Polonia Bancorp 10Q 2010 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, 2010

¨	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, 3rd 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 registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

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 definitions of “large accelerated filer,” “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 13, 2010, there were 3,159,078 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, 2010 and December 31, 2009 (Unaudited)	2

		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and
		2009 (Unaudited)	3

		Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended
		June 30, 2010 (Unaudited)	4

		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
		(Unaudited)	5

		Notes to Unaudited Consolidated Financial Statements	6

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.		Controls and Procedures	25

Part II.	Other Information

Item 1.		Legal Proceedings	25

Item 1A.		Risk Factors	25

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.		Defaults Upon Senior Securities	26

Item 4.		[Removed and Reserved]	26

Item 5.		Other Information	26

Item 6.		Exhibits	26

		Signatures	27

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial Statements

POLONIA BANCORP

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			December 31,
	2010			2009
ASSETS
Cash and due from banks	$	1,812,362		$	2,454,959
Interest-bearing deposits with other institutions		12,026,728			5,971,571
Cash and cash equivalents		13,839,090			8,426,530

Investment securities available for sale		24,688,632			30,601,587
Investment securities held to maturity (fair value $17,001,371 and $13,640,975)		16,620,857			13,780,267
Loans receivable (net of allowance for loan losses of $904,778 and $1,115,141)		145,060,715			150,177,130
Accrued interest receivable		840,531			930,336
Federal Home Loan Bank stock		2,333,800			2,279,200
Premises and equipment, net		4,682,763			4,760,680
Bank-owned life insurance		4,100,775			4,053,225
Other assets		3,048,247			3,061,704
TOTAL ASSETS	$	215,215,410		$	218,070,659

LIABILITIES
Deposits	$	158,890,610		$	164,207,245
FHLB advances - long-term		28,702,502			26,473,524
Advances by borrowers for taxes and insurance		1,169,594			1,280,863
Accrued interest payable		99,859			63,647
Other liabilities		2,101,740			2,200,421
TOTAL LIABILITIES		190,964,305			194,225,700

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		13,780,468			13,694,394
Retained earnings		12,152,814			11,837,420
Unallocated shares held by Employee Stock Ownership Plan
"ESOP" (99,388 and 103,684 shares)		(993,882	)		(1,036,840	)
Treasury Stock (147,172 shares)		(1,251,735	)		(1,251,735	)
Accumulated other comprehensive income		530,377			568,657
TOTAL STOCKHOLDERS' EQUITY		24,251,105			23,844,959
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	215,215,410		$	218,070,659

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
INTEREST AND DIVIDEND INCOME
Loans receivable	$	2,078,260		$	2,223,912		$	4,190,114		$	4,491,712
Investment securities		407,739			469,091			867,057			951,519
Other interest and dividend income		1,227			3,092			1,968			5,618
Total interest and dividend income		2,487,226			2,696,095			5,059,139			5,448,849

INTEREST EXPENSE
Deposits		713,841			1,090,592			1,455,183			2,229,733
FHLB advances - short-term		-			-			-			396
FHLB advances - long-term		204,267			191,508			410,132			384,352
Advances by borrowers for taxes and insurance		5,450			6,867			12,460			14,533
Total interest expense		923,558			1,288,967			1,877,775			2,629,014

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		1,563,668			1,407,128			3,181,364			2,819,835
Provision (credit) for loan losses		(77,650	)		113,712			(212,134	)		219,040

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,641,318			1,293,416			3,393,498			2,600,795

NONINTEREST INCOME
Service fees on deposit accounts		22,060			23,127			40,776			44,994
Earnings on Bank-owned life insurance		23,166			74,396			47,550			32,921
Investment securities gains, net		-			-			293,815			-
Gain on sale of loans		111,303			31,399			137,377			122,858
Rental income		70,601			71,797			143,316			143,629
Other		232,247			43,552			284,223			105,588
Total noninterest income		459,377			244,271			947,057			449,990

NONINTEREST EXPENSE
Compensation and employee benefits		921,343			851,748			1,792,641			1,738,117
Occupancy and equipment		244,401			246,243			508,525			502,209
Federal deposit insurance premiums		80,842			116,883			230,078			264,766
Data processing expense		70,477			63,096			138,742			131,240
Professional fees		95,119			88,731			187,885			176,802
Other		540,998			260,109			1,162,810			479,972
Total noninterest expense		1,953,180			1,626,810			4,020,681			3,293,106

