Alliance Bancorp Inc Of Pennsylvania 10-Q 2009 Q1 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 March 31, 2009

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 has submitted electronically and posted on its corporate website, if any every Interactive Dat a File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such a shorter period that the registrant was required to submit and post such files).   Yes o 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 definition of “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	Smaller Reporting Company x
(Do not check if a smaller reporting company)

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 $0.01 per share, of the Registrant as of May 8, 2009, was, 6,900,176.

ALLIANCE BANCORP, INC. OF PENNSYLVANIA

Index

		PAGE
Part I — Financial Information
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition as of March 31, 2009 and December 31, 2008	3
	Unaudited Consolidated Statements of Income For the Three Months Ended March 31, 2009 and 2008	4
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2009 and 2008	5
	Unaudited Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2009 and 2008	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4T.	Controls and Procedures	23
Part II — Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
	Signatures	26

2

Part I — Item 1.

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Financial Condition (Unaudited)

(Dollar amounts in thousands, except share data)

	March 31,			December 31,
	2009			2008
Assets
Cash and cash due from depository institutions	$	5,477		$	7,849
Interest bearing deposits with depository institutions	31,264			20,459
Total cash and cash equivalents	36,741			28,308
Investment securities available for sale	27,789			37,814
Mortgage-backed securities available for sale	29,937			31,921
Investment securities held to maturity (fair value - 2009, $26,377; 2008, $23,958)	26,355			24,256
Loans receivable - net of allowance for loan losses - 2009, $3,238; 2008, $3,169	281,964			278,437
Accrued interest receivable	2,036			2,028
Premises and equipment — net	2,642			2,764
Other real estate owned	1,581			—
Federal Home Loan Bank (FHLB) stock-at cost	2,439			2,439
Bank owned life insurance	10,918			10,830
Deferred tax asset, net	4,229			4,328
Prepaid expenses and other assets	1,413			985
Total Assets	$	428,044		$	424,110
Liabilities and Stockholders’ Equity
Liabilities
Non-interest bearing deposits	$	13,946		$	13,610
Interest bearing deposits	321,742			318,091
Total deposits	335,688			331,701
Demand notes issued to the U.S. Treasury	38			198
FHLB advances	37,000			37,000
Accrued expenses and other liabilities	6,309			6,312
Total Liabilities	379,035			375,211
Stockholders’ Equity
Common stock, $.01 par value; shares authorized — 15,000,000; shares issued — 7,225,000, and shares outstanding - 2009, 6,907,676; 2008, 6,957,676	72			72
Additional paid-in capital	24,029			24,029
Retained earnings - partially restricted	29,158			28,836
Unearned shares held by Employee Stock Ownership Plan  (ESOP)	(692		)	(722		)
Accumulated other comprehensive loss	(785		)	(930		)
Treasury stock, at cost: 2009, 317,324 shares; and 2008, 267,324 shares	(2,773		)	(2,386		)
Total Stockholders’ Equity	49,009			48,899
Total Liabilities and Stockholders’ Equity	$	428,044		$	424,110

See notes to consolidated financial statements.

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Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Income (Unaudited)

(Dollar amounts in thousands, except per share data)

	For the Three Months
	Ended March 31,
	2009		2008
Interest and Fees and Dividend Income
Loans	$	4,280	$	4,355
Mortgage-backed securities	355		399
Investment securities
Taxable	404		313
Tax - exempt	297		270
Dividends	—		249
Balances due from depository institutions	30		296
Total interest and fees and dividend income	5,366		5,882
Interest Expense
Deposits	1,956		2,753
FHLB advances and other borrowed money	582		589
Total interest expense	2,538		3,342
Net Interest Income	2,828		2,540
Provision for Loan Losses	75		165
Net Interest Income After Provision for Loan Losses	2,753		2,375
Other Income (Loss)
Service charges on deposit accounts	75		91
Management fees	90		96
Other fee income	37		39
Gain on sale of loans	—		2
Impairment charge on investment securities	—		(363		)
Increase in cash surrender value of bank owned life insurance	88		92
Total other income (loss)	290		(43		)
Other Expenses
Salaries and employee benefits	1,422		1,394
Occupancy and equipment	493		489
Advertising and marketing	57		79
Professional fees	141		102
Loan and OREO expense	15		13
Deposit insurance premium	122		10
Other noninterest expense	358		362
Total other expenses	2,608		2,449
Income (Loss) Before Income Tax Expense (Benefit)	435		(117		)
Income Tax Expense (Benefit)	24		(159		)
Net Income	$	411	$	42
Basic Earnings per Share	$	0.06	$	0.01

