The following discussion should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, 2011 (the "Form 10-K").

Overview. Prudential Bancorp, Inc. of Pennsylvania (the "Company") was formed by Prudential Savings Bank (the "Bank") in connection with the Bank's reorganization into the mutual holding company form of organization in 2005. The Company's results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The Company's results of operations depend to a large extent on net interest income, which primarily is the difference between the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid on deposits and borrowings. Results of operations are also affected by our provisions for loan losses, non-interest income (which includes impairment charges) and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy, depreciation, data processing expense, payroll taxes and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking (the "Department"). The Bank's main office is in Philadelphia, Pennsylvania, with six additional banking offices located in Philadelphia and Delaware Counties in Pennsylvania. The Bank's primary business consists of attracting deposits from the general public and using those funds together with borrowings to originate loans and to invest primarily in U.S. Government and agency securities and mortgage-backed securities. 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. PSB Delaware, Inc.'s. activities are included as part of the consolidated financial statements.

Critical Accounting Policies. In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 2 of the Notes to Consolidated Financial Statements included in the Form 10-K . The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP") and to general practices within the banking industry. The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal in whole or in part, is unlikely. Subsequent recoveries are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to classified and criticized loans.

Management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In this context, a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio. Included in these qualitative factors are:

? Levels of past due, classified and non-accrual loans, troubled debt restructurings and modifications

? Nature and volume of loans

? Changes in lending policies and procedures, underwriting standards, collections, charge-offs and recoveries and for commercial loans, the level of loans being approved with exceptions to lending policy

? Experience, ability and depth of management and staff

? National and local economic and business conditions, including various market segments

? Quality of the Company's loan review system and degree of Board oversight

? Concentrations of credit and changes in levels of such concentrations

? Effect of external factors on the level of estimated credit losses in the current portfolio

In determining the allowance for loan losses, management has established both specific and general pooled allowances. Values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (general pooled allowance) and those criticized and classified loans. The amount of the specific allowance is determined through a loan-by-loan analysis of substandard and 90 plus day delinquent loans. Loans not individually reviewed are evaluated as a group using reserve factor percentages based on historic loss experience and the qualitative factors described above. In determining the appropriate level of the general pooled allowance, management makes estimates based on internal risk ratings, which take into account such factors as debt service coverage, loan-to-value ratios, and external factors. Estimates are periodically measured against actual loss experience.

This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management's initial estimates. In addition, the Department and the FDIC, as an integral part of their examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management's estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Investment and mortgage-backed securities available for sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Management evaluates securities for other-than-temporary impairment no less frequently than quarterly, and more frequently when economic or market concerns warrant such evaluation. The Company determines whether the unrealized losses are temporary in accordance with GAAP. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. In addition the Company also considers the likelihood that the security will be required to be sold by a regulatory agency, our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered, management evaluates other facts and circumstances that may be indicative of an other-than-temporary impairment condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.

In addition, certain assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans, FHLB stock and loans or properties collateralizing loans transferred into real estate owned at fair value on a non-recurring basis.

Valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.

Income Taxes. The Company records deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions with respect to the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. Assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management's analysis of tax regulations and interpretations. Significant judgment may be involved in the assessment of the tax position.

Forward-looking Statements. In addition to historical information, this Quarterly Report on Form 10-Q includes certain "forward-looking statements" based on management's current expectations. The Company's actual results could differ materially, as such term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, from management's expectations. Such forward-looking statements include statements regarding management's current intentions, beliefs or expectations as well as the assumptions on which such statements are based. These forward-looking statements are subject to significant business, economic and competitive uncertainties and contingencies, many of which are not subject to the Company's control. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and investment portfolios, changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and fees.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results that occur subsequent to the date such forward-looking statements are made unless required by law or regulations.

Market Overview. The market dislocations experienced in the financial market beginning in 2007 have continued through 2011 and into 2012. One of the primary sources of the difficulties in the market is the significant declines experienced in the housing market throughout the country. While the Philadelphia area has not suffered the wholesale declines in the value of residential real estate as have other areas of the country, this downturn has rippled through many parts of the local economy, especially condominium sales, construction lending and lending to contractors. The significant deterioration during the fiscal year ended 2011 necessitated large charge-offs and loan loss provision expense.