Income (loss) before income tax expense (benefit)		147,515			(89,123	)		319,874			(242,321	)
Income tax expense (benefit)		48,103			(44,495	)		4,480			(82,863	)

NET INCOME (LOSS)	$	99,412		$	(44,628	)	$	315,394		$	(159,458	)

EARNINGS PER SHARE	$	0.03		$	(0.01	)	$	0.10		$	(0.05	)

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

	Shares of															Accumulated
	Common															Other
	Stock		Common		Additional			Retained		Unallocated			Treasury			Comprehensive						Comprehensive
	Outstanding		Stock		Paid-In-Capital			Earnings		ESOP Shares			Stock			Income			Total			Income

Balance, December 31, 2009		3,306,250	$	33,063	$	13,694,394		$	11,837,420	$	(1,036,840	)	$	(1,251,735	)	$	568,657		$	23,844,959

Net income									315,394											315,394		$	315,394
Other comprehensive income:
Unrealized loss on available-for-sale securities, net of reclassification adjustment, net of tax benefit of $(19,720)																	(38,280	)		(38,280	)		(38,280	)
Comprehensive income																						$	277,114
Stock options compensation expense						44,796														44,796
Allocation of unearned ESOP shares						(16,589	)				42,958									26,369
Allocation of unearned restricted stock						57,867														57,867

Balance, June 30, 2010		3,306,250	$	33,063	$	13,780,468		$	12,152,814	$	(993,882	)	$	(1,251,735	)	$	530,377		$	24,251,105

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30,
	2010			2009
OPERATING ACTIVITIES
Net income (loss)	$	315,394		$	(159,458	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision (credit) for loan losses		(212,134	)		219,040
Depreciation, amortization and accretion		211,126			92,176
Investment securities gains, net		(293,815	)		-
Origination of loans held for sale		(7,439,455	)		(15,859,027	)
Proceeds from sale of loans		7,576,832			15,981,885
Net gain on sale of loans		(137,377	)		(122,858	)
Earnings on bank-owned life insurance		(47,550	)		(32,921	)
Deferred federal income taxes		(6,300	)		(6,600	)
Decrease (increase) in accrued interest receivable		89,805			(32,443	)
Increase in accrued interest payable		36,212			31,692
Compensation expense for stock options, ESOP and restricted stock		129,032			136,222
Other, net		(59,205	)		206,801
Net cash provided by operating activities		162,565			454,509

INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales		6,483,428			-
Proceeds from principal repayments and maturities		7,015,080			4,874,688
Purchases		(7,376,563	)		(4,414,507	)
Investment securities held to maturity:
Proceeds from principal repayments and maturities		1,217,903			-
Purchases		(4,125,229	)		-
Decrease in loans receivable, net		5,353,687			11,617,581
Purchase of Federal Home Loan Bank stock		(54,600	)		-
Purchase of premises and equipment		(64,784	)		(39,495	)
Net cash provided by investing activities		8,448,922			12,038,267

FINANCING ACTIVITES
Increase (decrease) in deposits, net		(5,316,635	)		5,028,120
Net decrease in FHLB advances - short-term		-			(4,000,000	)
Repayment of FHLB advances - long-term		(1,771,022	)		(674,382	)
Proceeds of FHLB advances - long-term		4,000,000			-
Purchase of treasury stock		-			(256,500	)
Increase (decrease) in advances by borrowers for taxes and insurance, net		(111,269	)		4,904
Net cash provided by (used for) financing activities		(3,198,926	)		102,142
Increase in cash and cash equivalents		5,412,560			12,594,918

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		8,426,530			4,670,942
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	13,839,090		$	17,265,860

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid:
Interest	$	1,841,563		$	2,597,322
Income taxes		30,000			75,000

See accompanying notes to the unaudited consolidated financial statements.

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, 2010 are not necessarily indicative of the results that may be expected for the full year. The December 31, 2009 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-K for the year ended December 31, 2009.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with U. S. 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 2009, the FASB issued ASU 2009-16, Accounting for Transfer of Financial Assets. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASU 2009-16 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In December 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The objective of ASU 2009-17 is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASU 2009-17 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In September 2009, the FASB issued new guidance impacting Topic 820. This creates a practical expedient to measure the fair value of an alternative investment that does not have a readily determinable fair value. This guidance also requires certain additional disclosures. This guidance is effective for interim and annual periods ending after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position.

