Alliance Bancorp Inc Of Pennsylvania 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2008
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No.:  001-33189

ALLIANCE BANCORP, INC. OF PENNSYLVANIA

(Exact name of registrant as specified in its charter)

Pennsylvania	56-2637804
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification Number)
541 Lawrence Road
Broomall, Pennsylvania	19008
(Address)	(Zip Code)

(610) 353-2900

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accel erated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) 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 o   No x

The number of shares outstanding of Common Stock, par value $.01 per share, of the Registrant as of November 10, 2008 was 6,982,676.

ALLIANCE BANCORP, INC. OF PENNSYLVANIA

Index

		PAGE
Part I – Financial Information
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition as of September 30, 2008 and December 31, 2007	3
	Unaudited Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2008 and 2007	4
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2008 and 2007	5
	Unaudited Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2008 and 2007	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4T.	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.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Signatures	27

2

Part I – Item 1.

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Financial Condition (unaudited)

(Dollar amounts in thousands, except per share data)

	September 30,			December 31,
	2008			2007
Assets
Cash and cash due from depository institutions	$	5,558		$	3,918
Interest bearing deposits with depository institutions	49,597			38,161
Total cash and cash equivalents	55,155			42,079
Investment securities available for sale	26,785			45,614
Mortgage-backed securities available for sale	31,082			35,632
Investment securities held to maturity (fair value - 2008, $23,704; 2007, $22,827)	24,257			22,247
Loans receivable - net of allowance for loan losses - 2008, $3,090; 2007, $2,831	270,338			256,932
Accrued interest receivable	1,956			1,932
Premises and equipment – net	2,807			2,910
Federal Home Loan Bank (FHLB) stock-at cost	2,427			2,310
Bank owned life insurance	10,737			10,463
Deferred tax asset	4,172			3,589
Prepaid expenses and other assets	1,357			758
Total Assets	$	431,073		$	424,466
Liabilities and Stockholders’ Equity
Liabilities
Non-interest bearing deposits	$	12,308		$	16,840
Interest bearing deposits	323,184			313,948
Total deposits	335,492			330,788
Demand notes issued to the U.S. Treasury	76			42
FHLB advances	37,000			37,000
Obligations to purchase investment securities available for sale	4,000			—
Accrued expenses and other liabilities	5,552			5,178
Total Liabilities	382,120			373,008
Stockholders’ Equity
Common stock, $.01 par value; shares authorized – 15,000,000; Issued 7,225,000; outstanding – 2008, 6,992,676; 2007, 7,225,000	72			72
Additional paid-in capital	24,041			24,041
Retained earnings - partially restricted	28,795			28,975
Unearned shares held by Employee Stock Ownership Plan (ESOP)	(798		)	(843		)
Accumulated other comprehensive loss	(1,052		)	(787		)
Treasury stock, at cost: 2008, 232,324 shares; 2007, -0- shares	(2,105		)	—
Total Stockholders’ Equity	48,953			51,458
Total Liabilities and Stockholders’ Equity	$	431,073		$	424,466

See notes to unaudited consolidated financial statements.

3

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Income (unaudited)

(Dollar amounts in thousands, except per share data)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2008			2007		2008			2007
Interest and Fees and Dividend Income
Loans	$	4,446		$	4,351	$	13,126		$	12,612
Mortgage-backed securities	357			438		1,127			1,394
Investment securities:
Taxable	329			355		946			808
Tax – exempt	275			255		821			806
Dividends	40			287		388			848
Balances due from depository institutions	183			524		655			1,759
Total interest and dividend income	5,630			6,210		17,063			18,227
Interest Expense
Deposits	2,184			2,965		7,188			8,628
FHLB advances and other borrowed money	596			601		1,774			1,783
Total interest expense	2,780			3,566		8,962			10,411
Net Interest Income	2,850			2,644		8,101			7,816
Provision for Loan Losses	45			35		255			75
Net Interest Income After Provision for Loan Losses	2,805			2,609		7,846			7,741
Other Income
Service charges on deposit accounts	88			84		266			251
Management fees	96			105		288			315
Other fee income	40			38		122			115
Gain on sale of loans	2			5		7			27
Gain on sale of OREO	—			21		—			21
Loss on the sale of investment securities	(5		)	—		(157		)	—
Impairment charge on investment securities	(253		)	—		(882		)	—
Increase in cash surrender value of bank owned life insurance	91			91		274			269
Other	—			—		1			1
Total other income (loss)	59			344		(81		)	999
Other Expenses
Salaries and employee benefits	1,455			1,381		4,294			4,162
Occupancy and equipment	501			471		1,492			1,425
Advertising and marketing	147			65		333			213
Professional fees	94			107		330			342
Other noninterest expense	457			413		1,272			1,227
Total other expenses	2,654			2,437		7,721			7,369
Income Before Income Tax Expense	210			516		44			1,371
Income Tax (Benefit) Expense	(47		)	63		(339		)	119
Net Income	$	257		$	453	$	383		$	1,252
Basic Earnings per Share	$	0.04		$	0.06	$	0.05		$	0.18

See notes to unaudited consolidated financial statements.

