Polonia Bancorp 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

¨ 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: 0-52267

POLONIA BANCORP

(Exact name of small business issuer as specified in its charter)

United States	41-2224099
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3993 Huntingdon Pike, 3^rd Floor, Huntingdon Valley, Pennsylvania 19006

(Address of principal executive offices)        (Zip Code)

(215) 938-8800

(Registrant’s telephone number, including area code)

N/A

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

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

Yes xNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated Filer ¨ Non-accelerated filer ¨

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of August 14, 2008, there were 3,218,750 shares of the registrant’s common stock outstanding.

POLONIA BANCORP

Table of Contents

		Page
		No.
Part I.    Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets at June 30, 2008 and December 31, 2007 (Unaudited)	2
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)	3
	Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2008 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (Unaudited)	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
Part II.   Other Information
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
	Signatures	21

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

POLONIA BANCORP

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			December 31,
	2008			2007
ASSETS
Cash and due from banks	$	969,721		$	980,929
Interest-bearing deposits with other institutions		15,187,772			2,844,796
Cash and cash equivalents		16,157,493			3,825,725
Investment securities available for sale		37,416,005			45,885,415
Loans receivable (net of allowance for loan losses of $770,010 and $731,338)		152,084,229			137,279,915
Accrued interest receivable		915,477			848,930
Federal Home Loan Bank stock		1,764,800			1,270,800
Premises and equipment, net		5,035,619			5,195,812
Bank-owned life insurance		4,092,780			4,172,776
Other assets		2,039,491			2,117,796
TOTAL ASSETS	$	219,505,894		$	200,597,169
LIABILITIES
Deposits	$	174,248,101		$	163,216,663
FHLB advances - short-term		-			6,000,000
FHLB advances - long-term		18,215,071			4,098,370
Advances by borrowers for taxes and insurance		1,441,019			1,224,248
Accrued interest payable		70,382			9,504
Other liabilities		2,001,716			2,054,639
TOTAL LIABILITIES		195,976,289			176,603,424
Commitments and contingencies		-			-
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized; none issued or outstanding)		-			-
Common stock ($.01 par value; 14,000,000 shares authorized; 3,306,250 shares issued)		33,063			33,063
Additional paid-in-capital		13,420,535			13,275,264
Retained earnings		11,693,077			11,752,230
Unallocated shares held by Employee Stock Ownership Plan
"ESOP" (116,651 and 120,964 shares)		(1,166,514	)		(1,209,647	)
Treasury Stock (37,500 shares)		(368,600	)		-
Accumulated other comprehensive income (loss)		(81,956	)		142,835
TOTAL STOCKHOLDERS' EQUITY		23,529,605			23,993,745
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	219,505,894		$	200,597,169

See accompanying notes to the unaudited consolidated financial statements.

2

POLONIA BANCORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2008			2007			2008			2007
INTEREST AND DIVIDEND INCOME
Loans receivable	$	2,163,344		$	1,752,531		$	4,202,917		$	3,404,727
Investment securities		498,251			571,044			1,031,409			1,147,051
Other interest and dividend income		50,711			241,164			92,716			522,234
Total interest and dividend income		2,712,306			2,564,739			5,327,042			5,074,012
INTEREST EXPENSE
Deposits		1,114,205			1,375,918			2,274,642			2,647,699
FHLB advances - short-term		11,213			-			44,877			-
FHLB advances - long-term		130,701			49,915			198,879			104,720
Advances by borrowers for taxes and insurance		5,940			5,123			12,554			10,700
Total interest expense		1,262,059			1,430,956			2,530,952			2,763,119
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		1,450,247			1,133,783			2,796,090			2,310,893
Provision for loan losses		-			-			-			31,367
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,450,247			1,133,783			2,796,090			2,279,526
NONINTEREST INCOME
Service fees on deposit accounts		36,970			36,131			64,772			66,807
Earnings on Bank-owned life insurance		(39,324	)		40,509			(79,996	)		60,897
Rental income		77,122			73,590			157,955			143,142
Other		57,557			34,390			116,010			87,957
Total noninterest income		132,325			184,620			258,741			358,803
NONINTEREST EXPENSE
Compensation and employee benefits		841,717			754,339			1,707,094			1,521,147
Occupancy and equipment		267,208			240,229			544,277			485,703
Federal deposit insurance premiums		24,081			49,682			46,051			97,242
Data processing expense		64,824			65,749			132,728			127,447
Professional fees		74,475			120,190			155,641			226,125
Other		291,553			248,407			516,928			497,536
Total noninterest expense		1,563,858			1,478,596			3,102,719			2,955,200
Income (loss) before income tax expense (benefit)		18,714			(160,193	)		(47,888	)		(316,871	)
Income tax expense (benefit)		21,638			(70,274	)		11,265			(128,441	)
NET LOSS	$	(2,924	)	$	(89,919	)	$	(59,153	)	$	(188,430	)
EARNINGS PER SHARE	$	0.00		$	(0.03	)	$	(0.02	)	$	(0.06	)