In October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In January 2010, the FASB issued ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash – a consensus of the FASB Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810): Accounting and reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. ASU 2010-02 amends Subtopic 810-10 to address implementation issues related to changes in ownership provisions including clarifying the scope of the decrease in ownership and additional disclosures. ASU 2010-02 is effective beginning in the period that an entity adopts Statement 160. If an entity has previously adopted Statement 160, ASU 2010-02 is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009 and should be applied retrospectively to the first period Statement 160 was adopted. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU 2010-04, Accounting for Various Topics – Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. ASU 2010-04 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU 2010-05, Compensation – Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position.

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-18, Receivables (Topic310): Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 clarifies the treatment for a modified loan that was acquired as part of a pool of assets. Refinancing or restructuring the loan does not make it eligible for removal from the pool, the FASB said. The amendment will be effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010 or later and is not expected to have a significant impact on the Company’s Financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company is currently evaluating the impact the adoption of this guidance will have on the Company’s financial position or results of operations.

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 consolidated net income or consolidated 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						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net Income (loss)	$	99,412		$	(44,628	)	$	315,394		$	(159,458	)

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		(147,172	)		(145,190	)		(147,172	)		(141,986	)
Less weighted average number of unearned ESOP shares		(100,109	)		(108,749	)		(101,183	)		(109,823	)
Less weighted average number of nonvested restricted stock awards		(28,796	)		(41,108	)		(29,267	)		(41,579	)
Weighted average shares outstanding basic		3,030,173			3,011,203			3,028,628			3,012,862
Weighted average shares outstanding diluted		3,030,173			3,011,203			3,028,628			3,012,862
Earnings per share:
Basic	$	0.03		$	(0.01	)	$	0.10		$	(0.05	)
Diluted		0.03			(0.01	)		0.10			(0.05	)

Options to purchase 153,903 shares at $9.40 per share and 162,003 shares at $9.40 per share of common stock as of June 30, 2010 and 2009, as well as 26,676 shares and 38,988 shares of restricted stock as of June 30, 2010 and 2009, respectively, 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 U. S. generally accepted accounting principles, 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 gains on securities available for sale. Other comprehensive income (loss) and related tax effects for the indicated periods, consists of:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010		2009			2010			2009
Net income (loss):	$	99,412	$	(44,628	)	$	315,394		$	(159,458	)
Other comprehensive income (loss), net of tax
Changes in net unrealized gain on investment securities available
for sale, net of taxes of $39,160, $32,690, $80,177 and $93,354		76,017		63,457			155,638			181,217
Reclassification adjustment for realized gains on investment securities
included in net income (loss), net of taxes of $0, $0, $(99,897) and $0
investment securities available for sale		-		-			(193,918	)		-
Other comprehensive income (loss), net of tax		76,017		63,457			(38,280	)		181,217

Comprehensive income	$	175,429	$	18,829		$	277,114		$	21,759

4.	Investment Securities

The amortized cost and fair value of investment securities available for sale are summarized as follows:

	June 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized				Fair
	Cost		Gains		Losses				Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	9,145,473	$	532,194	$	-			$	9,677,667
Freddie Mac		1,166,228		65,120		-				1,231,348
Government National Mortgage
Association securities		1,139,339		120,386		-				1,259,725
Other mortgage-backed securities		80,920		7,329		(1,847	)			86,402
Total mortgage-backed
securities		11,531,960		725,029		(1,847	)			12,255,142
Corporate securities		12,334,571		101,542		(8,623	)			12,427,490
Total debt securities		23,866,531		826,571		(10,470	)			24,682,632
Equity securities		18,500		-		(12,500	)			6,000

Total	$	23,885,031	$	826,571	$	(22,970	)		$	24,688,632

Held to Maturity
Mortgage-backed securities:
Fannie Mae	$	12,571,763	$	314,530	$	-			$	12,886,293
Freddie Mac		4,049,094		65,984		-				4,115,078
Total mortgage-backed
securities	$	16,620,857	$	380,514	$	-			$	17,001,371

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized				Fair
	Cost		Gains		Losses				Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	13,162,586	$	557,138	$	-			$	13,719,724
Freddie Mac		2,763,475		142,253		-		��		2,905,728
Government National Mortgage
Association securities		1,339,327		107,672		-				1,446,999
Other mortgage-backed securities		85,639		4,873		(3,558	)			86,954
Total mortgage-backed
securities		17,351,027		811,936		(3,558	)			18,159,405
Corporate securities		12,370,458		156,124		(101,900	)			12,424,682
Total debt securities		29,721,485		968,060		(105,458	)			30,584,087
Equity securities		18,500		-		(1,000	)			17,500

Total	$	29,739,985	$	968,060	$	(106,458	)		$	30,601,587

Held to Maturity

Fannie Mae mortgage-backed
securities	$	13,780,267	$	-	$	(139,292	)		$	13,640,975

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous loss position.