See notes to consolidated financial statements.

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Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollar amounts in thousands, except per share data)

	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, 2008	$	72	$	24,041	$	—		$	28,975		$	(843	)	$	(787	)	$	51,458
ESOP shares committed to be released											15						15
Net income								42									42			$	42
Dividends declared ($0.06 per share)								(195		)							(195		)
Acquisition of Treasury Stock (181,724 shares)					(1,664		)										(1,664		)
Other comprehensive income — net of taxexpense of $192														372			372			372
Balance, March 31, 2008	$	72	$	24,041	$	(1,664	)	$	28,822		$	(828	)	$	(415	)	$	50,028		$	414
Balance, January 1, 2009	$	72	$	24,029	$	(2,386	)	$	28,836		$	(722	)	$	(930	)	$	48,899
ESOP shares committed to be released											30						30
Net income								411									411			$	411
Dividends declared ($0.03 per share)								(89		)							(89		)
Acquisition of Treasury Stock (50,000 shares)					(387		)										(387		)
Other comprehensive income — net of taxexpense of $75														145			145			145
Balance, March 31, 2009	$	72	$	24,029	$	(2,773	)	$	29,158		$	(692	)	$	(785	)	$	49,009		$	556

See notes to consolidated financial statements.

5

Alliance Bancorp, Inc. of Pennsylvania and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)

	For the Three Months
	Ended March 31,
	2009			2008
Cash Flow From Operating Activities
Net income	$	411		$	42
Adjustments to reconcile net income to cash provided by operating activities:
Provision for:
Loan losses	75			165
Depreciation and amortization	155			169
Gain on sale of loans	—			(2		)
Impairment charge on securities	—			363
ESOP shares committed to be released	30			15
Origination of loans held for sale	—			(841		)
Deferred tax expense (benefit)	24			(174		)
Proceeds from loans sold in the secondary market	—			657
Changes in assets and liabilities which provided (used) cash:
Accrued expenses and other liabilities	(3		)	(52		)
Prepaid expenses and other assets	(428		)	(3		)
Increase in cash surrender value of bank owned life insurance	(88		)	(92		)
Accrued interest receivable	(8		)	6
Net cash provided by operating activities	168			253
Cash Flow From Investing Activities
Purchase of investment securities-available for sale	(3,000		)	(9,000		)
Purchase of investment securities-held to maturity	(2,585		)	(2,635		)
Loans originated and acquired	(15,543		)	(17,355		)
Proceeds from maturities and calls of investment securities	13,480			12,632
Redemption of FHLB Stock	—			16
Principal repayments of:
Loans	10,360			9,300
Mortgage-backed securities	2,235			2,128
Purchase of premises and equipment	(33		)	(137		)
Net cash provided by (used in) investing activities	4,914			(5,051		)
Cash Flow From Financing Activities
Dividends paid	(89		)	(195		)
Increase in deposits	3,987			5,140
Purchase of treasury stock	(387		)	(1,664		)
Increase (decrease) in demand notes issued to the U.S. Treasury	(160		)	8
Net cash provided by financing activities	3,351			3,289
Increase (decrease) in Cash and Cash Equivalents	8,433			(1,509		)
Cash and Cash Equivalents, Beginning of Year	28,308			42,079
Cash and Cash Equivalents, End of Year	$	36,741		$	40,570
Supplemental Disclosures of Cash Flow Information-
Cash paid during the period for:
Interest	$	2,542		$	3,367
Income taxes	$	—		$	100
Supplemental Schedule of Noncash and Financing Investing Activities:
Other real estate acquired in settlement of loans	$	1,581		$	—

See notes to consolidated financial statements.

