Fox Chase Bancorp 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from              to             

Commission file number: 000-54025

Fox Chase Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	35-2379633
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4390 Davisville Road, Hatboro, Pennsylvania	19040
(Address of principal executive offices)	(Zip Code)

(215) 682-7400

(Registrant’s telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such 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, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer x	Smaller Reporting Company o
(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

As of November 4, 2010, there were 14,547,173 shares of the registrant’s common stock outstanding.

FOX CHASE BANCORP, INC.

Table of Contents

		Page No.
Part I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Statements of Condition at September 30, 2010 (unaudited) and December 31, 2009	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)	4
	Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2010 and 2009 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4T.	Controls and Procedures	41
Part II. Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	(Removed and Reserved)	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
Signatures

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FOX CHASE BANCORP, INC.

Consolidated Statements of Condition

(In Thousands, Except Share Data)

	September 30,			December 31,
	2010			2009
	(unaudited)
ASSETS
Cash and due from banks	$	182		$	44
Interest-earning demand deposits in other banks	77,814			65,374
Total cash and cash equivalents	77,996			65,418
Investment securities available-for-sale	33,406			19,548
Mortgage related securities available-for-sale	307,805			402,919
Loans, net of allowance for loan losses of $11,311 at September 30, 2010 and $10,605 at December 31, 2009	655,428			631,296
Assets acquired through foreclosure	3,786			4,052
Federal Home Loan Bank stock, at cost	10,435			10,435
Bank-owned life insurance	13,019			12,667
Premises and equipment	10,817			11,137
Real estate held for investment	1,730			1,730
Accrued interest receivable	4,454			4,467
Mortgage servicing rights, net	465			683
Deferred tax asset, net	1,117			1,467
Other assets	10,458			7,999
Total Assets	$	1,130,916		$	1,173,818
LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES
Deposits	$	738,834		$	858,277
Federal Home Loan Bank advances	123,905			137,165
Other borrowed funds	50,000			50,000
Advances from borrowers for taxes and insurance	1,108			2,119
Accrued interest payable	598			696
Accrued expenses and other liabilities	11,419			1,927
Total Liabilities	925,864			1,050,184
STOCKHOLDERS’ EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2010 and December 31, 2009)	—			—
Common stock ($.01 par value; 60,000,000 shares authorized, 14,547,173 shares issued and outstanding at September 30, 2010 and 35,000,000 shares authorized, 14,679,750 shares issued and 13,609,187 shares outstanding at December 31, 2009)	145			147
Additional paid-in capital	133,725			64,016
Treasury stock, at cost (0 shares at September 30, 2010 and 1,070,563 shares at December 31, 2009)	—			(11,814		)
Common stock acquired by benefit plans	(9,441		)	(6,862		)
Retained earnings	73,415			71,604
Accumulated other comprehensive income, net	7,208			6,543
Total Stockholders’ Equity	205,052			123,634
Total Liabilities and Stockholders’ Equity	$	1,130,916		$	1,173,818

See accompanying notes to the unaudited consolidated financial statements.

3

FOX CHASE BANCORP, INC.

Consolidated Statements of Operations

(Unaudited)

(In Thousands, Except Per Share Data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
	(Unaudited)
INTEREST INCOME
Interest and fees on loans	$	9,382	$	8,698	$	27,317	$	25,833
Interest on money market funds	—		23		—		183
Interest on mortgage related securities available-for-sale	2,691		3,975		9,438		10,735
Interest on investment securities available-for-sale
Taxable	142		238		315		623
Nontaxable	84		107		257		390
Dividend income	—		—		—		1
Other interest income	86		290		249		426
Total Interest Income	12,385		13,331		37,576		38,191
INTEREST EXPENSE
Deposits	3,734		5,478		12,531		15,576
Federal Home Loan Bank advances	1,194		1,333		3,602		3,992
Other borrowed funds	437		437		1,296		1,298
Total Interest Expense	5,365		7,248		17,429		20,866
Net Interest Income	7,020		6,083		20,147		17,325
Provision for loan losses	2,889		1,450		4,855		2,412
Net Interest Income after Provision for Loan Losses	4,131		4,633		15,292		14,913
NONINTEREST INCOME
Service charges and other fee income	243		192		742		672
Net gain on sale of premises and equipment	6		—		6		—
Net gain on sale of loans	—		—		—		3
Income on bank-owned life insurance	119		115		352		336
Other	62		58		167		269
Total other-than-temporary impairment loss	—		—		—		(605		)
Less: Portion of loss recognized in other comprehensive income (before taxes)	—		—		—		448
Net other-than-temporary impairment loss	—		—		—		(157		)
Net gains on sale of investment securities	1,963		958		1,963		1,546
Net investment securities gains	1,963		958		1,963		1,389
Total Noninterest Income	2,393		1,323		3,230		2,669
NONINTEREST EXPENSE
Salaries, benefits and other compensation	3,070		3,198		9,016		8,963
Occupancy expense	455		441		1,394		1,374
Furniture and equipment expense	140		170		427		571
Data processing costs	372		384		1,134		1,146
Professional fees	307		267		924		831
Marketing expense	75		72		241		242
FDIC premiums	343		343		1,116		1,415
Other	796		379		1,688		1,155
Total Noninterest Expense	5,558		5,254		15,940		15,697
Income Before Income Taxes	966		702		2,582		1,885
Income tax provision	274		189		731		473
Net Income	$	692	$	513	$	1,851	$	1,412
Earnings per share:
Basic	$	0.05	$	0.04	$	0.13	$	0.10
Diluted	$	0.05	$	0.04	$	0.13	$	0.10

See accompanying notes to the unaudited consolidated financial statements.

4

FOX CHASE BANCORP, INC.

Consolidated Statements of Changes in Equity

Nine Months Ended September 30, 2010 and 2009

(In Thousands, Unaudited)

									Common						Accumulated
			Additional						Stock						Other
	Common		Paid in			Treasury			Acquired by			Retained			Comprehensive		Total
	Stock		Capital			Stock			Benefit Plans			Earnings			Income		Equity
BALANCE - DECEMBER 31, 2008	$	147	$	63,516		$	(7,293	)	$	(7,819	)	$	72,664		$	5	$	121,220
Purchase of treasury stock, net						(3,819		)									(3,819		)
Stock based compensation expense			731														731
Issuance of stock for vested equity awards			(542		)				574			(32		)			—
Unallocated ESOP shares committed to employees			(7		)				288								281
Shares allocated in long-term incentive plan			67														67
Net income												1,412					1,412
Other comprehensive income															7,043		7,043
BALANCE - SEPTEMBER 30, 2009	$	147	$	63,765		$	(11,112	)	$	(6,957	)	$	74,044		$	7,048	$	126,935

										Common						Accumulated
				Additional						Stock						Other
	Common			Paid in			Treasury			Acquired by			Retained			Comprehensive		Total
	Stock			Capital			Stock			Benefit Plans			Earnings			Income, net		Equity
BALANCE - DECEMBER 31, 2009	$	147		$	64,016		$	(11,814	)	$	(6,862	)	$	71,604		$	6,543	$	123,634
Stock based compensation expense				690														690
Issuance of stock for vested equity awards				(518		)				558			(40		)			—
Unallocated ESOP shares committed to employees				6						348								354
Shares allocated in long-term incentive plan				67														67
Forfeited shares transferred to treasury stock				30			(30		)									—
Corporate Reorganization:
Merger of Fox Chase Mutual Holding Company	(81		)	188														107
Treasury stock retired	(11		)	(11,833		)	11,844											—
Exchange of common stock	(55		)	55														—
Proceeds from stock offering, net of offering expenses	145			81,024														81,169
Purchase of common stock by ESOP										(3,485		)						(3,485		)
Net income													1,851					1,851
Other comprehensive income																665		665
BALANCE - SEPTEMBER 30, 2010	$	145		$	133,725		$	—		$	(9,441	)	$	73,415		$	7,208	$	205,052

See accompanying notes to the unaudited consolidated financial statements.

5

FOX CHASE BANCORP, INC

Consolidated Statements of Cash Flows

(In Thousands)

	Nine Months Ended September 30,
	2010			2009
	(Unaudited)
Cash Flows From Operating Activities
Net income	$	1,851		$	1,412
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,855			2,412
Valuation adjustment on assets acquired through foreclosure	379			—
Depreciation	530			642
Net amortization of securities premiums and discounts	3,608			1,952
Benefit for deferred income taxes	(117		)	(766		)
Stock benefit plans	1,111			1,079
Origination of loans held for sale	—			(585		)
Proceeds from sales of loans held for sale	—			416
Net gain on sales of loans and loans held for sale	—			(3		)
Net gain on sale of premises and equipment	(6		)	—
Net gain on sales of securities	(1,963		)	(1,546		)
Other-than-temporary impairment loss on investments	—			157
Earnings on investment in bank-owned life insurance	(352		)	(336		)
Decrease in mortgage servicing rights	218			92
Increase in accrued interest receivable and other assets	(1,069		)	(1,957		)
Increase in accrued interest payable, accrued expenses and other liabilities	9,394			534
Net Cash Provided by Operating Activities	18,439			3,503
Cash Flows from Investing Activities
Equity investment in unconsolidated entity	—			(630		)
Investment securities - available for sale:
Purchases	(19,786		)	(19,184		)
Proceeds from sales	—			6,373
Proceeds from maturities, calls and principal repayments	6,282			9,705
Mortgage related securities — available for sale:
Purchases	(46,229		)	(254,251		)
Proceeds from sales	36,480			41,487
Proceeds from maturities, calls and principal repayments	103,615			74,545
Net increase in loans	(7,446		)	(50,058		)
Purchases of loans and loan participations	(23,735		)	(127		)
Net increase in Federal Home Loan Bank stock	—			(728		)
Increase in other investments	—			—
Deposit on real estate held for investment	—			77
Purchases of premises and equipment	(204		)	(205		)
Proceeds from sales of assets acquired through foreclosure	1,085			—
Net Cash Provided (Used) by Investing Activities	50,062			(192,996		)

(Continued)

6

FOX CHASE BANCORP, INC

Consolidated Statements of Cash Flows

(In Thousands)

	Nine Months Ended September 30,
	2010			2009
	(Unaudited)
Cash Flows from Financing Activities
Net (decrease) increase in deposits	(119,443		)	252,057
Decrease in advances from borrowers for taxes and insurance	(1,011		)	(1,368		)
Principal payments on Federal Home Loan Bank advances	(13,260		)	(3,147		)
Purchase of treasury stock	—			(3,819		)
Merger of Fox Chase Mutual Holding Company	107			—
Proceeds from stock offering, net of offering expenses	81,169			—
Purchase of common stock by ESOP	(3,485		)	—
Net Cash (Used) Provided by Financing Activities	(55,923		)	243,723
Net Increase in Cash and Cash Equivalents	12,578			54,230
Cash and Cash Equivalents – Beginning	65,418			3,944
Cash and Cash Equivalents – Ending	$	77,996		$	58,174
Supplemental Disclosure of Cash Flow Information
Interest paid	$	17,527		$	20,834
Income taxes paid	$	1,501		$	1,379
Transfers of loans to assets acquired through foreclosure	$	1,198		$	—
Net charge-offs	$	4,149		$	183

See accompanying notes to the unaudited consolidated financial statements.

