                                                                                                                                    |   |
|         | SIGNATURES                  | 32                                                                                                                                                                      |

----

| PRUDENTIAL      BANCORP, INC. OF PENNSYLVANIA AND SUBSIDIARIES                                            |   |                        |    |   |               |   |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|--------------------|--------|
|                                                                                                      |   |                        |    |   |               |   |
| UNAUDITED      CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                             |   |
|                                                                                                      |   |                        |    |   |               |   |
|                                                                                                      |   | December      31,           |    |   | September      30, |   |
|                                                                                                      |   | 2007                        |    |   | 2007               |   |
|                                                                                                      |   | (Dollars      in thousands) |    |
| ASSETS                                                                                                    |   |                        |    |   |               |   |
|                                                                                                      |   |                        |    |   |               |   |
| Cash      and amounts due from depository institutions                                                    |   | $                           | 5,489   |   |               | $      | 4,133 |   |
| Interest-bearing      deposits                                                                            |   |                        | 4,552   |   |               |   | 8,136 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| Total      cash and cash equivalents                                                                      |   |                        | 10,041  |   |               |   | 12,269 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| Investment      securities held to maturity (estimated fair value—December 31, 2007,      $129,402; |   |                        |    |   |               |   |   |   |
| September      30, 2007, $133,693)                                                                        |   |                        | 129,076 |   |               |   | 134,782 |   |
| Investment      securities available for sale (amortized cost—December 31, 2007,      $37,007;      |   |                        |    |   |               |   |   |   |
| September      30, 2007, $38,007)                                                                         |   |                        | 36,747  |   |               |   | 38,343 |   |
| Mortgage-backed      securities held to maturity (estimated fair value—                             |   |                        |    |   |               |   |   |   |
| December      31, 2007, $43,701; September 30, 2007, $44,213)                                             |   |                        | 44,196  |   |               |   | 45,534 |   |
| Mortgage-backed      securities available for sale (amortized cost—                                 |   |                        |    |   |               |   |   |   |
| December      31, 2007, $13,146; September 30, 2007, $8,492)                                              |   |                        | 13,312  |   |               |   | 8,549 |   |
| Loans      receivable—net of allowance for loan losses (December 31, 2007,      $1,086;             |   |                        |    |   |               |   |   |   |
| September      30, 2007, $1,011)                                                                          |   |                        | 221,968 |   |               |   | 219,149 |   |
| Accrued      interest receivable:                                                                         |   |                        |    |   |               |   |   |   |
| Loans      receivable                                                                                     |   |                        | 1,297   |   |               |   | 1,264 |   |
| Mortgage-backed      securities                                                                           |   |                        | 249     |   |               |   | 234 |   |
| Investment      securities                                                                                |   |                        | 1,870   |   |               |   | 2,006 |   |
| Federal      Home Loan Bank stock—at cost                                                           |   |                        | 2,299   |   |               |   | 2,397 |   |
| Office      properties and equipment—net                                                            |   |                        | 2,305   |   |               |   | 2,363 |   |
| Prepaid      expenses and other assets                                                                    |   |                        | 6,898   |   |               |   | 7,274 |   |
| Deferred      tax asset-net                                                                               |   |                        | 237     |   |               |   | 28 |   |
| TOTAL      ASSETS                                                                                         |   | $                           | 470,495 |   |               | $      | 474,192 |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                 |   |                        |    |   |               |   |   |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| LIABILITIES:                                                                                              |   |                        |    |   |               |   |   |   |
| Deposits:                                                                                                 |   |                        |    |   |               |   |   |   |
| Noninterest-bearing                                                                                       |   | $                           | 4,638   |   |               | $      | 4,480 |   |
| Interest-bearing                                                                                          |   |                        | 355,025 |   |               |   | 349,558 |   |
| Total      deposits                                                                                       |   |                        | 359,663 |   |               |   | 354,038 |   |
| Advances      from Federal Home Loan Bank                                                                 |   |                        | 27,733  |   |               |   | 33,743 |   |
| Accrued      interest payable                                                                             |   |                        | 873     |   |               |   | 2,868 |   |
| Advances      from borrowers for taxes and insurance                                                      |   |                        | 1,817   |   |               |   | 1,117 |   |
| Accounts      payable and accrued expenses                                                                |   |                        | 440     |   |               |   | 913 |   |
| Accrued      dividend payable                                                                             |   |                        | 545     |   |               |   | 552 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| Total      liabilities                                                                                    |   |                        | 391,071 |   |               |   | 393,231 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| 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      - 11,370,706 at December 31, 2007;  11,478,366 at September 30,      2007      |   |                        | 126     |   |               |   | 126 |   |
| Additional      paid-in capital                                                                           |   |                        | 54,896  |   |               |   | 54,880 |   |
| Unearned      ESOP shares                                                                                 |   |                        | (3,848  | )      |               |   | (3,903 | ) |
| Treasury      stock, at cost:  1,193,044 shares at December 31,      2007;                      |   |                        |    |   |               |   |   |   |
| 1,085,384      shares at September 30, 2007                                                               |   |                        | (15,722 | )      |               |   | (14,372 | ) |
| Retained      earnings                                                                                    |   |                        | 44,034  |   |               |   | 43,971 |   |
| Accumulated      other comprehensive (expense) income                                                     |   |                        | (62     | )      |               |   | 259 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| Total      stockholders' equity                                                                           |   |                        | 79,424  |   |               |   | 80,961 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY                                                           |   | $                           | 470,495 |   |               | $      | 474,192 |   |
|                                                                                                      |   |                        |    |   |               |   |   |   |
| See      notes to unaudited consolidated financial statements.                                            |   |                        |    |   |               |   |   |   |