4

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Changes in Stockholders Equity (unaudited)

(Dollar amounts in thousands, except, per share amounts)

	Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings – Partially Restricted			Unearned Shares Held by ESOP			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Comprehensive Income
Balance, January 1, 2007	$	34	$	7,598	$	—		$	28,538		$	—		$	(2,670	)	$	33,500
Proceeds from sale of common stock net of offering costs of approximately $1,588	38		16,447														16,485
Common stock acquired by ESOP											(903		)				(903		)
ESOP shares committed to be released											45						45
Net income								1,252									1,252			$	1,252
Dividends declared ($0.14 per share)								(456		)							(456		)
Other comprehensive income – net of tax expense of $170														330			330			330
Balance, September 30, 2007	$	72	$	24,045	$	—		$	29,334		$	(858	)	$	(2,340	)	$	50,253		$	1,582
Balance, January 1, 2008	$	72	$	24,041	$	—		$	28,975		$	(843	)	$	(787	)	$	51,458
ESOP shares committed to be released											45						45
Net income								383									383			$	383
Dividends declared ($0.18 per share)								(563		)							(563		)
Acquisition of Treasury Stock (232,324 shares)					(2,105		)										(2,105		)
Other comprehensive loss – net of tax benefit of $137														(265		)	(265		)	(265		)
Balance, September 30, 2008	$	72	$	24,041	$	(2,105	)	$	28,795		$	(798	)	$	(1,052	)	$	48,953		$	118

See notes to unaudited consolidated financial statements.

5

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(Dollar amounts in thousands)

	For the Nine Months
	Ended September 30,
	2008			2007
Operating Activities
Net income	$	383		$	1,252
Adjustments to reconcile net income to cash provided by operating activities:
Provision for:
Loan losses	255			75
Depreciation and amortization	526			488
Gain on sale of loans	(7		)	(27		)
Gain on sale of OREO	—			(21		)
Loss on the sale of investment securities	157			—
Impairment charge on investment securities	882			—
ESOP shares committed to be released	45			45
Origination of loans held for sale	(1,328		)	(4,237		)
Deferred tax benefit	(446		)	(187		)
Proceeds from loans sold in the secondary market	1,401			4,262
Changes in assets and liabilities which provided (used) cash:
Accrued expenses and other liabilities	374			331
Prepaid expenses and other assets	(599		)	488
Increase in cash surrender value of bank owned life insurance	(274		)	(269		)
Accrued interest receivable	(24		)	(86		)
Net cash provided by operating activities	1,345			2,114
Investing Activities
Purchase of investment securities-available for sale	(17,635		)	(15,000		)
Purchase of mortgage-backed securities-available for sale	(2,000		)	—
Loans originated and acquired	(58,298		)	(49,028		)
Proceeds from maturities and calls of investment securities	18,970			6,628
Proceeds from the sale of investment securities-available for sale	18,109			—
(Purchase) redemption of FHLB Stock	(117		)	207
Principal repayments of:
Loans	44,571			37,820
Mortgage-backed securities	6,484			7,005
Purchase of premises and equipment	(423		)	(320		)
Proceeds from the sale of OREO	—			154
Net cash provided by (used in) investing activities	1,661			(12,534		)
Financing Activities
Dividends paid	(563		)	(456		)
Increase (decrease) in deposits	4,704			(5,142		)
Purchase of treasury stock	(2,105		)	—
Proceeds from sale of common stock	—			16,485
Stock acquired by ESOP	—			(903		)
Increase (decrease) in:
Demand notes issued to the U.S. Treasury	34			66
FHLB Advances	—			(8		)
Net cash provided by financing activities	2,070			10,042
Increase (decrease) in Cash and Cash Equivalents	13,076			(378		)
Cash and Cash Equivalents, Beginning of Year	42,079			48,282
Cash and Cash Equivalents, End of Period	$	55,155		$	47,904
Supplemental Disclosures of Cash Flow Information-
Cash paid during the period for:
Interest	$	9,006		$	10,416
Income taxes	$	300		$	350
Non-cash transfers of loans receivable to other real estate owned	$	—		$	133

See notes to unaudited consolidated financial statements.

6

ALLIANCE BANCORP, INC OF PENNSYLVANIA AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1) Organization and Basis of Presentation

On January 30, 2007, Alliance Bank (the “Bank”) completed its reorganization to a mid-tier holding company structure and the sale by the mid-tier company, Alliance Bancorp, Inc. of Pennsylvania (“Alliance Bancorp” or the “Company”) of shares of its common stock.  In the reorganization and offering, the Company sold 1,807,339 shares of common stock at a purchase price of $10.00 per share and issued 5,417,661 shares of common stock in exchange for former outstanding shares of the Bank.  Each share of the Bank’s common stock was converted into 2.09945 shares of the Company.  The offering resulted in approximately $16.5 million in net proceeds to the Company.

As a result of the reorganization and offering, Alliance Mutual Holding Company (the “Holding Company”) owned 55% of the outstanding common stock of Alliance Bancorp and minority public stockholders owned the remaining 45% of the outstanding common stock of Alliance Bancorp.  Following purchases of treasury stock, at September 30, 2008, the Holding Company owned 56.8% of the outstanding common stock of Alliance Bancorp and the minority public shareholders owned the remaining 43.2%.  The Holding Company is a federally chartered mutual holding company.  The Holding Company and the Company are subject to regulation and supervision of the Office of Thrift Supervision.

The Bank is a community oriented savings bank headquartered in Broomall, Pennsylvania.  The Bank operates a total of nine banking offices located in Delaware and Chester Counties, which are suburbs of Philadelphia.  The Bank’s primary business consists of attracting deposits from the general public and using those funds, together with borrowed funds, to originate loans to its customers and invest in securities such as United States (“U.S.”) Government and agency securities, mortgage-backed securities and municipal obligations.