7

FOX CHASE BANCORP, INC

Notes to the Unaudited Consolidated Financial Statements

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION

Fox Chase Bancorp, Inc. (the “Bancorp”) is a Maryland corporation that was incorporated in March 2010 to be the successor corporation to old Fox Chase Bancorp, Inc. (“Old Fox Chase Bancorp, Inc.”), the former federally chartered stock holding company for Fox Chase Bank (the “Bank”), upon completion of the mutual-to-stock conversion of Fox Chase MHC, the former mutual holding company for the Bank.

The mutual-to-stock conversion was completed on June 29, 2010.  In connection with the conversion, Bancorp sold a total of 8,712,500 shares of common stock at $10.00 per share in a related public offering.  Concurrent with the completion of the offering, shares of Bancorp’s common stock owned by public stockholders were exchanged for 1.0692 shares of Bancorp common stock.  In lieu of fractional shares, Old Fox Chase Bancorp, Inc. shareholders were paid cash.  Additionally, as part of the mutual-to-stock conversion, the Bank’s Employee Stock Ownership Plan (“ESOP”) acquired 348,500 shares, or 4.0% of Bancorp’s issued shares, at $10.00 per share. As a result of the offering and the exchange, as of June 30, 2010, Bancorp had 14,547,173 shares outstanding.  Net proceeds from the conversion and offering, after the loan made to the ESOP, were approximately $77.8 million.

Financial information presented in this Quarterly Report on Form 10-Q is derived in part from the consolidated financial statements of Fox Chase Bancorp, Inc. and subsidiaries on and after June 29, 2010 and from the consolidated financial statements of Old Fox Chase Bancorp, Inc. and subsidiaries prior to June 29, 2010.

Bancorp and the Bank (collectively referred to as the “Company”) provide a wide variety of financial products and services to individuals and businesses through the Bank’s eleven branches in Philadelphia, Richboro, Willow Grove, Warminster, Lahaska, Hatboro, Media and West Chester, Pennsylvania, and Ocean City, Marmora and Egg Harbor Township, New Jersey.  The Bank also has an approximately 45% ownership in Philadelphia Mortgage Advisors, Inc., (“PMA”) a mortgage banker located in Blue Bell, Pennsylvania and Ocean City, New Jersey.  The operations of the Company are managed as a single business segment.  The Company competes with other financial institutions and other companies that provide financial services.

The Company is subject to regulations of certain federal banking agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by regulatory agencies which may subject them to further changes with respect to asset valuations, amounts of required loan loss allowances and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.

The consolidated financial statements include the accounts of the Bancorp and the Bank. The Bank’s operations include the accounts of its wholly owned subsidiaries, Fox Chase Financial, Inc. and Fox Chase Service Corporation.  Fox Chase Financial, Inc. is a Delaware chartered investment holding company and its sole purpose is to manage and hold investment securities.  Fox Chase Service Corporation is Pennsylvania chartered company and its sole purpose is to facilitate the Bank’s investment in PMA.  The consolidated financial statements do not include the transactions and balances of Fox Chase MHC.  All material inter-company transactions and balances have been eliminated in consolidation. Prior period amounts are reclassified, when necessary, to conform with the current year’s presentation.

During 2010 and 2009, the Bank engaged in certain business activities with PMA.  These activities included providing a warehouse line of credit to PMA, as well as acquiring residential mortgage and home equity loans from PMA. The Bank recorded interest income from PMA on the warehouse line of $186,000 and $143,000 for the nine months ended September 30, 2010 and 2009, respectively, as well as loan satisfaction fees, which are recorded in service charges and other fee income, from PMA of $44,000 and $44,000 for the nine months ended September 30, 2010 and 2009, respectively.  In addition, the Bank acquired total loans from PMA of $22.5 million and $39.5 million for the nine months ended September 30, 2010 and 2009, respectively, which includes the cost of the loans.

The Company follows accounting principles and reporting practices that are in compliance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the

8

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)

near term relate to the determination of the allowance for loan losses, the valuation and realizability of deferred tax assets and the evaluation of other-than-temporary impairment and valuation of investment securities.

These interim financial statements do not contain all necessary disclosures required by GAAP for complete financial statements and therefore should be read in conjunction with the audited financial statements and the notes thereto included in Old Fox Chase Bancorp, Inc.’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 12, 2010 and our Prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of 1933, as amended, on May 24, 2010.  These financial statements include all normal and recurring adjustments which management believes were necessary in order to conform to GAAP.  The results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or any other period.

Per Share Information

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.  Unallocated shares in the ESOP and shares purchased to fund the Bancorp’s 2007 Equity Incentive Plan are not included in either basic or diluted earnings per share.  Unvested shares in the Bancorp’s long-term incentive plan are not included in basic earnings per share. As a result of the mutual-to-stock conversion, all share information for periods prior to June 30, 2010, has been revised to reflect the 1.0692 exchange rate.

The following table presents the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (unaudited).

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net income	$	692,000		$	513,000		$	1,851,000		$	1,412,000
Weighted-average common shares outstanding (1)	14,547,173			14,673,783			14,549,364			14,844,959
Average common stock acquired by stock benefit plans:
Unvested shares – long-term incentive plan	(7,582		)	(17,902		)	(7,582		)	(17,902		)
ESOP shares unallocated	(773,648		)	(468,212		)	(556,655		)	(478,365		)
Shares purchased by trust	(203,106		)	(245,674		)	(209,961		)	(256,488		)
Weighted-average common shares used to calculate basic earnings per share	13,562,837			13,941,995			13,775,166			14,092,204
Dilutive effect of:
Unvested shares – long-term incentive plans	7,582			17,902			7,582			17,902
Restricted stock awards	—			—			—			—
Stock option awards	2,831			1,812			3,399			4,455
Weighted-average common shares used to calculate diluted earnings per share	13,573,250			13,961,709			13,786,147			14,114,561
Earnings per share-basic	$	0.05		$	0.04		$	0.13		$	0.10
Earnings per share-diluted	$	0.05		$	0.04		$	0.13		$	0.10
Outstanding common stock equivalents having no dilutive effect	822,762			847,205			762,437			844,562

(1) Excludes treasury stock.

9

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES

The amortized cost and fair value of securities available-for-sale as of September 30, 2010 and December 31, 2009 are summarized as follows:

	September 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Obligations of U.S. government agencies	$	6,505	$	80	$	—		$	—		$	6,585
State and political subdivisions	7,836		115		—			—			7,951
Corporate securities	18,643		246		(19		)	—			18,870
	32,984		441		(19		)	—			33,406
Private label residential mortgage related security	566		52					(448		)	170
Private label commercial mortgage related securities	11,514		461		—			—			11,975
Agency residential mortgage related securities	284,950		10,761		(51		)	—			295,660
Total mortgage related securities	297,030		11,274		(51		)	(448		)	307,805
Total securities	$	330,014	$	11,715	$	(70	)	$	(448	)	$	341,211

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Obligations of U.S. government agencies	$	305	$	1	$	—					$	306
State and political subdivisions	9,199		130		(37		)	—			9,292
Corporate securities	9,838		112		—			—			9,950
	19,342		243		(37		)	—			19,548
Private label residential mortgage related security	628		15		—			(448		)	195
Private label commercial mortgage related securities	17,607		249		(23		)	—			17,833
Agency residential mortgage related securities	374,824		10,567		(500		)	—			384,891
Total mortgage related securities	393,059		10,831		(523		)	(448		)	402,919
Total securities	$	412,401	$	11,074	$	(560	)	$	(448	)	$	422,467

10

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The following tables show gross unrealized losses and fair value of securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010 and December 31, 2009:

	September 30, 2010 (Unaudited)
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
State and political subdivisions	$	—	$	—		$	—	$	—		$	—	$	—
Corporate securities	2,981		(19		)	—		—			2,981		(19		)
	2,981		(19		)	—		—			2,981		(19		)
Private label residential mortgage related security	—		—			170		(396		)	170		(396		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	21,616		(51		)	—		—			21,616		(51		)
Total mortgage related securities	21,616		(51		)	170		(396		)	21,786		(447		)
Total securities	$	24,597	$	(70	)	$	170	$	(396	)	$	24,767	$	(466	)

	December 31, 2009
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
State and political subdivisions	$	—	$	—		$	819	$	(37	)	$	819	$	(37	)
Corporate securities	—		—			—		—			—		—
	—		—			819		(37		)	819		(37		)
Private label residential mortgage related security	—		—			195		(433		)	195		(433		)
Private label commercial mortgage related securities	—		—			5,987		(23		)	5,987		(23		)
Agency residential mortgage related securities	51,801		(500		)	—		—			51,801		(500		)
Total mortgage related securities	51,801		(500		)	6,182		(456		)	57,983		(956		)
Total securities	$	51,801	$	(500	)	$	7,001	$	(493	)	$	58,802	$	(993	)

11

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The Company held a private label residential mortgage related security, which had an amortized cost, prior to the identified credit related impairment, of $723,000 at September 30, 2010 and $785,000 at December 31, 2009, respectively.  During the second quarter of 2009, management’s analysis indicated that the security was other-than-temporarily impaired in the amount of $605,000, $157,000 of which was recognized on the statement of operations and $448,000 of which was recognized in the statement of condition in other comprehensive income (before taxes). There was no additional other-than-temporary credit impairment charge on this investment through September 30, 2010. At September 30, 2010 and December 31, 2009, after other-than-temporary impairment charges, the private label residential mortgage related security had an amortized cost of $566,000 and $628,000, respectively, and a fair value of $170,000 and $195,000, respectively, with a remaining net unrealized loss, including other-than-temporary impairment in accumulated other comprehensive income, of $396,000 and $433,000, respectively. The remaining unrealized loss is not considered an other-than-temporary credit impairment, as management does not have the intention or requirement to sell this security.

The Company held four private label commercial mortgage related securities (“CMBS”) with an amortized cost of $11.5 million at September 30, 2010.  All four CMBS were in an unrealized gain position with a total unrealized gain of $461,000 and had a AAA rating.  At December 31, 2009, the Company held six CMBS with a net unrealized gain position totaling $226,000; comprised of four CMBS in an unrealized gain position of $249,000 and two CMBS in an unrealized loss of $23,000. The improvement in the net unrealized gain position was due to a reduction in the required yield on commercial mortgage related securities as the credit markets continued to improve throughout 2010. At December 31, 2009, both securities in an unrealized loss were rated AAA.

During the quarter ended June 30, 2010, one private label commercial mortgage related security, with a fair value of $826,000 at December 31, 2009, was paid off in full.  During the quarter ended September 30, 2010, the Bank sold one private label commercial mortgage related security in an amount of $4.0 million, with a realized gain of $50,000.  The Bank selected to sell the bond due to an increased level of delinquencies and loans requiring special servicing.

The Company evaluates current characteristics of each of these private label securities such as fair value, delinquency and foreclosure levels, credit enhancement, projected losses, coverage and cash flows, on a quarterly basis. It is possible that the underlying collateral of these securities will perform worse than current expectations, which may lead to adverse changes in cash flows on these securities and potential future other-than-temporary impairment losses. Events that may trigger material declines in fair values for these securities in the future would include but are not limited to deterioration of credit metrics, significantly higher levels of default and severity of loss on the underlying collateral, deteriorating credit enhancement and loss coverage ratios, or further illiquidity.

