Fox Chase Bancorp 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)

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

For the quarterly period ended September 30, 2013

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) 283-2900

(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  ý     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 ý 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 [   ]	Accelerated Filer [X ]
Non-Accelerated Filer [  ]	Smaller Reporting Company [   ]
(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  ý

As of November 1, 2013, there were 12,147,803 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, 2013 (Unaudited) and December 31, 2012	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	5
	Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
Part II. Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
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, 2013			December 31, 2012
		(Unaudited)
ASSETS
	Cash and due from banks	$	114		$	162
	Interest-earning demand deposits in other banks	6,301			24,928
	Total cash and cash equivalents	6,415			25,090
	Investment securities available-for-sale	10,501			12,491
	Mortgage related securities available-for-sale	258,406			283,616
	Mortgage related securities held-to-maturity (fair value of $70,601 at September 30, 2013 and $29,451 at December 31, 2012)	70,928			28,369
	Loans, net of allowance for loan losses of $11,128 at September 30, 2013 and $11,170 at December 31, 2012	700,544			683,865
	Federal Home Loan Bank stock, at cost	10,013			8,097
	Bank-owned life insurance	14,428			14,077
	Premises and equipment, net	9,988			10,443
	Assets acquired through foreclosure	6,588			8,524
	Real estate held for investment	1,620			1,620
	Accrued interest receivable	3,267			3,223
	Mortgage servicing rights, net	157			170
	Deferred tax asset, net	7,738			2,953
	Other assets	6,291			5,803
	Total Assets	$	1,106,884		$	1,088,341
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
	Deposits	$	683,008		$	687,409
	Short-term borrowings	61,600			70,500
	Federal Home Loan Bank advances	150,000			110,000
	Other borrowed funds	30,000			30,000
	Advances from borrowers for taxes and insurance	1,010			1,699
	Accrued interest payable	314			330
	Accrued expenses and other liabilities	6,720			6,938
	Total Liabilities	932,652			906,876
STOCKHOLDERS’ EQUITY
	Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2013 and December 31, 2012)	—			—
	Common stock ($.01 par value; 60,000,000 shares authorized, 12,147,803 shares issued and outstanding at September 30, 2013 and 12,356,564 shares issued and outstanding at December 31, 2012)	146			146
	Additional paid-in capital	137,152			136,132
	Treasury stock, at cost (2,468,172 shares at September 30, 2013 and 2,249,600 shares at December 31, 2012)	(33,436		)	(29,733		)
	Common stock acquired by benefit plans	(9,431		)	(10,228		)
	Retained earnings	82,318			80,608
	Accumulated other comprehensive (loss) income, net	(2,517		)	4,540
	Total Stockholders’ Equity	174,232			181,465
	Total Liabilities and Stockholders’ Equity	$	1,106,884		$	1,088,341

See accompanying notes to the unaudited consolidated financial statements.

3

FOX CHASE BANCORP, INC.

Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

(Unaudited)

		Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
INTEREST INCOME
	Interest and fees on loans	$	8,241	$	8,582	$	24,319	$	25,792
	Interest on mortgage related securities	1,807		1,888		5,296		5,822
	Interest on investment securities available-for-sale
	Taxable	92		60		221		231
	Nontaxable	—		1		—		34
	Other interest income	1		—		2		5
	Total Interest Income	10,141		10,531		29,838		31,884
INTEREST EXPENSE
	Deposits	1,055		1,578		3,373		4,986
	Short-term borrowings	45		16		94		26
	Federal Home Loan Bank advances	555		450		1,606		1,892
	Other borrowed funds	254		254		753		1,096
	Total Interest Expense	1,909		2,298		5,826		8,000
	Net Interest Income	8,232		8,233		24,012		23,884
	Provision for loan losses	675		470		532		3,036
	Net Interest Income after Provision for Loan Losses	7,557		7,763		23,480		20,848
NONINTEREST INCOME
	Service charges and other fee income	437		364		1,260		1,138
	Net gain on sale of assets acquired through foreclosure	303		8		484		135
	Income on bank-owned life insurance	118		117		351		354
	Equity in earnings of affiliate	135		210		470		445
	Net gain on sale of investment securities (includes $0 and $532 for the three and nine months ended September 30, 2013, respectively, and $0 and $2,340 for the three and nine months ended September 30, 2012, respectively, accumulated other comprehensive income reclassification for unrealized holdings gains)	—		—		532		2,340
	Other	36		38		125		99
	Total Noninterest Income	1,029		737		3,222		4,511
NONINTEREST EXPENSE
	Salaries, benefits and other compensation	3,644		3,458		10,629		10,150
	Occupancy expense	403		415		1,243		1,294
	Furniture and equipment expense	117		119		358		409
	Data processing costs	390		441		1,155		1,359
	Professional fees	474		369		1,250		1,327
	Marketing expense	59		65		167		217
	FDIC premiums	175		199		525		581
	Assets acquired through foreclosure expense	1,370		962		4,465		1,115
	Loss on extinguishment of debt	—		—		—		3,018
	Other	370		370		1,192		1,267
	Total Noninterest Expense	7,002		6,398		20,984		20,737
	Income Before Income Taxes	1,584		2,102		5,718		4,622
	Income tax provision (includes $0 and $186 for the three and nine months ended September 30, 2013, respectively, and $0 and $830 for the three and nine months ended September 30, 2012, respectively, income tax expense from reclassification items)	411		666		1,674		1,460
	Net Income	$	1,173	$	1,436	$	4,044	$	3,162
Earnings per share:
	Basic	0.10		0.12		0.36		0.27
	Diluted	0.10		0.12		0.35		0.27

See accompanying notes to the unaudited consolidated financial statements.

4

FOX CHASE BANCORP, INC.

Consolidated Statements of Comprehensive Income

(In Thousands, Unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Net income		$	1,173		$	1,436		$	4,044		$	3,162
Other comprehensive (loss) income:
	Unrealized holding (losses) gains on securities available-for-sale	(175		)	2,607			(10,363		)	2,435
	Tax Effect	67			(900		)	3,652			(830		)
	Net of Tax Amount	(108		)	1,707			(6,711		)	1,605
	Reclassification adjustments for net investment securities gains included in net income	—			—			(532		)	(2,426		)
	Tax Effect	—			—			186			863
	Net of Tax Amount	—			—			(346		)	(1,563		)
	Reclassification adjustment for loss included in net income for other-than-temporary impaired investments sold, net	—			—			—			86
	Tax Effect	—			—			—			(33		)
	Net of Tax Amount	—			—			—			53
Other comprehensive (loss) income		(108		)	1,707			(7,057		)	95
Comprehensive income (loss)		$	1,065		$	3,143		$	(3,013	)	$	3,257

See accompanying notes to the unaudited consolidated financial statements.

5

FOX CHASE BANCORP, INC.

Consolidated Statements of Changes in Equity

Nine Months Ended September 30, 2013 and 2012

(In Thousands, Unaudited)