The Bank is primarily engaged in attracting deposits from the general public through its branch offices and using such deposits primarily to (i) originate and purchase loans secured by first liens on single-family (one-to-four units) residential and commercial real estate properties and (ii) invest in securities issued by the U.S. Government and agencies thereof, municipal and corporate debt securities and certain mutual funds.  The Bank derives its income principally from interest earned on loans, mortgage-backed securities and investments and, to a lesser extent, from fees received in connection with the origination of loans and for other services.  The Bank’s primary expenses are interest expense on deposits and borrowings and general operating expenses.  Funds for activities are provided primarily by deposits, repayments and prepayments of outstanding loans and mortgage-backed securities and other sources.

The Bank is subject to regulation by the Pennsylvania Department of Banking (the “Department”), as its chartering authority and primary regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up to applicable limits.

The accompanying unaudited consolidated financial statements of Alliance Bancorp, Inc. of Pennsylvania include the accounts of the Company, the Bank and Alliance Delaware Corporation.  The Bank is a wholly owned subsidiary of the Company and Alliance Delaware Corporation is a wholly owned subsidiary of Alliance Bank.  Intercompany accounts and

7

transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (US GAAP).  The statement of financial condition at December 31, 2007, has been derived from audited financial statements but does not include all information and footnotes required by US GAAP for complete financial statements.  In the opinion of management, all adjustments consisting of normal recurring adjustments or accruals, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the three and nine months ended September 30, 2008 are not necessarily indicative of the results which may be expected for the year ending December 31, 2008 or any other period.  All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods have been included. For comparative purposes, prior years’ consolidated financial statements have been reclassified to conform to report classifications of the current year. The reclassifications had no effect on net income.  The unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Related Party Transactions

The Bank maintains a lease agreement with the Holding Company for one of its office locations.  The initial lease term expires in September 2015 and the Bank paid $10,500 and $31,500 during both the three and nine months ended September 30, 2008 and September 30, 2007, respectively. In addition, the Bank maintains a management fee agreement with the Holding Company which provides for the sharing of certain public company related expenses.  Such expenses include salaries and benefits, insurance expenses, professional fees and directors’ fees.  The Bank has received management fees amounting to $96,000 and $288,000 for the three and nine months ended September 30, 2008 and $105,000 and $315,000 for the three and nine month periods ended September 30, 2007, respectively.

On August 20, 2008, the Company recorded a $253,000 impairment charge on the Company’s investment in $2.7 million of certain mutual funds and subsequently sold these mutual funds to Alliance Mutual Holding Company at fair value.

Commitments and Contingencies

Standby letters of credit are conditional commitments issued by the Bank to guarantee performance of a customer to a third party.  The amount of credit risk involved in issuing letters of credit in the event of nonperformance by the other party is the contract amount.  The maximum exposure related to these commitments at September 30, 2008 was $545,000 which was secured by cash and marketable securities.

Segment Information

The Company has one reportable segment, “Community Banking.”  All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the

8

activities of the Company supports the others.  For example, lending is dependent upon the ability of the Company to fund itself with deposits and other borrowings and manage interest rate and credit risk.  Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit.

Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS (Statement of Financial Accounting Standard) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  This Statement is 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 is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

FASB Statement No. 141 (R) “Business Combinations” was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact the Company’s accounting for business combinations completed beginning January 1, 2009.

In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157,” that permits a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-2 will have on the Company’s operating income or net earnings.

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active”  (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market.  FSP 157-3 is effective immediately and applies to our September 30, 2008 consolidated financial statements.  The application of the provisions of FSP 157-3 did not materially affect on the Company’s results of operations or financial condition as of and for the periods ended September 30, 2008.

9

Earnings Per Share

There are no convertible securities which would affect the net income (numerator) in calculating earnings per share.  Basic earnings per share data are based on the weighted-average number of shares outstanding during each period.  At the present time the Company’s capital structure has no potential dilutive securities.

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Net Income	$	257,000		$	453,000		$	383,000		$	1,252,000
Weighted average shares outstanding	7,013,539			7,225,000			7,069,792			7,225,000
Average unearned ESOP shares	(80,547		)	(86,569		)	(82,053		)	(88,075		)
Weighted average shares outstanding – basic	6,932,992			7,138,431			6,987,739			7,136,925
Basic earnings per share	$	0.04		$	0.06		$	0.05		$	0.18

The Company has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements as defined in the ESOP.  The ESOP purchased 90,333 shares of common stock in the offering completed on January 30, 2007 using proceeds of a loan from the Company.  The Bank makes quarterly payments of principal and interest over a term of 15 years at a rate of 8.25% to the Company.  The loan is secured by the shares of Company common stock purchased by the ESOP.

As the debt is repaid, shares are released from the collateral and allocated to qualified employees.  As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.  The compensation expense for the three and nine months ended September 30, 2008 was $15,000 and $45,000, respectively.  For the three months ended September 30, 2008 shares released for allocation, average unearned ESOP shares, and total ESOP shares were 1,506, 80,547, and 90,333, respectively.  For the nine months ended September 30, 2008 shares released for allocation, average unearned ESOP shares, and total ESOP shares were 4,517, 82,053, and 90,333, respectively.  The compensation expense for the three and nine months ended September 30, 2007 was $15,000 and $45,000, respectively.  For the three months ended September 30, 2007 shares released for allocation, average unearned ESOP shares, and total ESOP shares were 1,506, 86,569, and 90,333, respectively.  For the nine months ended September 30, 2007 shares released for allocation, average unearned ESOP shares, and total ESOP shares were 4,518, 88,075, and 90,333, respectively.