The Company had seven securities with a temporary impairment totaling $466,000 at September 30, 2010, five of which have a rating of AAA. The securities rated less than AAA are: (1)  one private label collateralized mortgage obligation, which was discussed above, with a fair value of $170,000 and a rating of B-; and (2) one corporate bond with an A rating.

The private label residential mortgage related security, which was identified and discussed in detail in the preceding paragraphs, is the only security impaired greater than twelve months.

12

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The following schedule provides a summary of the components of net gains on sale of investment securities in the Company’s Consolidated Statement of Operations:

					Other-than-
	Gross		Gross		Temporary		Portion of
	Realized		Realized		Impairment		OTTI		Net Gains
	Gains		Losses		Losses		in OCI		(Losses)
	(in thousands)
Three Months Ended September 30, 2010:
Obligations of U.S. government agencies	$	—	$	—	$	—	$	—	$	—
State and political subdivisions	—		—		—		—		—
Corporate securities	—		—		—		—		—
	—		—		—		—		—
Private label residential mortgage related security	—		—		—		—		—
Private label commercial mortgage related securities	50		—		—		—		50
Agency residential mortgage related securities	1,913		—		—		—		1,913
Total mortgage related securities	1,963		—		—		—		1,963
Total securities	$	1,963	$	—	$	—	$	—	$	1,963
Nine Months Ended September 30, 2010:
Obligations of U.S. government agencies	$	—	$	—	$	—	$	—	$	—
State and political subdivisions	—		—		—		—		—
Corporate securities	—		—		—		—		—
	—		—		—		—		—
Private label residential mortgage related security	—		—		—		—		—
Private label commercial mortgage related securities	50		—		—		—		50
Agency residential mortgage related securities	1,913		—		—		—		1,913
Total mortgage related securities	1,963		—		—		—		1,963
Total securities	$	1,963	$	—	$	—	$	—	$	1,963

13

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

					Other-than-
	Gross		Gross		Temporary			Portion of
	Realized		Realized		Impairment			OTTI		Net Gains
	Gains		Losses		Losses			in OCI		(Losses)
	(in thousands)
Three Months Ended September 30, 2009:
Obligations of U.S. government agencies	$	—	$	—	$	—		$	—	$	—
State and political subdivisions	—		—		—			—		—
Corporate securities	608		—		—			—		608
	608		—		—			—		608
Private label residential mortgage related security	—		—		—			—		—
Private label commercial mortgage related securities	—		—		—			—		—
Agency residential mortgage related securities	350		—		—			—		350
Total mortgage related securities	350		—		—			—		350
Total securities	$	958	$	—	$	—		$	—	$	958
Nine Months Ended September 30, 2009:
Obligations of U.S. government agencies	$	—	$	—	$	—		$	—	$	—
State and political subdivisions	—		—		—			—		—
Corporate securities	608		—		—			—		608
	608		—		—			—		608
Private label residential mortgage related security	—		—		(605		)	448		(157		)
Private label commercial mortgage related securities	—		—		—			—		—
Agency residential mortgage related securities	938		—		—			—		938
Total mortgage related securities	938		—		(605		)	448		781
Total securities	$	1,546	$	—	$	(605	)	$	448	$	1,389

14

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The amortized cost and estimated fair value of investment securities available-for-sale at September 30, 2010 and December 31, 2009 by contractual maturity are as follows (excluding mortgage related securities):

	September 30, 2010				December 31, 2009
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	2,455	$	2,495	$	4,879	$	4,922
Due after one year through five years	24,623		24,912		7,111		7,196
Due after five years through ten years	3,644		3,702		3,278		3,323
Due after ten years	2,262		2,297		4,074		4,107
Total mortgage related securities	297,030		307,805		393,059		402,919
	$	330,014	$	341,211	$	412,401	$	422,467

Securities with a carrying value of $14.9 million and $19.8 million at September 30, 2010 and December 31, 2009, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

Securities with a carrying value of $62.3 million and $58.1 million, at September 30, 2010 and December 31, 2009, respectively, were pledged as collateral for $50.0 million in borrowed funds.  See Note 6.

15

NOTE 3 - LOANS

The composition of net loans at September 30, 2010, and December 31, 2009 is provided below (in thousands).

	September 30,			December 31,
	2010			2009
	(Unaudited)
Real estate loans:
One-to-four family	$	256,707		$	268,535
Multi-family and commercial	218,136			207,738
Construction	35,081			40,799
	509,924			517,072
Consumer loans:
Home equity	41,744			50,080
Home equity lines of credit	13,267			13,664
Other	5,451			5,618
	60,462			69,362
Commercial and industrial loans	96,112			55,434
Total loans	666,498			641,868
Deferred loan origination cost, net	241			33
Allowance for loan losses	(11,311		)	(10,605		)
Net loans	$	655,428		$	631,296

The following table presents changes in the allowance for loan losses (in thousands):

	Nine Months Ended						Year Ended
	September 30,						December 31,
	2010			2009			2009
	(Unaudited)
Balance, beginning	$	10,605		$	6,260		$	6,260
Provision for loan losses	4,855			2,412			9,052
Loans charged off	(4,158		)	(183		)	(4,707		)
Recoveries	9			—			—
Balance, ending	$	11,311		$	8,489		$	10,605

As of September 30, 2010, the Bank had one interest rate swap agreement that was entered into during the quarter ended June 30, 2007.  The Bank had entered into a 15-year fixed rate commercial loan and the Bank’s risk management objective was to lock in the fair value of the loan.  The Bank met this objective by entering into a swap agreement to exchange fixed rate cash flows for variable rate cash flows. The fair value of the swap is recorded in other assets in the Company’s consolidated statements of condition. The Bank has not entered into a swap since June 2007 and currently does not consider itself to be an active participant in the swap market.

As of September 30, 2010 and December 31, 2009, the Bank’s swap agreement had a notional amount of $1.1 million.  The Company is receiving a variable rate payment of three-month LIBOR plus 2.24% and is paying a fixed rate payment of 7.43%. The swap matures in April 2022 and had a fair value loss position of $217,000 and $125,000 at September 30, 2010 and December 31, 2009, respectively.  The Bank carries the loan at fair value.  The loan is contractually current and the critical terms of the loan and the swap are a mirror image except that the loan includes a default interest rate clause.  Accordingly, the Company has determined the fair value of the gain position of the loan approximates the fair value loss position of the swap as of September 30, 2010 and December 31, 2009, respectively.

16

NOTE 4 — MORTGAGE SERVICING ACTIVITY

Loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of these loans were $75.1 million and $93.0 million at September 30, 2010 and 2009, respectively, and $88.2 million at December 31, 2009.

The following summarizes mortgage servicing rights for the nine months ended September 30, 2010 and 2009 (in thousands):

							Net
	Servicing			Valuation			Carrying
	Rights			Allowance			Value
Balance at December 31, 2009	$	768		$	(85	)	$	683
Additions	—			(98		)	(98		)
Amortization	(120		)	—			(120		)
Balance at September 30, 2010	$	648		$	(183	)	$	465
Balance at December 31, 2008	$	961		$	(134	)	$	827
Reductions	—			57			57
Amortization	(149		)	—			(149		)
Balance at September 30, 2009	$	812		$	(77	)	$	735

At September 30, 2010, December 31, 2009 and September 30, 2009, the fair value of the mortgage servicing rights was $475,000, $703,000 and $754,000, respectively. The Company’s accounting policy is to record a valuation allowance when the fair value of the stratified servicing asset is less than amortized cost, which is the reason why fair value is greater than net carrying value. The fair value at these dates was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience and current interest rates. The discount rate used to determine the present value of future net servicing income - another key assumption in the model - is the required rate of return the market would expect for an asset with similar risk. Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change.

NOTE 5 - DEPOSITS

Deposits and their respective weighted average interest rate at September 30, 2010 and December 31, 2009 consist of the following (dollars in thousands):

	September 30 ,				December 31,
	2010				2009
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Unaudited)
Noninterest-bearing demand accounts	—	%	$	71,477	—	%	$	56,912
NOW accounts	0.30		39,691		0.63		41,369
Money market accounts	0.47		164,500		1.05		184,407
Savings and club accounts	0.05		53,426		0.15		51,563
Certificates of deposit	2.49		409,740		3.29		524,026
	1.50	%	$	738,834	2.27	%	$	858,277

17

NOTE 6 — BORROWINGS

Pursuant to collateral agreements with the Federal Home Loan Bank of Pittsburgh (the “FHLB”), advances are secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As of September 30, 2010, the Bank has $165.8 million in qualifying collateral pledged against its advances.

Maturity Date	Amount		Interest Rate		Strike Rate		Call Date	Rate if Called
	(in thousands)
August 2011	$	20,000	4.89	%	7.50	%	November 2010	LIBOR+ .2175	%
August 2011	10,000		4.87	%	7.50	%	November 2010	LIBOR+ .2175	%
July 2013	9,480		4.10	%
December 2013	5,000		2.80	%			December 2010	LIBOR+ 1.04	%
January 2015	19,425		3.49	%
December 2015	5,000		3.06	%			December 2011	LIBOR+ 1.12	%
November 2017	15,000		3.62	%			November 2010	LIBOR+ 0.10	%
November 2017	15,000		3.87	%			November 2011	LIBOR+ 0.10	%
December 2017	20,000		2.83	%			December 2010	LIBOR+ 0.11	%
December 2018	5,000		3.15	%			December 2012	LIBOR+ 1.14	%
	$	123,905

For the two borrowings which have a “strike rate” disclosed in the above table, if three-month LIBOR is greater than or equal to the strike rate, the FHLB can notify the Bank of its intention to convert the borrowing to an adjustable-rate advance equal to three-month LIBOR (0.29% at September 30, 2010) plus ..2175% on a quarterly basis. If converted to a floating rate, the Bank has the option to repay these advances at each of the option dates without penalty. Accordingly, the contractual maturities above may differ from actual maturities.

For the borrowings which have “call dates” disclosed in the above table, if the borrowing is called, the Bank has the option to either pay off the borrowing without penalty or the borrowing’s fixed rate resets to a variable LIBOR based rate, as noted in the above table. Subsequent to the call date, the borrowings are callable by the FHLB quarterly. Accordingly, the contractual maturities above may differ from actual maturities.

The Bank had a maximum borrowing capacity with the Federal Home Loan Bank of Pittsburgh of approximately $469.8 million at September 30, 2010. Additionally, the Bank has a maximum borrowing capacity of $32.7 million with the Federal Reserve Bank of Philadelphia, through the Discount Window as of September 30, 2010.

As of July 1, 2010, the FHLB of Pittsburgh modified its methodology for calculating a member bank’s required stock ownership. The new methodology requires a member bank to own capital stock in the FHLB of Pittsburgh in a minimum amount of at least 4.60% of its advances plus 0.35% of the Bank’s “eligible assets,” as such term is defined by the FHLB; and a maximum amount of 6.00% of its advances plus 1.0% of the Bank’s “eligible assets.”  As of September 30, 2010, the new methodology provides for a minimum required capital stock ownership of $8.3 million and a maximum required stock ownership of $14.9 million.