	June 30, 2010
	Less Than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities:
Other mortgage-backed securities	$	-	$	-		$	8,442	$	(1,847	)	$	8,442	$	(1,847	)
Total mortgage-backed
securities		-		-			8,442		(1,847	)		8,442		(1,847	)
Corporate securities		1,654,216		(8,623	)		-		-			1,654,216		(8,623	)
Equity securities		6,000		(12,500	)		-		-			6,000		(12,500	)

Total	$	1,660,216	$	(21,123	)	$	8,442	$	(1,847	)	$	1,668,658	$	(22,970	)

	December 31, 2009
	Less Than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities:
Fannie Mae	$	13,640,975	$	(139,292	)	$	-	$	-		$	13,640,975	$	(139,292	)
Other mortgage-backed securities		-		-			7,790		(3,558	)		7,790		(3,558	)
Total mortgage-backed
securities		13,640,975		(139,292	)		7,790		(3,558	)		13,648,765		(142,850	)
Corporate securities		5,898,100		(101,900	)		-		-			5,898,100		(101,900	)
Equity securities		17,500		(1,000	)		-		-			17,500		(1,000	)

Total	$	19,556,575	$	(242,192	)	$	7,790	$	(3,558	)	$	19,564,365	$	(245,750	)

The Company reviews its position quarterly and has asserted that at June 30, 2010, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe they will be required to sell these securities before recovery of their cost basis, which may be at maturity. There were four positions that were temporarily impaired at June 30, 2010 and seven positions that were temporarily impaired at December 31, 2009, respectively. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes or company specific ratings changes that are not expected to result in the non-collection of principal and interest during the period. The Company has identified certain investment securities for which it has determined the unrealized losses to be other than temporary.

The amortized cost and fair value of debt securities at June 30, 2010, by contractual maturity, are shown below. Mortgage-backed securities provide for periodic, generally monthly, payments of principal and interest and have contractual maturities ranging from 3 to 30 years. 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.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due within one year	$	2,602	$	2,704	$	-	$	-
Due after one year through five years		7,376,090		7,470,751		-		-
Due after five years through ten years		5,667,896		5,939,784		15,256,946		15,607,832
Due after ten years		10,819,943		11,269,393		1,363,911		1,393,539

Total	$	23,866,531	$	24,682,632	$	16,620,857	$	17,001,371

The Company had no sales of investments for the three month periods ended June 30, 2010 and 2009. For the six month period ended June 30, 2010, the Company realized gross gains of $294,000 and proceeds from the sale of investment securities of $6,483,000. The Company had no sales of investment securities for the six month period ended June 30, 2009.

5.	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 $11,975,329. The cash surrender value of these policies totaled $4,100,775 and $4,053,225 at June 30, 2010 and December 31, 2009, respectively. The Plan provides that death benefits totaling $6.0 million at June 30, 2010, 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, 2010 and December 31, 2009, $1,502,820 and $1,485,552 had been accrued under these SRPs, respectively, and this liability and the related deferred tax assets of $510,959 and $505,088 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 $36,345 and $36,949 for the three months ended June 30, 2010 and 2009, and $74,409 and $75,112 for the six months ended June 30, 2010 and 2009, respectively. The accruals change 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,
	2010		2009		2010		2009
Components of net periodic benefit cost:
Service cost	$	13,133	$	14,378	$	27,985	$	20,924
Interest cost		23,212		22,571		46,424		54,188
Net periodic benefit cost	$	36,345	$	36,949	$	74,409	$	75,112

6.	Fair Value Measurements

U.S. Generally Accepted Accounting Principles (“GAAP”) establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by GAAP hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the assets reported on the consolidated balance sheets at their fair value as of June 30, 2010 and December 31, 2009, respectively, by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	June 30, 2010
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	12,255,142	$	-	$	12,255,142
Corporate securities		-		12,427,490		-		12,427,490
Equity securities		-		6,000		-		6,000

Total	$	-	$	24,688,632	$	-	$	24,688,632

	December 31, 2009
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	18,159,405	$	-	$	18,159,405
Corporate securities		-		12,424,682		-		12,424,682
Equity securities		-		17,500		-		17,500

Total	$	-	$	30,601,587	$	-	$	30,601,587

Most of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For theses securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

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 Company’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, 2010, the Company 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, 2010, all of the financial assets measured at fair value utilized the market approach.