See accompanying notes to the unaudited consolidated financial statements.

3

POLONIA BANCORP

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

																	Accumulated
																	Other
	Common Stock				Additional			Retained			Unallocated			Treasury			Comprehensive						Comprehensive
	# of Shares		Amount		Paid-In-Capital			Earnings			ESOP Shares			Stock			Loss			Total			Loss
Balance, December 31, 2007		3,306,250	$	33,063	$	13,275,264		$	11,752,230		$	(1,209,647	)	$	-			142,835		$	23,993,745
Common stock issued
Net loss									(59,153	)											(59,153	)	$	(59,153	)
Other comprehensive loss:
Unrealized loss on available-for-sale
securities, net of tax benefit
of $115,801																		(224,791	)		(224,791	)		(224,791	)
Comprehensive loss																							$	(283,944	)
Purchase of Treasury Stock (37,500 shares)															(368,600	)					(368,600	)
Stock options compensation expense						66,796															66,796
Allocation of unearned ESOP shares						(7,817	)					43,133									35,316
Allocation of unearned Restricted Stock						86,292															86,292
Balance, June 30, 2008		3,306,250	$	33,063	$	13,420,535		$	11,693,077		$	(1,166,514	)	$	(368,600	)	$	(81,956	)	$	23,529,605

See accompanying notes to the unaudited consolidated financial statements.

4

POLONIA BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
	2008			2007
OPERATING ACTIVITIES
Net loss	$	(59,153	)	$	(188,430	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		-			31,367
Depreciation, amortization and accretion		197,478			189,029
Earnings on Bank-owned life insurance		79,996			(60,897	)
Increase in other payables		-			256,367
Deferred federal income taxes		(10,462	)		139,528
Increase in accrued interest receivable		(66,547	)		(54,901	)
Increase in accrued interest payable		60,878			38,746
Stock compensation expense		66,796			-
Compensation expense on ESOP and Restricted Stock shares		129,425			-
Other, net		143,828			167,871
Net cash provided by operating activities		542,239			518,680
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from principal repayments and maturities		13,259,753			3,746,225
Purchases		(5,151,041	)		(2,991,431	)
Increase in loans receivable, net		(14,717,422	)		(7,838,475	)
Loans purchased		(72,638	)		(3,855,244	)
Purchase of Federal Home Loan Bank stock		(1,344,300	)		(90,000	)
Redemptions of Federal Home Loan Bank stock		850,300			30,700
Purchase of premises and equipment		(31,433	)		(250,464	)
Net cash used for investing activites		(7,206,781	)		(11,248,689	)
FINANCING ACTIVITES
Increase in deposits, net		11,031,438			6,112,907
Net decrease in FHLB advances - short-term		(6,000,000	)		-
Repayment of FHLB advances - long-term		(649,299	)		(1,153,333	)
Proceeds of FHLB advances - long-term		14,766,000			-
Purchase of Treasury stock		(368,600	)		-
Repayment of stock offering subscription rights		-			(12,233,800	)
Deferred conversion costs		-			(373,947	)
Increase in advances by borrowers for taxes and insurance, net		216,771			131,935
Net cash provided by (used for) financing activites		18,996,310			(7,516,238	)
Increase (decrease) in cash and cash equivalents		12,331,768			(18,246,247	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		3,825,725			31,866,257
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	16,157,493		$	13,620,010
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid:
Interest	$	2,470,074		$	2,654,685
Income taxes		-			-
Noncash transactions
Transfers from subscription rights to stockholders equity		-			12,549,940
Transfers from customers savings to stockholders equity		-			993,818

See accompanying notes to the unaudited consolidated financial statements.