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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 March 31, 2009, the Holding Company owned 57.5% of the outstanding common stock of Alliance Bancorp and the minority public shareholders owned the remaining 42.5%.  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.

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 transactions have been eliminated in consolidation.

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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, 2008, 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 months ended March 31, 2009 are not necessarily indicative of the results which may be expected for the year ending December 31, 2009 or any other period.  All significant intercompany accounts and transactions have been eliminated. 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, 2008.

(2) 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 for both the three months ended March 31, 2009 and 2008, 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 $90,000 and $96,000 for the three months ended March 31, 2009 and 2008, respectively.

(3) 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 March 31, 2009 was $1.3 million which was secured by real estate, cash, and marketable securities.

(4) 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 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.

(5) Dividend Restriction

The Holding Company held 3,973,750 shares, or 57.5%, of the Company’s issued and outstanding common stock, and the minority public shareholders held 42.5% of outstanding stock at March 31, 2009. The Holding Company has filed a notice with the Office of Thrift Supervision (“OTS”) to waive its right to receive cash dividends during the 2009 calendar year.

8

The Company paid a cash dividend on February 20, 2009 to all public shareholders.

The Holding Company has waived receipt of past dividends paid by the Company. The dividends waived are considered as a restriction on the retained earnings of the Company. As of March 31, 2009 and December 31, 2008, the aggregate retained earnings restricted for cash dividends waived were $1,827,925 and $1,708,713, respectively.

(6) Recent Accounting Pronouncements

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”.  This FSP amends SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan.  The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15, 2009.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4).  FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

9

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2).   FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1).  FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

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(7) 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 earnings per share computation.

	For the Three Months Ended March 31,
	2009			2008
Net Income	$	411,000		$	42,000
Weighted average shares outstanding	6,934,787			7,159,003
Average unearned ESOP shares	(68,503		)	(83,608		)
Weighted average shares outstanding — basic	6,866,284			7,075,395
Basic earnings per share	$	0.06		$	0.01

(8) Employee Stock Ownership Plan

The Bank 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 will make quarterly payments of principal and interest over a term of 8 years at a rate of 8.25% to the Company.  The loan is secured by the shares of the stock purchased.

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 months ended March 31, 2009 was $30,000.  Shares released for allocation, unreleased shares, and total ESOP shares were 7,527, 64,739, and 90,333, respectively, during and at the period ended March 31, 2009.  The compensation expense for the three months ended March 31, 2008 was $15,000.  Shares released for allocation, unreleased shares, and total ESOP shares were 7,427, 82,906, and 90,333, respectively, during and at the period ended March 31, 2008.

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(9) 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:

	For the Three Months Ended March 31,
	2009			2008
Net Periodic Benefit Cost
Service Cost	$	73,969		$	77,171
Interest Cost	61,440			58,727
Expected Return on Plan Assets	(57,073		)	(71,976		)
Amortization of Transition Obligation/(Asset)	—			438
Amortization of Prior Service Cost	3,171			3,171
Amortization of (Gain)/Loss	26,493			5,219
Net Periodic Benefit Cost	$	108,000		$	72,750

The Bank has 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 March 31,
	2009		2008
Net Periodic Benefit Cost
Service Cost	$	8,779	$	8,779
Interest Cost	55,294		55,485
Amortization of Prior Service Cost	—		58,163
Amortization of (Gain)/Loss	7,927		7,911
Net Periodic Benefit Cost	$	72,000	$	130,338

(10) 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.