7.	Fair Value Disclosure

The estimated fair values of the Company’s financial instruments are as follows:

	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Financial assets:
Cash and cash equivalents	$	13,839,090	$	13,839,090	$	8,426,530	$	8,426,530
Investment securities
Available for sale		24,688,632		24,688,632		30,601,587		30,601,587
Held to maturity		16,620,857		17,001,371		13,780,267		13,640,975
Net loans receivable		145,060,715		154,622,939		150,177,130		156,195,753
Accrued interest receivable		840,531		840,531		930,336		930,336
Federal Home Loan Bank stock		2,333,800		2,333,800		2,279,200		2,279,200
Bank-owned life insurance		4,100,775		4,100,775		4,053,225		4,053,225

Financial liabilities:
Deposits	$	158,890,610	$	161,773,786	$	164,207,245	$	166,885,243
FHLB advances - long-term		28,702,502		30,279,917		26,473,524		27,365,487
Advances by borrowers
for taxes and insurance		1,169,594		1,169,594		1,280,863		1,280,863
Accrued interest payable		99,859		99,859		63,647		63,647

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract that creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or stimulation modeling. As many of these assumptions result from judgments made by management based upon estimates that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions.

Cash and Cash Equivalents, Accrued Interest Receivable, Federal Home Loan Bank Stock, Accrued Interest Payable, and Advances by Borrowers for Taxes and Insurance

The fair value is equal to the current carrying value.

Investment Securities Available for Sale and Held to Maturity

The fair value of investment securities available for sale and held to maturity is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.

Net Loans Receivable

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Deposits and FHLB Advances – Long-Term

The fair values of certificates of deposit and FHLB advances – long-term are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of year-end.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments are presented in the Liquidity and Capital Management section below.

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.

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 herein and in the Company’s Form 10-K for the year ended December 31, 2009 under “Item 1A: 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.

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, 2010 and December 31, 2009

Total assets at June 30, 2010 were $215.2 million, a decrease of $2.9 million, or 1.3%, from total assets of $218.1 million at December 31, 2009. The decrease in assets resulted primarily from a $5.9 million decrease in investment securities available for sale and a $5.1 million decrease in loans receivable, partially offset by a $5.4 million increase in cash and cash equivalents and a $2.8 million increase in investment securities held to maturity. Total liabilities at June 30, 2010 were $191.0 million compared to $194.2 million at December 31, 2009, a decrease of $3.2 million, or 1.6%. The decrease in liabilities was primarily due to a $5.3 million decrease in deposits, partially offset by a $2.2 million increase in FHLB advances- long-term. Total stockholders’ equity increased to $24.3 million at June 30, 2010 from $23.8 million at December 31, 2009, an increase of $406,000, or 1.7%, primarily due to net income of $316,000.

Cash and cash equivalents increased to $13.8 million from $8.4 million during the six months ended June 30, 2010, an increase of $5.4 million, or 64.3%. The increase in cash and cash equivalents was attributable, in part, to an increase in deposits with other institutions due to the sale of investment securities available for sale and the sale of loans receivable.

Investment securities available for sale decreased to $24.7 million from $30.6 million during the six months ended June 30, 2010, a decrease of $5.9 million, or 19.3%. The decrease in investment securities available for sale was attributable, in part, to the sale of $6.5 million in securities, the maturity of $4.8 million in securities and payments received of $2.2 million on securities, partially offset by the purchase of $7.4 million in securities. The sale of the $6.5 million in securities was completed to take advantage of income tax benefits and to shorten the duration of the investment portfolio.

Investment securities held to maturity increased to $16.6 million from $13.8 million during the six months ended June 30, 2010, an increase of $2.8 million, or 20.3%. The increase in investment securities held to maturity was attributable, in part, to the purchase of $4.1 million in securities, partially offset by $1.2 million in payments received.