5

POLONIA BANCORP

NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the full year. The December 31, 2007 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For additional information, refer to the financial statements and footnotes thereto included in Polonia Bancorp’s (the “Company”) Form 10-KSB for the year ended December 31, 2007.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain recorded amounts and disclosures. Accordingly, actual results could differ from those estimates. The most significant estimate pertains to the allowance for loan losses.

Recent Accounting and Regulatory Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 141 (revised 2007), BusinessCombinations (“FAS 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008.  Earlier adoption is prohibited.  The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurementunder Statement 13, which removed leasing transactions accounted for under FAS No. 13 and related guidance from the scope of FAS No. 157. Also in February 2008, the FASB issued Staff Position No.157-2, Partial Deferral of the Effective Date of Statement 157, which deferred the effective date of FAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The adoption of this standard did not have a material effect on the Company’s results of operations or financial position.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115, which provides all entities with an option to report selected financial assets and liabilities at fair value. The objective of FAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the complex provisions of hedge accounting. FAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007 provided the entity also elects to apply the provisions of FAS No. 157, Fair Value Measurements. The adoption of this standard did not have a material effect on the Company’s results of operations or financial position.

6

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — anamendment of ARB No. 51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.  It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.   FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited.  The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, to require enhanced disclosures about derivative instruments and hedging activities. The new standard has revised financial reporting for derivative instruments and hedging activities by requiring more transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS No. 133, Accounting for Derivative Instruments andHedging Activities; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. FAS No. 161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also requires entities to provide more information about their liquidity by requiring disclosure of derivative features that are credit risk-related. Further, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. FAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. FAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). FAS No. 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the adoption of FAS No. 162 to have a material effect on its results of operations and financial position.

In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The measurement provisions of this standard will apply only to intangible assets of the Company acquired after the effective date.

In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. A basic principle of the FSP is that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share (“EPS”) pursuant to the two-class method.  The provisions of this FSP are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented (including interim financial statements, summaries of earnings, and selected financial data) are required to be adjusted retrospectively to conform with the provisions of the FSP. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-11 (“EITF 06-11”), Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on equity-classified nonvested shares, (b) dividend equivalents on equity-classified nonvested share units, or (c) payments equal to the dividends paid on the underlying shares while an equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under FAS No. 123R, Share-Based Payment, and result in an income tax deduction for the employer. A consensus was reached that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity-classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase in additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The adoption of this EITF did not have a material effect on the Company’s results of operations or financial position. The Company is currently evaluating the impact the adoption of the EITF will have on the Company’s results of operations.

7

Reclassification of Comparative Amounts

Certain items previously reported have been reclassified to conform to the current year’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

2. Earnings Per Share

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and diluted earnings per share computation.

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net Loss	$	(2,924	)	$	(89,919	)	$	(59,153	)	$	(188,430	)
Weighted average number of shares issued		3,306,250			3,306,250			3,306,250			3,306,250
Less weighted average number of treasury stock shares		27,775			-			13,887			-
Less weighted average number of unearned ESOP shares		117,365			127,634			118,449			128,269
Less weighted average number of nonvested restricted stock awards		55,015			-			56,127			-
Weighted average shares outstanding basic		3,106,095			3,178,616			3,117,787			3,177,981
Weighted average shares outstanding diluted		3,106,095			N/A			3,117,787			N/A
Earnings per share:
Basic	$	0.00		$	(0.03	)	$	(0.02	)	$	(0.06	)
Diluted		0.00			N/A			(0.02	)		N/A

The six months earnings per share calculation for 2007 is based on the earnings of the Company from January 11, 2007, the date of the initial public offering, through June 30, 2007.

As of June 30, 2008, options to purchase 162,003 shares of Common Stock at a price of $9.40 and 64,800 shares of restricted Common Stock were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.