----

----

|                                                           |   | Three      Months Ended                              |   |
|----------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                           |   | December      31,                                    |   |
|                                                           |   | 2007                                                 |   |   | 2006 |   |
|                                                           |   | (Dollars      in Thousands Except Per Share Amounts) |   |
| INTEREST      INCOME:                                          |   |                                                 |   |   |   |   |
| Interest      on loans                                         |   | $                                                    | 3,635  |   |   | $ | 3,825 |   |
| Interest      on mortgage-backed securities                    |   |                                                 | 724    |   |   |   | 711 |   |
| Interest      and dividends on investments                     |   |                                                 | 2,302  |   |   |   | 2,147 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| Total      interest income                                     |   |                                                 | 6,661  |   |   |   | 6,683 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| INTEREST      EXPENSE:                                         |   |                                                 |   |   |   |   |   |   |
| Interest      on deposits                                      |   |                                                 | 3,494  |   |   |   | 3,204 |   |
| Interest      on borrowings                                    |   |                                                 | 400    |   |   |   | 390 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| Total      interest expense                                    |   |                                                 | 3,894  |   |   |   | 3,594 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| NET      INTEREST INCOME                                       |   |                                                 | 2,767  |   |   |   | 3,089 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| PROVISION      FOR LOAN LOSSES                                 |   |                                                 | 75     |   |   |   | 60 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| NET      INTEREST  INCOME AFTER PROVISION            |   |                                                 |   |   |   |   |   |   |
| FOR      LOAN LOSSES                                           |   |                                                 | 2,692  |   |   |   | 3,029 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| NON-INTEREST      INCOME:                                      |   |                                                 |   |   |   |   |   |   |
| Fees      and other service charges                            |   |                                                 | 142    |   |   |   | 145 |   |
| Other                                                          |   |                                                 | 80     |   |   |   | 165 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| Total      non-interest income                                 |   |                                                 | 222    |   |   |   | 310 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| NON-INTEREST      EXPENSE:                                     |   |                                                 |   |   |   |   |   |   |
| Salaries      and employee benefits                            |   |                                                 | 1,153  |   |   |   | 1,115 |   |
| Data      processing                                           |   |                                                 | 124    |   |   |   | 119 |   |
| Professional      services                                     |   |                                                 | 85     |   |   |   | 228 |   |
| Office      occupancy                                          |   |                                                 | 85     |   |   |   | 88 |   |
| Depreciation                                                   |   |                                                 | 83     |   |   |   | 62 |   |
| Payroll      taxes                                             |   |                                                 | 68     |   |   |   | 67 |   |
| Director      compensation                                     |   |                                                 | 64     |   |   |   | 71 |   |
| Other                                                          |   |                                                 | 354    |   |   |   | 271 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| Total      non-interest expense                                |   |                                                 | 2,016  |   |   |   | 2,021 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| INCOME      BEFORE INCOME TAXES                                |   |                                                 | 898    |   |   |   | 1,318 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| INCOME      TAXES:                                             |   |                                                 |   |   |   |   |   |   |
| Current                                                        |   |                                                 | 331    |   |   |   | 302 |   |
| Deferred      (benefit) expense                                |   |                                                 | (43    | ) |   |   | 120 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| Total      income tax                                          |   |                                                 | 288    |   |   |   | 422 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| NET      INCOME                                                |   | $                                                    | 610    |   |   | $ | 896 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| BASIC      EARNINGS PER SHARE                                  |   | $                                                    | 0.06   |   |   | $ | 0.08 |   |
|                                                           |   |                                                 |   |   |   |   |   |   |
| DILUTED      EARNINGS PER SHARE                                |   | $                                                    | 0.06   |   |   | $ | 0.08 |   |
|                                                           |   |
| See      notes to unaudited consolidated financial statements. |   |                                                 |   |   |   |   |   |   |

----

----

|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   | 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, 2007       |   | $                           | 126    |   |       | $      | 54,880 |     |   | $      | (3,903   | )      |   | $        | (14,372 | )      |          | $      | 43,971 |          |   | $      | 259           |   |   | $ | 80,961 |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Comprehensive      income:          |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Net      income                     |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   | 610    |          |   |   |          |   |   |   | 610 |   |   |   | 610 |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding loss on |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| available      for sale securities  |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| arising      during the period, net |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| of      income tax benefit of $166  |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   | (321          | )      |   |   | (321 | ) |   |   | (321 | ) |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Comprehensive      income           |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   | $ | 289 |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Treasury      stock purchased       |   |                        |   |   |       |   |   |     |   |   |     |   |   |     | (1,350  | )      |          |   |   |          |   |   |          |   |   |   | (1,350 | ) |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Cash      dividend declared         |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| ($.05      per share)               |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   | (547   | )             |   |   |          |   |   |   | (547 | ) |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| ESOP      shares committed to       |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| be      released                    |   |                        | -      |   |       |   | 16     |     |   |   | 55       |   |   |     | -       |   |          |   | -      |          |   |   | -             |   |   |   | 71 |   |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
|                                |   |                        |   |   |       |   |   |     |   |   |     |   |   |     |    |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| BALANCE,      December 31, 2007     |   | $                           | 126    |   |       | $      | 54,896 |     |   | $      | (3,848   | )      |   | $        | (15,722 | )      |          | $      | 44,034 |          |   | $      | (62           | )      |   | $ | 79,424 |   |   |   |   |   |

|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   | Accumulated   |   |   |          |   |   |          |   |
|---------------------------------------------------------------|--------|--------|--------|--------|------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|---------------|--------|--------|---------------|--------|--------|---------------|--------|
|                                                          |   |   |   |   | Additional |   |   | Unearned |   |   |     |   |   |     |   |   | Other         |   |   | Total         |   |   |          |   |
|                                                          |   | Common |   |   | Paid-In    |   |   | ESOP     |   |   | Treasury |   |   | Retained |   |   | Comprehensive |   |   | Stockholders' |   |   | Comprehensive |   |
|                                                          |   | Stock  |   |   | Capital    |   |   | Shares   |   |   | Stock    |   |   | Earnings |   |   | Income        |   |   | Equity        |   |   | Income        |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |
| BALANCE,      OCTOBER 1, 2006                                 |   | $      | 126    |   |       | $      | 54,798 |     |   | $      | (4,127   | )      |   | $        | (6,422 | )      |          | $      | 42,539 |          |   | $      | 534           |   |   | $ | 87,448 |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Cumulative      adjustment related to                         |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| the      adoption of SAB 108                                  |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   | 172    |          |   |   |          |   |   |   | 172 |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Comprehensive      income:                                    |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Net      income                                               |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   | 896    |          |   |   |          |   |   |   | 896 |   |   |   | 896 |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding loss on                           |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| available      for sale securities                            |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| arising      during the period, net                           |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| of      income tax benefit of $11                             |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   | (21           | )      |   |   | (21 | ) |   |   | (21 | ) |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                     |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   | $ | 875 |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Treasury      stock purchased                                 |   |   |   |   |       |   |   |     |   |   |     |   |   |     | (626   | )      |          |   |   |          |   |   |          |   |   |   | (626 | ) |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| Cash      dividend declared                                   |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| ($.04      per share)                                         |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   | (463   | )             |   |   |          |   |   |   | (463 | ) |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| ESOP      shares committed to                                 |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| be      released                                              |   |   | -      |   |       |   | 21     |     |   |   | 56       |   |   |     | -      |   |          |   | -      |          |   |   | -             |   |   |   | 77 |   |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| BALANCE,      December 31, 2006                               |   | $      | 126    |   |       | $      | 54,819 |     |   | $      | (4,071   | )      |   | $        | (7,048 | )      |          | $      | 43,144 |          |   | $      | 513           |   |   | $ | 87,483 |   |   |   |   |   |
|                                                          |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |
| See      notes to unaudited consolidated financial statements |   |   |   |   |       |   |   |     |   |   |     |   |   |     |   |   |          |   |   |          |   |   |          |   |   |