The FHLB of Pittsburgh ceased paying a dividend on its common stock during the first quarter of 2009 and has not paid a dividend through September 30, 2010.

18

NOTE 6 — BORROWINGS (CONTINUED)

Other Borrowed Funds

Other borrowed funds obtained from large commercial banks totaled $50.0 million at September 30, 2010.  These borrowings contractually mature with dates ranging from November 2014 through November 2018 and may be called by the lender based on the underlying agreements.  Subsequent to the call date, these borrowings are callable by the lender quarterly. Accordingly, the contractual maturities above may differ from actual maturities.

Maturity	Interest
Date	Rate		Call Date	Amount
				(in thousands)
November 2014	3.60	%	November 2010	$	20,000
September 2018	3.40	%	September 2012	10,000
September 2018	3.20	%	September 2012	5,000
October 2018	3.15	%	October 2011	5,000
October 2018	3.27	%	October 2011	5,000
November 2018	3.37	%	November 2013	5,000
				$	50,000

Mortgage backed securities with a fair value of $62.3 million at September 30, 2010 were pledged as collateral for these other borrowed funds.

NOTE 7 — STOCK BASED COMPENSATION

During the nine months ended September 30, 2010, the Company recorded $690,000 of stock based compensation expense in connection with the 2007 Equity Incentive Plan, comprised of stock option expense of $297,000 and restricted stock expense of $393,000.

All options and exercise prices have been revised to reflect a 1.0692 exchange ratio.

The following is a summary of the Company’s stock option activity and related information for the 2007 Equity Incentive Plan for the nine months ended September 30, 2010:

			Weighted
	Number of		Average
	Stock		Exercise
	Options		Price
Outstanding at December 31, 2009	678,626		$	11.03
Granted	40,250		9.67
Exercised	—		—
Expired	(6,201	)	11.05
Forfeited	(12,830	)	10.40
Outstanding at September 30, 2010	699,845		$	10.96
Exercisable at September 30, 2010	342,573		$	11.32

19

NOTE 7 — STOCK BASED COMPENSATION (CONTINUED)

The following is a summary of the Company’s unvested options as of September 30, 2010 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Stock		Grant Date
	Options		Fair Value
Unvested at December 31, 2009	462,113		$	2.91
Granted	40,250		2.97
Exercised	—		—
Vested	(132,261	)	2.98
Forfeited	(12,830	)	2.13
Unvested at September 30, 2010	357,272		$	2.92

Expected future expense relating to the 357,272 non-vested options outstanding as of September 30, 2010 is $842,000 over a weighted average period of 2.6 years.

During the nine months ended September 30, 2010, the Company determined the fair value of the options granted was $2.97.  This value was based on the following assumptions:

	2010
Expected dividend yield	1.90	%
Expected volatility	35.00	%
Risk –free interest rate	2.04	%
Expected option life in years	6.50

The following is a summary of the status of the Company’s restricted stock as of September 30, 2010 and changes therein during the nine months then ended:

	Weighted
	Number of		Average
	Restricted		Grant Date
	Shares		Fair Value
Unvested at December 31, 2009	148,814		$	11.16
Granted	15,640		9.67
Vested	(47,665	)	11.27
Forfeited	(577	)	11.38
Unvested at September 30, 2010	116,212		$	10.92

Expected future compensation expense relating to the 116,212 restricted shares at September 30, 2010 is $1.2 million over a weighted average period of 2.5 years.

20

NOTE 8 — FAIR VALUE

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2010 and December 31, 2009:

Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate their fair value.

Investment and Mortgage Related Securities—Available-for-Sale

Fair values for investments securities and mortgage related securities available-for-sale are obtained from a third party pricing service and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. If quoted market prices are not available for comparable securities, fair value is based on quoted bids for the security or comparable securities.

Loans Held for Sale

The fair values of mortgage loans originated and intended for sale in the secondary market are based on current quoted market prices.

Loans Receivable, Net

For variable-rate loans that reprice frequently and that entail no significant changes in credit risk, fair values are based on carrying values. For fixed rate loans that are not impaired, fair values are based on discounted cash flow analyses that use interest rates and terms similar to those currently being offered to borrowers. This methodology is consistent with the guidance in ASC 825-10-55-3 “Financial Instruments,” and we believe our disclosures provide fair value that is more indicative of an entry price. We do not record loans at fair value on a recurring basis, except one loan associated with the interest rate swap. We record fair value adjustments to loans on a nonrecurring basis to reflect full and partial charge-offs due to impairment. For impaired loans, we use a variety of techniques to measure fair value, such as using the current appraised value of the collateral, discounting the contractual cash flows, and analyzing market data that we may adjust due to specific characteristics of the loan or collateral.

Federal Home Loan Bank Stock

The fair value of the Federal Home Loan Bank stock is assumed to equal its cost, since the stock is nonmarketable but redeemable at its par value.

Mortgage Servicing Rights

The fair value of the mortgage servicing rights for these periods was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

21

NOTE 8 — FAIR VALUE (CONTINUED)

Deposit Liabilities

Fair values for demand deposits (including NOW and money market accounts), savings and club accounts and money market deposits are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.

Federal Home Loan Bank Advances and Other Borrowed Funds

Fair value of Federal Home Loan Bank advances and other borrowed funds are estimated using projected discounted cash flow analyses, based on rates currently available to the Bank for advances with similar terms, and remaining maturities and call features, where applicable.

Off-Balance Sheet Financial Instruments

Fair value of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties.

The estimated fair values of the Company’s financial instruments at September 30, 2010 and December 31, 2009 were as follows (in thousands):

	September 30,				December 31,
	2010				2009
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	77,996	$	77,996	$	65,418	$	65,418
Investment securities available-for-sale	33,406		33,406		19,548		19,548
Private label residential mortgage related security	170		170		195		195
Private label commercial mortgage related securities	11,975		11,975		17,833		17,833
Agency residential mortgage related securities	295,660		295,660		384,891		384,891
Loans receivable, net	655,428		657,875		631,296		624,966
Federal Home Loan Bank stock	10,435		10,435		10,435		10,435
Accrued interest receivable	4,454		4,454		4,467		4,467
Mortgage servicing rights	465		475		683		703
Financial liabilities:
Savings and club accounts	53,426		53,426		51,563		51,563
Demand, NOW and money market deposits	275,668		275,668		282,688		282,688
Certificates of deposit	409,740		416,228		524,026		530,946
Federal Home Loan Bank advances	123,905		132,756		137,165		144,124
Other borrowed funds	50,000		55,152		50,000		47,529
Accrued interest payable	598		598		696		696
Off-balance sheet instruments	—		1,167		—		929

22

NOTE 8 — FAIR VALUE (CONTINUED)

The Company determines the fair value of investments using three levels of input:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2—Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Valuations are observed from unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company classified three types of financial instruments as Level 3 as of September 30, 2010. The first instrument is a private label collateralized mortgage obligation (“CMO”), the fair value of which, unlike U.S. agency mortgage related securities, is more difficult to determine because it is not actively traded in securities markets. The second type of instrument is four private label commercial mortgage backed securities (“CMBS”), the fair value of which is also more difficult to determine because they are not actively traded in securities markets. The third instrument is a loan, which was recorded at fair value when the Company adopted ASC Topic 820 “Fair Value Measurements and Disclosures,” since lending credit risk is not an observable input for this individual commercial loan (see Note 3). The net unrealized loss, including other-than-temporary impairment in accumulated other comprehensive income, on the private label CMO was $396,000 at September 30, 2010 and $433,000 at December 31, 2009, respectively. As of September 30, 2010, all of the securities in the private label CMBS portfolio were at an unrealized gain position compared to December 31, 2009, at which time two of six securities were in an unrealized loss position of a total of $23,000.   The unrealized gain on the loan was $217,000 at September 30, 2010 compared to $125,000 at December 31, 2009.

The following tables, which set forth the Company’s fair value measurements included in the financial statements at September 30, 2010 and December 31, 2009, include (1) investment securities and mortgage related securities available-for-sale; (2) the two financial instruments, associated with the interest rate swap agreement as discussed in Note 3; (3) tranches of MSRs recorded at fair value; (4) loans and (5) assets acquired through foreclosure.

The following measures were made on a recurring basis as of September 30, 2010 and December 31, 2009:

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
				for Identical		Observable			Unobservable
	As of			Assets		Inputs			Inputs
Description	September 30, 2010			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Obligations of U.S. government agencies	$	6,585		$	—	$	6,585		$	—
State and political subdivisions	7,951			—		7,951			—
Corporate securities	18,870			—		18,870			—
Private label residential mortgage related security	170			—		—			170
Private label commercial mortgage related securities	11,975			—		—			11,975
Agency residential mortgage related securities	295,660			—		295,660			—
Loan (1)	1,312			—		—			1,312
Swap contract (1)	(217		)	—		(217		)	—
Total	$	342,306		$	—	$	328,849		$	13,457

(1)   Such financial instruments are recorded at fair value as further described in Note 3.

23

NOTE 8 — FAIR VALUE (CONTINUED)

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
				for Identical		Observable			Unobservable
	As of			Assets		Inputs			Inputs
Description	December 31, 2009			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Obligations of U.S. government agencies	$	306		$	—	$	306		$	—
State and political subdivisions	9,292			—		9,292			—
Corporate securities	9,950			—		9,950			—
Private label residential mortgage related security	195			—		—			195
Private label commercial mortgage related securities	17,833			—		—			17,833
Agency residential mortgage related securities	384,891			—		384,891			—
Loan	1,259			—		—			1,259
Swap contract	(125		)	—		(125		)	—
Total	$	423,601		$	—	$	404,314		$	19,287

The following measures were made on a non-recurring basis as of September 30, 2010 and December 31, 2009:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
As of September 30, 2010
Loans (1)	$	6,119					$	6,119
Mortgage servicing rights	416				416
Assets acquired through foreclosure (2)	3,786						3,786
Total	$	10,321	$	—	$	416	$	9,905
As of December 31, 2009
Loan (1)	$	1,185	$	—	$	—	$	1,185
Mortgage servicing rights	621		—		621		—
Assets acquired through foreclosure (2)	4,052		—		—		4,052
Total	$	5,858	$	—	$	621	$	5,237

(1)At September 30, 2010, the loans were comprised of two residential mortgage loans and one commercial construction residential project partially charged off based on each loan’s fair value, less costs to sell.  At December 31, 2009, the loan was a commercial loan partially charged off based on the loan’s fair value, less cost to sell, which was based on a sales agreement that closed in January 2010. This loan was paid in full during the first quarter 2010.  These amounts do not include fully charged-off loans, because we carry fully charged-off loans at zero on our balance sheet. Also, according to ASC 820, measurements for impaired loans that are determined using a present value technique are not considered fair value measurements under the standard and, therefore, are not included.

(2)For assets acquired through foreclosure, we used Level 3 inputs, which consist of appraisals. Assets acquired through foreclosure are recorded on our balance sheet at fair value, net of costs to sell, at the time we consider the project to be an in-substance foreclosure or when we obtain control of the property.

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NOTE 8 – FAIR VALUE (CONTINUED)

The following tables include a roll forward of the financial instruments which fair value is determined on a recurring basis using Significant Other Unobservable Inputs (Level 3) for the three and nine months ended September 30, 2010 and 2009.