	Common Stock		Additional Paid-in Capital			Treasury Stock			Common Stock Acquired by Benefit Plans			Retained Earnings			Accumulated Other Comprehensive Income, net			Total Equity
BALANCE - DECEMBER 31, 2011	$	146	$	134,871		$	(19,822	)	$	(11,541	)	$	77,971		$	6,567		$	188,192
Purchase of treasury stock	—		—			(8,485		)	—			—			—			(8,485		)
Stock based compensation expense	—		873			—			—			—			—			873
Unallocated ESOP shares committed to employees	—		197			—			468			—			—			665
Issuance of stock for vested equity awards	—		(643		)	—			686			(43		)	—			—
Common stock issued for exercise of vested stock options	—		472			—			—			—			—			472
Tax benefit from exercise of stock options and vesting of restricted stock	—		87			—			—			—			—			87
Dividends paid ($0.12 per share)	—		—			—			—			(1,445		)	—			(1,445		)
Net income	—		—			—			—			3,162			—			3,162
Other comprehensive income	—		—			—			—			—			95			95
BALANCE - SEPTEMBER 30, 2012	$	146	$	135,857		$	(28,307	)	$	(10,387	)	$	79,645		$	6,662		$	183,616
	Common Stock		Additional Paid-in Capital			Treasury Stock			Common Stock Acquired by Benefit Plans			Retained Earnings			Accumulated Other Comprehensive Income (Loss), net			Total Equity
BALANCE - DECEMBER 31, 2012	$	146	$	136,132		$	(29,733	)	$	(10,228	)	$	80,608		$	4,540		$	181,465
Purchase of treasury stock	—		—			(3,703		)	—			—			—			(3,703		)
Stock based compensation expense	—		811			—			—			—			—			811
Unallocated ESOP shares committed to employees	—		361			—			468			—			—			829
Issuance of stock for vested equity awards	—		(316		)	—			329			(13		)	—			—
Common stock issued for exercise of vested stock options	—		106			—			—			—			—			106
Tax benefit from exercise of stock options and vesting of restricted stock	—		58			—			—			—			—			58
Dividends paid ($0.20 per share)	—		—			—			—			(2,321		)	—			(2,321		)
Net income	—		—			—			—			4,044			—			4,044
Other comprehensive loss	—		—			—			—			—			(7,057		)	(7,057		)
BALANCE - SEPTEMBER 30, 2013	$	146	$	137,152		$	(33,436	)	$	(9,431	)	$	82,318		$	(2,517	)	$	174,232

See accompanying notes to the unaudited consolidated financial statements.

6

FOX CHASE BANCORP, INC.

Consolidated Statements of Cash Flows

(In Thousands, Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash Flows From Operating Activities
Net income	$	4,044		$	3,162
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	532			3,036
Valuation adjustment for assets acquired through foreclosure	4,304			932
Depreciation	591			623
Net amortization of securities premiums and discounts	2,101			2,104
Proceeds from the sale of loans held for sale	3,157			—
(Benefit) provision for deferred income taxes	(947		)	390
Stock compensation from benefit plans	1,640			1,538
Net gain on sale of assets acquired through foreclosure	(484		)	(135		)
Net gain on sale of investment securities	(532		)	(2,340		)
Income on bank-owned life insurance	(351		)	(354		)
Excess tax benefit from exercise of stock options and vesting of restricted stock	(58		)	(87		)
Decrease in mortgage servicing rights, net	13			117
Increase in accrued interest receivable and other assets	(589		)	(159		)
(Decrease) increase in accrued interest payable, accrued expenses and other liabilities	(176		)	4,613
Net Cash Provided by Operating Activities	13,245			13,440
Cash Flows from Investing Activities
Investment securities available-for-sale:
Purchases	—			(5,269		)
Proceeds from sales	—			6,157
Proceeds from maturities, calls and principal repayments	2,000			9,866
Mortgage related securities available-for-sale:
Purchases	(49,821		)	(180,522		)
Proceeds from sales	9,517			69,067
Proceeds from maturities, calls and principal repayments	53,192			51,957
Mortgage related securities held-to-maturity:
Purchases	(51,420		)	—
Proceeds from maturities, calls and principal repayments	8,562			9,015
Net (increase) decrease in loans	(4,593		)	7,815
Purchases of loans and loan participations	(20,544		)	(21,418		)
Net (increase) decrease in Federal Home Loan Bank stock	(1,916		)	667
Purchases of premises and equipment	(153		)	(678		)
Additions to assets acquired through foreclosure	(867		)	(317		)
Proceeds from sales and payments on assets acquired through foreclosure	3,973			1,663
Net Cash Used in Investing Activities	(52,070		)	(51,997		)
Cash Flows from Financing Activities
Net (decrease) increase in deposits	(4,401		)	26,539
Decrease in advances from borrowers for taxes and insurance	(689		)	(640		)
Principal payments on other borrowed funds	—			(20,000		)
Proceeds from Federal Home Loan Bank advances	40,000			45,000
Principal payments on Federal Home Loan Bank advances	—			(38,278		)
Net (decrease) increase in short-term borrowings	(8,900		)	42,800
Tax benefit from exercise of stock options and vesting of restricted stock	58			87
Common stock issued for exercise of stock options	106			472
Purchase of treasury stock	(3,703		)	(8,485		)
Cash dividends paid	(2,321		)	(1,445		)
Net Cash Provided by Financing Activities	20,150			46,050
Net (Decrease) Increase in Cash and Cash Equivalents	(18,675		)	7,493
Cash and Cash Equivalents – Beginning	25,090			7,586
Cash and Cash Equivalents – Ending	$	6,415		$	15,079
Supplemental Disclosure of Cash Flow Information
Interest paid	$	5,842		$	8,073
Income taxes paid	$	2,400		$	1,548
Transfers of loans to assets acquired through foreclosure	$	4,990		$	7,366
Transfers of loans to loans held for sale	$	3,157		$	—
Net charge-offs	$	574		$	3,891

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”), a federal corporation and the former 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 Fox Chase Bank.

The Bancorp’s primary business is holding the common stock of the Bank and making two loans to the Fox Chase Bank Employee Stock Ownership Plan (the "ESOP").  The Bancorp is authorized to pursue other business activities permissible by laws and regulations for savings and loan holding companies.

The 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 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 Bank also owns approximately 45% of Philadelphia Mortgage Advisors (“PMA”), a mortgage banker located in Plymouth Meeting, Pennsylvania and Ocean City, New Jersey.

The Company is subject to the 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.  Pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the regulation and supervision of federal savings institutions, such as the Bank, was transferred from the Office of Thrift Supervision to the Office of the Comptroller of the Currency, the agency that regulates national banks, in July 2011.  As a result, the Office of the Comptroller of the Currency has primary responsibility for examining the Bank and implementing and enforcing many of the laws and regulations applicable to federal savings associations.  In addition, pursuant to the provisions of the Dodd-Frank Act, savings and loan holding companies, such as the Bancorp, are now regulated by the Board of Governors of the Federal Reserve System.

During September 2013, the Bank received regulatory approval to convert from a federally chartered savings bank to a Pennsylvania-chartered savings bank.  The Bank expects the charter conversion to become effective during the fourth quarter of 2013, at which point, the Pennsylvania Department of Banking will become the Bank’s primary regulator.  Concurrent with the Bank’s charter conversion, the Bancorp will convert to a bank holding company and will continue to be regulated by the Board of Governors of the Federal Reserve System. Accordingly, when the charter conversion becomes effective, the Bank will no longer be subjected to the Qualified Thrift Lender Test or the commercial lending restrictions of the Home Owner Loan Act.

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., Fox Chase Service Corporation, 104 S. Oakland Ave., LLC and Davisville Associates, LLC.  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 a Pennsylvania-chartered company and its purposes are to facilitate the Bank’s investment in PMA and, for regulatory purposes, to hold commercial loans.  At September 30, 2013, Fox Chase Service Corporation held $20.0 million in commercial loans.  104 S. Oakland Ave., LLC is a New Jersey-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  Davisville Associates, LLC is a Pennsylvania-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  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 2013 and 2012, 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 $271,000 and $301,000 for the nine months ended September 30, 2013 and 2012, respectively, as well as loan satisfaction fees, which are recorded in service charges and other fee income, from PMA of $40,000 and $48,000 for the nine months ended September 30, 2013 and 2012, respectively.  In addition, the Bank acquired total loans from PMA of $592,000 and $13.5 million during the nine months ended September 30, 2013 and 2012, respectively, which includes the cost of the loans. 

8

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)

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 near term relate to the

determination of the allowance for loan losses, the valuation and realizability of deferred tax assets, the evaluation of other-than-temporary impairment and the valuation of investment securities and assets acquired through foreclosure.

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 Fox Chase Bancorp, Inc.’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 13, 2013.   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, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 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 equity incentive plans are not included in either basic or diluted earnings per share.