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|                                                                                   |   | Three      Months EndedDecember      31, |    |
|----------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                   |   | 2007                                     |    |   | 2006 |   |
|                                                                                   |   |                                     |    |   |   |   |
| OPERATING      ACTIVITIES:                                                             |   | (Dollars      in Thousands)              |    |
| Net      income                                                                        |   | $                                        | 610     |   |   | $ | 896 |   |
| Adjustments      to reconcile net income to net cash used in                           |   |                                     |    |   |   |   |   |   |
| operating      activities:                                                             |   |                                     |    |   |   |   |   |   |
| Provision      for loan losses                                                         |   |                                     | 75      |   |   |   | 60 |   |
| Depreciation                                                                           |   |                                     | 83      |   |   |   | 62 |   |
| Net      accretion of premiums/discounts                                               |   |                                     | (16     | ) |   |   | (25 | ) |
| Net      accretion of deferred loan fees and costs                                     |   |                                     | (54     | ) |   |   | (97 | ) |
| Amortization      of ESOP                                                              |   |                                     | 71      |   |   |   | 77 |   |
| Income      from bank owned life insurance                                             |   |                                     | (47     | ) |   |   | (56 | ) |
| Deferred      income tax (benefit) expense                                             |   |                                     | (43     | ) |   |   | 120 |   |
| Changes      in assets and liabilities which used cash:                                |   |                                     |    |   |   |   |   |   |
| Accounts      payable and accrued expenses                                             |   |                                     | (473    | ) |   |   | (284 | ) |
| Accrued      interest payable                                                          |   |                                     | (1,995  | ) |   |   | (2,253 | ) |
| Prepaid      expenses and other assets                                                 |   |                                     | 424     |   |   |   | (33 | ) |
| Accrued      interest receivable                                                       |   |                                     | 88      |   |   |   | (279 | ) |
| Net      cash used in operating activities                                             |   |                                     | (1,277  | ) |   |   | (1,812 | ) |
| INVESTING      ACTIVITIES:                                                             |   |                                     |    |   |   |   |   |   |
| Purchase      of investment securities held to maturity                                |   |                                     | (9,984  | ) |   |   | (6,998 | ) |
| Purchase      of mortgage-backed securities available for sale                         |   |                                     | (4,843  | ) |   |   | - |   |
| Loans      originated or acquired                                                      |   |                                     | (15,231 | ) |   |   | (12,996 | ) |
| Principal      collected on loans                                                      |   |                                     | 12,391  |   |   |   | 13,679 |   |
| Principal      payments received on mortgage-backed securities:                        |   |                                     |    |   |   |   |   |   |
| held-to-maturity                                                                       |   |                                     | 1,349   |   |   |   | 2,008 |   |
| available-for-sale                                                                     |   |                                     | 191     |   |   |   | 165 |   |
| Proceeds      from calls and maturities of investment securities held to      maturity |   |                                     | 15,693  |   |   |   | 10,156 |   |
| Proceeds      from calls and maturities of investment available for sale               |   |                                     | 999     |   |   |   | - |   |
| Net      proceeds from redemption of Federal Home Loan Bank stock                      |   |                                     | 98      |   |   |   | 69 |   |
| Purchases      of equipment                                                            |   |                                     | (25     | ) |   |   | (15 | ) |
| Net      cash provided by investing activities                                         |   |                                     | 638     |   |   |   | 6,068 |   |
| FINANCING      ACTIVITIES:                                                             |   |                                     |    |   |   |   |   |   |
| Net      decrease in demand deposits, NOW accounts,                                    |   |                                     |    |   |   |   |   |   |
| and      savings accounts                                                              |   |                                     | (153    | ) |   |   | (2,815 | ) |
| Net      increase in certificates of deposit                                           |   |                                     | 5,778   |   |   |   | 6,124 |   |
| Repayment      of advances from Federal Home Loan Bank                                 |   |                                     | (6,010  | ) |   |   | (7,010 | ) |
| Increase      in advances from borrowers for taxes and insurance                       |   |                                     | 700     |   |   |   | 521 |   |
| Cash      dividend paid                                                                |   |                                     | (554    | ) |   |   | (465 | ) |
| Purchase      of treasury stock                                                        |   |                                     | (1,350  | ) |   |   | (626 | ) |
| Net      cash used in financing activities                                             |   |                                     | (1,589  | ) |   |   | (4,271 | ) |
|                                                                                   |   |                                     |    |   |   |   |   |   |
| NET      DECREASE IN CASH AND CASH EQUIVALENTS                                         |   |                                     | (2,228  | ) |   |   | (15 | ) |
|                                                                                   |   |                                     |    |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS—Beginning of period                               |   |                                     | 12,269  |   |   |   | 13,428 |   |
|                                                                                   |   |                                     |    |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS—End of period                                     |   | $                                        | 10,041  |   |   | $ | 13,413 |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW                                             |   |                                     |    |   |   |   |   |   |
| INFORMATION:                                                                           |   |                                     |    |   |   |   |   |   |
| Interest      paid on deposits and advances from Federal                               |   |                                     |    |   |   |   |   |   |
| Home      Loan Bank                                                                    |   | $                                        | 5,883   |   |   | $ | 5,847 |   |
|                                                                                   |   |                                     |    |   |   |   |   |   |
| Income      taxes paid                                                                 |   | $                                        | 550     |   |   | $ | 503 |   |
|                                                                                   |   |                                     |    |   |   |   |   |   |
|                                                                                   |   |                                     |    |   |   |   |   |   |
|                                                                                   |   |                                     |    |   |   |   |   |   |
| See      notes to consolidated unaudited financial statements.                         |   |                                     |    |   |   |   |   |   |

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| 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 seven 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-chartered mutual entity, is the      mutual holding company parent of the Company.  Prudential Mutual      Holding Company owns 60.8% (6,910,062 shares) of the Company’s outstanding      common stock as of December 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.  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 ended December 31, 2007 are not necessarily indicative of      the results that may be expected for the fiscal year ending September 30,      2008, 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, 2007 included in the Company’s Annual Report on Form 10-K for the      fiscal year ended September 30, 2007. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | 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 December 19, 2007, the Company’s Board of Directors      declared a quarterly cash dividend of $.05 on the common stock of the      Company payable on January 28, 2008 to the shareholders of record at the      close of business on January 14, 2008 which resulted in a payable of      $545,000 at December 31, 2007.  A portion of the cash dividend      was payable to Prudential Mutual Holding Company on its shares of the      Company’s common stock 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 additional paid-in capital.  As of      December 31, 2007, the Company had allocated a total of 62,205 shares from      the suspense account to participants.  In addition, at such date      the amount of the shares of Company common stock held by the ESOP totaled      451,990.  For the quarter ended December 31, 2007, the Company      recognized $71,000 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      arising from transactions and other events which currently are excluded      from the statement of income and are recorded directly to stockholders’      equity.  For the quarters ended December 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      $289,000 and $875,000 for the three months ended December 31, 2007 and      2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Recent      Accounting Pronouncements –  On July 13, 2006, the      Financial Accounting Standards Board (“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 adopted FIN 48 on October 1, 2007, and the adoption did not have      an impact on the Company’s financial statements.  The Company      recognizes interest and/or penalties related to income tax matters in      income tax expense.  The Company did not have any amounts      accrued for interest and penalties at December 31, 2007.  As of      October 1, 2007, the Company had no unrecognized tax      benefits.  The Company’s federal and state income tax returns      for taxable years through September 30, 2003 have been closed for purposes      of examination by the Internal Revenue Service (the “IRS”) or the      Pennsylvania Department of Revenue.  As of December 31, 2007,      the Company is not currently being audited by and has no pending disputes      with the IRS or the State of Pennsylvania on any tax      matters.  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | In      September 2006, the Emerging Issues Task Force (“EITF”) of FASB issued      EITF Issue No. 06-4, “Accounting for Deferred Compensation and      Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance      Arrangements” (EITF 06-04).  EITF 06-4 requires the recognition of a      liability related to the postretirement benefits covered by an endorsement      split-dollar life insurance arrangement.  EITF 06-4 is effective      for fiscal years beginning after December 15, 2007, with earlier      application permitted.  The Company is currently assessing the      impact of the adoption of EITF 06-04 on its financial      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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|   | In      September 2006, the 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In      March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10      “Accounting for Collateral Assignment Split-Dollar Life Insurance      Agreements” (EITF 06-10).  EITF 06-10 provides guidance for      determining a liability for the postretirement benefit obligation as well      as recognition and measurement of the associated asset on the basis of the      terms of the collateral assignment agreement.  EITF 06-10 is      effective for fiscal years beginning after December 15, 2007.  The      Company is currently assessing the impact of the adoption of EITF 06-10 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 December 31, 2007, the Company did not issue      and does not have any outstanding CSEs. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The      calculated basic and diluted earnings per share are as      follows:                                                                                                                                                                                                                                                                                                                                                                  |