3. Comprehensive Income

In complying with FAS No. 130, Reporting Comprehensive Income, the Company has developed the following table, which includes the tax effects of the components of other comprehensive income (loss). Other comprehensive income (loss) consists of net unrealized gain (loss) on securities available for sale and derivatives that qualify as cash flow hedges. Other comprehensive income (loss) and related tax effects for the indicated periods, consists of:

8

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net loss:	$	(2,924	)	$	(89,919	)	$	(59,153	)	$	(188,430	)
Other comprehensive loss, net of tax
Fair value adjustment on securities available for sale, net of tax benefit of $235,472, $222,237, $115,801 and $154,584		(457,093	)		(431,401	)		(224,791	)		(300,075	)
Other comprehensive loss, net of tax		(457,093	)		(431,401	)		(224,791	)		(300,075	)
Comprehensive loss	$	(460,017	)	$	(521,320	)	$	(283,944	)	$	(488,505	)

4. Life Insurance and Retirement Plans

The Bank has a Supplemental Life Insurance Plan (the “Plan”) for three officers of the Bank. The Plan requires the Bank to make annual payments to the beneficiaries upon their death. In connection with the Plan, the Bank funded life insurance policies with an original investment of $3,085,000 on the lives of those officers. These life insurance policies currently have a death benefit of $11,288,850. The cash surrender value of these policies totaled $4,092,780 and $4,172,776 at June 30, 2008 and December 31, 2007, respectively. The Plan provides that death benefits totaling $6.0 million at June 30, 2008, will be paid to their beneficiaries in the event the officers should die.

Additionally, the Bank has a Supplemental Retirement Plan (“SRP”) for the Bank’s current and former presidents as well as two senior officers of the Bank. At June 30, 2008 and December 31, 2007, $1,418,345 and $1,392,149 had been accrued under these SRPs, respectively, and this liability and the related deferred tax assets of $482,237 and $473,331 for the respective periods, are recognized in the financial statements. The deferred compensation for the current and former president is to be paid for the remainder of their lives commencing with the first year following the termination of employment after completion of required service. The current president’s payment is based on 60 percent of his final full year annual gross taxable compensation adjusted annually for the change in the consumer price index or 4 percent, whichever is higher. The former president’s payment is based on 60 percent of his final full year annual gross taxable compensation adjusted annually for the change in the consumer price index. The deferred compensation for the two senior officers is to be paid at the rate of $50,000 per year for twenty years commencing five years after retirement or age 65, whichever comes first, following the termination of employment. The Company records periodic accruals for the cost of providing such benefits by charges to income. The amount accrued was approximately $38,898 and $65,383 for the three months ended June 30, 2008 and 2007, and $79,318 and $132,211 for the six months ended June 30, 2008 and 2007, respectively. The accruals increase each year based on a discount rate of 6.25 percent used in determining the estimated liability that will be accrued when the employees are eligible for benefits.

The following table illustrates the components of the net periodic benefit cost for the supplemental retirement plan:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008			2007		2008			2007
Components of net periodic benefit cost:
Service cost	$	48,412		$	47,671	$	98,346		$	96,787
Interest cost		(9,514	)		17,712		(19,028	)		35,424
Net periodic benefit cost	$	38,898		$	65,383	$	79,318		$	132,211

9

5. Fair Value Measurements

In September 2006, the FASB issued FASB No. 157, Fair Value Measurements, to provide consistency and comparability in determining fair value measurements and to provide for expanded disclosures about fair value measurements. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.

The following table presents information about the Banks assets measured at fair value on a recurring basis as of June 30, 2008 and indicates the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value: 

	Quoted
	Prices in
	Active		Significant
	Markets for		Other		Balance as
	Identical		Observable		of
	Assets		Inputs		June 30,
	(Level 1)		(Level 2)		2008
Securities available-for-sale	$	-	$	37,416,005	$	37,416,005

As required by FASB No. 157, each financial asset and liability must be identified as having been valued according to specified level of input, 1, 2 or 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bank has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability.  Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Bank’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

As of June 30, 2008, the Bank did not have any assets measured at fair value on a nonrecurring basis. The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. As of June 30, 2008, all of the financial assets measured at fair value utilized the market approach.

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

Management’s discussion and analysis of the Company’s financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Polonia Bancorp. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and footnotes appearing in Part I, Item 1 of this document.