Three-Months Ended September 30, 2010

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loan			Total
Beginning balance, July 1, 2010	$	190		$	16,242		$	1,297		$	17,729
Purchases	—			—			—			—
Sales	—			(3,926		)	—			(3,926		)
Payments received	(25		)	(330		)	(15		)	(370		)
Discount accretion, net	—			12			—			12
Increase(decrease) in value	5			(23		)	30			12
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2010	$	170		$	11,975		$	1,312		$	13,457

Nine-Months Ended September 30, 2010

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loan			Total
Beginning balance, January 1, 2010	$	195		$	17,833		$	1,259		$	19,287
Purchases	—			—			—			—
Sales	—			(3,926		)	—			(3,926		)
Payments received	(62		)	(2,278		)	(39		)	(2,379		)
Discount accretion, net	—			111			—			111
Increase(decrease) in value	37			235			92			364
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2010	$	170		$	11,975		$	1,312		$	13,457

Three-Months Ended September 30, 2009

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loans			Total
Beginning balance, July 1, 2009	$	219		$	17,344		$	1,307		$	18,870
Purchases	—			—			—			—
Payments received	(19		)	(24		)	(18		)	(61		)
Discount accretion, net	—			50			—			50
Increase(decrease) in value	14			802			20			836
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2009	$	214		$	18,172		$	1,309		$	19,695

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NOTE 8 – FAIR VALUE (CONTINUED)

Nine-Months Ended September 30, 2009

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loans			Total
Beginning balance, January 1, 2009	$	269		$	7,304		$	1,425		$	8,998
Purchases	—			8,213			—			8,213
Payments received	(84		)	(42		)	(41		)	(167		)
Discount accretion, net	—			76			—			76
Increase(decrease) in value	29			2,621			(75		)	2,575
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2009	$	214		$	18,172		$	1,309		$	19,695

The Company utilizes one external pricing service (“primary pricing service”) as the provider of pricing on the investment portfolio on a quarterly basis. We generally obtain one quote per investment security. We review the estimates of fair value provided by the pricing service to determine if they are representative of fair value based upon our general knowledge of market conditions and relative changes in interest rates and the credit environment. The Company made no adjustments to the values obtained from the primary pricing service.  The Company will be evaluating the appropriateness of the identified Level 1, 2 or 3 classifications on a recurring basis.

NOTE 9 - COMPREHENSIVE (LOSS) INCOME

Comprehensive income for the three and nine months ended September 30, 2010, and 2009 is as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010		2009
	(Unaudited)
Net income	$	692		$	513	$	1,851	$	1,412
Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period, net of tax (benefit) (for the three months ended September 30, 2010 and 2009, $(627) and $1,585 and for the nine months ended September 30, 2010 and 2009 $1,134 and $4,172, respectively)	(1,124		)	2,844		1,961		7,722
Non-credit related unrealized loss on other-than temporary impaired securities (net of taxes of $(152) for the nine months ended September 30, 2009)	—			—		—		(296		)
Less: Reclassification adjustment for net investment securities gains included in net income, net of taxes (for the three months ended September 30, 2010 and 2009, $667 and $55 and for the nine months ended September 30, 2010 and 2009 $667 and $197, respectively)	1,296			106		1,296		383
Other comprehensive (loss) income	(2,420		)	2,738		665		7,043
Comprehensive (loss) income	$	(1,728	)	$	3,251	$	2,516	$	8,455

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NOTE 10 — ACCOUNTING PRONOUNCEMENTS

ASC Topic 860—Transfers and Servicing (Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140) (ASC 860). This accounting guidance was originally issued in June 2009 and is now incorporated in ASC 860. The guidance amends the derecognition guidance and eliminates the concept of qualifying special-purpose entities (“QSPEs”). ASC 860 is effective for fiscal years and interim periods beginning after November 15, 2009.  The Company adopted ASC 860 effective January 1, 2010 and it did not have a material effect on the Company’s financial position or results of operations.

ASC Topic 810—Consolidation (Statement No. 167, Amendments to FASB Interpretation No. 46R) (ASC 810):  This accounting guidance was originally issued in June 2009 and is now incorporated in ASC 810. The guidance amends the consolidation guidance applicable to variable interest entities (“VIE”s). An entity would consolidate a VIE, as the primary beneficiary, when the entity has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE is required. This guidance is effective for fiscal years and interim periods beginning after November 15, 2009. The Company adopted ASC 810 effective January 1, 2010 and it did not have a material effect on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) 2010-05—Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value. The ASU amends Subtopic 820-10 to clarify certain issues with the accounting guidance for determining the fair value of liabilities. Specifically, the guidance states that, when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustments to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The guidance also provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. In such circumstances, the ASU specifies that a valuation technique should be applied that uses either the quoted prices of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009. The Company adopted this ASU effective January 1, 2010 and it did not have a material effect on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) 2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activity on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The Company adopted this ASU effective January 1, 2010, except for the requirement to provide the reconciliation for level 3 activity on a gross basis, which the Company plans to adopt effective January 1, 2011.  As the Company did not have any significant transfers in and out of levels 1 and 2 fair value measurements, the adoption of this ASU did not have a material effect on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) No. 2010-18 — Effect of a Loan Modification When the Loan Is Part of a Pool that is Accounted for as a Single Asset, a consensus of the FASB Emerging Issues Task Force (Issue No. 09-I).  This ASU amends FASB ASC Subtopic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality, so that modifications of loans that are accounted for within a pool under that Subtopic do not result in the removal of the loans from the pool even if the modifications of the loans would otherwise be considering a troubled debt restructuring.  A one-time election to terminate accounting for loans in a pool, which may be made on a pool-by-pool basis, is provided upon adoption of the new guidance.  An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.  The amendments are effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.  Early adoption is permitted.  This ASU has no effect on the Company’s financial position or results of operations as the Company did not modify any loans that were pooled for accounting purposes as of September 30, 2010.

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NOTE 10 – ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Accounting Standards Update (ASU) No. 2010-20 — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. Disclosures related to period-end information (e.g., credit quality information and the ending financing receivables balance segregated by impairment method) are effective in all interim and annual reporting periods ending on or after December 15, 2010.  Disclosures of activity that occurs during a reporting period (e.g., modifications and the rollforward of allowance for credit losses by portfolio segment) are effective in interim or annual periods beginning on or after December 15, 2010.  The Company will include these disclosures in the notes to the financial statements beginning in the fourth quarter of 2010 for period-end information, and in the first quarter of 2011 for reporting period information.

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

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform their functions.  Additional factors that may affect our results are discussed in the section titled “Risk Factors” in (1) the Company’s Prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission on May 24, 2010, (2) the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed with the Securities and Exchange Commission on August 6, 2010 and (3) other Securities and Exchange Commission reports.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: allowance for loan losses, valuation and other-than-temporary impairment of securities and deferred income taxes.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based on management’s evaluation of the portfolio’s collectibility. The allowance is established through the provision for loan losses, which is charged against income. Management estimates the allowance required using loss experience in particular segments of the portfolio, the size and composition of the loan portfolio, trends and absolute levels of nonperforming loans, trends and absolute levels of classified and criticized loans, trends and absolute levels in delinquent loans, trends in risk ratings, trends in industry charge-offs by particular segments and changes in existing general economic and business conditions affecting our lending areas and the national economy. Additionally, for loans identified by management as impaired, management will provide a specific loan loss provision based on the expected discounted cash flows of the loan, or for loans determined to be collateral dependent, a specific loan loss provision is established based on appraised value less costs to sell. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Although we believe that we use the best information

28

available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if actual conditions differ substantially from the assumptions used in making the evaluation. Further, current economic conditions have increased the uncertainty inherent in these estimates and assumptions. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Valuation and Other-Than-Temporary Impairment of Investment Securities. Investment securities are reviewed quarterly to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its current carrying value, management is required to assess whether the decline is other-than-temporary. A review of other-than-temporary impairment requires companies to make certain judgments regarding the nature of the decline, the probability, extent and timing of a valuation recovery and the Company’s intent to sell the security or if it is more likely than not that the security will be required to be sold before recovery its amortized cost. Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (1) fundamental factors specific to the issuer, such as financial condition, business prospects or other factors, or (2) market-related factors, such as required market yields, interest rates or equity market declines. If the decline in the market value of a security is determined to be other-than-temporary, the credit portion of the impairment is written down through earnings and the non-credit portion is an adjustment to other comprehensive income. Fox Chase Bancorp recorded an other-than-temporary impairment charge of $605,000 during the second quarter of 2009, $157,000 of which was recognized on the statement of operations and $448,000 of which was recognized on the statements of condition in other comprehensive income (before taxes). There was no additional other-than-temporary credit impairment charge on this investment since June 30, 2009. See Note 2 to the consolidated financial statements for a schedule that shows gross unrealized losses, fair value of securities as well as the impairment loss and other-than-temporary impairment write down, aggregated by security category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2010 and December 31, 2009, and Note 8 for a discussion related to the determination of fair value.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. A reduction in estimated future taxable income, which may result in deferred tax assets to be unrealizable,  may require us to record a valuation allowance against our deferred tax assets.

Comparison of Financial Condition at September 30, 2010 and December 31, 2009

Total assets decreased $42.9 million, or 3.7%, to $1.13 billion at September 30, 2010, compared to $1.17 billion at December 31, 2009. Cash and cash equivalents increased $12.6 million from December 31, 2009 to September 30, 2010 primarily due to the receipt of $77.8 million in net proceeds from the Bank’s mutual-to-stock conversion and the Company’s concurrent public offering, offset by cash outflows to fund loan growth and a reduction in deposits.  Loans increased $24.1 million from December 31, 2009 to September 30, 2010. Commercial and industrial loans increased $40.7 million, primarily as a result of loans originated by a middle market group of lenders hired during 2009, and commercial real estate loans increased by $10.4 million.  Commercial construction loans decreased by $5.7 million as we de-emphasized construction lending during the past year as a result of the current economic environment. Additionally, one- to four-family real estate loans decreased $11.8 million due to a high level of prepayments in the current low interest rate environment.  Consumer loans decreased $8.9 million as we also de-emphasized consumer loans in the current recessionary environment. Mortgage related securities available-for-sale decreased $95.1 million, as cash repayments exceeded new purchases of $46.2 million during the nine months ended September 30, 2010 and the Bank sold $36.5 million in mortgage related securities in the quarter ended September 30, 2010. Investment related securities available for sale increased $13.9 million, primarily due to purchases of $13.3 million in corporate bonds and $6.5 million in obligations of US government agencies.