|                                             |   | For      the Quarter Ended December 31,2007       |       |   | For      the Quarter Ended December 31,2006 |   |
|--------------------------------------------------|--------|---------------------------------------------------|------------|--------|---------------------------------------------|--------|
|                                             |   | Basic                                             |       |   | Diluted                                     |   |   | Basic |   |   | Diluted |   |
|                                             |   | (Dollars      in Thousands Except Per Share Data) |       |
| Net      income                                  |   | $                                                 | 610        |   |                                        | $      | 610 |   |   | $ | 896 |   |   | $ | 896 |   |
|                                             |   |                                              |       |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding used in |   |                                              |       |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| basic      earnings per share computation        |   |                                              | 11,057,143 |   |                                        |   | 11,057,143 |   |   |   | 11,627,147 |   |   |   | 11,627,147 |   |
| Effect      of CSEs                              |   |                                              | -          |   |                                        |   | - |   |   |   | - |   |   |   | - |   |
| Adjusted      weighted average shares used in    |   |                                              |       |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| diluted      earnings per share computation      |   |                                              | 11,057,143 |   |                                        |   | 11,057,143 |   |   |   | 11,627,147 |   |   |   | 11,627,147 |   |
|                                             |   |                                              |       |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - basic and diluted      |   | $                                                 | 0.06       |   |                                        | $      | 0.06 |   |   | $ | 0.08 |   |   | $ | 0.08 |   |

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

|                                            |   | December      31, 2007      |    |
|-------------------------------------------------|--------|-----------------------------|---------|
|                                            |   | (Dollars      in Thousands) |    |
|                                            |   |                        |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                            |   | Amortized                   |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                            |   | Cost                        |    |   | Gains |   |   | Losses |   |   | Value |   |
| Securities      held to maturity:               |   |                        |    |   |   |   |   |   |   |   |   |   |
| Debt      securities - U.S. Treasury securities |   |                        |    |   |   |   |   |   |   |   |   |   |
| and      securities of U.S. Government agencies |   | $                           | 126,626 |   |   | $ | 458 |   |   | $ | (112 | ) |   | $ | 126,972 |   |
| Debt      securities - Municipal bonds          |   |                        | 2,450   |   |   |   | 1 |   |   |   | (21 | ) |   |   | 2,430 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity          |   | $                           | 129,076 |   |   | $ | 459 |   |   | $ | (133 | ) |   | $ | 129,402 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:             |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt      securities - U.S. Treasury securities |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and      securities of U.S. Government agencies |   | $                           | 1,999   |   |   | $ | 1 |   |   | $ | - |   |   | $ | 2,000 |   |
| FNMA      stock                                 |   |                        | -       |   |   |   | 5 |   |   |   | - |   |   |   | 5 |   |
| Mutual      fund                                |   |                        | 34,982  |   |   |   | - |   |   |   | (1,141 | ) |   |   | 33,841 |   |
| FHLMC      preferred stock                      |   |                        | 26      |   |   |   | 875 |   |   |   | - |   |   |   | 901 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale        |   | $                           | 37,007  |   |   | $ | 881 |   |   | $ | (1,141 | ) |   | $ | 36,747 |   |

----

|                                            |   | September      30, 2007     |    |
|-------------------------------------------------|--------|-----------------------------|---------|
|                                            |   |                        |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                            |   | Amortized                   |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                            |   | Cost                        |    |   | Gains |   |   | Losses |   |   | Value |   |
| Securities      held to maturity:               |   | (Dollars      in Thousands) |    |
| Debt      securities - U.S. Treasury securities |   |                        |    |   |   |   |   |   |   |   |
| and      securities of U.S. Government agencies |   | $                           | 132,332 |   |   | $ | 109 |   |   | $ | (1,159 | ) |   | $ | 131,282 |   |
| Debt      securities - Municipal bonds          |   |                        | 2,450   |   |   |   | 1 |   |   |   | (40 | ) |   |   | 2,411 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity          |   | $                           | 134,782 |   |   | $ | 110 |   |   | $ | (1,199 | ) |   | $ | 133,693 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:             |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt      securities - U.S. Treasury securities |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and      securities of U.S. Government agencies |   | $                           | 2,999   |   |   | $ | - |   |   | $ | (30 | ) |   | $ | 2,969 |   |
| FNMA      stock                                 |   |                        | -       |   |   |   | 7 |   |   |   | - |   |   |   | 7 |   |
| Mutual      fund                                |   |                        | 34,982  |   |   |   | - |   |   |   | (1,175 | ) |   |   | 33,807 |   |
| FHLMC      preferred stock                      |   |                        | 26      |   |   |   | 1,534 |   |   |   | - |   |   |   | 1,560 |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale        |   | $                           | 38,007  |   |   | $ | 1,541 |   |   | $ | (1,205 | ) |   | $ | 38,343 |   |

|   | The      following table shows the gross unrealized losses and related estimated      fair values of the Company’s investment securities, aggregated by      investment category and length of time that individual securities have      been in a continuous loss position at December 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 |   | $                           | -      |   |                     | $      | - |   |   | $ | 112 |   |   | $ | 26,006 |   |
| Municipal      bonds                       |   |                        | -      |   |                     |   | - |   |   |   | 21 |   |   |   | 1,143 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity     |   |                        | -      |   |                     |   | - |   |   |   | 133 |   |   |   | 27,149 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:        |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury and Government agencies |   |                        | -      |   |                     |   | - |   |   |   |   |   |   |   |   |   |
| Mutual      fund                           |   |                        | -      |   |                     |   | - |   |   |   | 1,141 |   |   |   | 33,841 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale   |   |                        | -      |   |                     |   | - |   |   |   | 1,141 |   |   |   | 33,841 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total                                      |   | $                           | -      |   |                     | $      | - |   |   | $ | 1,274 |   |   | $ | 60,990 |   |

----

|   | The      following table shows the gross unrealized losses and related estimated      fair values of the Company’s investment securities, aggregated by      investment category and length of time that individual securities have      been in a continuous loss position at September 30,  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 |   |                        | 92     |   |                     |   | 14,899 |   |   |   | 1,067 |   |   |   | 82,715 |   |
| Municipal      bonds                       |   |                        | -      |   |                     |   | - |   |   |   | 40 |   |   |   | 1,599 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity     |   |                        | 92     |   |                     |   | 14,899 |   |   |   | 1,107 |   |   |   | 84,314 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale:        |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury and Government agencies |   |                        | -      |   |                     |   | - |   |   |   | 30 |   |   |   | 2,969 |   |
| Mutual      fund                           |   |                        | -      |   |                     |   | - |   |   |   | 1,175 |   |   |   | 33,807 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale   |   |                        | -      |   |                     |   | - |   |   |   | 1,205 |   |   |   | 36,776 |   |
|                                       |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total                                      |   | $                           | 92     |   |                     | $      | 14,899 |   |   | $ | 2,312 |   |   | $ | 121,090 |   |

|   | 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      December 31, 2007, securities in a gross unrealized loss position for      twelve months or longer consisted of 29 securities having an aggregate      depreciation of 2.0% from the Company’s amortized cost basis. There were      no securities in a gross unrealized loss position for less than twelve      months.  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 aretemporary. |