Loans receivable, net, decreased $5.1 million, or 3.4%, to $145.1 million at June 30, 2010, compared to $150.2 million at December 31, 2009. The size of our loan portfolio decreased during the six months ended June 30, 2010 due primarily to the early payoff of loans, the sale of loans and regular amortization of loans.

Total deposits decreased to $158.9 million from $164.2 million during the six months ended June 30, 2010, a decrease of $5.3 million, or 3.2%. The decrease in deposits was attributable, in part, to the outflow of $5.2 million in time deposits, as rates offered on the maturity of time deposits were below rates offered in the marketplace.

We utilize borrowings from the FHLB of Pittsburgh to supplement our supply of funds for loans and investments. The $2.2 million increase in FHLB advances long-term was due to more attractive longer term funding opportunities available through advances.

Comparison of Operating Results For The Three and Six Months Ended June 30, 2010 and 2009

General. We recorded net income of $99,000 during the three months ended June 30, 2010, compared to a net loss of $45,000 during the three months ended June 30, 2009. We recorded net income of $315,000 during the six months ended June 30, 2010, compared to a net loss of $159,000 during the six months ended June 30, 2009. The higher net income for the three and six month 2010 periods was primarily related to higher net interest income, higher noninterest income and a lower provision for loan losses, partially offset by higher noninterest expense.

Net Interest Income. The following table summarizes changes in interest income and expense for the three and six months ended June 30, 2010 and 2009.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(Dollars in thousands)				(Dollars in thousands)
Interest and dividend income:
Loans receivable	$	2,078	$	2,224	$	4,190	$	4,492
Investment securities		408		469		867		951
Other interest and dividend income		1		3		2		6
Total interest and dividend income		2,487		2,696		5,059		5,449
Interest Expense:
Deposits		714		1,091		1,455		2,230
FHLB advances - long-term		204		191		410		384
Advances by borrowers for taxes and insurance		5		7		13		15
Total interest expense		923		1,289		1,878		2,629
Net interest income	$	1,564	$	1,407	$	3,181	$	2,820

The following table summarizes average balances and average yields and costs for the three and six months ended June 30, 2010 and 2009.

	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2010						2009						2010						2009
	Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/
	Balance			Cost			Balance			Cost			Balance			Cost			Balance			Cost
	(Dollars in thousands)												(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	148,636			5.53	%	$	155,013			5.68	%	$	149,590			5.57	%	$	156,953			5.69	%
Investment securities		42,613			3.79			38,256			4.85			43,207			3.99			38,426			4.92
Other interest-earning assets		9,993			0.04			18,203			0.07			8,831			0.05			13,987			0.09
Total interest-earning assets		201,242			4.96	%		211,472			5.11	%		201,628			5.06	%		209,366			5.25	%
Noninterest-earning assets:		14,451						13,325						14,583						12,938
Allowance for Loan Losses		(930	)					(1,007	)					(1,022	)					(966	)
Total assets	$	214,763					$	223,790					$	215,189					$	221,338

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	11,255			0.71	%	$	10,699			0.75	%		11,243			0.68	%	$	10,563			0.67	%
Money market deposits		33,547			1.12			30,851			1.94			33,165			1.18			29,455			2.36
Savings accounts		29,634			0.51			34,401			0.87			29,707			0.56			34,434			0.87
Time deposits		80,089			2.81			91,276			3.72			80,324			2.86			91,062			3.77
Total interest-bearing deposits		154,525			1.85	%		167,227			2.65	%		154,439			1.90	%		165,514			2.72	%
FHLB advances - short-term		-			-			-			-			-			-			155			-
FHLB advances - long-term		28,788			2.84			24,093			3.18			28,935			2.86			24,259			3.19
Advances by borrowers for taxes and insurance		969			2.07			1,275			2.20			1,134			2.31			1,364			2.22
Total interest-bearing liabilities		184,282			2.01	%		192,595			2.68	%		184,508			2.05	%		191,292			2.77	%
Noninterest-bearing liabilities:		6,319						7,737						6,546						6,632
Total liabilities		190,601						200,332						191,054						197,924
Retained earnings		24,162						23,458						24,135						23,414
Total liabilities and retained earnings	$	214,763					$	223,790					$	215,189					$	221,338

Interest rate spread					2.95	%					2.43	%					3.01	%					2.48	%
Net yield on interest-bearing assets					3.12	%					2.67	%					3.18	%					2.72	%
Ratio of average interest-earning assets to
average interest-bearing liabilities					109.20	%					109.80	%					109.28	%					109.45	%