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

	Three Months Ended September 30,						Nine Months Ended   September 30,
	2013			2012			2013			2012
	(Unaudited)
Net income	$	1,173,000		$	1,436,000		$	4,044,000		$	3,162,000
Weighted-average common shares outstanding (1)	12,143,880			12,549,453			12,217,289			12,699,390
Average common stock acquired by stock benefit plans:
ESOP shares unallocated	(578,494		)	(643,539		)	(594,597		)	(659,705		)
Shares purchased by trust	(317,645		)	(370,768		)	(327,849		)	(383,014		)
Weighted-average common shares used to calculate basic earnings per share	11,247,741			11,535,146			11,294,843			11,656,671
Dilutive effect of:
Restricted stock awards	43,087			45,074			34,586			36,675
Stock option awards	203,692			138,088			193,932			102,190
Weighted-average common shares used to calculate diluted earnings per share	11,494,520			11,718,308			11,523,361			11,795,536
Earnings per share-basic	$	0.10		$	0.12		$	0.36		$	0.27
Earnings per share-diluted	$	0.10		$	0.12		$	0.35		$	0.27
Outstanding common stock equivalents having no dilutive effect	1,102,810			826,441			1,121,071			870,738
(1) Excludes treasury stock.

9

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity as of September 30, 2013 and December 31, 2012 are summarized as follows: 

	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			OTTI in AOCI		Fair Value
	(In thousands, Unaudited)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	300	$	10	$	—		$	—	$	310
Corporate securities	10,156		56		(21		)	—		10,191
	10,456		66		(21		)	—		10,501
Private label commercial mortgage related securities	2,157		9		—			—		2,166
Agency residential mortgage related securities	260,170		2,753		(6,683		)	—		256,240
Total mortgage related securities	262,327		2,762		(6,683		)	—		258,406
Total available-for-sale securities	$	272,783	$	2,828	$	(6,704	)	$	—	$	268,907
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	70,928	$	843	$	(1,170	)	$	—	$	70,601
Total mortgage related securities	70,928		843		(1,170		)	—		70,601
Total held-to-maturity securities	$	70,928	$	843	$	(1,170	)	$	—	$	70,601
	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			OTTI in AOCI		Fair Value
	(In thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	300	$	14	$	—		$	—	$	314
Corporate securities	12,207		91		(121		)	—		12,177
	12,507		105		(121		)	—		12,491
Private label commercial mortgage related securities	6,119		78		—			—		6,197
Agency residential mortgage related securities	270,461		7,023		(65		)	—		277,419
Total mortgage related securities	276,580		7,101		(65		)	—		283,616
Total available-for-sale securities	$	289,087	$	7,206	$	(186	)	$	—	$	296,107
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	28,369	$	1,082	$	—		$	—	$	29,451
Total mortgage related securities	28,369		1,082		—			—		29,451
Total held-to-maturity securities	$	28,369	$	1,082	$	—		$	—	$	29,451

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, 2013 and December 31, 2012.

	September 30, 2013
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands, Unaudited)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
Corporate securities	—		—			2,979		(21		)	2,979		(21		)
	—		—			2,979		(21		)	2,979		(21		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	205,530		(6,683		)	—		—			205,530		(6,683		)
Total mortgage related securities	205,530		(6,683		)	—		—			205,530		(6,683		)
Total available-for-sale securities	$	205,530	$	(6,683	)	$	2,979	$	(21	)	$	208,509	$	(6,704	)
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	38,738	$	(1,170	)	$	—	$	—		$	38,738	$	(1,170	)
Total mortgage related securities	38,738		(1,170		)	—		—			38,738		(1,170		)
Total held-to-maturity securities	$	38,738	$	(1,170	)	$	—	$	—		$	38,738	$	(1,170	)
Total Temporarily Impaired Securities	$	244,268	$	(7,853	)	$	2,979	$	(21	)	$	247,247	$	(7,874	)
	December 31, 2012
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
Corporate securities	—		—			2,879		(121		)	2,879		(121		)
	—		—			2,879		(121		)	2,879		(121		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	29,092		(65		)	—		—			29,092		(65		)
Total mortgage related securities	29,092		(65		)	—		—			29,092		(65		)
Total available-for-sale securities	$	29,092	$	(65	)	$	2,879	$	(121	)	$	31,971	$	(186	)
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	—	$	—		$	—	$	—		$	—	$	—
Total mortgage related securities	—		—			—		—			—		—
Total held-to-maturity securities	$	—	$	—		$	—	$	—		$	—	$	—
Total Temporarily Impaired Securities	$	29,092	$	(65	)	$	2,879	$	(121	)	$	31,971	$	(186	)

11

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

During the three months ended September 30, 2013, no securities were sold. During the nine months ended September 30, 2013, the Company sold seven mortgage related securities with an amortized cost of $9.0 million and recognized gross gains of $532,000.

The Company evaluates a variety of factors when concluding whether a security is other-than-temporarily impaired.  These factors include, but are not limited to, the type and purpose of the security, the underlying rating of the issuer, and the presence of credit enhancements.

At September 30, 2013, gross unrealized losses totaled $7.9 million.  One corporate security, with a fair value of $3.0 million and an unrealized loss position of $21,000, had an unrealized loss position for twelve months or longer as of September 30, 2013.  This security has a rating of "Baa2."  The remaining securities in an unrealized loss position at September 30, 2013 have been in an unrealized loss position for less than twelve months.  These securities consist of 95 agency residential mortgage related securities whose fair value primarily fluctuates with changes in market conditions for the underlying securities and changes in the interest rate environment.  The fair value of these agency residential mortgage related securities totaled $244.3 million and the unrealized loss totaled $7.9 million. The Company does not intend to sell the securities in an unrealized loss position and it is not more likely than not that it will be required to sell these securities before a recovery of fair value, which may be maturity.  Upon review of the attributes of the individual securities, the Company concluded these securities were not other-than-temporarily impaired.

As of September 30, 2013, the Company held two private label commercial mortgage related securities ("CMBS") with an amortized cost of $2.2 million.  These securities had a net unrealized gain of $9,000 at September 30, 2013 and both individual securities were held at an unrealized gain.  As of December 31, 2012, the Company held three private label CMBS with an amortized cost of $6.1 million.  These securities had a net unrealized gain of $78,000 at December 31, 2012 and all individual securities were held at an unrealized gain.

The Company evaluates current characteristics of each of these private label securities such as delinquency and foreclosure levels, credit enhancement, projected losses, coverage and actual and projected 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.

12

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The following schedules provide a summary of the components of net investment securities gains (losses) in the Company’s consolidated statements of operations for the three and nine month periods ended September 30, 2013 and 2012.

	Three Months Ended September 30, 2013										Nine Months Ended September 30, 2013
	Gross Realized Gains		Gross Realized Losses		Other-than- Temporary Impairment Losses		Portion of OTTI in OCI		Net Gains (Losses)		Gross Realized Gains		Gross Realized Losses			Other-than- Temporary Impairment Losses		Portion of OTTI in OCI		Net Gains (Losses)
	(In thousands, Unaudited)										(In thousands, Unaudited)
Obligations of U.S. government agencies	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—
Corporate securities	—		—		—		—		—		—		—			—		—		—
	—		—		—		—		—		—		—			—		—		—
Private label residential mortgage related security	—		—		—		—		—		—		—			—		—		—
Private label commercial mortgage related securities	—		—		—		—		—		—		—			—		—		—
Agency residential mortgage related securities	—		—		—		—		—		532		—			—		—		532
Total mortgage related securities	—		—		—		—		—		532		—			—		—		532
Total securities available-for-sale	$	—	$	—	$	—	$	—	$	—	$	532	$	—		$	—	$	—	$	532
	Three Months Ended September 30, 2012										Nine Months Ended September 30, 2012
	Gross Realized Gains		Gross Realized Losses		Other-than- Temporary Impairment Losses		Portion of OTTI in OCI		Net Gains (Losses)		Gross Realized Gains		Gross Realized Losses			Other-than- Temporary Impairment Losses		Portion of OTTI in OCI		Net Gains (Losses)
	(In thousands, Unaudited)										(In thousands, Unaudited)
Obligations of U.S. government agencies	$	—	$	—	$	—	$	—	$	—	$	64	$	—		$	—	$	—	$	64
Corporate securities	—		—		—		—		—		—		—			—		—		—
	—		—		—		—		—		64		—			—		—		64
Private label residential mortgage related security	—		—		—		—		—		—		(87		)	—		—		(87		)
Private label commercial mortgage related securities	—		—		—		—		—		—		—			—		—		—
Agency residential mortgage related securities	—		—		—		—		—		2,363		—			—		—		2,363
Total mortgage related securities	—		—		—		—		—		2,363		(87		)	—		—		2,276
Total securities available-for-sale	$	—	$	—	$	—	$	—	$	—	$	2,427	$	(87	)	$	—	$	—	$	2,340