----

|   | 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                  |   | December      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              |   | $                           | 6,999   |   |   | $ | 6,996 |   |   | $ | - |   |   | $ | - |   |
| Due      after one through five years |   |                        | 15,861  |   |   |   | 15,919 |   |   |   | - |   |   |   | - |   |
| Due      after five through ten years |   |                        | 39,760  |   |   |   | 39,909 |   |   |   | - |   |   |   | - |   |
| Due      after ten years              |   |                        | 66,456  |   |   |   | 66,578 |   |   |   | 1,999 |   |   |   | 2,000 |   |
|                                  |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                 |   | $                           | 129,076 |   |   | $ | 129,402 |   |   | $ | 1,999 |   |   | $ | 2,000 |   |

|   | Mutual      funds had an amortized cost of $35.0 million and a fair value of $33.8      million as of December 31, 2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------|

|                                  |   | September      30, 2007     |    |
|---------------------------------------|--------|-----------------------------|---------|
|                                  |   | Held      to Maturity       |    |   | Available      for Sale |   |
|                                  |   |                        |    |   | Estimated |   |   |   |   |   | Estimated |   |
|                                  |   | Amortized                   |    |   | Fair |   |   | Amortized |   |   | Fair |   |
|                                  |   | Cost                        |    |   | Value |   |   | Cost |   |   | Value |   |
|                                  |   | (Dollars      in thousands) |    |
| Due      within one year              |   | $                           | 6,000   |   |   | $ | 5,981 |   |   | $ | - |   |   | $ | - |   |
| Due      after one through five years |   |                        | 25,002  |   |   |   | 24,950 |   |   |   | - |   |   |   | - |   |
| Due      after five through ten years |   |                        | 39,592  |   |   |   | 39,427 |   |   |   | 1,000 |   |   |   | 999 |   |
| Due      after ten years              |   |                        | 64,188  |   |   |   | 63,335 |   |   |   | 1,999 |   |   |   | 1,970 |   |
|                                  |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                 |   | $                           | 134,782 |   |   | $ | 133,693 |   |   | $ | 2,999 |   |   | $ | 2,969 |   |

|   | Mutual      funds had an amortized cost of $35.0 million and a fair value of $33.8      million as of September 30, 2007. |
|--------|---------------------------------------------------------------------------------------------------------------------------|

----

| 4.     | MORTGAGE-BACKED      SECURITIES                           |
|--------|-----------------------------------------------------------|
|   |                                                      |
|   | Mortgage-backed      securities are summarized asfollows: |

|                                     |   | December      31, 2007      |   |
|------------------------------------------|--------|-----------------------------|--------|
|                                     |   |                        |   |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                     |   | Amortized                   |   |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                     |   | Cost                        |   |   | Gains |   |   | Losses |   |   | Value |   |
|                                     |   | (Dollars      in Thousands) |   |
| Securities      held to maturity         |   |                        |   |   |   |   |   |   |   |   |   |   |
| GNMA      pass-through certificates      |   | $                           | 41,234 |   |   | $ | 111 |   |   | $ | (566 | ) |   | $ | 40,779 |   |
| FNMA      pass-through certificates      |   |                        | 1,362  |   |   |   | - |   |   |   | (28 | ) |   |   | 1,334 |   |
| FHLMC      pass-through certificates     |   |                        | 1,600  |   |   |   | - |   |   |   | (12 | ) |   |   | 1,588 |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity   |   | $                           | 44,196 |   |   | $ | 111 |   |   | $ | (606 | ) |   | $ | 43,701 |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale       |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| GNMA      pass-through certificates      |   | $                           | 3,934  |   |   | $ | 8 |   |   | $ | - |   |   | $ | 3,942 |   |
| FNMA      pass-through certificates      |   |                        | 9,212  |   |   |   | 158 |   |   |   | - |   |   |   | 9,370 |   |
| Total      securities available for sale |   | $                           | 13,146 |   |   | $ | 166 |   |   | $ | - |   |   | $ | 13,312 |   |

|                                     |   | September      30, 2007     |   |
|------------------------------------------|--------|-----------------------------|--------|
|                                     |   |                        |   |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                     |   | Amortized                   |   |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
|                                     |   | Cost                        |   |   | Gains |   |   | Losses |   |   | Value |   |
|                                     |   | (Dollars      in thousands) |   |
| Securities      held to maturity         |   |                        |   |   |   |   |   |   |   |   |   |   |
| GNMA      pass-through certificates      |   | $                           | 42,471 |   |   | $ | 22 |   |   | $ | (1,261 | ) |   | $ | 41,232 |   |
| FNMA      pass-through certificates      |   |                        | 1,370  |   |   |   | - |   |   |   | (60 | ) |   |   | 1,310 |   |
| FHLMC      pass-through certificates     |   |                        | 1,693  |   |   |   | - |   |   |   | (22 | ) |   |   | 1,671 |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity   |   | $                           | 45,534 |   |   | $ | 22 |   |   | $ | (1,343 | ) |   | $ | 44,213 |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities      available for sale       |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FNMA      pass-through certificates      |   | $                           | 8,492  |   |   | $ | 66 |   |   | $ | (9 | ) |   | $ | 8,549 |   |
| Total      securities available for sale |   | $                           | 8,492  |   |   | $ | 66 |   |   | $ | (9 | ) |   | $ | 8,549 |   |

----

|   | 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      December 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  |   | $                           | -      |   |                     | $      | - |   |   | $ | 566 |   |   | $ | 28,512 |   |
| FNMA      pass-through certificates  |   |                        | -      |   |                     |   | - |   |   |   | 28 |   |   |   | 1,334 |   |
| FHLMC      pass-through certificates |   |                        | -      |   |                     |   | - |   |   |   | 12 |   |   |   | 1,588 |   |
|                                 |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total                                |   | $                           | -      |   |                     | $      | - |   |   | $ | 606 |   |   | $ | 31,434 |   |

|   | At      December 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, 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    |   | $                           | 129    |   |                     | $      | 7,968 |   |   | $ | 1,132 |   |   | $ | 31,050 |   |
| FNMA      pass-through certificates    |   |                        | -      |   |                     |   | - |   |   |   | 60 |   |   |   | 1,310 |   |
| FHLMC      pass-through certificates   |   |                        | -      |   |                     |   | - |   |   |   | 22 |   |   |   | 1,671 |   |
|                                   |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                   |   |                        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities held to maturity |   | $                           | 129    |   |                     | $      | 7,968 |   |   | $ | 1,214 |   |   | $ | 34,031 |   |

|                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Securities      available for sale:      |   |   |   |   |   |   |   |   |   |   |   |   |
| FNMA      pass-through certificates      |   |   | 9      |   |   |   | 844    |   |   |   | -      |   |   |   | - |   |
|                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      securities available for sale |   | $      | 9      |   |   | $      | 844    |   |   | $      | -      |   |   | $ | - |   |