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Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Polonia MHC, Polonia Bancorp and Polonia Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Polonia MHC’s, Polonia Bancorp’s and Polonia Bank’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, and changes in relevant accounting principles and guidelines. Additionally, other risks and uncertainties are described in the Company’s Form 10-KSB for the year ended December 31, 2007 under “Item 1: Description of Business – Risk Factors” filed with the Securities and Exchange Commission (the “SEC”) which is available through the SEC’s website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

Polonia Bancorp was organized as a federally chartered corporation at the direction of the Bank in January 2007 to become the mid-tier stock holding company for the Bank upon the completion of its reorganization into the mutual holding company form of organization. Pursuant to the Plan of Reorganization, the Bank converted to stock form with all of its stock owned by the Polonia Bancorp and organized Polonia MHC as a federally chartered mutual holding company that owns 55% of the common stock of Polonia Bancorp. As part of the reorganization, the Company sold 1,487,813 shares of its common stock at a price of $10.00 per share to eligible depositors of the Bank and the ESOP in a subscription offering raising approximately $13.8 million in net proceeds.

Polonia Bank operates as a community-oriented financial institution offering a variety of deposit products as well as providing residential real estate loans, and to a lesser degree, multi-family and nonresidential real estate loans, home equity loans and consumer loans primarily to individuals, families and small businesses located in Bucks, Philadelphia and Montgomery Counties, Pennsylvania. The Bank operates from five full-service locations, including our main office in Huntingdon Valley, Pennsylvania and our branch offices in the city of Philadelphia.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies.

Securities. Securities are reported at fair value adjusted for premiums and discounts which are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of individual securities below their amortized cost, and that are deemed to be other than temporary, will be written down to current market value and included in earnings as realized losses. Management systematically evaluates securities for other than temporary declines in fair value on a quarterly basis.

Allowance for loan losses. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). The Company’s periodic evaluation of the adequacy of the allowance for loan losses is determined by management through evaluation of the loss exposure on individual non-performing, delinquent and high-dollar loans; review of economic conditions and business trends; historical loss experience and growth and composition of the loan portfolio, as well as other relevant factors.

A quantitative analysis is utilized to support the adequacy of the allowance for loan losses. This analysis includes review of historical charge-off rates for loan categories, fluctuations and trends in the amount of classified loans and economic factors. Significant to this analysis are any changes in observable trends that may be occurring relative to loans to assess potential weaknesses within the credit. Current economic factors and trends in risk ratings are considered in the determination and allocation of the allowance for loan losses.

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Income taxes.The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on the difference between the financial statement and the income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income taxes or benefits are based on changes in the deferred tax asset or liability from period to period. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which such items are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

Total assets at June 30, 2008 were $219.5 million, an increase of $18.9 million, or 9.4%, from total assets of $200.6 million at December 31, 2007. The increase in assets resulted primarily from a $14.8 million increase in loans and a $12.4 million increase in cash and cash equivalents, partially offset by a $8.5 million decrease in investment securities available for sale. Total liabilities at June 30, 2008 were $196.0 million compared to $176.6 million at December 31, 2007, an increase of $19.4 million, or 10.9%. The increase in liabilities was mainly due to a $11.1 million increase in deposits, and a $14.0 million increase in FHLB advances – long-term, partially offset by a $6.0 million decrease FHLB advances – short-term. Total stockholders’ equity decreased to $23.5 million at June 30, 2008 from $24.0 million at December 31, 2007, a decrease of $464,000, or 1.9%, primarily due to $369,000 in stock repurchases and a $225,000 decrease in accumulated other comprehensive income.

Loans, net, increased $14.8 million, or 10.8%, to $152.1 million at June 30, 2008, compared to $137.3 million at December 31, 2007. The size of our loan portfolio increased during the six months ended June 30, 2008 due primarily to the hiring of two one-to-four family residential loan originators who have been active in the funding of originations throughout our lending territory.

Total deposits increased to $174.3 million from $163.2 million during the six months ended June 30, 2008, an increase of $11.1 million, or 6.8%. The increase in deposits was attributable, in part, to the offering of a very competitive certificate of deposit during the six month period, as well as increased advertising and the introduction of two new deposit products.

We utilize borrowings from the FHLB of Pittsburgh to supplement our supply of funds for loans and investments. FHLB advances long-term increased $14.1 million to $18.2 million at June 30, 2008, from $4.1 million at December 31, 2007. The $14.1 million increase in FHLB advances long-term was due to better longer term funding opportunities available through the FHLB. The advances outstanding at June 30, 2008 mature in 2008 through 2018.