13

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2013 and December 31, 2012 by contractual maturity are as follows:

		Available-for-Sale				Held-to-Maturity
		Amortized Cost		Fair Value		Amortized Cost		Fair Value
		(In thousands)
September 30, 2013	(Unaudited)
Due in one year or less		$	1,987	$	2,000	$	—	$	—
Due after one year through five years		8,469		8,501		—		—
Due after five years through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total mortgage related securities		262,327		258,406		70,928		70,601
		$	272,783	$	268,907	$	70,928	$	70,601
December 31, 2012
Due in one year or less		$	2,019	$	2,032	$	—	$	—
Due after one year through five years		10,488		10,459		—		—
Due after five years through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total mortgage related securities		276,580		283,616		28,369		29,451
		$	289,087	$	296,107	$	28,369	$	29,451

Securities with a carrying value of $7.9 million and $8.3 million at September 30, 2013 and December 31, 2012, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

Securities with a carrying value of $35.4 million and $46.6 million at September 30, 2013 and December 31, 2012, respectively, were used to secure other borrowed funds.   See Note 7.

Securities with a carrying value of $724,000 and $892,000 at September 30, 2013 and December 31, 2012, respectively, were used to secure derivative transactions.

NOTE 3 - LOANS

The composition of net loans at September 30, 2013 and December 31, 2012 is provided below:

	September 30, 2013			December 31, 2012
	(In thousands)
	(Unaudited)
Real estate loans:
One- to four-family	$	133,006		$	158,828
Multi-family and commercial	399,340			368,948
Construction	6,435			22,591
	538,781			550,367
Consumer loans	23,399			30,585
Commercial and industrial loans	149,559			113,820
Total loans	711,739			694,772
Deferred loan origination (fees) cost, net	(67		)	263
Allowance for loan losses	(11,128		)	(11,170		)
Net loans	$	700,544		$	683,865

14

NOTE 3 - LOANS (CONTINUED)

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

	Nine Months Ended September 30,						Year Ended December 31,
	2013			2012			2012
	(In thousands)
	(Unaudited)
Balance, beginning	$	11,170		$	12,075		$	12,075
Provision for loan losses	532			3,036			3,478
Loans charged off	(647		)	(3,952		)	(4,527		)
Recoveries	73			61			144
Balance, ending	$	11,128		$	11,220		$	11,170

The following tables present changes in the allowance for loan losses by loan segment for the nine months ended September 30, 2013 and the year ended December 31, 2012.

	Nine Months Ended September 30, 2013
	One- to Four-Family			Multi-family and Commercial			Construction			Consumer			Commercial and Industrial			Unallocated			Total
	(In thousands, Unaudited)
Balance, beginning	$	642		$	6,327		$	873		$	232		$	2,630		$	466		$	11,170
(Credit) provision for loan losses	(139		)	1,256			(487		)	(7		)	(45		)	(46		)	532
Loans charged off	(115		)	(463		)	—			(69		)	—			—			(647		)
Recoveries	35			12			—			26			—			—			73
Balance, ending	$	423		$	7,132		$	386		$	182		$	2,585		$	420		$	11,128
	Year Ended December 31, 2012
	One- to Four-Family			Multi-family and Commercial			Construction			Consumer			Commercial and Industrial			Unallocated			Total
	(In thousands)
Balance, beginning	$	1,760		$	6,112		$	869		$	455		$	2,657		$	222		$	12,075
Provision (credit) for loan losses	286			1,064			252			1,659			(27		)	244			3,478
Loans charged off	(1,408		)	(887		)	(340		)	(1,892		)	—			—			(4,527		)
Recoveries	4			38			92			10			—			—			144
Balance, ending	$	642		$	6,327		$	873		$	232		$	2,630		$	466		$	11,170

15

NOTE 3 - LOANS (CONTINUED)

The following tables set forth the breakdown of impaired loans by loan segment as of September 30, 2013 and December 31, 2012.

September 30, 2013
	Nonaccrual Loans		Accruing TDRs		Other Impaired Loans		Total Impaired Loans		Impaired Loans with Allowance		Impaired Loans without Allowance
	(In thousands, Unaudited)
Real estate loans:
One- to four-family	$	1,981	$	1,036	$	—	$	3,017	$	3,017	$	—
Multi-family and commercial	2,966		6,215		—		9,181		8,825		356
Construction	3,991		—		—		3,991		3,991		—
Consumer loans	119		14		—		133		133		—
Commercial and industrial	—		—		—		—		—		—
Total	$	9,057	$	7,265	$	—	$	16,322	$	15,966	$	356
December 31, 2012
	Nonaccrual Loans		Accruing TDRs		Other Impaired Loans		Total Impaired Loans		Impaired Loans with Allowance		Impaired Loans without Allowance
	(In thousands)
Real estate loans:
One- to four-family	$	3,355	$	507	$	—	$	3,862	$	3,862	$	—
Multi-family and commercial	5,284		6,867		—		12,151		11,770		381
Construction	6,434		—		—		6,434		6,434		—
Consumer loans	2,051		14		—		2,065		203		1,862
Commercial and industrial	—		—		—		—		—		—
Total	$	17,124	$	7,388	$	—	$	24,512	$	22,269	$	2,243

For the nine months ended September 30, 2013 and 2012, the average recorded investment in impaired loans was $17.4 million and $26.9 million, respectively.  The interest income recognized on these impaired loans was $296,000 and $248,000 for the nine months ended September 30, 2013 and 2012, respectively.

Loans on which the accrual of interest has been discontinued amounted to $9.1 million at September 30, 2013 and $17.1 million at December 31, 2012.  If interest on such loans had been recorded in accordance with contractual terms, interest income would have increased by $521,000 and $1.5 million for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.  There were $1.6 million and $0 of loans past due 90 days or more and still accruing interest at September 30, 2013 and December 31, 2012, respectively.

At September 30, 2013, five troubled debt restructurings (“TDRs”), totaling $4.3 million, are excluded from the accruing TDR column above as they are included in the nonaccrual loans column.  Of this amount, $4.0 million relates to two construction loans.  The Bank has commitments of $442,000 to lend additional funds related to these construction loans.  Additionally, the Bank had three residential loan TDRs totaling $282,000 which are included in the nonaccrual loans and total impaired loans columns. One multi-family and commercial TDR, totaling $1.6 million, is included in the Accruing TDRs column. This loan is past due 90 days or more and is still accruing interest, as discussed above.

At December 31, 2012, seven TDRs totaling $6.9 million are excluded from the accruing TDR column as they are included in nonaccrual loans and total impaired loans columns.

16

NOTE 3 - LOANS (CONTINUED)

The following tables set forth the allowance for loan loss for impaired loans and general allowance by loan segment as of September 30, 2013 and December 31, 2012.

September 30, 2013	Allowance for Loan Losses
	Impaired Loans
	Nonaccrual Loans		Accruing TDR's		Other Impaired Loans		Total Impaired Loans
									General		Total
	(In thousands, Unaudited)
Real estate loans:
One- to four-family	$	156	$	2	$	—	$	158	$	265	$	423
Multi-family and commercial	595		682		—		1,277		5,855		7,132
Construction	333		—		—		333		53		386
Consumer loans	6		—		—		6		176		182
Commercial and industrial	—		—		—		—		2,585		2,585
Unallocated	—		—		—		—		420		420
Total allowance for loan losses	$	1,090	$	684	$	—	$	1,774	$	9,354	$	11,128
December 31, 2012	Allowance for Loan Losses
	Impaired Loans
	Nonaccrual Loans		Accruing TDR's		Other Impaired Loans		Total Impaired Loans
									General		Total
	(In thousands)
Real estate loans:
One- to four-family	$	337	$	5	$	—	$	342	$	300	$	642
Multi-family and commercial	530		948		—		1,478		4,849		6,327
Construction	449		—		—		449		424		873
Consumer loans	10		1		—		11		221		232
Commercial and industrial	—		—		—		—		2,630		2,630
Unallocated	—		—		—		—		466		466
Total allowance for loan losses	$	1,326	$	954	$	—	$	2,280	$	8,890	$	11,170

The Company may, under certain circumstances, restructure loans as a concession to borrowers who have experienced financial difficulty, which results in a TDR.  TDRs are impaired loans.  TDRs typically result from the Company’s loss mitigation activities, which, among other activities, could include extension of maturity, rate reductions, payment extension, and/or principal forgiveness.