In December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.  The Company adopted the provisions of SFAS 157..

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:

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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 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 lowest 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 assets and liabilities carried at fair value.

Investment and Mortgage Backed Securities Available for Sale

The fair value of securities available for sale and held to maturity are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3).  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 that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

Impaired Loans

Impaired loans are those that are accounted for under FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS 114”), in which the Bank has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other Real Estate Owned

OREO assets are adjusted to fair value less estimated selling costs upon transfer of the loans to OREO.  Subsequently, OREO assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy

13

utilized to measure fair value (in thousands):

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Investment securities available for sale	$	27,789	$	—	$	27,789	$	—
Mortgage backed securities available for sale	29,937		—		29,937		—
Total	$	57,726	$	—	$	57,726	$	—

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2009 are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	12,706	$	—	$	—	$	12,706

For non-financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2009 are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Other real estate owned	$	1,581	$	—	$	—	$	1,581

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Investment securities available for sale	$	37,814	$	—	$	37,814	$	—
Mortgage backed securities available for sale	31,921		—		31,921		—
Total	$	69,735	$	—	$	69,735	$	—

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For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	2,589	$	—	$	—	$	2,589

At December 31, 2008 there we no non-financial assets measured at fair value on a nonrecurring basis.

(11) Comprehensive Income

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 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 to the disclosure provided in the consolidated statements of changes in stockholders’ equity.

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

			Tax
	Before		(Expense)			Net of
(Dollars in Thousands)	Tax		Benefit			Tax
For the three month period ended March 31, 2009:
Unrealized gains on available for sale securities
Unrealized holding gains arising during period	$	220	$	(75	)	$	145
Change in unrealized gain on available for sale securities	220		(75		)	145
Change in liability in retirement plans	—		—			—
Other comprehensive income	$	220	$	(75	)	$	145
For the three month period ended March 31, 2008:
Unrealized gains on available for sale securities
Unrealized holding gains arising during period	$	201	$	(69	)	$	132
Plus: reclassification for impairment charge included in net loss	363		(123		)	240
Change in unrealized gain on available for sale securities	564		(192		)	372
Change in liability in retirement plans	—		—			—
Other comprehensive income	$	564	$	(192	)	$	372

15

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

16

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, 2008 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

17

outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

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 March 31, 2009, the Company carried $645,000 in deferred tax assets from the loss on the sale and impairment charges taken on certain 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 Investment Securities and Mortgage Backed 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 below its amortized cost 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 consolidated financial statements and the probability, extent and timing of a valuation recovery and the Company’s intent and ability to hold the security until market recovery.  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 the Company would recognize the decline as a realized loss on the consolidated income statement.

Comparison of Financial Condition at March 31, 2009 and December 31, 2008

Total assets increased $3.9 million or 0.9% to $428.0 million at March 31, 2009 compared to $424.1 million at December 31, 2008.  This increase was primarily due to an $8.4 million or 29.8% increase in total cash and cash equivalents, a $3.5 million or 1.3% increase in net loans and a $2.1 million or 8.7% increase in investment securities held to maturity.  These increases were partially offset by a $10.0 million or 26.5% decrease in investment securities available for

18

sale and a $2.0 million or 6.2% decrease in mortgage-backed securities available for sale.

Total liabilities increased $3.8 million or 1.0% to $379.0 million at March 31, 2009 compared to $375.2 million at December 31, 2008.  This increase was due to a $3.7 million or 1.1% increase in interest bearing deposits and a $336,000 or 2.5% increase in non-interest bearing deposits. These increases were partially offset by a $160,000 decrease in demand notes issued to the U.S. Treasury from December 31, 2008 to March 31, 2009.