Retirement Plans

The Bank has a defined benefit pension plan which covers all full-time employees meeting certain eligibility requirements.  As required under SFAS No. 158 the net pension costs included the following components:

10

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Net Periodic Benefit Cost
Service Cost	$	67,566		$	77,171		$	221,908		$	231,513
Interest Cost	66,868			58,727			184,322			176,180
Expected Return on Plan Assets	(82,520		)	(90,475		)	(226,472		)	(211,926		)
Amortization of Transition Obligation	(876		)	(433		)	—			1,315
Amortization of Prior Service Cost	3,172			3,171			9,514			9,514
Amortization of (Gain)/Loss	(5,960		)	(6,090		)	4,478			15,656
Net Periodic Benefit Cost	$	48,250		$	54,252		$	193,750		$	222,252

In July 2000, the Bank entered into a Nonqualified Retirement and Death Benefit Agreement (the “Agreement”) with certain officers of the Bank.  The purpose of the Agreement is to provide the officers with supplemental retirement benefits equal to a specified percentage of final compensation and a pre-retirement death benefit if the officer does not attain the specific age requirement.  A summary of the interim information required under SFAS No. 158 for the Agreement is as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2008		2007		2008		2007
Net Periodic Benefit Cost
Service Cost	$	8,779	$	8,603	$	26,337	$	25,809
Interest Cost	55,485		53,261		166,455		159,783
Amortization of Prior Service Cost	58,163		58,163		174,489		174,489
Amortization of (Gain)/Loss	7,911		13,813		23,733		41,439
Net Periodic Benefit Cost	$	130,338	$	133,840	$	391,014	$	401,520

Fair Value Accounting

In September of 2006, the FASB issued Statement No. 157, Fair Value Measurement (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements.

The primary effect of SFAS 157 on the Company was to expand the required disclosures pertaining to the methods used to determine fair values.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to validation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of fair value hierarchy under SFAS 157 are as follows:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly

11

	or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to fair value measurement and unobservable (i.e. support with little or no market value activity).

An asset or liability’s level within the fair value hierarchy is based on the level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value effective January 1, 2008.

Securities and Mortgage Backed Securities for Sale

Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. For theses securities, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, 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.

Level 3 inputs are for investment security positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula along with indicative exit pricing obtained from broker/dealers were used to support certain Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

Impaired Loans

Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based upon customized discounting criteria.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

For assets measured at fair value on a recurring basis, the fair value measurements by level with in the fair vale hierarchy used at September 30, 2008 are as follows:

12

(In thousands)	September 30,		Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2008		(Level 1)		(Level 2)		(Level 3)
Investment securities available for sale	$	26,785	$	—	$	26,785	$	—
Mortgage-backed securities available for sale	31,082		—		31,082		—
Impaired Loans	2,634		—		—		2,634
Total	$	60,501	$	—	$	57,867	$	2,634

Comprehensive Income (Loss)

Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s other comprehensive income (loss) is comprised of unrealized holding gains and losses on securities available-for-sale and the effects of changes in the liability for retirement plans.

The table below provides a reconciliation of the components of other comprehensive income (loss) to the disclosure provided in the statements of changes in stockholders’ equity.

The components of other comprehensive income (loss), net of taxes, were as follows for the following fiscal periods:

				Tax
	Before			(Benefit)			Net of
(Dollars in Thousands)	Tax			Expense			Tax
For the three month period ended September 30, 2008:
Unrealized losses on available for sale securities
Unrealized holding losses arising during period	$	(287	)	$	98		$	(189	)
Plus: reclassification adjustment for net losses realized during the period	5			(2		)	3
Plus: reclassification for impairment charge included in net loss	253			(86		)	167
Change in unrealized loss on available for sale securities	(29		)	10			(19		)
Change in liability in retirement plans	—			—			—
Other comprehensive income (loss), net	$	(29	)	$	10		$	(19	)
For the three month period ended September 30, 2007:
Unrealized gains on available for sale securities
Unrealized holding gains arising during period	$	759		$	(258	)	$	501
Plus: reclassification adjustment for net losses arising during the period	—			—			—
Change in unrealized gains on available for sale securities	759			(258		)	501
Change in liability in retirement plans	—			—			—
Other comprehensive income, net	$	759		$	(258	)	$	501

13

				Tax
	Before			(Benefit)			Net of
(Dollars in Thousands)	Tax			Expense			Tax
For the nine month period ended September 30, 2008:
Unrealized losses on available for sale securities
Unrealized holding losses arising during period	$	(1,441	)	$	491		$	(950	)
Plus: reclassification adjustment for net losses realized during the period	157			(54		)	103
Plus: reclassification for impairment charge included in net loss	882			(300		)	582
Change in unrealized loss on available for sale securities	(402		)	137			(265		)
Change in liability in retirement plans	—			—			—
Other comprehensive income (loss), net	$	(402	)	$	137		$	(265	)
For the nine month period ended September 30, 2007:
Unrealized gains on available for sale securities
Unrealized holding gains arising during period	$	500		$	(170	)	$	330
Plus: reclassification adjustment for net losses arising during the period	—			—			—
Change in unrealized gains on available for sale securities	500			(170		)	330
Change in liability in retirement plans	—			—			—
Other comprehensive income, net	$	500		$	(170	)	$	330

14

Part I – Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Alliance Bancorp, Inc. of Pennsylvania (the “Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Company’s control).  The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.  The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive.  Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this report.  The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

General

The Company’s profitability is highly dependent on net interest income.  The components that drive net interest income are the amounts of interest-earning assets and interest-bearing liabilities along with rates earned or paid on such rate sensitive instruments.  The Company manages interest rate exposure by attempting to match asset maturities with liability maturities.  In addition to managing interest rate exposure, the Company also considers the credit risk, prepayment risk and extension risk of certain assets.  The Company maintains asset quality by

15

utilizing comprehensive loan underwriting standards and collection efforts as well as originating or purchasing primarily secured or guaranteed assets.