At December 31, 2012, the Bank had fourteen TDRs, totaling $14.3 million. At September 30, 2013, ten of these TDRs, totaling $10.9 million, remained. These TDRs consisted of:

•two construction loans totaling $4.0 million;

•two multi-family and commercial real estate loans totaling $6.2 million;

•five residential loans totaling $696,000; and

•one consumer loan totaling $14,000.

In addition, there were two new residential loan TDRs added during the nine months ended September 30, 2013, which totaled $622,000 at September 30, 2013. The Bank agreed to modified terms with the borrowers, which included delayed repayment of principal and interest. The Bank had twelve TDRs totaling $11.5 million at September 30, 2013.

17

NOTE 3 - LOANS (CONTINUED)

The following tables set forth a summary of the TDR activity for the three and nine month periods ended September 30, 2013 and 2012. 

	Three Months Ended September 30, 2013								Nine Months Ended September 30, 2013
						TDRs that Defaulted in Current Period that were Restructured in the Prior Twelve Months								TDRs that Defaulted in Current Period that were Restructured in the Prior Twelve Months
	Restructured Current Period								Restructured Current Period
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Post-Modification Outstanding Recorded Investment
	(Dollars in thousands, Unaudited)								(Dollars in thousands, Unaudited)
Real estate loans:
One- to four-family	1	$	141	$	141	—	$	—	2	$	622	$	622	—	$	—
Multi-family and commercial	—	—		—		1	1,640		—	—		—		1	1,640
Construction	—	—		—		—	—		—	—		—		—	—
Consumer loans	—	—		—		—	—		—	—		—		—	—
Commercial and industrial	—	—		—		—	—		—	—		—		—	—
Total	1	$	141	$	141	1	$	1,640	2	$	622	$	622	1	$	1,640
	Three Months Ended September 30, 2012								Nine Months Ended September 30, 2012
						TDRs that Defaulted in Current Period that were Restructured in the Prior Twelve Months								TDRs that Defaulted in Current Period that were Restructured in the Prior Twelve Months
	Restructured Current Period								Restructured Current Period
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Post-Modification Outstanding Recorded Investment
	(Dollars in thousands, Unaudited)								(Dollars in thousands, Unaudited)
Real estate loans:
One- to four-family	—	$	—	$	—	3	$	254	3	$	400	$	400	3	$	254
Multi-family and commercial	—	—		—		—	—		1	519		519		—	—
Construction	—	—		—		—	—		—	—		—		—	—
Consumer loans	1	14		14		1	8		1	14		14		1	8
Commercial and industrial	—	—		—		—	—		—	—		—		—	—
Total	1	$	14	$	14	4	$	262	5	$	933	$	933	4	$	262

18

NOTE 3 - LOANS (CONTINUED)

The following table sets forth past due loans by segment as of September 30, 2013 and December 31, 2012.

	September 30, 2013				December 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due
	(In thousands)
	(Unaudited)
One- to four-family real estate	$	1,363	$	256	$	18	$	284
Multi-family and commercial real estate	—		277		—		1,691
Construction	—		—		—		—
Consumer	118		36		23		51
Commercial and industrial	—		—		—		—
Total	$	1,481	$	569	$	41	$	2,026

We use six primary classifications for loans: pass, pass watch, special mention, substandard, doubtful and loss, of which three classifications are for problem loans: substandard, doubtful and loss. “Substandard loans” must have one or more well defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful loans” have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.  A loan classified “loss” is considered uncollectible and of such little value that continuance as a loan of the institution is not warranted.  We also maintain a “special mention” category, described as loans which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention.  If we classify an asset as loss, it is recorded as a loan charged off in the current period.

The following tables set forth criticized and classified loans by segment as of September 30, 2013 and December 31, 2012. 

	September 30, 2013
	One- to Four-Family		Multi-family and Commercial		Construction		Consumer		Commercial and Industrial		Total
	(In thousands, Unaudited)
Pass and Pass watch	$	131,025	$	378,567	$	2,443	$	23,280	$	146,243	$	681,558
Special mention	—		13,533		—		—		3,316		16,849
Substandard	1,981		7,240		3,992		119		—		13,332
Doubtful	—		—		—		—		—		—
Total loans	$	133,006	$	399,340	$	6,435	$	23,399	$	149,559	$	711,739
	December 31, 2012
	One- to Four-Family		Multi-family and Commercial		Construction		Consumer		Commercial and Industrial		Total
	(In thousands)
Pass and Pass watch	$	155,473	$	347,150	$	16,157	$	28,534	$	110,032	$	657,346
Special mention	—		6,733		—		—		3,633		10,366
Substandard	3,355		15,065		6,434		2,051		155		27,060
Doubtful	—		—		—		—		—		—
Total loans	$	158,828	$	368,948	$	22,591	$	30,585	$	113,820	$	694,772

19

NOTE 4 - DERIVATIVES AND HEDGING

Interest Rate Swaps

On November 3, 2006, the Company entered an interest rate swap with a current notional amount of $896,000, which is used to hedge a 15-year fixed rate loan that is earning interest at 7.43%.  The Company is receiving variable rate payments of one-month LIBOR plus 224 basis points and is paying fixed rate payments of 7.43%.  The swap matures in April 2022 and had a fair value loss position of $148,000 and $203,000 at September 30, 2013 and December 31, 2012, respectively.  The interest rate swap is carried at fair value in accordance with FASB ASC 815 “Derivatives and Hedging.”  The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 “Financial Instruments.”

On October 12, 2011, the Company entered an interest rate swap with a current notional amount of $1.5 million, which is used to hedge a 10-year fixed rate loan that is earning interest at 5.83%.  The Company is receiving variable rate payments of one-month LIBOR plus 350 basis points and is paying fixed rate payments of 5.83%.  The Company designated this relationship as a fair value hedge.  The swap matures in October 2021 and had a fair value loss position of $15,000 and $105,000 at September 30, 2013 and December 31, 2012, respectively.  The difference between changes in the fair values of the interest rate swap agreement and the hedged loan represents hedge ineffectiveness and is recorded in other non-interest income in the consolidated statements of operations.  Hedge ineffectiveness resulted in income of $1,000 and $2,000 for the three months ended September 30, 2013 and September 30, 2012, respectively. Hedge ineffectiveness resulted in income of $15,000 and a loss of $5,000 for the nine months ended September 30, 2013 and September 30, 2012, respectively.

Credit Derivatives

We have entered into agreements with a third-party financial institution whereby the financial institution enters into interest rate derivative contracts and foreign currency swap contracts with customers referred to them by us.  By the terms of the agreements, the financial institution has recourse to the Company for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution.  These transactions represent credit derivatives and are a customary arrangement that allows financial institutions like us to provide access to interest rate and foreign currency swap transactions for our customers without creating the swap ourselves.  The Company records the fair value of credit derivatives in other liabilities on the consolidated statement of condition.   The Company recognizes changes in the fair value of credit derivatives, net of any fees received, as service charges and other fee income in the consolidated statements of operations.

At September 30, 2013, there were five variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and our customers with a notional amount of $19.7 million, and remaining maturities ranging from 6 to 9 years.  At December 31, 2012, there were four variable-rate to fixed-rate interest swap transactions between the third-party financial institution and our customers with a notional amount of $13.3 million, and remaining maturities ranging from 7 to 10 years.  The fair value of the swaps to the customers was an asset of $719,000 and a liability of $213,000 as of September 30, 2013 and December 31, 2012, respectively, and all swaps were in receiving positions from the third-party financial institution at September 30, 2013.  As of September 30, 2013 and December 31, 2012, the fair value of the Company’s interest rate swap credit derivatives was a liability of $5,000 and $12,000, respectively.  During the three months ended September 30, 2013 and 2012, the Company recognized income of $1,000 and $34,000, respectively, from interest rate swap credit derivatives. During the nine months ended September 30, 2013 and 2012, the Company recognized income of $7,000 and $36,000, respectively, from interest rate swap credit derivatives.