Comparison of Operating Results For The Three and Six Months Ended June 30, 2008 and 2007

General.We recorded a net loss of $3,000 during the three months ended June 30, 2008, compared to a net loss of $90,000 during the three months ended June 30, 2007. The lower net loss for the 2008 period was primarily related to higher net interest and dividend income, partially offset by higher noninterest expense, lower noninterest income and higher income tax expense.

We recorded a net loss of $59,000 during the six months ended June 30, 2008, compared to a net loss of $188,000 during the six months ended June 30, 2007. The lower net loss for 2008 was primarily related to higher net interest and dividend income, partially offset by higher noninterest expense, lower noninterest income and higher income tax expense.

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Net Interest Income. The following table summarizes changes in interest income and expense for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	(Dollars in thousands)				(Dollars in thousands)
Interest and dividend income:
Loans receivable	$	2,163	$	1,753	$	4,203	$	3,405
Investment securities		498		571		1,031		1,147
Other interest and dividend income		51		241		93		522
Total interest and dividend income		2,712		2,565		5,327		5,074
Interest Expense:
Deposits		1,114		1,376		2,275		2,647
FHLB advances - short-term		11		-		45		-
FHLB advances - long-term		131		50		199		105
Advances by borrowers for taxes and insurance		6		5		12		11
Total interest expense		1,262		1,431		2,531		2,763
Net interest income	$	1,450	$	1,134	$	2,796	$	2,311

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The following table summarizes average balances and average yields and costs for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,												Six Months Ended June 30,
	2008						2007						2008						2007
	Average Balance			Yield/ Cost			Average Balance			Yield/ Cost			Average Balance			Yield/ Cost			Average Balance			Yield/ Cost
	(Dollars in thousands)												(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	147,730			5.86	%	$	120,638			5.89	%	$	143,714			5.93	%	$	117,607			5.87	%
Investment securities		39,084			5.10			44,352			5.22			40,768			5.07			44,849			5.16
Other interest-earning assets		9,536			2.15			19,131			5.11			6,936			2.69			20,707			5.08
Total interest-earning assets		196,350			5.54	%		184,121			5.65	%		191,418			5.58	%		183,163			5.59	%
Noninterest-earning assets:		12,648						13,316						12,761						13,330
Allowance for Loan Losses		(760	)					(728	)					(746	)					(721	)
Total assets	$	208,238					$	196,709					$	203,433					$	195,772
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits		12,345			0.84	%		11,217			0.54	%		11,970			0.79	%		11,523			0.56	%
Money market deposits		25,669			2.94			33,815			5.16			27,661			3.08			30,831			5.09
Savings accounts		36,583			0.84			39,879			0.82			36,084			0.84			40,133			0.81
Time deposits		81,866			4.03			74,951			4.60			80,153			4.13			74,709			4.52
Total interest-bearing deposits		156,463			2.86	%		159,862			3.49	%		155,868			2.93	%		157,196			3.40	%
FHLB advances - short-term		1,890			2.33			-			-			2,802			3.22			-			-
FHLB advances - long-term		18,421			2.85			5,376			3.77			13,246			3.01			5,663			3.70
Advances by borrowers for taxes and insurance		1,176			2.05			1,005			2.02			1,249			1.93			1,083			2.05
Total interest-bearing liabilities		177,950			2.84	%		166,243			3.49	%		173,165			2.93	%		163,942			3.40	%
Noninterest-bearing liabilities:		6,415						6,111						6,266						8,132
Total liabilities		184,365						172,354						179,431						172,074
Retained earnings		23,873						24,355						24,002						23,698
Total liabilities and retained earnings	$	208,238					$	196,709					$	203,433					$	195,772
Interest rate spread					2.70	%					2.16	%					2.65	%					2.19	%
Net yield on interest-bearing assets					2.96	%					2.50	%					2.93	%					2.54	%
Ratio of average interest-earning assets to average interest-bearing liabilities					110.34	%					110.75	%					110.54	%					111.72	%