The Company’s profitability is also affected by fee income, gain or loss on the sale of other real estate owned, general and administrative expenses, provisions for loan losses, other real estate owned expenses and income taxes.

Critical Accounting Policies

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements included elsewhere herein.  These policies are described in Note 2 of the notes to the consolidated financial statements in the December 31, 2007 annual report to stockholders.  The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (US GAAP) and to general practices within the banking industry.  Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented.  The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results.  These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense.  Charges against the allowance for loan losses are made when management believes that the collectibility of loan principal is unlikely.  Subsequent recoveries are added to the allowance.  The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio, based on evaluations of the collectibility of loans.  The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions.  This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience.  All of these estimates may be susceptible to significant change.

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

16

losses may be required that would adversely impact earnings in future periods.

Income Taxes. Management makes estimates and judgments to calculate various tax liabilities and determine the recoverability of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses.  As of September 30, 2008, the company recorded $645,000 in deferred tax asset from the loss on the sale and impairment charges taken on mutual funds.  The company must generate capital gains within a certain time period to realize the tax benefit from these capital losses.  We also estimate a deferred tax asset valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.  These estimates and judgments are inherently subjective.  Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.

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

Other than Temporary Impairment of Securities.  The Company is required to perform periodic reviews of individual securities in its investment portfolio to determine whether a decline in the fair value of a security is other than temporary.  A review of other than temporary impairment requires management to make certain judgments regarding the nature of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the Company’s intent and ability to hold the security.  Management evaluates securities for other than temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluations.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  If the decline in the market value of a security is determined to be other than temporary we would recognize the decline as a realized loss on the income statement.

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

Total assets increased $6.6 million or 1.6% to $431.1 million at September 30, 2008 compared to $424.5 million at December 31, 2007.  This increase was primarily due to a $13.1 million or 31.1% increase in cash and cash equivalents, a $13.4 million or 5.2% increase in loans receivable, net of allowance for loan losses, and a $2.0 million or 9.0% increase in investment securities held to maturity.  The increase was partially offset by an $18.8 million or 41.3% decrease in investment securities available for sale and a $4.6 million or 12.8% decrease in mortgage-backed securities available for sale.

17

Total liabilities increased $9.1 million or 2.4% to $382.1 million at September 30, 2008 compared to $373.0 million at December 31, 2007.  This increase was primarily due to a $4.7 million or 1.4% increase in total deposits and a $4.0 million in obligations to purchase investment securities available for sale.

Stockholders’ equity decreased $2.5 million to $48.9 million as of September 30, 2008 compared to $51.5 million at December 31, 2007. Beginning January 31, 2008, the Company commenced a stock repurchase program and has repurchased 232,324 shares at an average price of $9.06 per share through September 30, 2008, which decreased stockholders’ equity by $2.1 million.  For the nine months ended September 30, 2008, the Company had comprehensive income of $118,000 which consisted of $383,000 of net income and a $265,000 other comprehensive loss.

Nonperforming assets, which consist of nonaccruing loans, accruing loans 90 days or more delinquent and other real estate owned (which includes real estate acquired through, or in lieu of, foreclosure) increased $2.1 million to $4.2 million or 1.0% of total assets at September 30, 2008 as compared to $2.1 million or 0.5% of total assets at December 31, 2007.  Such increase was primarily due to the placement of five commercial real estate loan relationships on non-accrual status during the three months ended September 30, 2008.  These loans are secured by properties located in the Company’s primary lending area.  At September 30, 2008, the $4.2 million of nonperforming assets consisted primarily of $1.1 million of accruing loans 90 days or more delinquent, and $3.0 million of nonaccrual loans.  At September 30, 2008, the $1.1 million of accruing loans consisted of nine single family real estate loans and eighteen secured consumer loans.  The non-accrual loans at September 30, 2008 consisted of one single-family residential loan of $762,000 and five commercial real estate loan relationships amounting to $2.3 million.  Management continues to aggressively pursue the collection and resolution of all delinquent loans.

At September 30, 2008 and December 31, 2007, the allowance for loan losses amounted to $3.1 million and $2.8 million, respectively.  At September 30, 2008, the allowance for loan losses amounted to 74.35% of nonperforming loans and 1.13% of total loans receivable, as compared to 135.00% and 1.09%, respectively, at December 31, 2007.

Although management believes that the allowance for loan losses at September 30, 2008 was appropriate based on facts and circumstances available to management at that time, there can be no assurances that additions to the allowance for loan losses will not be necessary in future periods.

Comparison of Results of Operations for the Three and Nine Months ended September 30, 2008 and September 30, 2007

General.  Net income decreased $196,000 or 43.2% to $257,000 or $0.04 per share for the three months ended September 30, 2008 as compared to $453,000 or $0.06 per share for the same period in 2007.  The decrease in net income was primarily due to a $253,000 impairment charge on certain mutual funds and an increase in total other expenses, partially offset by an increase in net interest income and a decrease in income tax expense.

Net income decreased $869,000 or 69.4% to $383,000 or $0.05 per share for the nine months

18

ended September 30, 2008 as compared to $1.3 million or $0.18 per share for the same period in 2007.  The decrease in net income was primarily due to an $882,000 impairment charge on certain mutual funds, a $157,000 loss on sale of certain mutual funds, and an increase in total other expenses, partially offset by an increase in net interest income and a decrease in income tax expense.