At September 30, 2013, there were two foreign currency swap transactions between the third-party financial institution and our customers with a notional amount aggregating approximately $150,000, and remaining maturity of one month.  The aggregate fair value of these swaps to the customers was an asset of $5,000 as of September 30, 2013.  At September 30, 2013, the fair value of the Company’s credit derivatives was $0.  At December 31, 2012, there were no foreign currency swap transactions between the third-party financial institution and our customers.  During the three months ended September 30, 2013 and 2012, the Company recognized income of $0 and $4,000, respectively, from foreign currency swap credit derivatives. During the nine months ended September 30, 2013 and 2012, the Company recognized income of $2,000 and $33,000, respectively, from foreign currency swap credit derivatives.

The maximum potential payments by the Company to the financial institution under these credit derivatives are not estimable as they are contingent on future interest rates and exchange rates, and the agreement does not provide for a limitation of the maximum potential payment amount.

20

NOTE 5- 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 $28.5 million, $36.6 million and $38.8 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively.  The Company received fees, net of amortization, from the servicing of loans of ($4,000) and ($12,000) during the nine months ended September 30, 2013 and September 30, 2012, respectively.

The following table summarizes mortgage servicing rights activity for the nine months ended September 30, 2013 and 2012:

		Servicing Rights			Valuation Allowance			Net Carrying Value
		(In thousands, Unaudited)
Balance at	December 31, 2012	$	325		$	(155	)	$	170
Additions		—			50			50
Amortization		(63		)	—			(63		)
Balance at	September 30, 2013	$	262		$	(105	)	$	157
Balance at	December 31, 2011	$	455		$	(139	)	$	316
Reductions		—			(16		)	(16		)
Amortization		(101		)	—			(101		)
Balance at	September 30, 2012	$	354		$	(155	)	$	199

At September 30, 2013, December 31, 2012 and September 30, 2012, the fair value of the mortgage servicing rights (“MSRs”) was $157,000, $170,000 and $199,000, respectively.  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 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 6 - DEPOSITS

Deposits and their respective weighted average interest rate at September 30, 2013 and December 31, 2012 consist of the following:

	September 30, 2013				December 31, 2012
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Dollars in thousands)
	(Unaudited)
Noninterest-bearing demand accounts	—	%	$	115,338	—	%	$	108,176
NOW accounts	0.22		80,701		0.22		70,199
Money market accounts	0.20		84,598		0.19		97,318
Savings and club accounts	0.13		95,358		0.14		99,046
Brokered deposits	0.63		73,871		0.51		50,637
Certificates of deposit	1.34		233,142		1.59		262,033
	0.60	%	$	683,008	0.71	%	$	687,409

21

NOTE 7 - BORROWINGS

Federal Home Loan Bank Advances

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, 2013, the Bank had $214.2 million in qualifying collateral pledged against its advances.

Maturity Date	Amount		Coupon Rate		Call Date	Rate if Called
(In thousands, Unaudited)
August 2014	$	10,000	0.52	%	Not Applicable	Not Applicable
September 2014	15,000		0.41		Not Applicable	Not Applicable
December 2014	15,000		0.43		Not Applicable	Not Applicable
March 2015	10,000		0.49		Not Applicable	Not Applicable
April 2015	10,000		0.45		Not Applicable	Not Applicable
August 2015	10,000		0.68		Not Applicable	Not Applicable
March 2016	10,000		0.62		Not Applicable	Not Applicable
September 2016	5,000		0.75		Not Applicable	Not Applicable
September 2016	10,000		1.04		Not Applicable	Not Applicable
June 2017	5,000		0.94		Not Applicable	Not Applicable
November 2017	15,000		3.62		November 2013	LIBOR + 0.10%
November 2017	15,000		3.87		November 2013	LIBOR + 0.10%
December 2017	20,000		2.83		December 2013	LIBOR + 0.11%
	$	150,000	1.52	%

For the borrowings which have a “Call Date” 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 FHLB of Pittsburgh of approximately $392.3 million at September 30, 2013.  Additionally, as of September 30, 2013, the Bank has a maximum borrowing capacity of $50.9 million with the Federal Reserve Bank of Philadelphia through the Discount Window.

As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh in an amount equal to at least 4.00% 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, 2013, the Company’s minimum stock obligation was $9.8 million and a maximum stock obligation was $15.3 million.  The Company held $10.0 million in FHLB stock at that date.

22

NOTE 7 - BORROWINGS (CONTINUED)

Other Borrowed Funds

Other borrowed funds obtained from large commercial banks under security repurchase agreements totaled $30.0 million at September 30, 2013.  These borrowings contractually mature with dates ranging from September 2018 through November 2018. As disclosed in the table below, two of the borrowings may be called by the lender based on the underlying agreements.  Accordingly, the contractual maturities below may differ from actual maturities.

					Next Call Date	Subsequent Call Frequency
Maturity Date	Amount		Coupon Rate
(In thousands, Unaudited)
September 2018	$	10,000	3.40	%	Not Applicable	Not Applicable
September 2018	5,000		3.20		Not Applicable	Not Applicable
October 2018	5,000		3.15		October 2013	Quarterly
October 2018	5,000		3.27		Not Applicable	Not Applicable
November 2018	5,000		3.37		November 2013	Not Applicable
	$	30,000	3.30	%

Mortgage backed securities with a fair value of $35.4 million at September 30, 2013 were used to secure these other borrowed funds.

Short Term Borrowings

As of September 30, 2013 and December 31, 2012, the Company had $61.6 million and $70.5 million, respectively, of short-term borrowings.  The short-term borrowings had blended weighted average rates of 0.32% and 0.30% at September 30, 2013 and December 31, 2012, respectively.  Short-term borrowings consist of overnight and term borrowings with an original maturity less than one year.  Short-term borrowings are obtained from commercial banks, participants in the Federal Funds market and the FHLB.

NOTE 8 - STOCK BASED COMPENSATION

During the nine months ended September 30, 2013, the Company recorded $811,000 of stock based compensation expense comprised of stock option expense of $315,000 and restricted stock expense of $496,000. This compares to $873,000 of stock based compensation expense comprised of stock option expense of $350,000 and restricted stock expense of $523,000 during the nine months ended September 30, 2012.

The following is a summary of the Bancorp’s stock option activity and related information for the nine months ended September 30, 2013.

	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Unaudited)
Outstanding at December 31, 2012	877,669		$	11.57	6.3 years	$	4,461,000
Granted	255,650		17.00
Exercised	(9,811	)	10.82
Forfeited/Cancelled	(100	)	12.94
Outstanding at September 30, 2013	1,123,408		$	12.81	6.4 years	$	5,157,000
Exercisable at September 30, 2013	646,515		$	11.31	4.7 years	$	3,940,000

23

NOTE 8 - STOCK BASED COMPENSATION (CONTINUED)

The following is a summary of the Bancorp’s unvested options as of September 30, 2013 and the changes therein during the nine months then ended.

		Number of Stock Options		Weighted Average Grant Date Fair Value
		(Unaudited)
Unvested at	December 31, 2012	310,661		$	3.36
Granted		255,650		4.20
Vested		(89,418	)	3.17
Forfeited / Cancelled		—		—
Unvested at	September 30, 2013	476,893		$	3.85

Expected future expense relating to the 476,893 non-vested options outstanding as of September 30, 2013 is $1.6 million over a weighted average period of 3.9 years.

The fair value of the options granted in 2013 was estimated to be $4.20 to $4.45.  The fair value was based on the following assumptions:

Expected Dividend Yield				2.22	%
Expected Volatility	31.11	%	-	31.12	%
Risk-Free Interest Rate	1.19	%	-	1.74	%
Expected Option Life in Years				6.5

The following is a summary of the status of the Bancorp’s restricted stock as of September 30, 2013 and changes therein during the nine months then ended.