----

|   | 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      December 31, 2007, mortgage-backed securities in a gross unrealized loss      position for twelve months or longer consist of 28 securities having an      aggregate depreciation of 1.9% from the Company’s amortized cost basis.      There were no mortgage-backed securities in a gross unrealized loss      position for less than twelve months at December 31, 2007.  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, all of the Company’s 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 thefollowing:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                                         |   | December      31,           |    |   | September      30, |   |
|----------------------------------------------|--------|-----------------------------|---------|--------|--------------------|--------|
|                                         |   | 2007                        |    |   | 2007               |   |
|                                         |   | (Dollars      in Thousands) |    |
| One-to-four      family residential          |   | $                           | 161,644 |   |               | $      | 159,945 |   |
| Multi-family      residential                |   |                        | 3,004   |   |               |   | 4,362 |   |
| Commercial      real estate                  |   |                        | 19,468  |   |               |   | 18,019 |   |
| Construction      and land development       |   |                        | 55,816  |   |               |   | 52,429 |   |
| Commercial      business                     |   |                        | 152     |   |               |   | 155 |   |
| Consumer                                     |   |                        | 775     |   |               |   | 832 |   |
|                                         |   |                        |    |   |               |   |   |   |
| Total      loans                             |   |                        | 240,859 |   |               |   | 235,742 |   |
|                                         |   |                        |    |   |               |   |   |   |
| Undisbursed      portion of loans-in-process |   |                        | (18,110 | )      |               |   | (15,897 | ) |
| Deferred      loan fees                      |   |                        | 305     |   |               |   | 315 |   |
| Allowance      for loan losses               |   |                        | (1,086  | )      |               |   | (1,011 | ) |
|                                         |   |                        |    |   |               |   |   |   |
| Net                                          |   | $                           | 221,968 |   |               | $      | 219,149 |   |

----

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

|                              |   | Three      Months Ended December 31, |   |
|-----------------------------------|--------|--------------------------------------|--------|
|                              |   | 2007                                 |   |   | 2006 |   |
|                              |   | (Dollars      in Thousands)          |   |
|                              |   |                                 |   |   |   |   |
| Balance,      beginning of period |   | $                                    | 1,011  |   |   | $ | 618 |   |
| Provision      for loan losses    |   |                                 | 75     |   |   |   | 60 |   |
| Charge-offs                       |   |                                 | -      |   |   |   | - |   |
| Recoveries                        |   |                                 | -      |   |   |   | - |   |
|                              |   |                                 |   |   |   |   |   |   |
| Balance,      end of period       |   | $                                    | 1,086  |   |   | $ | 678 |   |

|   | Nonperforming      loans (which consist of nonaccrual loans and loans in excess of 90 days      delinquent and still accruing interest) at December 31, 2007 and September      30, 2007 amounted to approximately $2.2 million and $2.6 million,      respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                 |
| 6.     | DEPOSITS                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                 |
|   | Deposits      consist of the following majorclassifications:                                                                                                                                                                                                         |

|                                               |   | December      31,           |    |   | September      30, |   |
|----------------------------------------------------|--------|-----------------------------|---------|--------|--------------------|--------|
|                                               |   | 2007                        |    |   | 2007               |   |
|                                               |   |                        |    |   |               |   |   |   |   |   |   |   |
|                                               |   | Amount                      |    |   | Percent            |   |   | Amount |   |   | Percent |   |
|                                               |   | (Dollars      in Thousands) |    |
| Money      market deposit accounts                 |   | $                           | 65,830  |   |               |   | 18.3 | % |   | $ | 63,675 |   |   |   | 18.0 | % |
| NOW      accounts                                  |   |                        | 27,956  |   |               |   | 7.8 |   |   |   | 28,895 |   |   |   | 8.2 |   |
| Passbook,      club and statement savings          |   |                        | 69,533  |   |               |   | 19.3 |   |   |   | 70,903 |   |   |   | 20.0 |   |
| Certificates      maturing in six months or less   |   |                        | 103,346 |   |               |   | 28.7 |   |   |   | 101,615 |   |   |   | 28.7 |   |
| Certificates      maturing in more than six months |   |                        | 92,998  |   |               |   | 25.9 |   |   |   | 88,950 |   |   |   | 25.1 |   |
|                                               |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
|   Total                                  |   | $                           | 359,663 |   |               |   | 100.0 | % |   | $ | 354,038 |   |   |   | 100.0 | % |

|   | At      December 31, 2007 and September 30, 2007, the weighted average cost of      funds was and 3.9% for bothperiods. |
|--------|-------------------------------------------------------------------------------------------------------------------------|

----

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

|                                                  |   | December      31,           |   |   | September      30, |   |
|-------------------------------------------------------|--------|-----------------------------|--------|--------|--------------------|--------|
|                                                  |   | 2007                        |   |   | 2007               |   |
| Deferred      tax assets:                             |   | (Dollars      in thousands) |   |
| Unrealized      loss on available for sale securities |   | $                           | 32     |   |               | $      | - |   |
| Deposit      premium                                  |   |                        | 253    |   |               |   | 265 |   |
| Allowance      for loan losses                        |   |                        | 406    |   |               |   | 378 |   |
| Nonaccrual      interest                              |   |                        | 25     |   |               |   | - |   |
| Employee      stock ownership plan                    |   |                        | 86     |   |               |   | 79 |   |
|                                                  |   |                        |   |   |               |   |   |   |
| Total                                                 |   |                        | 802    |   |               |   | 722 |   |
| Deferred      tax liabilities:                        |   |                        |   |   |               |   |   |   |
| Unrealized      gain on available for sale securities |   |                        | -      |   |               |   | 134 |   |
| Property                                              |   |                        | 454    |   |               |   | 446 |   |
| Mortgage      servicing rights                        |   |                        | 8      |   |               |   | 8 |   |
| Deferred      loan fees                               |   |                        | 103    |   |               |   | 106 |   |
|                                                  |   |                        |   |   |               |   |   |   |
| Total                                                 |   |                        | 565    |   |               |   | 694 |   |
|                                                  |   |                        |   |   |               |   |   |   |
| Net      deferred tax asset                           |   | $                           | 237    |   |               | $      | 28 |   |

| 8.     | COMMITMENTS      AND CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | At      December 31, 2007, the Company had $6.2 million in outstanding commitments      to originate fixed and variable-rate loans with market interest rates      ranging from 6.00% to 9.25%.  At September 30, 2007, the      Company had $10.4 million in outstanding commitments to originate fixed      and variable-rate loans with market interest rates ranging from 6.625% to      9.25%.                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The      Company also had commitments under unused lines of credit of $7.0 million      and $7.2 million at December 31, 2007 and September 30, 2007,      respectively, and letters of credit outstanding of $95,000 at both      December 31, 2007 and September 30, 2007.                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | 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 December 31, 2007, the exposure, which      represents a portion of credit risk associated with the interests sold,      amounted to $64,000. 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. |