Nonperforming assets, which consist of nonaccruing loans, accruing loans 90 days or more delinquent and other real estate owned (OREO) (which includes real estate acquired through, or in lieu of, foreclosure) increased to $10.8 million or 2.5% of total assets at March 31, 2009 from $7.0  million or 1.7% of total assets at December 31, 2008.  This increase was primarily due to the placement of a $3.9 million residential real estate construction loan on nonaccrual.  This loan is secured by 18 substantially completed condominium units, 2 of which have been sold and settled, located near center city Philadelphia.  At March 31, 2009, the $10.8 million of nonperforming assets consisted of $1.3 million of accruing loans 90 days or more delinquent, and $7.9 million of nonaccrual loans, and $1.6 million in OREO.  At March 31, 2009, the $7.9 million of nonaccrual loans consisted of two single family real estate loans totaling $1.4 million, ten commercial real estate loans totaling $2.6 million, and one real estate construction loan in the amount of $3.9.  Management continues to aggressively pursue the collection and resolution of all delinquent loans.

At March 31, 2009 and December 31, 2008, the allowance for loan losses amounted to $3.2 million.  At March 31, 2009, the allowance for loan losses amounted to 35.2% of nonperforming loans and 1.14% of total loans receivable, as compared to 45.3% and 1.13%, respectively, at December 31, 2008.  The decrease in the allowance for loan losses to total nonperforming loans was due to our analysis of the underlying real estate collateral securing these loans which warranted little in additional reserves in most cases.

Although management uses the best information available to make determinations with respect to the provisions for loan losses, additional provisions for loan losses may be required to be established in the future should economic or other conditions change substantially.  In addition, the Department and the FDIC, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses.  Such agencies may require the Bank to recognize additions to such allowance based on their judgments about information available to them at the time of their examination.

Comparison of Results of Operations for the Three Months ended March 31, 2009 and March 31, 2008

General.  Net income increased $369,000 or 878.6% to $411,000 or $0.06 per share for the three months ended March 31, 2009 as compared to $42,000 or $0.01 per share for the same period in 2008.  The increase in net income was primarily due to an impairment charge on certain mutual funds recorded during the three month period in 2008 and an increase in net interest income for the three months ended March 31, 2009 compared to the three months ended March 31, 2008.  These items were offset by an increase in other expenses and an increase in income tax expense.

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

19

interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.  Net interest income increased $288,000 or 11.3% during the three months ended March 31, 2009 as compared to the same period in 2008.  The increase in net interest income was due to an $804,000 or 24.1% decrease in interest expense on interest bearing liabilities primarily the result of a 103 basis point or 29.5% decrease on rates paid on interest bearing deposits which was partially offset by a $516,000 or 8.8% decrease in the interest earned on interest earning assets primarily as a result of a $7.0 million or 1.7% decrease in the average balance of interest earning assets as well as a 7.2% or 42 basis point decrease in the average rates earned on interest earning assets.

As a result, the interest rate spread increased 51 basis points from 2.02% for the three months ended March 31, 2008 to 2.53% for the three months ended March 31, 2009.  Based on the current market interest rate environment and increased competition, management anticipates downward pressure on the interest rate spread for the second quarter of 2009 which may negatively impact net interest income.

Interest Income.  Interest income decreased $516,000 or 8.8% to $5.4 million for the three months ended March 31, 2009, compared to the same period in 2008.  The decrease was due to a $266,000 or 89.9% decrease in interest income on balances due from depository institutions, a $131,000 or 15.7% decrease in interest income on investment securities, a $44,000 or 11.0% decrease in interest income on mortgage backed securities, and a $75,000 or 1.7% decrease on interest income on loans.  The decrease in interest income on balances due from depository institutions was due to an $11.3 million or 30.0% decrease in the average balance of balances due from depository institutions and a 270 basis point or 85.4% decrease in the average yield earned on balances due from depository institutions.  The decrease in interest income on investment securities was due to a $11.5 million or 16.5% decrease in the average balance of investment securities, partially offset by a 4 basis point or 0.8% increase in the average yield earned on investment securities.  The decrease in interest income on mortgage backed securities was due to a $4.0 million or 11.2% decrease in the average balance of mortgage backed securities.  The increase in interest income on loans was due to a $19.7 million or 7.5% increase in the average balance of loans outstanding, partially offset by a 57 basis point or 8.6% decrease in the average yield earned.