The Company continues to focus on the credit quality of its customers - closely monitoring the financial status of borrowers throughout the Company's markets, gathering information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis required to maintain adequate reserves for loan losses.

Despite the current market and economic conditions, the Company continues to maintain capital well in excess of regulatory requirements.

The following discussion provides further details on the financial condition and results of operations of the Company at and for the three and six month periods ended March 31, 2012 and 2011.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2012 AND SEPTEMBER 30, 2011

At March 31, 2012, the Company had total assets of $499.8 million, an increase of $265,000 from $499.5 million at September 30, 2011. The increase was primarily attributable to an increase of $8.1 million in cash and cash equivalents. This increase was partially offset by a $4.6 million decrease in the investment and mortgage-backed securities portfolio as the proceeds from securities called during the first half of the fiscal year had not been fully reinvested as of March 31, 2012 as we continue to manage our exposure to interest rate risk. The increase in assets was also partially offset by a $2.3 million decrease in the loan portfolio as principal reductions outpaced the amount of new loan originations.

Total liabilities decreased $591,000 to $441.5 million at March 31, 2012 from $442.1 million at September 30, 2011. The decrease was primarily the result of a $1.5 million decrease in accounts payable and accrued expenses. Also contributing to the decrease was a $1.4 million decrease in accrued interest related to certificates of deposit, as interest on such deposits is generally distributed at the end of the calendar year. These decreases were offset by a $2.3 million increase in deposits.

Stockholders' equity increased by $856,000 to $58.3 million at March 31, 2012 from $57.5 million at September 30, 2011. The increase primarily reflected net income of $488,000 for the six months ended March 31, 2012.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2012 AND 2011

Net income. The Company reported net income of $84,000 for the quarter ended March 31, 2012 as compared to a net loss of $1.9 million for the quarter ended March 31, 2011. For the six months ended March 31, 2012, the Company recognized net income of $488,000, as compared to a net loss of $2.0 million for the comparable period in 2011. The losses incurred for the three and six month periods in 2011 were due primarily to the establishment of substantial loan loss provisions in the second quarter of fiscal 2011 as collateral values related to two significant construction loans had declined substantially.

Net interest income. Net interest income decreased $310,000 or 8.5% to $3.3 million for the three months ended March 31, 2012 as compared to $3.6 million for the same period in 2011. The decrease reflected the effects of a $633,000 or 11.6% decrease in interest income partially offset by a $323,000 or 17.8% decrease in interest expense. The decrease in interest income resulted from a 37 basis point decrease to 4.01% in the weighted average yield earned on interest-earning assets. The weighted average yield primarily declined because investment securities were called and the proceeds were re-invested in securities bearing lower interest rates consistent with the current market, resulting in a 91 basis point decline in the yield on investment securities. Also contributing to the decrease was a $16.7 million or 3.4% decrease in the average balance of interest-earning assets for the three months ended March 31, 2012, as compared to the same period in 2011. The decrease in interest expense resulted primarily from a 22 basis point decrease to 1.37% in the weighted average rate paid on interest-bearing liabilities, reflecting the repricing downward of interest-bearing liabilities during the year. Also contributing to the decrease was a $18.9 million or 4.1% decrease in the average balance of interest-bearing liabilities for the three months ended March 31, 2012, as compared to the same period in 2011. The decline in the weighted average rate paid reflected the continued effect of the low interest rate environment on the Bank's cost of funds as deposits, in particular, certificates of deposit, repriced downward. The decrease in the average balance of certificates of deposit was also the primary cause for the decrease in interest-earning assets as funds were used to fund deposit withdrawals as maturing certificates were allowed to run-off as part of the Company's asset-liability management.