Our net interest rate spread increased to 2.95% for the three months ended June 30, 2010 from 2.43% for the same period in 2009. Our net interest rate spread increased to 3.01% for the six months ended June 30, 2010 from 2.48% for the same period in 2009.Net interest income for the three months ended June 30, 2010 increased $157,000 to $1.6 million, or 11.2%, from $1.4 million during the same period last year. Net interest income for the six months ended June 30, 2010 increased $361,000 to $3.2 million, or 12.8%, from $2.8 million during the same period last year. The primary reasons for the increase in net interest income for the three and six month periods reflects a higher average balance of investment securities, a lower average interest rate paid on money market accounts, savings accounts, time deposits and FHLB advances-long term, and a lower average balance of time deposits and savings accounts, partially offset by a lower average balance and interest rate earned on loans, a lower interest rate earned on investment securities, a higher average balance in money market accounts and a higher average balance in FHLB advances long-term. The average balance of loans decreased during the three and six months ended June 30, 2010 due to increased payoffs as compared to the same period last year. Lower interest expense on deposits for the three and six months ended June 30, 2010 was due to a continuing decline in market interest rates. The increase in the average balance of investment securities during the three and six months period ended June 30, 2010 was due to an increase in the investment of available cash. Other interest-earning assets primarily consist of cash and cash equivalents.

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, 2010 and 2009.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
	(Dollars in thousands)					(Dollars in thousands)
Allowance at beginning of period	$	982		$	964	$	1,115		$	858
Provision (credit) for loan losses		(78	)		114		(212	)		219
Charge-offs		-			-		-			-
Recoveries		1			1		2			2
Net charge-offs		1			1		2			2
Allowance at end of period	$	905		$	1,079	$	905		$	1,079

We recorded a credit provision for loan losses of $78,000 for the three months ended June 30, 2010 as compared to a provision for loan losses of $114,000 for the three months ended June 30, 2009. For the six months ended June 30, 2010 we recorded a credit provision for loan losses of $212,000 as compared to a provision for loan losses of $219,000 for the six months ended June 30, 2009. These credit provisions are directly related to the reduced balance in a Line of Credit Loan which was granted to a partnership established by the Company and another financial institution to manage and dispose of foreclosed property. This loan has been classified as substandard since it was granted in 2009. As properties are disposed of the Line of Credit loan balance is being reduced with the proceeds from the property sales. The provisions reflect management’s assessment of lending activities, decreased non-performing loans, levels of current delinquencies and current economic conditions. Provisions for loan losses are charged to earnings to maintain the total allowance for loan losses at a level believed by management sufficient to cover all known and inherent losses in the loan portfolio which are both probable and reasonably estimable. Management’s analysis includes consideration of the Company’s historical experience, the volume and type of lending conducted by the Company, the amount of the Company’s classified and criticized assets, the status of past due principal and interest payments, general economic conditions, particularly as they relate to the Company’s primary market area, and other factors related to the collectability of the Company’s loan portfolio.

The following table provides information with respect to our nonperforming assets at the dates indicated. During the quarter ending June 30, 2009 the Company restructured one troubled loan, and at June 30, 2010, this loan was still classified as nonaccrual. At June 30, 2010 we did not have any accruing loans past due 90 days or more at the dates presented.

	At June 30,			At June 30,
	2010			2009
	(Dollars in thousands)
Nonaccrual loans	$	2,143		$	2,252
Real estate owned		-			-
Total nonperforming assets	$	2,143		$	2,252

Total nonperforming loans to total loans		1.47	%		1.43	%
Total nonperforming loans to total assets		1.00	%		1.00	%
Total nonperforming assets to total assets		1.00	%		1.00	%

Noninterest Income. The following table summarizes noninterest income for the three and six months ended June 30, 2010 and 2009.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(Dollars in thousands)				(Dollars in thousands)
Service fees on deposit accounts	$	22	$	23	$	41	$	45
Earnings on Bank-owned life insurance		23		74		48		33
Gain on sale of loans		111		31		137		123
Investment securities gains, net		-		-		294		-
Rental income		71		72		143		144
Other		232		44		284		105
Total	$	459	$	244	$	947	$	450

The $215,000 increase in noninterest income during the three months ended June 30, 2010 as compared to the three months ended June 30, 2009 was primarily due to an $82,000 increase in gains on the sales of loans and a $186,000 increase in other income related to a $200,000 non-refundable forward commitment fee, partially offset by a $51,000 decrease in earnings on Bank-owned life insurance.