Interest Expense.  Interest expense decreased $804,000 or 24.1% to $2.5 million for the three months ended March 31, 2009, compared to the same period in 2008.  This decrease was due to a $797,000 or 29.0% decrease in interest expense on deposits and a $7,000 or 1.2% decrease in interest expense on FHLB advances and other borrowings.

The decrease in interest expense on deposits was due to a 103 basis point or 29.5% decrease in the rates paid on deposits, partially offset by a $3.0 million or 1.0% increase in the average balance of deposits.  Interest expense on deposits is expected to continue to decrease as higher cost time deposits reprice at lower rates as the Company responds to the Federal Reserve’s decreases in the federal funds rate.  The decrease in interest expense on FHLB advances and other borrowings was due to an $888,000 or 2.3% decrease in the average balance of FHLB advances and other borrowings, partially offset by a 7 basis point increase in the rates paid on FHLB advances and other borrowings.

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.

	Three Months Ended March 31,
	2009						2008
	Average						Average
(Dollars in Thousands)	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans receivable (1) (2) (3) (4)	$	282,956	$	4,280	6.05	%	$	263,240	$	4,355	6.62	%
Mortgage-backed securities (3) (4)	31,287		355		4.54		35,246		399		4.53
Investment securities (4) (5)	58,163		701		4.82		69,636		832		4.78
Due from depository institutions	26,264		30		0.46		37,519		296		3.16
Total interest-earning assets	398,670		5,366		5.38		405,641		5,882		5.80
Noninterest-earning assets	25,840						20,902
Total assets	$	424,510					$	426,543
Interest-bearing liabilities:
Deposits	$	318,577	1,956		2.46		$	315,545	2,753		3.49
FHLB advances and other borrowings	37,053		582		6.28		37,941		589		6.21
Total interest-bearing liabilities	355,630		2,538		2.85		353,486		3,342		3.78
Noninterest-bearing Liabilities	19,960						21,639
Total liabilities	375,590						375,125
Stockholders’ equity	48,920						51,418
Total liabilities and stockholders’ equity	$	424,510					$	426,543
Net interest-earning assets	$	43,040					$	52,155
Net interest income/interest rate spread			$	2,828	2.53	%			$	2,540	2.02	%
Net yield on interest-Earning assets (4)					2.84	%					2.50	%

(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.
(5)	Includes dividend income.

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Provision for Loan Losses.  The provision for loan losses amounted to $75,000 for the three months ended March 31, 2009 as compared to $165,000 for the three months ended March 31, 2008.  The decrease for the three month period in the provision for loan losses was primarily due to a partial loan charge-off of $100,000 taken in the first quarter of 2008.  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 (Loss).  Other income (loss) was $290,000 for the three months ended March 31, 2009 as compared to a loss of $43,000 for the same period in 2008.  The increase was primarily the result of the Company identifying an impairment charge on its $20.0 million investment in certain mutual funds as other than temporary and recording a $363,000 pretax loss against operating income in the first quarter of 2008.  These mutual funds were sold to Alliance Mutual Holding Company in the third quarter of 2008 at fair value.  The increase in other income (loss) was partially offset by a $16,000 or 17.6% decrease in service charges on deposit accounts, a $6,000 or 6.3% decrease in management fees, a $2,000 or 5.1% decrease in other fee income, and a $4,000 or 4.3% decrease in the increase in cash surrender value of bank owned life insurance.