		Number of Restricted Shares		Weighted Average Grant Date Fair Value
		(Unaudited)
Unvested at	December 31, 2012	130,557		$	12.41
Granted		122,450		17.00
Vested		(26,826	)	11.78
Forfeited / Cancelled		—		—
Unvested at	September 30, 2013	226,181		$	14.97

Expected future compensation expense relating to the 226,181 restricted shares at September 30, 2013 is $3.0 million over a weighted average period of 4.0 years.

During the nine months ended September 30, 2013, the Bancorp granted 39,250 shares of performance based restricted stock to certain executive officers of the Company.

24

NOTE 9 - 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 the respective quarter 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 quarter end.

The Company determines the fair value of financial instruments 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 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, 2013 and December 31, 2012:

Cash and Cash Equivalents

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

Investment and Mortgage Related Securities—Available-for-Sale and Held-to-Maturity

Fair values for investment securities and mortgage related securities are obtained from 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.  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.  We review the estimates of fair value provided by the primary 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.

Loans Receivable, Net

To determine the fair values of loans that are not impaired, we employ discounted cash flow analyses that use interest rates and terms similar to those currently being offered to borrowers.  We do not record loans at fair value on a recurring basis.  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, agreements of sale, discounting the contractual cash flows, and analyzing market data that we may adjust due to specific characteristics of the loan or collateral.

FHLB Stock

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

25

NOTE 9 - FAIR VALUE (CONTINUED)

Mortgage Servicing Rights

The fair value of the MSRs 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.

Financial Assets Acquired from Debtors

The fair value of financial assets acquired from debtors are determined using valuations obtained from a third-party valuation firm who utilizes a discounted cash flow model to calculate the fair value of the assets.  The significant assumptions used in the valuation are the life expectancies of the insured parties, future premium payments and discount rates.

Accrued Interest Receivable and Accrued Interest Payable

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

Deposit Liabilities

Fair values for demand deposits (including NOW 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, including brokered deposits, are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.

Short-term Borrowings, FHLB Advances and Other Borrowed Funds

Fair value of short-term borrowings, FHLB advances and other borrowed funds are estimated using discounted cash flow analyses, based on rates currently available to the Bank for advances with similar terms and remaining maturities.

Derivative Contracts

The fair values of derivative contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.

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 creditworthiness of the counterparties.

26

NOTE 9 - FAIR VALUE (CONTINUED)

The estimated fair values of the Company’s financial instruments at September 30, 2013 and December 31, 2012 were as follows:

		September 30, 2013				December 31, 2012
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		(In thousands)
Financial assets:		(Unaudited)
Cash and cash equivalents	Level 1	$	6,415	$	6,415	$	25,090	$	25,090
Available-for-sale securities:
Investment securities available-for-sale	Level 2	10,501		10,501		12,491		12,491
Private label commercial mortgage related securities	Level 3	2,166		2,166		6,197		6,197
Agency residential mortgage related securities	Level 2	256,240		256,240		277,419		277,419
Held-to-maturity securities:
Agency mortgage related securities	Level 2	70,928		70,601		28,369		29,451
Loans receivable, net	Level 3	700,544		701,677		683,865		686,867
FHLB stock	Level 3	10,013		10,013		8,097		8,097
Accrued interest receivable	Level 3	3,267		3,267		3,223		3,223
Mortgage servicing rights	Level 2	157		157		170		170
Financial assets acquired from debtors	Level 3	2,058		2,058		3,714		3,714
Financial liabilities:
Savings and club accounts	Level 2	95,358		95,358		99,046		99,046
Demand, NOW and money market deposits	Level 2	280,637		280,637		275,693		275,693
Brokered deposits	Level 2	73,871		73,599		50,637		50,715
Certificates of deposit	Level 2	233,142		234,996		262,033		264,694
Short-term borrowings	Level 2	61,600		61,600		70,500		70,500
FHLB advances	Level 2	150,000		154,100		110,000		115,767
Other borrowed funds	Level 2	30,000		32,450		30,000		33,651
Accrued interest payable	Level 2	314		314		330		330
Derivative contracts	Level 2, 3	167		167		320		320

The following financial instruments were classified as Level 3 and carried at fair value as of September 30, 2013:

• Private label CMBS, the fair value of which are difficult to determine because they are not actively traded in securities markets.  The net unrealized gain in the private label CMBS portfolio was $9,000 and $78,000 at September 30, 2013 and December 31, 2012, respectively.

• Two commercial loans, since lending credit risk is not an observable input for these loans (see Note 4).  The unrealized gain on the two loans was $163,000 at September 30, 2013 compared to $293,000 at December 31, 2012.

• Financial assets acquired from debtors, which are valued using a discounted cash flow model which contains significant unobservable inputs.  Losses resulting from changes in fair value, totaling $4.5 million for the nine month period ended September 30, 2013, were recorded in assets acquired through foreclosure expense in the consolidated statements of operations.

• Credit derivatives are valued based on creditworthiness of the underlying borrower which is a significant unobservable input.  The liability resulting from credit derivatives was $5,000 at September 30, 2013 and $12,000 at December 31, 2012.

27

NOTE 9 - FAIR VALUE (CONTINUED)

The following measures were made on a recurring basis as of September 30, 2013 and December 31, 2012.

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Other Unobservable Inputs
Description	September 30, 2013			(Level 1)		(Level 2)			(Level 3)
	(In thousands, Unaudited)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	310		$	—	$	310		$	—
Corporate securities	10,191			—		10,191			—
Private label commercial mortgage related securities	2,166			—		—			2,166
Agency residential mortgage related securities	256,240			—		256,240			—
Loans (1)	2,599			—		—			2,599
Financial assets acquired from debtors	2,058			—		—			2,058
Derivative contracts (1)	(167		)	—		(162		)	(5		)
Total	$	273,397		$	—	$	266,579		$	6,818
				Fair Value Measurements at Reporting Date Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Other Unobservable Inputs
Description	December 31, 2012			(Level 1)		(Level 2)			(Level 3)
	(In thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	314		$	—	$	314		$	—
Corporate securities	12,177			—		12,177			—
Private label commercial mortgage related securities	6,197			—		—			6,197
Agency residential mortgage related securities	277,419			—		277,419			—
Loans (1)	2,806			—		—			2,806
Financial assets acquired from debtors	3,714			—		—			3,714
Derivative contracts (1)	(320		)	—		(308		)	(12		)
Total	$	302,307		$	—	$	289,602		$	12,705

(1)          Such financial instruments are recorded at fair value as further described in Note 4.

The following measures were made on a non-recurring basis as of September 30, 2013 and December 31, 2012:

Loans, which were partially charged off at September 30, 2013 and December 31, 2012.  The loans’ fair values are based on Level 3 inputs, which are either an appraised value or a sales agreement, less costs to sell.  These amounts do not include fully charged-off loans, because we carry fully charged-off loans at zero on our balance sheet.

MSRs, the fair value of which 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.

Other real estate owned, for which we used Level 3 inputs, which consist of appraisals or agreements of sale.  Other real estate owned is initially recorded on our balance sheet at fair value, net of costs to sell, when we obtain control of the property.

28

NOTE 9 - FAIR VALUE (CONTINUED)

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
		Balance		(Level 1)		(Level 2)		(Level 3)
September 30, 2013	(Unaudited)			(In thousands)
Loans		$	817	$	—	$	—	$	817
Mortgage servicing rights		157		—		157		—
Other real estate owned		4,530		—		—		4,530
Total		$	5,504	$	—	$	157	$	5,347
December 31, 2012
Loans		$	2,951	$	—	$	—	$	2,951
Mortgage servicing rights		170		—		170		—
Other real estate owned		4,810		—		—		4,810
Total		$	7,931	$	—	$	170	$	7,761

The following tables include a roll forward of the financial instruments which fair value is determined using Significant Other Unobservable Inputs (Level 3) for the periods of December 31, 2012 to September 30, 2013 and December 31, 2011 to September 30, 2012.