On August 20, 2008, the Company recorded a $253,000 impairment charge on its investment in $2.7 million of mutual funds and subsequently sold these certain mutual funds to Alliance Mutual Holding Company at fair value.

Net Interest Income.  Net interest income is determined by the interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.  Net interest income increased $206,000 or 7.8% during the three months ended September 30, 2008 as compared to the same period in 2007.  This increase was primarily due to a 95 basis point or 23.1% decrease in the average rates paid on interest bearing liabilities.  Such increase was partially offset by a $5.0 million or 1.4% increase in the average balance of interest bearing liabilities, by a 9.0% or 56 basis point decrease in the average rates earned on interest earning assets and a $1.4 million or 0.4% decrease in the average balance of interest earning assets.  As a result, the interest rate spread increased 39 basis points to 2.53% for the three months ended September 30, 2008 from 2.14% for the three months ended September 30, 2007.

Net interest income increased $285,000 or 3.6% during the nine months ended September 30, 2008 as compared to the same period in 2007.  This increase was primarily due to a 61 basis point or 15.3% decrease in the average rates paid on interest bearing liabilities.  The increase was partially offset by a 41 basis point or 6.7% decrease in the average rates earned on interest earning assets.  As a result, the interest rate spread increased 20 basis points to 2.32% for the nine months ended September 30, 2008 from 2.12% for the nine months ended September 30, 2007.

Interest Income.  Interest income decreased $580,000 or 9.3% to $5.6 million for the three months ended September 30, 2008, compared to the same period in 2007.  The decrease was due to a $341,000 or 65.1% decrease in interest income on balances due from depository institutions, a $253,000 or 28.2% decrease on interest income on investment securities, and an $81,000 or 18.5% decrease in interest income from mortgage-backed securities.  These decreases were partially offset by a $95,000 or 2.2% increase in interest income on loans.  The decrease in interest income on balances due from depository institutions was due to a $2.3 million or 5.5% decrease in the average balance of the balances due from depository institutions and a 319 basis point or 62.9% decrease in rates earned on balances due from depository institutions.  The decrease in interest earned on investment securities was due to a $16.3 million or 23.4% decrease in the average balance in investment securities and a 31 basis point or 6.0% decrease in rates earned on investment securities.  The decrease in interest income on mortgage backed securities was due to a $7.3 million or 19.0% decrease in the average balance of the mortgage backed securities.  The cash from the decreases in balances due from depository institutions, mortgage backed securities, and investment securities were primarily used to fund loan growth.  The increase in interest income on loans was due to a $24.5 million or 9.9% increase in the average balance of loans, partially offset by a 49 basis point or 7.0% decrease in the average yield earned on loans.

19

Interest income decreased $1.2 million or 6.4% to $17.1 million for the nine months ended September 30, 2008, compared to the same period in 2007.  The decrease was due to a $1.1 million or 62.7% decrease in interest income on balances due from depository institutions, a $267,000 or 19.2% decrease on interest income on mortgage backed securities, and a $307,000 or 12.5% decrease in investment securities.  These decreases were partially offset by a $514,000 or 4.1% increase in interest income on loans.  The decrease in interest income on balances due from depository institutions was due to a 272 basis point or 53.6% decrease in the in the average yield earned and a $9.1 million or 19.7% decrease in the average balances of funds due from depository institutions.  The decrease in interest income on mortgage-backed securities was due to an $8.1 million or 20.0% decrease in the average balance outstanding, partially offset by a 4 basis point increase in the average yield earned.  The decrease in interest income on investment securities was due to a $6.9 million or 10.6% decrease in the average balance outstanding and a 11 basis point or 2.2% decrease in the average yield earned.  The cash from the decreases in balances due from depository institutions, mortgage backed securities, and investment securities were primarily used to fund loan growth.  The increase in interest income on loans was due to a $25.8 million or 10.5% increase in the average balance of loans, partially offset by an 40 basis point or 5.8% decrease in the average yield earned on loans.

Interest Expense.  Interest expense decreased $786,000 or 22.0% to $2.8 million for the three months ended September 30, 2008, compared to the same period in 2007.  This decrease was due to a decrease of $781,000 or 26.3% in interest expense on deposits and a decrease of $5,000 or 0.8% in interest expense on FHLB advances and other borrowings.  The decrease in interest expense on deposits was due to a 105 basis point or 27.4% decrease in the average rate paid, partially offset by a $4.5 million or 1.5% increase in the average balance outstanding.  The decrease in interest expense on FHLB advances and other borrowings was due to a 13 basis point or 2.0% decrease in the average rate paid, partially offset by a $452,000 or 1.2% increase in the average balance outstanding.

Interest expense decreased $1.4 million or 13.9% to $9.0 million for the nine months ended September 30, 2008, compared to the same period in 2007.  This decrease was due to a decrease of $1.4 million or 16.7% in interest expense on deposits and a $9,000 or 0.5% decrease in interest expense on FHLB advances and other borrowings.  The decrease in interest expense on deposits was due to a 68 basis point or 18.3% decrease in the average rate paid, partially offset by a $6.3 million or 2.0% increase in the average balance of deposits.  The decrease in interest expense on FHLB advances and other borrowings was due to a $334,000 or 0.9% decrease in the average balance outstanding, partially offset by a 3 basis point or 0.5% increase in the average rate paid.

20

Average Balances, Net Interest Income and Yields Earned and Rates Paid.  The following average balance sheet table sets forth for the periods indicated, information on the Company regarding:  (i) the total dollar amounts of interest income on interest-earning assets and the resulting average yields; (ii) the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs; (iii) net interest income; (iv) interest rate spread; (v) net interest-earning assets (interest-bearing liabilities); (vi) the net yield earned on interest-earning assets; and (vii) the ratio of total interest-earning assets to total interest-bearing liabilities.  Information is based on average daily balances during the periods presented.