Other Expenses. Other expenses increased $159,000 or 6.5% to $2.6 million for the three months ended March 31, 2009 compared to the same period in 2008.  The increase was primarily due to an $112,000 or 1,120.0% increase in deposit insured premiums the Company has been accruing.  On February 27, 2009, the FDIC adopted an interim rule imposing a 20 basis point emergency special assessment on insured institutions as of June 30, 2009, payable on September 30, 2009.  The interim rule also permits the FDIC to impose an additional special assessment after June 30, 2009, of up to 10 basis points, if necessary to maintain public confidence in federal deposit insurance.  However, the FDIC has indicated that the amount of the special assessment may be reduced if congress increases the FDIC’s borrowing authority.  Also contributing to the increase in other expense was a $39,000 or 38.2% increase in professional fees, and a $28,000 or 2.0% increase in salaries and employee benefits.  The increase in other expense was partially offset by a $22,000 or 27.9% decrease in advertising and marketing expense.

Income Tax Expense (Benefit). Income tax expense (benefit) amounted to $24,000 and $(159,000) for the three months ended March 31, 2009 and 2008, respectively, resulting in effective tax rates of 5.5% and (135.9%), respectively.  The increase in income tax expense was primarily due to a higher amount of taxable income before income taxes.

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

22

utilized for liquidity or profit enhancement.  At March 31, 2009, the Company had $37.0 million of outstanding advances and approximately $91.7 million of additional borrowing capacity from the FHLB of Pittsburgh.  Further, the Company has access to the Federal Reserve Bank discount window.  At March 31, 2009 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 March 31, 2009, the total approved loan commitments outstanding amounted to $5.6 million.  At the same date, commitments under unused lines of credit amounted to $31.7 million.  Certificates of deposit scheduled to mature in one year or less at March 31, 2009 totaled $175.0 million.  Management believes that a significant portion of maturing deposits will remain with the Company.  For the quarter ended March 31, 2009, 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 herein have been prepared in accordance with accounting principles generally accepted in the United States of America, 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

23

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. However, 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

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)
January  2009	—	$	—	—	292,612
February 2009	40,000	7.78		40,000	252,612
March  2009	10,000	7.53		10,000	242,612
Totals	50,000	$	7.73	50,000	242,612

(1)       All shares were repurchased under the Company’s announced repurchase program. On January 29, 2009, the Company announced a program to repurchase up to 292,612 shares, or 10% of the outstanding common stock other than shares owned by Alliance Mutual Holding Company.  The program will expire in twelve months, or on January 29, 2010, and all shares are to be purchased in the open market or in privately negotiated transactions, as in the opinion of management, market conditions warrant.

Item 3.Defaults Upon Senior Securities

Not Applicable

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

(a)The Company’s Annual Meeting of Stockholders was held on April 22, 2009.

(b)At the Annual Meeting, Messrs. Cotter, Hecht, and Raggi were elected as directors for a three year term expiring in 2012.  In addition, Messrs. Carr, Cirucci, Flatley, Meier, Rainer, Stonier, and Woolard will continue as directors after the Annual Meeting.

(c)There were 6,617,614 shares of Common Stock of the Company eligible to be voted at the Annual Meeting and 6,543,614 shares were represented at the meeting by the holders thereof, which constituted a quorum.  The items voted upon at the Annual Meeting and the vote for each proposal were as follows:

1.Election of Directors:

Nominees for three year terms
	FOR	WITHHELD
J. William Cotter, Jr.	6,491,286	52,328
William H. Hecht	6,491,286	52,328
John A. Raggi	6,491,286	52,328

2.Proposal to ratify the appointment of Beard Miller Company LLP as independent auditor for the year ending December 31, 2009:

FOR	AGAINST	ABSTAIN
6,509,094	33,998	522

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

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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: May 11, 2009	By:	/s/ Dennis D. Cirucci
		Dennis D. Cirucci, President and Chief Executive Officer
Date: May 11, 2009	By:	/s/ Peter J. Meier
		Peter J. Meier, Executive Vice President and Chief Financial Officer

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