For the six months ended March 31, 2012, net interest income decreased $472,000 or 6.5% to $6.8 million as compared to $7.3 million for the same period in 2011. The decrease was due to a $1.3 million or 11.7% decrease in interest income partially offset by an $831,000 or 21.7% decrease in interest expense. The decrease in interest income resulted primarily from a 34 basis point decrease to 4.09% in the weighted average yield earned on interest-earning assets. Also contributing to the decrease was a $22.1 million or 4.4% decrease in the average balance of interest-earning assets. The majority of the decline in the average yield reflected the 94 basis point decline in yield earned on the investment portfolio for the reasons described above. The decrease in interest expense resulted from a 29 basis point decrease to 1.38% in the weighted average rate paid on interest-bearing liabilities. Also contributing to the decrease was a $23.3 million or 5.1% decrease in the average balance of interest-bearing liabilities for the six months ended March 31, 2012, as compared to the same period in 2011. The decline in the weighted average rate paid reflected the continued effect of the low interest rate environment on the Bank's cost of funds as deposits, in particular, certificates of deposit, repriced downward. The decrease in the average balance of certificates of deposit was also the primary cause for the decrease in interest-earning assets as funds were used to fund deposit withdrawals.

For the quarter ended March 31, 2012, the net interest margin was 2.77%, as compared to 2.92% for the same period in 2011. For the six months ended March 31, 2012, the net interest margin was 2.83%, as compared to 2.90% for the same period in 2011. The decrease in the net interest margin in the 2012 periods was primarily due to the shift in the relative composition of interest-earning assets to increased amounts of cash and cash equivalents as higher yielding investment securities were called and repaid during the current periods with the Company not completing the re-investment of the proceeds during the 2012 periods.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following tables show for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Average yields and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

                                                                Three Months
                                                               Ended March 31,
                                             2012                                          2011
                            Average                       Average         Average                       Average
                            Balance       Interest       Yield/Rate       Balance       Interest       Yield/Rate

                                                           (Dollars in Thousands)
Interest-earning assets:
Investment securities      $  83,345     $      558             2.68 %   $ 114,341     $    1,026             3.59 %
Mortgage-backed
securities                    90,334            975             4.32        92,496          1,091             4.72
Loans receivable(1)          240,076          3,251             5.42       249,829          3,307             5.29
Other interest-earning
assets                        66,443             29             0.17        40,244             22             0.22
  Total interest-earning
assets                       480,198          4,813             4.01       496,910          5,446             4.38
Cash and
non-interest-bearing
balances                       2,788                                         3,154
Other
non-interest-earning
assets                        18,013                                        17,471
   Total assets            $ 500,999                                     $ 517,535
Interest-bearing
liabilities:
Savings accounts           $  69,630            111             0.64     $  70,380            189             1.07
Money market deposit and
NOW accounts                 104,073            131             0.50       104,656            196             0.75
Certificates of deposit      261,162          1,249             1.91       278,779          1,428             2.05
  Total deposits             434,865          1,491             1.37       453,815          1,813             1.60
Advances from Federal
Home Loan Bank                   554              1             0.72           597              1             0.67
Advances from borrowers
for taxes and insurance        1,692              1             0.24         1,619              2             0.49
  Total interest-bearing
liabilities                  437,111          1,493             1.37       456,031          1,816             1.59
Non-interest-bearing
liabilities:
Non-interest-bearing
demand accounts                3,696                                         3,199
Other liabilities              2,038                                         3,189
Total liabilities            442,845                                       462,419
Stockholders' equity          58,154                                        55,116
   Total liabilities and
stockholders' equity       $ 500,999                                     $ 517,535
Net interest-earning
assets                     $  43,087                                     $  40,879
Net interest income;
interest rate spread                     $    3,320             2.64 %                 $    3,630             2.79 %
Net interest margin(2)                                          2.77 %                                        2.92 %

Average interest-earning
assets to average
interest-bearing
liabilities                                  109.86 %                                      108.96 %

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

                                                                 Six Months
                                                               Ended March 31,
                                             2012                                          2011
                            Average                       Average         Average                       Average
                            Balance       Interest       Yield/Rate       Balance       Interest       Yield/Rate

                                                           (Dollars in Thousands)
Interest-earning assets:
Investment securities      $  88,556     $    1,203             2.72 %   $ 106,856     $    1,958             3.66 %
Mortgage-backed
securities                    89,369          2,019             4.52        90,418          2,155             4.77
Loans receivable(1)          238,958          6,519             5.46       252,479          6,931             5.49
Other interest-earning
assets                        62,598             55             0.18        51,803             55             0.21
  Total interest-earning
assets                       479,481          9,796             4.09       501,556         11,099             4.43
Cash and
. . .