Total liabilities decreased $124.3 million, or 11.8%, to $925.9 million at September 30, 2010, compared to $1.05 billion at December 31, 2009.  Deposits decreased $119.4 million, or 13.9%, from $858.3 million at December 31, 2009 to $738.8 million at September 30, 2010. Certificates of deposits decreased $114.3 million, or 21.8%, money market accounts decreased $19.9 million, or 10.8%, and NOW accounts decreased $1.7 million, or 4.1%, from December 31, 2009 to September 30, 2010. These decreases were offset by increases in noninterest-bearing demand accounts of $14.6 million, or 25.6%, and in savings and club accounts of $1.9 million, or 3.6%, from December 31, 2009 to September 30, 2010. The decrease in certificates of deposits relates primarily to customer redemptions of certificates of deposit obtained during a pricing promotion offered in the first quarter of 2009 as the promotional rates were not offered upon renewal.  Specifically, during the third quarter of 2010, approximately

29

$131.5 million of certificates of deposit with a rate of 3.50% matured of which the Bank retained approximately $50.2 million at an average rate of 1.37%.  The decrease in money market deposits was primarily due to the Bank reducing its rates on money market deposits during the second and third quarter of 2010. The increase in noninterest-bearing demand accounts was primarily due to deposits obtained from new commercial borrowing relationships.  Federal Home Loan Bank advances decreased $13.3 million, or 9.7%, from $137.2 million at December 31, 2009 to $123.9 million at September 30, 2010 due to one maturity of $10.0 million as well as principal amortization on two advances totaling $3.3 million.

Stockholders’ equity increased $81.4 million to $205.1 million at September 30, 2010 compared to $123.6 million at December 31, 2009 primarily due to the proceeds from the conversion and stock offering, $665,000 increase in accumulated other comprehensive income and $1.9 million in net income.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2010 and 2009

General. Net income increased $179,000, or 34.9%, to $692,000 for the three months ended September 30, 2010 compared to $513,000 for the three months ended September 30, 2009, primarily due to a $937,000 increase in net interest income and a $1.1 million increase in noninterest income offset by a $1.4 million increase in provision for loan losses, a $304,000 increase in noninterest expense and an $85,000 increase in income tax expense.  The increase in noninterest income was primarily the result of a $1.0 million increase in gains on sales of securities.  The increase in noninterest expense was primarily due to other noninterest expense including $391,000 of expense associated with assets acquired through foreclosure, of which, $345,000 were valuation allowances on such assets.  There were no expenses related to assets acquired through foreclosure during the three months ended September 30, 2009.

Net income increased $439,000, or 31.1%, to $1.9 million for the nine months ended September 30, 2010 compared to $1.4 million for the nine months ended September 30, 2009, primarily due to an increase in net interest income of $2.8 million and an increase in noninterest income of $561,000 offset by an increase in the provision for loan losses of $2.4 million, an increase of $243,000 in noninterest expense, and an increase in income tax expense of $258,000.  The increase in other noninterest income was due to a $574,000 increase in net gains on sales of securities.  The increase in noninterest expense was primarily due to other noninterest expense including $454,000 of expense associated with assets acquired through foreclosure, of which, $379,000 were valuation allowances on such assets in the nine months ended September 30, 2010.  There were no expenses related to assets acquired through foreclosure during the nine months ended September 30, 2009.  This increase was offset by a decrease in FDIC premiums as well as furniture and equipment expense.  Noninterest expense for the nine months ended September 30, 2009 included a special one-time assessment by the Federal Deposit Insurance Corporation of $536,000.  Furniture and equipment expense decreased primarily as a result of certain fixed assets becoming fully depreciated in 2009.

Net Interest Income. Net interest income increased $937,000, or 15.4%, to $7.0 million for the three months ended September 30, 2010 compared to $6.1 million for the same period in 2009 primarily due to a decrease in total interest expense of $1.9 million offset by a $946,000 decrease in total interest income. The decrease in total interest expense was primarily due to a decrease in the average cost of interest-bearing liabilities from 2.85% to 2.28% and a decrease in average total interest-bearing liabilities of $74.9 million.  The decrease in the average cost of interest-bearing liabilities was primarily due to a reduction in overall interest rates from 2009 to 2010 as well as a reduction in the cost of interest-bearing deposits from 2.68% to 1.96% due to maturities of higher rate certificates of deposit and reduced rates on other deposit products.  The decrease in total interest income was primarily due to a decrease in the average yield of interest-earning assets from 4.56% to 4.13% due to a reduction in overall interest rates from 2009 to 2010 which primarily reduced yields on the Bank’s interest-earning demand deposits, mortgage related securities and other investment securities, offset by an increase in average interest-earning assets of $21.7 million.  The yield on the Bank’s loan portfolio experienced a slight increase from 5.48% to 5.52%.

Net interest income increased $2.8 million, or 16.3%, to $20.1 million for the nine months ended September 30, 2010 compared to $17.3 million for the same period in 2009 primarily due to a decrease in total interest expense of $3.4 million offset by a decrease in total interest income of $615,000. The decrease in total interest expense was primarily due to a decrease in the average cost of interest-bearing liabilities from 3.02% to 2.44%, offset by an increase in average total interest-bearing liabilities of $31.4 million. The decrease in the average cost of interest-bearing liabilities was primarily due to a reduction in overall interest rates from 2009 to 2010 as well as a reduction in the cost of interest-bearing deposits from 2.87% to 2.16% due to maturities of higher rate certificates of deposit and reduced rates on other deposit products.  The increase in average total interest-bearing liabilities was primarily due to a $50.1 million increase in interest-bearing deposits due to deposit promotions offered during March of 2009. The decrease in total interest income was primarily due to a decrease in the average yield of interest-earning assets from 4.73% to 4.35% offset by an increase in average interest-earning assets of $69.8 million.  The increase in average interest-earning assets was primarily due to an increase in the average balance of interest-earning demand deposits of $47.2 million and loans of $39.9 million. The decrease in average yield of interest-earning assets was due to a reduction in overall interest rates from 2009 to 2010, which primarily reduced yields on the Bank’s interest-earning demand deposits, mortgage

30

related securities and other investment securities.  The yield on the Bank’s loan portfolio experienced a slight decrease from 5.55% to 5.51%.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three and nine months ended September 30, 2010 and 2009. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

31

	Three Months Ended September 30,														Nine Months Ended September 30,
	2010							2009							2010							2009
				Interest							Interest							Interest							Interest
	Average			and		Yield/		Average			and		Yield/		Average			and		Yield/		Average			and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost		Balance			Dividends		Cost		Balance			Dividends		Cost
	(Dollars in thousands)														(Dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning demand deposits	$	137,373		$	86	0.25	%	$	76,140		$	290	1.51	%	$	89,233		$	249	0.37	%	$	42,065		$	426	1.35	%
Money market funds	—			—		0.00	%	23,842			23		0.39	%	—			—		0.00	%	36,753			183		0.67	%
Mortgage-related securities	338,400			2,691		3.18	%	389,715			3,975		4.08	%	365,720			9,438		3.44	%	334,331			10,735		4.28	%
Taxable securities	32,823			142		1.73	%	32,865			238		2.89	%	25,820			315		1.63	%	28,865			624		2.88	%
Nontaxable securities	8,206			84		4.09	%	11,028			107		3.87	%	8,538			257		4.02	%	12,916			390		4.02	%
Loans (1):
Residential loans	264,320			3,448		5.22	%	267,347			3,515		5.26	%	266,586			10,535		5.27	%	265,322			10,942		5.50	%
Commercial loans	344,908			5,002		5.67	%	288,626			4,129		5.60	%	325,895			13,864		5.61	%	278,234			11,727		5.56	%
Consumer loans	62,813			932		5.94	%	72,850			1,054		5.79	%	65,379			2,918		5.95	%	74,363			3,164		5.67	%
Total Loans	672,041			9,382		5.52	%	628,823			8,698		5.48	%	657,860			27,317		5.51	%	617,919			25,833		5.55	%
Allowance for loan losses	(12,005		)					(7,255		)					(11,304		)					(6,772		)
Net loans	660,036			9,382				621,568			8,698				646,556			27,317				611,147			25,833
Total interest-earning assets	1,176,838			12,385		4.13	%	1,155,158			13,331		4.56	%	1,135,867			37,576		4.35	%	1,066,077			38,191		4.73	%
Noninterest-earning assets	47,787							38,723							47,476							37,496
Total assets	$	1,224,625						$	1,193,881						$	1,183,343						$	1,103,573
Liabilities and equity:
Interest-bearing liabilities:
NOW and money market deposit accounts	$	219,365		312		0.57	%	$	214,489		778		1.44	%	$	220,820		1,286		78.00	%	$	177,110		2,257		1.70	%
Savings accounts	53,777			7		0.05	%	50,769			19		0.15	%	54,009			37		0.09	%	51,451			70		0.18	%
Certificates of deposit	482,335			3,415		2.81	%	545,680			4,681		3.40	%	501,588			11,208		2.99	%	497,724			13,249		3.56	%
Total interest-bearing deposits	755,477			3,734		1.96	%	810,938			5,478		2.68	%	776,417			12,531		2.16	%	726,285			15,576		2.87	%
FHLB advances	124,590			1,194		3.75	%	143,886			1,333		3.63	%	126,789			3,602		3.75	%	145,118			3,992		3.63	%
Other borrowed funds	50,000			437		3.42	%	50,142			437		3.41	%	50,000			1,296		3.42	%	50,378			1,298		3.40	%
Total borrowings	174,590			1,631		3.65	%	194,028			1,770		3.57	%	176,789			4,898		3.65	%	195,496			5,290		3.57	%
Total interest-bearing liabilities	930,067			5,365		2.28	%	1,004,966			7,248		2.85	%	953,206			17,429		2.44	%	921,781			20,866		3.02	%
Noninterest-bearing deposits	73,206							53,054							67,244							49,197
Other noninterest-bearing liabilities	14,155							10,195							9,334							8,521
Total liabilities	1,017,428							1,068,215							1,029,784							979,499
Retained earnings	197,571							119,959							145,232							120,788
Accumulated comprehensive income	9,626							5,707							8,327							3,286
Total stockholder’s equity	207,197							125,666							153,559							124,074
Total liabilities and stockholders’ equity	$	1,224,625						$	1,193,881						$	1,183,343						$	1,103,573
Net interest income				$	7,020						$	6,083						$	20,147						$	17,325
Interest rate spread						1.85	%						1.71	%						1.91	%						1.71	%
Net interest margin						2.35	%						2.09	%						2.33	%						2.14	%
Average interest-earning assets to average interest-bearing liabilities						126.53	%						114.95	%						119.16	%						115.65	%

(1) Nonperforming loans are included in average balance computations

32

Rate/Volume Analysis.  The following table sets forth the effects of changing rates and volumes on our net interest income.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the prior columns.  For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

	Three Months Ended									Nine Months Ended
	September 30, 2010									September 30, 2010
	Compared to									Compared to
	Three Months Ended									Nine Months Ended
	September 30, 2009									September 30, 2009
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
	Rate			Volume			Net			Rate			Volume			Net
Interest and dividend income:
Interest-earning demand deposits	$	(438	)	$	234		$	(204	)	$	(655	)	$	478		$	(177	)
Money market funds	—			(23		)	(23		)	—			(183		)	(183		)
Mortgage related securities	(761		)	(523		)	(1,284		)	(2,305		)	1,008			(1,297		)
Taxable securities	(95		)	(1		)	(96		)	(242		)	(67		)	(309		)
Nontaxable securities	4			(27		)	(23		)	—			(133		)	(133		)
Loans:
Residential loans	(27		)	(40		)	(67		)	(459		)	52			(407		)
Commercial loans	68			805			873			128			2,009			2,137
Consumer loans	23			(145		)	(122		)	137			(383		)	(246		)
Total loans	64			620			684			(194		)	1,678			1,484
Total interest-earning assets	(1,226		)	280			(946		)	(3,396		)	2,781			(615		)
Interest Expense:
NOW and money market deposits	(483		)	17			(466		)	(1,527		)	556			(971		)
Savings accounts	(14		)	2			(12		)	(37		)	4			(33		)
Certificates of deposit	(722		)	(544		)	(1,266		)	(2,144		)	103			(2,041		)
Total interest-bearing deposits	(1,219		)	(525		)	(1,744		)	(3,708		)	663			(3,045		)
FHLB advances	39			(178		)	(139		)	114			(504		)	(390		)
Other borrowed funds	1			(1		)	—			8			(10		)	(2		)
Total borrowings	40			(179		)	(139		)	122			(514		)	(392		)
Total interest-bearing liabilities	(1,179		)	(704		)	(1,883		)	(3,586		)	149			(3,437		)
Net change in net interest income	$	(47	)	$	984		$	937		$	190		$	2,632		$	2,822

33

Provision for Loan Losses. The Company recorded a provision for loan losses of $2.9 million and $4.9 million for the three and nine months ended September 30, 2010, respectively, compared to $1.5 million and $2.4 million for the three and nine months ended September 30, 2009, respectively.  The increase in the provision for the 2010 periods was a result of increased specific reserves on impaired loans, increased levels of charge-off loans, increased levels of classified loans, downgrades within the commercial loan portfolio, additional provisions for the residential mortgage loan portfolio, primarily due to an increase in nonperforming loans, and growth in the commercial real estate and commercial and industrial loan portfolios.