----

----

----

----

|                                            |   | Three      Months           |    |
|-------------------------------------------------|--------|-----------------------------|---------|
|                                            |   | Ended      December 31,     |    |
|                                            |   | 2007                        | 2006    |   |
|                                            |   | Average                     |    |   |   |   |   | Average |   |   | Average |   |   |   |   |   | Average |   |
|                                            |   | Balance                     |    |   | Interest |   |   | Yield/Rate |   |   | Balance |   |   | Interest |   |   | Yield/Rate |   |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | (Dollars      in Thousands) |    |
| Interest-earning      assets:                   |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      securities                      |   | $                           | 172,485 |   |   | $ | 2,235 |   |   |   | 5.18 | % |   | $ | 173,251 |   |   | $ | 2,105 |   |   |   | 4.86 | % |
| Mortgage-backed      securities                 |   |                        | 54,574  |   |   |   | 724 |   |   |   | 5.31 |   |   |   | 54,337 |   |   |   | 711 |   |   |   | 5.23 |   |
| Loans      receivable(1)                        |   |                        | 220,893 |   |   |   | 3,635 |   |   |   | 6.58 |   |   |   | 221,224 |   |   |   | 3,825 |   |   |   | 6.92 |   |
| Other      interest-earning assets              |   |                        | 8,406   |   |   |   | 67 |   |   |   | 3.19 |   |   |   | 5,192 |   |   |   | 42 |   |   |   | 3.24 |   |
| Total      interest-earning assets              |   |                        | 456,358 |   |   |   | 6,661 |   |   |   | 5.84 |   |   |   | 454,004 |   |   |   | 6,683 |   |   |   | 5.89 |   |
| Cash      and non-interest-bearing balances     |   |                        | 4,034   |   |   |   |   |   |   |   |   |   |   |   | 4,389 |   |   |   |   |   |   |   |   |   |
| Other      non-interest-earning assets          |   |                        | 12,411  |   |   |   |   |   |   |   |   |   |   |   | 11,437 |   |   |   |   |   |   |   |   |   |
| Total      assets                               |   | $                           | 472,803 |   |   |   |   |   |   |   |   |   |   | $ | 469,830 |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:              |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings      accounts                           |   | $                           | 67,486  |   |   |   | 376 |   |   |   | 2.23 |   |   | $ | 75,111 |   |   |   | 587 |   |   |   | 3.13 |   |
| Money      market deposit and NOW accounts      |   |                        | 90,879  |   |   |   | 800 |   |   |   | 3.52 |   |   |   | 94,210 |   |   |   | 836 |   |   |   | 3.55 |   |
| Certificates      of deposit                    |   |                        | 193,898 |   |   |   | 2,316 |   |   |   | 4.78 |   |   |   | 173,643 |   |   |   | 1,779 |   |   |   | 4.10 |   |
| Total      deposits                             |   |                        | 352,263 |   |   |   | 3,492 |   |   |   | 3.97 |   |   |   | 342,964 |   |   |   | 3,202 |   |   |   | 3.73 |   |
| Advances      from Federal Home Loan Bank       |   |                        | 30,658  |   |   |   | 400 |   |   |   | 5.22 |   |   |   | 27,973 |   |   |   | 390 |   |   |   | 5.58 |   |
| Advances      from borrowers for taxes and      |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| insurance                                       |   |                        | 1,462   |   |   |   | 2 |   |   |   | 0.55 |   |   |   | 1,450 |   |   |   | 2 |   |   |   | 0.55 |   |
| Total      interest-bearing liabilities         |   |                        | 384,383 |   |   |   | 3,894 |   |   |   | 4.05 |   |   |   | 372,387 |   |   |   | 3,594 |   |   |   | 3.86 |   |
| Non-interest-bearing      liabilities:          |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing      demand accounts       |   |                        | 4,883   |   |   |   |   |   |   |   |   |   |   |   | 5,552 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                          |   |                        | 2,517   |   |   |   |   |   |   |   |   |   |   |   | 4,093 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                          |   |                        | 391,783 |   |   |   |   |   |   |   |   |   |   |   | 382,032 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                       |   |                        | 81,020  |   |   |   |   |   |   |   |   |   |   |   | 87,798 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and Stockholders' equity |   | $                           | 472,803 |   |   |   |   |   |   |   |   |   |   | $ | 469,830 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning assets                |   | $                           | 71,975  |   |   |   |   |   |   |   |   |   |   | $ | 81,617 |   |   |   |   |   |   |   |   |   |
| Net      interest income; interest rate spread  |   |                        |    |   |   | $ | 2,767 |   |   |   | 1.79 | % |   |   |   |   |   | $ | 3,089 |   |   |   | 2.03 | % |
| Net      interest margin(2)                     |   |                        |    |   |   |   |   |   |   |   | 2.43 | % |   |   |   |   |   |   |   |   |   |   | 2.72 | % |
|                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average      interest-earning assets to average |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-bearing      liabilities               |   |                        |    |   |   |   | 118.72 | % |   |   |   |   |   |   |   |   |   |   | 121.92 | % |   |   |   |   |

----

| (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.                                                                                          |

----

----

----

|                                          |   |              |   |   |                  |   |   | To      Be             |   |
|-----------------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|--------|------------------------|--------|
|                                          |   |              |   |   |                  |   |   | Well      Capitalized  |   |
|                                          |   |              |   |   | Required      for     |   |   | Under      Prompt      |   |
|                                          |   |              |   |   | Capital      Adequacy |   |   | Corrective      Action |   |
|                                          |   | Actual      Ratio |   |   | Purposes              |   |   | Provisions             |   |
|                                          |   |              |   |   |                  |   |   |                   |   |
| December      31, 2007:                       |   |              |   |   |                  |   |   |                   |   |
| Tier      1 capital (to average assets)       |   |              |   |   |                  |   |   |                   |   |
| The      Company                              |   | 16.78%            |   |   | 4.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 15.52%            |   |   | 4.0%                  |   |   | 5.0%                   |   |
|                                          |   |              |   |   |                  |   |   |                   |   |   |   |   |
| Tier      1 capital (to risk weighted assets) |   |              |   |   |                  |   |   |                   |   |   |   |   |
| The      Company                              |   | 38.07%            |   |   | 4.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 35.23%            |   |   | 4.0%                  |   |   | 6.0%                   |   |
|                                          |   |              |   |   |                  |   |   |                   |   |   |   |   |
| Total      capital (to risk weighted assets)  |   |              |   |   |                  |   |   |                   |   |   |   |   |
| The      Company                              |   | 38.59%            |   |   | 8.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 35.75%            |   |   | 8.0%                  |   |   | 10.0%                  |   |
|                                          |   |              |   |   |                  |   |   |                   |   |   |   |   |
| September      30, 2007:                      |   |              |   |   |                  |   |   |                   |   |   |   |   |
| Tier      1 capital (to average assets)       |   |              |   |   |                  |   |   |                   |   |   |   |   |
| The      Company                              |   | 17.08%            |   |   | 4.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 15.52%            |   |   | 4.0%                  |   |   | 5.0%                   |   |
|                                          |   |              |   |   |                  |   |   |                   |   |   |   |   |
| Tier      1 capital (to risk weighted assets) |   |              |   |   |                  |   |   |                   |   |   |   |   |
| The      Company                              |   | 37.88%            |   |   | 4.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 34.22%            |   |   | 4.0%                  |   |   | 6.0%                   |   |
|                                          |   |              |   |   |                  |   |   |                   |   |   |   |   |
| Total      capital (to risk weighted assets)  |   |              |   |   |                  |   |   |                   |   |   |   |   |
| The      Company                              |   | 38.43%            |   |   | 8.0%                  |   |   | N/A                    |   |
| The      Bank                                 |   | 34.77%            |   |   | 8.0%                  |   |   | 10.0%                  |   |

----

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET 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.                                                                                                                                 |