Average Balance Sheet

	Three Months Ended September 30,
	2008						2007
	Average						Average
(Dollars in Thousands)	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans receivable (1) (2) (4)	$	272,608	$	4,446	6.52	%	$	248,149	$	4,351	7.01	%
Mortgage-backed securities (4)	30,986		357		4.61		38,242		438		4.58
Investment securities (4)	53,511		644		4.81		69,834		897		5.14
Other interest-earning assets	39,036		183		1.88		41,304		524		5.07
Total interest-earning assets	396,141		5,630		5.69		397,529		6,210		6.25
Noninterest-earning assets	24,670						23,742
Total assets	$	420,811					$	421,271
Interest-bearing liabilities:
Deposits	$	314,420	2,184		2.78		$	309,908	2,965		3.83
FHLB advances and other borrowings	37,900		596		6.29		37,448		601		6.42
Total interest-bearing liabilities	352,320		2,780		3.16		347,356		3,566		4.11
Noninterest-bearing Liabilities	19,351						24,171
Total liabilities	371,671						371,527
Stockholders’ equity	49,140						49,744
Total liabilities and stockholders’ equity	$	420,811					$	421,271
Net interest-earning assets	$	43,821					$	50,173
Net interest income/interest rate spread			$	2,850	2.53	%			$	2,644	2.14	%
Net yield on interest-earning assets (3) (4)					2.88	%					2.66	%

(1)        Includes loans held for sale.

(2)        Nonaccrual loans and loan fees have been included.

(3)        Net interest income divided by interest-earning assets.

(4)        The indicated yields are not reflected on a tax equivalent basis.

21

Average Balance Sheet

	Nine Months Ended September 30,
	2008						2007
	Average						Average
(Dollars in Thousands)	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans receivable (1) (2) (4)	$	270,516	$	13,126	6.47	%	$	244,722	$	12,612	6.87	%
Mortgage-backed securities (4)	32,496		1,127		4.62		40,629		1,394		4.58
Investment securities (4)	58,413		2,155		4.92		65,303		2,462		5.03
Other interest-earning assets	37,086		655		2.35		46,200		1,759		5.07
Total interest-earning assets	398,511		17,063		5.71		396,854		18,227		6.12
Noninterest-earning assets	25,963						22,759
Total assets	$	424,474					$	419,613
Interest-bearing liabilities:
Deposits	$	315,628	7,188		3.04		$	309,329	8,628		3.72
FHLB advances and other borrowings	37,086		1,774		6.38		37,420		1,783		6.35
Total interest-bearing liabilities	352,714		8,962		3.39		346,749		10,411		4.00
Noninterest-bearing Liabilities	21,972						25,068
Total liabilities	374,686						371,817
Stockholders’ equity	49,788						47,796
Total liabilities and stockholders’ equity	$	424,474					$	419,613
Net interest-earning assets	$	45,797					$	50,105
Net interest income/interest rate spread			$	8,101	2.32	%			$	7,816	2.12	%
Net yield on interest-earning assets (3) (4)					2.71	%					2.63	%

(1)        Includes loans held for sale.

(2)        Nonaccrual loans and loan fees have been included.

(3)        Net interest income divided by interest-earning assets.

(4)        The indicated yields are not reflected on a tax equivalent basis.

22

Provision for Loan Losses.  The provision for loan losses amounted to $45,000 and $35,000 for the three months ended September 30, 2008 and 2007, respectively.  The provision for loan losses amounted to $255,000 and $75,000 for the nine months ended September 30, 2008 and 2007, respectively.  The increase for the nine month period in the provision for loan losses was primarily due to a partial charge-off in the first quarter of 2008 in the amount of $100,000 on a $350,000 commercial loan.  An 80% reserve of $200,000 was set aside in the allowance for loan losses on the remaining $250,000.  The loan is secured by a second lien on commercial real estate in the Company’s primary market area.  This write-down and adverse classification resulted from a decline in the estimated net realizable value of the commercial real estate securing the loan.  Such provisions were primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of nonperforming loans and the current economic environment.

Other Income.  Other income decreased $285,000 or 82.8% to $59,000 for the three months ended September 30, 2008 as compared to the same period in 2007.  The decrease was primarily the result of the Company identifying an other than temporary impairment on its investment in $2.7 million of certain mutual funds and as a result recorded a $253,000 impairment charge against other income; subsequently the Company sold these mutual funds to Alliance Mutual Holding Company at fair value.

Other income decreased $1.1 million or 108.1% to a loss of $81,000 during the nine months ended September 30, 2008 as compared to the same period in 2007.  The decrease was primarily the result of the Company identifying an other than temporary impairment on its investment in mutual funds and recording an $882,000 impairment charge against other income.  Also, in the nine months ended September 2008, the Company sold approximately $15.8 million certain of mutual funds and recorded a pretax loss on the sale of securities of $157,000.

Other Expenses. Other expenses increased $217,000 or 8.9% to $2.7 million for the three months ended September 30, 2008 compared to the same period in 2007.  The increase was primarily due to a $74,000 or 5.3% increase in salaries and employee benefits, a $30,000 or 6.3% increase in occupancy and equipment expense, and a $82,000 or 124.6% increase in advertising and marketing expenses. The increase in salaries and employee benefits was attributed to a higher level of staff members and annual increases in employees’ salaries.   The increase in occupancy and equipment expense is attributed to normal price increases to maintain our existing locations and equipment.  The increase in advertising and marketing was attributed to the Company’s focus on cable television, media and newspaper advertising to increase the Banks visibility.