Our net interest spread improved from 2.16% for the three months ended June 30, 2007 to 2.70% for the same period in 2008. Our net interest spread improved from 2.19% for the six months ended June 30, 2007 to 2.65% for the same period in 2008. Net interest and dividend income for the three months ended June 30, 2008 increased $316,000 to $1.4 million, or 27.9%, from $1.1 million during the same period last year. Net interest and dividend income for the six months ended June 30, 2008 increased $485,000 to $2.8 million, or 21.1%, from $2.3 million during the same period last year. The reasons for the increase in net interest and dividend income for the three and six month periods reflect a higher volume in loans and a lower weighted average rate paid on deposits, partially offset by lower average balance on other interest-earning assets and investment securities, a lower average interest rate earned on other interest-earning assets and investment securities and a higher average balance of FHLB advances. The average balance of loans grew during the three and six months ended June 30, 2008 due to a continued effort by our new loan officers. Lower interest expense on deposits was due to a continuing decline in rates due to a lower Federal Funds rate. The lower average balance of other interest-earning assets was due to an increase in loan funding during the three and six months endings June 30, 2008. Other interest-earning assets primarily consist of cash and cash equivalents.

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Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(Dollars in thousands)				(Dollars in thousands)
Allowance at beginning of period	$	733	$	727	$	731	$	695
Provision for loan losses		-		-		-		31
Charge-offs		-		-		-		-
Recoveries		37		2		39		3
Net charge-offs		37		2		39		3
Allowance at end of period	$	770	$	729	$	770	$	729

We did not record a provision for loan losses for the three months ended June 30, 2008 and 2007. The lack of provision during the period ending June 30, 2008 reflects management’s assessment of charge-off activity, decreased non-performing loans and improved loan delinquencies.

We did not record a provision for loan losses for the six months ended June 30, 2008, compared to a $31,000 provision for loan losses for the six months ended June 30, 2007. The lack of provision during the period ending June 30, 2008 reflects management’s assessment of charge-off activity and continued low nonperforming assets.

The following table provides information with respect to our nonperforming assets at the dates indicated. We did not have any troubled debt restructurings or any accruing loans past due 90 days or more at the dates presented.

	At June 30,			At June 30,
	2008			2007
	(Dollars in thousands)
Nonaccrual loans	$	142		$	353
Real estate owned		-			-
Total nonperforming assets	$	142		$	353
Total nonperforming loans to total loans		0.09	%		0.28	%
Total nonperforming loans to total assets		0.06	%		0.18	%
Total nonperforming assets to total assets		0.06	%		0.18	%

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Noninterest Income.The following table summarizes noninterest income for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
	(Dollars in thousands)					(Dollars in thousands)
Service fees on deposit accounts	$	37		$	36	$	65		$	67
Earnings on Bank-owned life insurance		(39	)		41		(80	)		61
Rental income		77			74		158			143
Other		57			34		116			88
Total	$	132		$	185	$	259		$	359

The $53,000 decrease in noninterest income during the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 was primarily due to the decrease in earnings on Bank-owned life insurance, partially offset by higher other income from revenues generated by our title insurance subsidiary.

The $100,000 decrease in noninterest income during the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 was primarily due to the decrease in earnings on Bank-owned life insurance, partially offset by higher rental income from our office building and higher other income from revenues generated by our title insurance subsidiary.

Noninterest Expense. The following table summarizes noninterest expense for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	(Dollars in thousands)				(Dollars in thousands)
Compensation and employee benefits	$	842	$	754	$	1,707	$	1,521
Occupancy and equipment		267		240		544		486
Federal deposit insurance premiums		24		50		46		97
Data processing expense		65		66		133		127
Professional fees		74		120		156		226
Other		292		249		517		498
Total	$	1,564	$	1,479	$	3,103	$	2,955

Total noninterest expense increased $85,000, or 5.7%, to $1.6 million for the three months ended June 30, 2008 from the prior year period. The increase in noninterest expenses for the three months ended June 30, 2008 as compared to the prior year period was primarily the result of higher compensation and employee benefits due to annual salary increases, increased costs of medical insurance, additional pension expense. Also, contributing to the increase in noninterest expense was higher occupancy and equipment related to increased utilities and building maintenance expenses and an increase in other expenses due to the granting of options to directors, partially offset by lower federal deposit insurance premiums and lower professional fees.