Troubled debt restructurings totaled $3.7 million at September 30, 2010 and related to one commercial construction loan, one commercial and industrial loan and one residential mortgage loan compared to $1.2 million at December 31, 2009 that related to three residential mortgage loans.  As of September 30, 2010, $3.1 million of troubled debt restructurings were reported as nonperforming loans compared to $1.0 million at December 31, 2009.

The following table provides information with respect to the Bank’s nonperforming assets at the dates indicated.

	At September 30,			At December 31,
	2010			2009
	(Dollars in thousands)
Nonperforming loans:
One- to four-family real estate	$	7,691		$	7,740
Multi-family and commercial real estate	8,244			4,738
Construction	11,072			15,739
Consumer	357			612
Commercial and industrial	308			250
Total	27,672			29,079
Accruing loans past due 90 days or more:
Multi-family and commercial real estate	—			601
Total	—			601
Total of nonperforming loans and accruing loans 90 days or more past due	$	27,672		$	29,680
Assets acquired through foreclosure	3,786			4,052
Total nonperforming assets	$	31,458		$	33,732
Total nonperforming loans and accruing loans past due 90 days or more to total loans	4.15		%	4.62		%
Total nonperforming loans to total assets	2.45			2.53
Total nonperforming assets to total assets	2.78			2.87

34

The following tables set forth our nonperforming loans by state at September 30, 2010 and December 31, 2009:

September 30, 2010

				Multi Family
				and									Commercial
	One- to Four-			Commercial Real									and
	Family Real Estate			Estate			Construction			Consumer			Industrial			Total
	Number			Number			Number			Number			Number			Number
	of			of			of			of			of			of
	Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount
	(Dollars in thousands)
Pennsylvania	8	$	1,258	2	$	2,729	2	$	2,855	1	$	72	1	$	308	14	$	7,222
New Jersey	8	6,433		5	5,515		2	8,217		4	285		—	—		19	20,450
Delaware	—	—		—	—		—	—		—	—		—	—		—	—
Total	16	$	7,691	7	$	8,244	4	$	11,072	5	$	357	1	$	308	33	$	27,672

December 31, 2009

				Multi Family
				and									Commercial
	One- to Four-			Commercial Real									and
	Family Real Estate			Estate			Construction			Consumer			Industrial			Total
	Number			Number			Number			Number			Number			Number
	of			of			of			of			of			of
	Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount
	(Dollars in thousands)
Pennsylvania	4	$	713	2	$	601	2	$	1,894	2	$	173	—	$	—	10	$	3,381
New Jersey	6	7,027		5	4,738		3	12,061		3	439		1	250		18	24,515
Delaware	—	—		—	—		1	1,784		—	—		—	—		1	1,784
Total	10	$	7,740	7	$	5,339	6	$	15,739	5	$	612	1	$	250	29	$	29,680

The following table provides a rollforward of the nonperforming assets from December 31, 2009 to September 30, 2010:

														Transfer
	At		Additional								Net			To Assets			At
	December		Non-		Return to			Payments			Charge-offs/			Acquired			September
	31,		performing		Accrual			Received,			Valuation			Through			30,
	2009		Assets, Net		Status			Net			Allowances			Foreclosure			2010
	(Dollars in thousands)
Nonperforming loans
One- to four-family real estate	$	7,740	$	1,610	$	—		$	(26	)	$	(1,325	)	$	(308	)	$	7,691
Multi-family and commercial real estate (1)	5,339		4,277		(40		)	(1,341		)	9			—			8,244
Construction	15,739		2,147		—			(3,934		)	(1,990		)	(890		)	11,072
Consumer	612		227		(114		)	(27		)	(341		)	—			357
Commercial and industrial	250		803		—			(250		)	(495		)	—			308
Total	29,680		9,064		(154		)	(5,578		)	(4,142		)	(1,198		)	27,672
Assets acquired through foreclosure	4,052		—					(1,085		)	(379		)	1,198			3,786
Total nonperforming assets	$	33,732	$	9,064	$	(154	)	$	(6,663	)	$	(4,521	)	$	—		$	31,458

(1)  Includes a $601,000 loan that was part due more than 90 days, but still accruing interest.

35

At September 30, 2010, nonperforming assets were comprised of the following:

·Four construction loans for residential developments, the largest of which was a $5.7 million loan collateralized by a residential housing development in Cape May County, New Jersey. The three other nonperforming construction loans totaled $5.4 million at September 30, 2010 and are collateralized by a condominium project located in Atlantic County, New Jersey, a single family residential development located in Montgomery County, Pennsylvania and land for a townhouse development in Chester County, Pennsylvania.

·Seven multi-family and commercial real estate loans, the largest of which was a $2.6 million loan secured by a self-storage facility located in Burlington County, New Jersey.

·One commercial and industrial loan to a business located in Philadelphia County, Pennsylvania.

·Sixteen one-to four-family real estate loans, the largest of which is secured by a residential home located in Somerset County, New Jersey.

·Five consumer loans, each of which is secured by a second or third mortgage position.

·Five properties in assets acquired through foreclosure, consisting of a single family residential development located in Atlantic County, New Jersey, a condominium project located in Philadelphia County, Pennsylvania, two residential homes located in Atlantic County, New Jersey and a single family residential home located in Bucks County, Pennsylvania.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of a specific allowance on impaired loans and a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the losses on entire portfolio.

Our allowance for loan losses was $11.3 million, which represented 1.70% of total loans and 40.9% of nonperforming loans at September 30, 2010, compared to our allowance for loan losses of $10.6 million, which represented 1.65% of total loans and 35.7% of nonperforming loans at December 31, 2009.

Impaired loans requiring an allowance for loan losses increased to $26.8 million at September 30, 2010 compared to $26.2 million at December 31, 2009. Our specific allowance for loan losses for impaired loans was $3.9 million and a general valuation allowance for the loan portfolio was $7.4 million at September 30, 2010; compared to a specific allowance for loan losses for impaired loans of $4.3 million and a general valuation allowance for the loan portfolio of $6.3 million at December 31, 2009.

The following table provides information about delinquencies in our loan portfolio at the dates indicated.  

	At September 30, 2010				At December 31, 2009
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)
One- to four-family real estate	$	173	$	72	$	678	$	—
Multi-family and commercial real estate	5,003		—		198		2,303
Construction real estate	—		—		—		—
Consumer:
Home equity loans and lines of credit	454		10		393		3
Other	8		—		—		—
Total	$	5,638	$	82	$	1,269	$	2,306

Total delinquent loans increased to $5.7 million at September 30, 2010 compared to $3.6 million at December 31, 2009.  The largest delinquent loan at September 30, 2010 was a $4.7 million commercial real estate project located in Chester County, Pennsylvania.

36

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

	Three Months								Nine Months
	Ended September 30,				$		%		Ended September 30,					$			%
	2010		2009		Change		Change		2010		2009			Change			Change
	(Dollars in thousands)
Service charges and other fee income	$	243	$	192	$	51	26.6	%	$	742	$	672		$	70		10.4	%
Net gain on sale of premises and equipment	6		—		6		100.0		6		—			6			100.0
Net gain on sale of loans	—		—		—		—		—		3			(3		)	(100.0	)
Income on bank-owned life insurance	119		115		4		3.5		352		336			16			4.8
Other	62		58		4		6.9		167		269			(102		)	(37.9	)
Total other than temporary impairment loss	—		—		—		—		—		(605		)	605			(100.0	)
Less: Portion of loss recognized in other comprehensive income (before taxes)	—		—		—		—		—		448			(448		)	(100.0	)
Net other-than-temporary impairment loss	—		—		—		—		—		(157		)	157			(100.0	)
Net gains on sale of investment securities	1,963		958		1,005		104.9		1,963		1,546			417			27.0
Net investment securities gains	1,963		958		1,005		104.9		1,963		1,389			574			41.3
Total Noninterest Income	$	2,393	$	1,323	$	1,070	80.9	%	$	3,230	$	2,669		$	561		21.0	%

The increase in noninterest income was primarily a result of an increase in net investment securities gains of $1.0 million and $574,000 in the three and nine months ended September 30, 2010, respectively, as the Bank recognized a gain of $2.0 million on the sale of securities during the third quarter of 2010.  These sales were made as premiums on such securities were at historically high levels.

Service charges and other fee income increased $51,000 during the three months ended September 30, 2010 compared to the same period in 2009. This increase was the result of a $63,000 increase in retail fee income offset by a decrease of $12,000 in loan fee income. The increase in retail fee income was the result of an increase in cash management fees as the number of such accounts continued to grow and increased ATM fees based on higher usage. The decrease in loan fee income was due to a decrease in total servicing income of $48,000 offset by an increase of $36,000 in other loan fee income, which was related to an increase in unused line of credit fees on commercial and industrial loans and fees on commercial loan accounts.   The decrease in total servicing income was due to: (1) an increase in the valuation allowance on the Bank’s mortgage servicing rights of $15,000 (2) a decrease of $15,000 in loan servicing income and (3) an increase of $18,000 in amortization of serviced loans compared to the three months ended September 30, 2009.

Service charges and other fee income increased $70,000 during the nine months ended September 30, 2010 compared to the same period in 2009.  This increase was a result of a $150,000 increase in retail fee income offset by an $80,000 decrease in loan fee income. The increase in retail fee income was the result of an increase in cash management fees as the number of such accounts continued to grow and increased ATM fees based on higher usage.  The decrease in loan fee income was due to a $169,000 decrease in net loan servicing income, which included an increase in the valuation allowance on the Bank’s mortgage servicing rights of $98,000 in the nine months ended September 30, 2010, compared to a decrease in this valuation allowance of $57,000 in the nine months ended September 30, 2009, resulting in a net $155,000 decrease; offset by an increase of $89,000 in other loan fee income, which was related to an increase in unused line of credit fees on commercial and industrial loans and fees on commercial loan accounts.  Other income decreased $102,000 primarily as a result of a decrease of $138,000 of income earned on the Bank’s investment in Philadelphia Mortgage Advisors, Inc., due to lower volume of mortgage loans sold during the nine months ended September 30, 2010, offset by a $33,000 increase in merchant processing fees.