----

|                                                 |   |                        |   |   | 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)                        |   | $                           | 28,239 |   |           | $      | 53,428  |            |   | $      | 14,395          |   |   | $              | 1,370   |   |   | $      | 68,651 |   |   | $ | 166,083 |   |
| Mortgage-backed      securities                      |   |                        | 2,191  |   |           |   | 6,245   |            |   |   | 14,496          |   |   |           | 10,096  |   |   |   | 24,314 |   |   |   | 57,342 |   |
| Loans      receivable(3)                             |   |                        | 54,178 |   |           |   | 30,248  |            |   |   | 51,162          |   |   |           | 33,827  |   |   |   | 53,334 |   |   |   | 222,749 |   |
| Other      interest earning assets                   |   |                        | 6,851  |   |           |   | -       |            |   |   | -               |   |   |           | -       |   |   |   | - |   |   |   | 6,851 |   |
| Total      interest-earning assets                   |   | $                           | 91,459 |   |           | $      | 89,921  |            |   | $      | 80,053          |   |   | $              | 45,293  |   |   | $      | 146,299 |   |   | $ | 453,025 |   |
|                                                 |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                   |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Savings      accounts                                |   | $                           | 147    |   |           | $      | 176     |            |   | $      | 40,420          |   |   | $              | 13,473  |   |   | $      | 13,473 |   |   | $ | 67,689 |   |
| Money      market deposit and NOW accounts           |   |                        | -      |   |           |   | 32,910  |            |   |   | 48,014          |   |   |           | 5,034   |   |   |   | 5,034 |   |   |   | 90,992 |   |
| Certificates      of deposits                        |   |                        | 60,369 |   |           |   | 87,022  |            |   |   | 25,382          |   |   |           | 23,571  |   |   |   | - |   |   |   | 196,344 |   |
| Advances      from Federal Home Loan Bank            |   |                        | 14,020 |   |           |   | 60      |            |   |   | 13,165          |   |   |           | 148     |   |   |   | 340 |   |   |   | 27,733 |   |
| Advances      from borrowers for taxes and insurance |   |                        | 1,817  |   |           |   | -       |            |   |   | -               |   |   |           | -       |   |   |   | - |   |   |   | 1,817 |   |
| Total      interest-bearing liabilities              |   | $                           | 76,353 |   |           | $      | 120,168 |            |   | $      | 126,981         |   |   | $              | 42,226  |   |   | $      | 18,847 |   |   | $ | 384,575 |   |
|                                                 |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Interest-earning      assets                         |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| less      interest-bearing liabilities               |   | $                           | 15,106 |   |           | $      | (30,247 | )               |   | $      | (46,928         | )      |   | $              | 3,067   |   |   | $      | 127,452 |   |   | $ | 68,450 |   |
|                                                 |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Cumulative      interest-rate sensitivity gap (4)    |   | $                           | 15,106 |   |           | $      | (15,141 | )               |   | $      | (62,069         | )      |   | $              | (59,002 | )      |   | $      | 68,450 |   |   |   |   |   |
|                                                 |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Cumulative      interest-rate gap as a               |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| percentage      of total assets at December 31, 2007 |   |                        | 3.21   | %      |           |   | -3.22   | %               |   |   | -13.19          | %      |   |           | -12.54  | %      |   |   | 14.55 | % |   |   |   |   |
|                                                 |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| Cumulative      interest-earning assets              |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |   |   |   |
| as      a percentage of cumulative interest-         |   |                        |   |   |           |   |    |            |   |   |            |   |   |           |    |   |   |   |   |   |   |
| bearing      liabilities at December 31, 2007        |   |                        | 119.78 | %      |           |   | 92.30   | %               |   |   | 80.81           | %      |   |           | 83.87   | %      |   |   | 117.80 | % |   |   |   |   |

| (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 and unamortized      deferred loan fees, but net of undisbursed portion of      loans-in-process. |
|   |                                                                                                                                                                                                                                       |
| (4)    | Interest-rate      sensitivity gap represents the difference between net interest-earning      assets and interest-bearingliabilities.                                                                                                     |

----

| 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                  |   |   | $                           | 51,579 |   |          | $      | (35,044 | )                    |   |   | (40.46                     | )%     |   |   | 12.26 | % |   |   | (6.16 | )% |
| 200                  |   |   |                        | 62,984 |   |          |   | (23,639 | )                    |   |   | (27.29                     | )%     |   |   | 14.42 | % |   |   | (4.00 | )% |
| 100                  |   |   |                        | 75,219 |   |          |   | (11,404 | )                    |   |   | (13.17                     | )%     |   |   | 16.57 | % |   |   | (1.85 | )% |
| Static               |   |   |                        | 86,623 |   |          |   | -       |                 |   |   | -                          |   |   |   | 18.42 | % |   |   | - |   |
| (100)                |   |   |                        | 89,005 |   |          |   | 2,382   |                 |   |   | 2.75                       | %      |   |   | 18.63 | % |   |   | 0.21 | % |
| (200)                |   |   |                        | 85,953 |   |          |   | (670    | )                    |   |   | (0.77                      | )%     |   |   | 17.90 | % |   |   | (0.52 | )% |
| (300)                |   |   |                        | 83,220 |   |          |   | (3,403  | )                    |   |   | (3.93                      | )%     |   |   | 17.24 | % |   |   | (1.18 | )% |

----

ITEM 4. CONTROLS AND PROCEDURES

----

PART II

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds

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

----

| Period                                    |   | TotalNumber      ofSharesPurchased |    |   | Average      PricePaid      per Share |   |   | TotalNumber      ofSharesPurchased      asPart      ofPubliclyAnnouncedPlans      orPrograms |   |   | Maximum      Numberof      Shares that May Yet be Purchased Under the Plan or      Programs(1)(2) |   |
|-------------------------------------------|--------|------------------------------------|---------|--------|---------------------------------------|--------|--------|----------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|--------|
| October      1 – October 31, 2007   |   |                               | -       |   |                                  | $      | -      |                                                                                         |   |   |  -                                                                                           |   |   |   | 188,500 |   |
| November      1 – November 30, 2007 |   |                               | 36,200  |   |                                  |   | 12.55  |                                                                                         |   |   | 36,200                                                                                            |   |   |   | 152,300 |   |
| December      1 – December 31, 2007 |   |                               | 71,460  |   |                                  |   | 12.54  |                                                                                         |   |   | 71,460                                                                                            |   |   |   | 80,840 |   |
|                                      |   |                               |    |   |                                  |   |   |                                                                                         |   |   |                                                                                              |   |   |   |   |   |
| Total                                     |   |                               | 107,660 |   |                                  | $      | 12.55  |                                                                                         |   |   | 107,660                                                                                           |   |   |   | 80,840 |   |

----

|   | (1) | On      August 15, 2007, the Company announced its fifth stock repurchase program      to repurchase 230,500 shares or approximately 5% of the Company’s      outstanding common stock held by shareholders other than Prudential Mutual      Holding Company.  Such program commenced  in August      2007.                                                                                                                                                                                                                                                                                                                                       |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | On      January 22, 2008, the Company announced its sixth stock repurchase program      to repurchase up to 220,000 shares or approximately 5% of the Company’s      outstanding common stock held by shareholders other than Prudential Mutual      Holding Company.  The program will commence upon completion of      the fifth stock repurchase program.  In addition, the Prudential      Mutual Holding Company announced that its Board of Directors also approved      the purchase of 220,000 shares or approximately 5% of the Company’s common      stock held by shareholders other than Prudential Mutual Holding      Company. |

Item 3. Defaults Upon SeniorSecurities

Item 4. Submission of Matters to a Vote of SecurityHolders

----

Item 6. Exhibits

| Exhibit      No. | Description                                                               |
|------------------|---------------------------------------------------------------------------|
| 10.1             | Directors’      Compensation – fiscal 2008                    |
| 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

| Date:   February      14, 2008 |   | By:      /s/ Thomas A. Vento                             |   |
|-----------------------------------------------|--------|----------------------------------------------------------|--------|
|                                          |   | Thomas      A. Vento                                     |   |
|                                          |   | President      and Chief Executive Officer               |   |
|                                          |   |                                                     |   |
|                                          |   |                                                     |   |
| Date:   February      14, 2008 |   | By:      /s/ Joseph R. Corrato                           |   |
|                                          |   | Joseph      R. Corrato                                   |   |
|                                          |   | Executive      Vice President and Chief FinancialOfficer |