Total noninterest expense increased $148,000, or 5.0%, to $3.1 million for the six months ended June 30, 2008 from the prior year period. The increase in noninterest expenses for the six months ended June 30, 2008 as compared to the prior year period was primarily the result of higher compensation and employee benefits due to annual salary increases, increased costs of medical insurance, additional pension expense, higher occupancy and equipment and an increase in other expense due to expense related to the granting of options to directors and advertising expenses, partially offset by lower federal deposit insurance premiums and lower professional fees.

16

Income Taxes. We recorded tax expense of $22,000 for the three months ended June 30, 2008 compared to a tax benefit of $70,000 during the three months ended June 30, 2007. The recording of tax expense in 2008 as compared to 2007 resulted from the increase in our operating profits.

We recorded tax expense of $11,000 for the six months ended June 30, 2008 compared to a tax benefit of $128,000 during the six months ended June 30, 2007. The recording of tax expense in 2008 as compared to 2007 resulted from the increase in our taxable operating profits.

Liquidity and Capital Management

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

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, 2008, cash and cash equivalents totaled $16.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $37.4 million at June 30, 2008. In addition, at June 30, 2008, we had the ability to borrow a total of approximately $134.2 million from the FHLB of Pittsburgh. On June 30, 2008, we had $18.2 million of borrowings outstanding. Future growth of our loan portfolio resulting from our expansion efforts may require us to borrow additional funds.

At June 30, 2008, we had $3.4 million in mortgage loan commitments outstanding. Time deposits due within one year of June 30, 2008 totaled $28.0 million, or 29.9% of time deposits. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits due on or before June 30, 2009. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2008, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

We also manage our capital for maximum stockholder benefit. The capital from the offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering continue to be used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations are expected to be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net income. However, the large increase in equity resulting from the capital raised in the offering has had an adverse impact on our return on equity. We may use capital management tools such as cash dividends and common share repurchases.

17

On October 2, 2007, the Company authorized the funding of a trust that will purchase 64,800 shares, or 1.96%, of the Company’s outstanding common stock. The acquired shares will be used to fund restricted stock awards under the equity incentive plan.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments.

For the six months ended June 30, 2008 and the year ended December 31, 2007 we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.OTHER INFORMATION

Item1. Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. At June 30, 2008, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-KSB for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. At June 30, 2008 the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-KSB. However, the risks described in our Annual Report on Form 10-KSB are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

The Company’s repurchases of equity securities for the second quarter of 2008 were as follows:

					Total Number		Maximum
					of Shares		Number of Shares
	Total				Purchased as		that May Yet be
	Number of		Average		Part of Publicly		Purchased Under
	Shares		Price Paid		Announced Plans		the Plans or
Period	Purchased (1)		Per Share		or Programs		Programs
April 1 - 30, 2008		27,500	$	9.84		27,500
May 1 - 31, 2008		10,000		9.80		10,000
June 1 - 30, 2008		-		-		-
Total		37,500	$	9.83		37,500		111,241

(1) On March 4, 2008, the Company announced that the Board of Directors had approved a stock repurchase program authorizing the company to repurchase up to 148,741 shares of the Company's common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

A.   The Annual Meeting of Stockholders was held on May 20, 2008.

B.   The items voted upon at the Annual Meeting and the votes for each proposal were as follows:

1.   Election of directors for a three-year term.

Nominees	For		Withheld
Edward W. Lukiewski		2,680,621		255,843

2.   Ratification of the appointment of S.R. Snodgrass, A.C. as the Company’s independent registered public

Accounting firm for the fiscal year ending December 31, 2008.

For	Against		Abstain
2,873,970		60,606		1,888

Item 5. Other Information

None.

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Item 6. Exhibits

3.1	Charter of Polonia Bancorp (1)
3.2	Bylaws of Polonia Bancorp (1)
4.0	Stock Certificate of Polonia Bancorp (1)
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

_______________

(1) Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-135643.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	POLONIA BANCORP
Date: August 14, 2008	By:	/s/ Anthony J. Szuszczewicz
		Anthony J. Szuszczewicz
		President and Chief Executive Officer
		(principal executive officer)
Date: August 14, 2008	By:	/s/ Paul D. Rutkowski
		Paul D. Rutkowski
		Chief Financial Officer and Treasurer
		(principal financial and accounting officer)

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