37

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

	Three Months									Nine Months
	Ended September 30,				$			%		Ended September 30,				$			%
	2010		2009		Change			Change		2010		2009		Change			Change
	(Dollars in thousands)
Salaries, benefits and other compensation	$	3,070	$	3,198	$	(128	)	(4.0	)%	$	9,016	$	8,963	$	53		0.6	%
Occupancy expense	455		441		14			3.2		1,394		1,374		20			1.5
Furniture and equipment expense	140		170		(30		)	(17.6	)	427		571		(144		)	(25.2	)
Data processing costs	372		384		(12		)	(3.1	)	1,134		1,146		(12		)	(1.0	)
Professional fees	307		267		40			15.0		924		831		93			11.2
Marketing expense	75		72		3			4.2		241		242		(1		)	(0.4	)
FDIC premiums	343		343		—			—		1,116		1,415		(299		)	(21.1	)
Other	796		379		417			110.0		1,688		1,155		533			46.1
Total Noninterest Expense	$	5,558	$	5,254	$	304		5.8	%	$	15,940	$	15,697	$	243		1.5	%

Noninterest expense increased by $304,000, or 5.8%, and $243,000, or 1.5%, during the three and nine months ended September 30, 2010, respectively, compared to the same periods in 2009.

The largest changes for the three-month period ended September 30, 2010 were (1) a decrease in salaries, benefits and compensation expense of $128,000 primarily due to severance accruals in the amount of $185,000 recorded in the quarter ended September 30, 2009 and (2) an increase in other noninterest expense of $417,000, primarily due to expense associated with assets acquired through foreclosure of $391,000 during the three months ended September 30, 2010 with no comparable costs in the three months ended September 30, 2009.  Valuation allowances on such assets comprised $345,000 of the other noninterest expense for the quarter ended September 30, 2010.

The largest changes for the nine months ended September 30, 2010 were (1) an increase in salaries, benefits and compensation costs of $53,000 primarily due to increased ESOP costs of $52,000 as the Company funded a second ESOP loan in conjunction with the mutual to stock conversion during the second quarter of 2010, (2) a decrease in furniture and equipment expense of $144,000 primarily as a result of certain fixed assets being fully depreciated in 2010, (3) a decrease in FDIC premiums of $299,000, which is a result of an FDIC special assessment of $536,000 in the second quarter of 2009 offset by increased assessments in the nine months ended September 30, 2010 due to higher FDIC insurance assessment rates and an increase in average deposit balances and (4) an increase in other noninterest expense of $533,000 primarily due to expense associated with assets acquired through foreclosure of $454,000 during the nine months ended September 30, 2010 with no comparable costs in the nine months ended September 30, 2009.  Valuation allowances on such assets comprised $379,000 of other noninterest expense for the period ended September 30, 2010.

Income Taxes. The income tax provision for the three and nine months ended September 30, 2010 was $274,000 and $731,000, respectively, compared to $189,000 and $473,000 for the three and nine months ended September 30, 2009, respectively.   The Company’s effective income tax rate was 28.4% and 28.3% for the three and nine months ended September 30, 2010, respectively, compared to 26.9% and 25.1% for the three and nine months ended September 30, 2009, respectively.  These rates primarily reflect the Company’s levels of tax-exempt income for both periods relative to the overall level of taxable income.

Liquidity and Capital Management

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

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The following table presents certain of our contractual obligations as of September 30, 2010 and December 31, 2009.

			Payments Due by Period
					One to
			Less Than		Three		Three to		More Than
Contractual Obligations	Total		One Year		Years		Five Years		Five Years
	(In thousands)
At September 30, 2010
Operating lease obligations (1)	$	878	$	487	$	391	$	—	$	—
FHLB advances and other borrowings (2)	203,797		40,721		27,412		38,372		97,292
Other long-term obligations (3)	5,365		1,837		3,144		384		—
Total	$	210,040	$	43,045	$	30,947	$	38,756	$	97,292
At December 31, 2009
Operating lease obligations (1)	$	1,229	$	494	$	735	$	—	$	—
FHLB advances and other borrowings (2)	221,937		20,890		49,737		51,348		99,962
Other long-term obligations (3)	6,046		1,684		2,981		1,381		—
Total	$	229,212	$	23,068	$	53,453	$	52,729	$	99,962

(1)Represents lease obligations for operations center, one loan production office and equipment.

(2)Includes principal and projected interest payments.

(3)Represents obligations to the Company’s third party data processing provider and other vendors.

We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) cash flows on our investments; (4) yields available on interest-earning deposits and securities; and (5) the objectives of our asset/liability management policy. We use a variety of measures to assess our liquidity needs, which are provided to our Asset/Liability Management Committee on a regular basis.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2010, cash and cash equivalents totaled $78.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $341.2 million at September 30, 2010. In addition, at September 30, 2010, we had the ability to borrow a total of approximately $469.8 million from the FHLB.  As of September 30, 2010, the Bank also had a maximum borrowing capacity of $32.7 million with the Federal Reserve Bank of Philadelphia, through the Discount Window.  On September 30, 2010, we had $123.9 million of borrowings outstanding with the FHLB as well as $50.0 million of borrowings outstanding with another financial institution.

At September 30, 2010, we had $155.6 million in loan commitments outstanding, which consisted of $1.0 million of mortgage loan commitments, $21.8 million in home equity and consumer loan commitments, $131.7 million in commercial loan commitments and $1.1 million in standby letters of credit.

Certificates of deposit due within one year of September 30, 2010 totaled $170.2 million, representing 41.5% of certificates of deposit at September 30, 2010, a decrease from 64.7% at December 31, 2009. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current low interest rate environment. If these maturing deposits do not remain with us, we will be required to either allow our cash balance to decrease or seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2011.  We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase and sale of securities. Our primary financing activities consist of activity in deposit accounts, FHLB advances and other borrowed funds.  Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We

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generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The following table presents our primary investing and financing activities during the periods indicated and does not include loans originated and held for sale.

	Nine Months
	Ended			Year Ended
	September 30, 2010			December 31, 2009
	(In thousands)
Investing activities:
Loan originations	$	(111,422	)	$	(211,062	)
Other decreases in loans	103,976			155,765
Purchase of loans and loan participations	(23,735		)	(127		)
Security purchases	(66,015		)	(313,473		)
Security sales	36,480			77,531
Security maturities, calls and principal repayments	109,897			117,024
Financing activities:
Changes in deposits	(119,443		)	249,805
Net decrease in FHLB advances	(13,260		)	(9,214		)
Purchase of treasury stock	—			(4,521		)
Merger of Fox Chase MHC	107			—
Net Proceeds from common stock offering	81,169			—
Purchase of common stock for ESOP	(3,485		)	—

Bancorp is a separate entity from the Bank and must provide for its own liquidity. As of September 30, 2010, the Bancorp had $41.9 million in cash and cash equivalents compared to $12.4 million as of December 31, 2009.  The increase in cash and cash equivalents was a result of the proceeds received from Bancorp’s public offering in connection with the Bank’s mutual-to-stock conversion completed in June 2010.  During the nine months ended September 30, 2010, the Bancorp contributed $48.5 million to the Bank in the form of a capital contribution, of which $7.5 million was contributed in the quarter ended March 31, 2010, and $41.0 million was contributed in the quarter ended June 30, 2010.  In addition to its operating expenses, Bancorp may utilize its cash position for the payment of dividends to stockholders or to repurchase common stock, subject to applicable restrictions.  Through September 30, 2010, no dividends have been paid.  Bancorp can receive dividends from the Bank.  Payment of such dividends to Bancorp by the Bank is limited under federal law. The amount that can be paid in any calendar year, without prior regulatory approval, cannot exceed the retained net earnings (as defined) for the year plus the preceding two calendar years. Bancorp believes that such restriction will not have an impact on the Bancorp’s ability to meet its ongoing cash obligations.

Capital Management. The Bank is subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2010, the Bank exceeded all of its regulatory capital requirements and was considered a “well capitalized” institution under regulatory guidelines.

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The following table presents the Bank’s capital ratios and the minimum capital requirements to be considered ‘‘well capitalized” by the OTS as of September 30, 2010 and December 31, 2009:

	Ratio		Minimum to be Well Capitalized
September 30, 2010:
Total risk-based capital (to risk-weighted assets)	23.70	%	³10.0	%
Tier 1 capital (to risk-weighted assets)	22.48	%	³ 6.0	%
Tier 1 capital (to adjusted assets)	13.09	%	³ 5.0	%
December 31, 2009:
Total risk-based capital (to risk-weighted assets)	16.57	%	³10.0	%
Tier 1 capital (to risk-weighted assets)	15.41	%	³ 6.0	%
Tier 1 capital (to adjusted assets)	8.51	%	³ 5.0	%

Total stockholders’ equity to total assets was 18.13% at September 30, 2010 and 10.53% at December 31, 2009.  As a result of the mutual-to-stock conversion completed in June 2010, the Company has significant capital. The Company’s financial condition and results of operations have been enhanced by the capital from the offering, resulting in increased net interest-earning assets.  However, the large increase in equity resulting from the capital raised in the conversion has and will likely continue to have an adverse impact on our return on equity until such funds can be deployed into higher yielding assets.  The Company may use capital management tools such as cash dividends and share repurchases as well as improving operating income to increase its return on equity.

Off-Balance Sheet Arrangements

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

For the three months ended September 30, 2010, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

At September 30, 2010, there has not been any material change to the market risk disclosure from that contained in Old Fox Chase Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2009 and our Prospectus filed pursuant to Rule 424(b) (3) of the Securities Act of 1933 as amended, on May 24, 2010.

Item 4T. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  In addition, no change in the Company’s internal control over financial reporting occurred during the three months ended September 30, 2010 that has materially affected, or is reasonably likely to materially effect, Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there are various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business.  We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the section “Risk Factors” in our Prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of 1933, as amended, on May 24, 2010 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed on August 6, 2010, which could materially affect our business, financial condition or future results.  As of September 30, 2010, the risk factors of the Company have not changed materially from those reported in the Prospectus and Form 10-Q, except as discussed above.  The risks described in our Prospectus and Form 10-Q are not the only risks that we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

(a)Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1	Articles of Incorporation of Fox Chase Bancorp, Inc. (1)
3.2	Bylaws of Fox Chase Bancorp, Inc. (1)
4.0	Stock Certificate of Fox Chase Bancorp, Inc. (1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

(1) Incorporated by reference to this document from the exhibits to the Company’s Registration Statement on Form S-1 as initially filed with the Securities and Exchange Commission on March 12, 2010.

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SIGNATURES

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

	FOX CHASE BANCORP, INC.
Dated: November 8, 2010	By:	/s/ Thomas M. Petro
		Thomas M. Petro
		President and Chief Executive Officer
		(principal executive officer)
Dated: November 8, 2010	By:	/s/ Roger S. Deacon
		Roger S. Deacon
		Chief Financial Officer
		(principal financial officer)

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