The $497,000 increase in noninterest income during the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 was primarily due to $294,000 in gains on the sales of investment securities as compared to no sales last year, a $179,000 increase in other income related to a $200,000 non-refundable forward commitment fee, a $15,000 increase in earnings on Bank-owned life insurance and a $14,000 increase in gains on the sales of loans.

Noninterest Expense. The following table summarizes noninterest expense for the three and six months ended June 30, 2010 and 2009.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(Dollars in thousands)				(Dollars in thousands)
Compensation and employee benefits	$	921	$	852	$	1,793	$	1,738
Occupancy and equipment		244		246		508		502
Federal deposit insurance premiums		81		117		230		265
Data processing expense		71		63		139		131
Professional fees		95		89		188		177
Other		541		260		1,163		480
Total	$	1,953	$	1,627	$	4,021	$	3,293

Total noninterest expense increased $326,000, or 20.0%, to $2.0 million for the three months ended June 30, 2010 from the prior year period. The increase in noninterest expense for the three months ended June 30, 2010 as compared to the prior year period was primarily the result of a $281,000 increase in other noninterest expense, related primarily to a $300,000 expense related to our investment in a subsidiary established to manage and dispose of foreclosed property, a $69,000 increase in compensation and employee benefits due to one fewer pay period in 2009, partially offset by a $36,000 decrease in Federal deposit insurance premiums which included a special assessment in 2009.

Total noninterest expense increased $728,000, or 22.1%, to $4.0 million for the six months ended June 30, 2010 from the prior year period. The increase in noninterest expense for the six months ended June 30, 2010 as compared to the prior year period was primarily the result of a $683,000 increase in other noninterest expense, related primarily to a $681,000 increase in expense related to our investment in a subsidiary set up to manage and dispose of foreclosed property, a $55,000 increase in compensation and employee benefits due to one fewer pay period in 2009, partially offset by a $35,000 decrease in Federal deposit insurance premiums which included a special assessment in 2009.

Income Taxes. We recorded tax expense of $48,000 for the three months ended June 30, 2010 compared to a tax benefit of $44,000 during the three months ended June 30, 2009. The recording of tax expense resulted from the increase in our taxable operating profits.

We recorded tax expense of $4,000 for the six months ended June 30, 2010 compared to a tax benefit $83,000 during the six months ended June 30, 2009. The recording of tax expense resulted from the increase in our 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, 2010, cash and cash equivalents totaled $13.8 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $24.7 million at June 30, 2010. In addition, at June 30, 2010, we had the ability to borrow a total of approximately $100.8 million from the FHLB of Pittsburgh. On June 30, 2010, we had $28.7 million of borrowings outstanding. Any growth of our loan portfolio may require us to borrow additional funds.

At June 30, 2010, we had $3.1 million in mortgage loan commitments outstanding and $156,000 in a standby Letter of Credit. Time deposits due within one year of June 30, 2010 totaled $33.5 million, or 41.7% 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, 2011. 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, 2010, 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 has been reduced as net proceeds from the stock offering have been used for general corporate purposes, including the funding of lending activities. We may use capital management tools such as cash dividends and common share repurchases.

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, 2010 and the year ended December 31, 2009 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

Item 1.

Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. At June 30, 2010, 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-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. Other than as noted below, at June 30, 2010 the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K 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.

Rider A.

Recently enacted regulatory reform may have a material impact on our operations

On July 21, 2010, the President signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act restructures the regulation of depository institutions. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. Also included is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the depository institution regulators. The federal preemption of state laws currently accorded federally chartered depository institutions will be reduced as well. The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

[Removed and Reserved]

Item 5.

Other Information

None.

Item 6.

Exhibits

3.1	Charter of Polonia Bancorp(1)

3.2	Bylaws of Polonia Bancorp (2)

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.

(2)	Incorporated herein by reference to Exhibit 3.1 to the current report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2009 (file no. 000-52667).

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 13, 2010	By:	/s/ Anthony J. Szuszczewicz
		Anthony J. Szuszczewicz
		President and Chief Executive Officer
		(principal executive officer)

Date: August 13, 2010	By:	/s/ Paul D. Rutkowski
		Paul D. Rutkowski
		Chief Financial Officer and Treasurer
		(principal financial and accounting officer)

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Polonia Bancorp Inactive 10-Q2010 Q2 Quarterly report

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