Other expenses increased $352,000 or 4.8% to $7.7 million for the nine months ended September 30, 2008 compared to the same period in 2007.  The increase was primarily due to a $132,000 or 3.2% increase in salaries and employee benefits, a $67,000 or 4.7% increase in occupancy and equipment expense, and a $120,000 or 56.3% increase in advertising and marketing expenses. The increase in salaries and employee benefits was attributed to a higher level of staff members and annual increases in employee’s salaries.   The increase in occupancy and equipment expense is attributed to normal price increases to maintain our existing locations and equipment.  The increase in advertising and marketing was attributed to the Company’s focus on cable television, media and newspaper advertising to increase the Bank’s visibility.

23

Income Tax Expense (Benefit). Income tax (benefit) expense amounted to $(47,000) and $63,000 for the three months ended September 30, 2008 and 2007, respectively, resulting in effective tax rates of (22.4)% and 12.2%, respectively.  The reduction in income tax expense was primarily due to a lower amount of income before income taxes and the impact of tax exempt income from certain investments and bank owned life insurance.  As of September 30, 2008, the company recorded $645,000 in deferred tax asset from the loss on the sale and impairment charges taken on mutual funds.  The company must generate capital gains within a certain time period to realize the tax benefit from these capital losses.

Income tax (benefit) expense amounted to $(339,000) and $119,000 for the nine months ended September 30, 2008 and 2007, respectively, resulting in effective tax rates of (766.6)% and 8.7%, respectively. The reduction in income tax expense was primarily due to a lower amount of income before income taxes and the impact of tax exempt income from certain investments and bank owned life insurance.

Liquidity and Capital Resources

Liquidity, represented by cash and cash equivalents, is a product of its cash flows from operations. The primary sources of funds are deposits, borrowings, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, sales of loans, maturities and calls of investment securities and other short-term investments and income from operations.  Changes in the cash flows of these instruments are greatly influenced by economic conditions and competition.  Management attempts to balance supply and demand by managing the pricing of its loan and deposit products while maintaining a level of growth consistent with the conservative operating philosophy of the management and board of directors.  Any excess funds are invested in overnight and other short-term interest-earning accounts.  Cash flows are generated through the retail deposit market, its traditional funding source, for use in investing activities.  In addition, the borrowings such as Federal Home Loan Bank advances may be utilized for liquidity or profit enhancement.  At September 30, 2008, the Company had $37.0 million of outstanding advances and approximately $141.0 million of additional borrowing capacity from the FHLB of Pittsburgh.  Further, the Company has access to the Federal Reserve Bank discount window.  At September 30, 2008, no such funds were outstanding.

The primary use of funds is to meet ongoing loan and investment commitments, to pay maturing savings certificates and savings withdrawals and expenses related to general operations of the Company.  At September 30, 2008, the total approved loan commitments outstanding amounted to $12.6 million.  At the same date, commitments under unused lines of credit amounted to $35.8 million.  Certificates of deposit scheduled to mature in one year or less at September 30, 2008 totaled $185.0 million.  Management believes that a significant portion of maturing deposits will remain with the Company.  For the quarter ended September 30, 2008, there were no material changes in contractual obligations that were outside of the ordinary course of business.  Management anticipates that it will continue to have sufficient cash flows to meet its current and future commitments.

Impact of Inflation and Changing Prices

The unaudited condensed consolidated financial statements and related financial data presented

24

herein have been prepared in accordance with US GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation.  Unlike most industrial companies, virtually all of the Company’s assets and liabilities are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.

Part I - Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

Part I - Item 4T.

CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are designed to ensure that financial information required to be disclosed by the Company in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Part II - Other Information

Item 1.Legal Proceedings

The Company is involved in legal proceedings and litigation arising in the ordinary course of business. There can be no assurance that any of the outstanding legal proceedings and litigation to which the Company is a party will not be decided adversely to the Company’s interests and have a material adverse effect on the consolidated financial statements.

Item 1A.Risk Factors

Not Applicable

25

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

               (a) – (b)    Not Applicable

(c)The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the indicated periods.

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 2008	5,600	$	8.40	5,600	125,301
August 2008	22,500	8.47		22,500	102,801
September 2008	10,000	8.60		10,000	92,801
Totals	38,100	$	8.50	38,100

(1)All shares were repurchased under the Company’s announced repurchase program. On January 25, 2008, the Company announced a program to repurchase up to 325,125 shares, or 10% of the outstanding common stock other than shares owned by Alliance Mutual Holding Company, commencing on January 30, 2008, the one year anniversary of the completion of the mid-tier stock holding company reorganization of Alliance Bank.  The program will expire in twelve months, or on January 30, 2009, and all shares are purchased in the open market or by privately negotiated transactions, as in the opinion of management, market conditions warrant.

Item 3.   Defaults Upon Senior Securities

Not Applicable

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

None

Item 5.  Other Information

None

Item 6.  Exhibits

(a)The following exhibits are filed herewith:

Ex. No.	Description
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer

26

SIGNATURES

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

ALLIANCE BANCORP, INC. OF PENNSYLVANIA

Date: November 12, 2008	By:	/s/ Dennis D. Cirucci
		Dennis D. Cirucci, President
		and Chief Executive Officer
Date: November 12, 2008	By:	/s/ Peter J. Meier
		Peter J. Meier, Executive Vice President and Chief Financial Officer

27