Nine Months Ended September 30, 2013
	Private Label Residential Mortgage Related Security			Private Label Commercial Mortgage Related Securities			Derivative Contracts			Financial Assets Acquired from Debtors			Loans			Total
	(In thousands, Unaudited)
Beginning balance, December 31, 2012	$	—		$	6,197		$	(12	)	$	3,714		$	2,806		$	12,705
Purchases/additions	—			—			—			1,994			—			1,994
Sales	—			—			—			—			—			—
Payments (received) made	—			(3,959		)	—			830			(77		)	(3,206		)
Premium amortization, net	—			(3		)	—			—			—			(3		)
(Decrease)/increase in value	—			(69		)	7			(4,480		)	(130		)	(4,672		)
Ending balance, September 30, 2013	$	—		$	2,166		$	(5	)	$	2,058		$	2,599		$	6,818
Nine Months Ended September 30, 2012
	Private Label Residential Mortgage Related Security			Private Label Commercial Mortgage Related Securities			Derivative Contracts			Financial Assets Acquired from Debtors			Loans			Total
	(In thousands, Unaudited)
Beginning balance, December 31, 2011	$	122		$	8,906		$	—		$	—		$	2,877		$	11,905
Purchases/additions	—			—			(36		)	2,404			—			2,368
Sales	(70		)	—			—			—			—			(70		)
Payments (received) made	(7		)	(2,432		)	—			282			(70		)	(2,227		)
Premium amortization, net	—			—			—			—			—			—
(Decrease)/increase in value	(45		)	(9		)	5			(82		)	46			(85		)
Ending balance, September 30, 2012	$	—		$	6,465		$	(31	)	$	2,604		$	2,853		$	11,891

There were no transfers made between levels during the nine months ended September 30, 2013 or 2012.

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NOTE 10 – ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update (ASU) No. 2013-01-Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This update clarifies that the scope of ASU No. 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The Company has adopted this update and has determined it does not have an impact on the Company's consolidated financial statements or disclosures as the Company does not have any enforceable master netting arrangements or instruments that are offset in accordance with Section 210-20-45 or Section 815-10-45.

ASU No. 2013-02-Comprehensive Income (Topic 220)-Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. For the Company, the update is effective prospectively for reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. This guidance did not have a material impact on the Company's financial statements, but did result in revised presentation on the consolidated statements of operations of the items reclassified out of accumulated other comprehensive income.

ASU No. 2013-10-Derivatives and Hedging (Topic 815)-Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the Fed funds effective swap rate (OIS) to be used as a U.S. benchmark interest rate, in addition to the U.S. Treasury rate and LIBOR, for hedge accounting purposes. The ASU also permits using different benchmark rates for similar hedges. This ASU is effective immediately and may only be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The impact of adopting this ASU was not material to the Company.

ASU No. 2013-11-Income Taxes (Topic 740)-Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). As a result of applying this ASU, an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss (NOL) or other tax credit carryforward when settlement in this manner is available under the tax law. The assessment of whether settlement is available under the tax law would be based on facts and circumstances as of the balance sheet reporting date and would not consider future events (e.g., upcoming expiration of related NOL carryforwards). This classification should not affect an entity's analysis of the realization of its deferred tax assets. Gross presentation in the rollforward of unrecognized tax positions in the notes to the financial statements would still be required. For the Company, the update is effective prospectively for reporting periods beginning on or after January 1, 2014, and interim periods within those annual periods. Retrospective application is permitted. The impact of adopting this ASU will not be material to the Company.

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 subsidiaries 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 sections titled “Risk Factors”

30

in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 13, 2013, and its 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. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the portfolio, based upon management’s evaluation of the portfolio’s collectability.  Our methodology for assessing the appropriateness of the allowance for loan losses consists of an allowance on impaired loans and a general valuation allowance on the remainder of the portfolio.  Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for losses on the entire portfolio.

Loans are deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all proceeds due according to the contractual terms of the loan agreement or when a loan is classified as a troubled debt restructuring.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s original effective interest rate, the loan’s obtainable market price or the fair value of the collateral less costs to sell if the loan is collateral dependent.  The Company establishes an allowance for loan losses in the amount of the difference between fair value of the impaired loan and the loan’s carrying amount.

We establish a general allowance for loans that are not considered impaired to recognize the inherent losses associated with lending activities.  This general valuation allowance is determined by segmenting the loan portfolio by loan type and assigning percentages, known as loss factors, to each category.  The percentages are adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date.  These significant factors include the size and composition of the loan portfolio, the Company’s loss experience by particular segment, 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 and changes in existing general economic and business conditions affecting our lending areas and the national economy.  These loss factors are subject to ongoing evaluation to ensure their relevance in the current economic environment.  We perform this systematic analysis of the allowance on a quarterly basis.  These criteria are analyzed and the allowance is developed and maintained at the segment level.

Additional risk is associated with the analysis of the allowance for loan losses as such evaluations are highly subjective, and future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations.  In addition, various regulatory agencies periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize adjustments to the allowance, based on their judgments at the time of their examination.

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.  Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized.  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. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

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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, and the probability, extent and timing of a valuation recovery and our intent to sell the security or if it is more likely than not that the security will be required to be sold before recovery of 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.

Valuation of Assets Acquired Through Foreclosure.  Assets acquired through foreclosure consist of other real estate owned and financial assets acquired from debtors.  Other real estate owned is carried at the lower of cost or fair value, less estimated selling costs.  The fair value of other real estate owned is determined using appraisals obtained from approved independent appraisers or agreements of sale, where applicable.  Financial assets acquired from debtors are carried at fair value under the fair value option in accordance with FASB ASC 825 “Financial Instruments”.  The fair value of financial assets acquired from debtors is determined using valuations obtained from a third party valuation firm who utilizes a discounted cash flow model. Changes in the fair value of assets acquired through foreclosure at future reporting dates or at the time of disposition will result in an adjustment in assets acquired through foreclosure expense or net gain (loss) on sale of assets acquired through foreclosure, respectively.

Comparison of Financial Condition at September 30, 2013 and December 31, 2012

Total assets were $1.11 billion at September 30, 2013 and $1.09 billion at December 31, 2012.  Total loans were $700.5 million at September 30, 2013, an increase of $16.7 million, or 2.4%, from $683.9 million at December 31, 2012.  Total commercial loans increased $50.0 million, or 9.9%, comprised of increases of $30.4 million in multi-family and commercial real estate loans and $35.7 million in commercial and industrial loans, partially offset by a decrease of $16.2 million in commercial construction loans.  During the nine months ended September 30, 2013, one- to four-family residential mortgage loans decreased $25.8 million and consumer loans decreased $7.2 million due to normal amortization exceeding new loans originated.  The increase in total commercial loans is consistent with the Company’s focus on growing its commercial business portfolio.  Total investments were $339.8 million at September 30, 2013, an increase of $15.4 million, or 4.7%, from $324.5 million at December 31, 2012.  The increase was primarily from purchases of residential mortgage related securities.

Deposits decreased $4.4 million, or 0.6%, from $687.4 million at December 31, 2012 to $683.0 million at September 30, 2013.  During the nine months ended September 30, 2013, brokered deposits increased $23.2 million, NOW accounts increased $10.5 million and noninterest-bearing demand accounts increased $7.2 million.  Offsetting these increases were decreases in non-brokered certificates of deposit of $28.9 million, money market accounts of $12.7 million and savings and club accounts of $3.7 million.  The increase in brokered deposits is the result of the Company’s decision to continue to utilize this source of relatively low-cost funding. The Company had brokered deposits of $73.9 million at September 30, 2013 with an original weighted average term of 2.2 years and a weighted average rate of 0.63%. The increase in NOW accounts is driven by increases in the Company’s Advantage Checking product. The increase in noninterest-bearing demand accounts is primarily due to deposits obtained from commercial borrowing relationships. The decrease in non-brokered certificates of deposit, money market deposits and savings and club accounts is primarily due to the Company not offering pricing promotions and instead maintaining its rates at the midpoint of the market.  FHLB advances increased $40.0 million, or 36.4%, from $110.0 million at December 31, 2012 to $150.0 million at September 30, 2013 due to incremental term borrowings during 2013. Short-term borrowings decreased $8.9 million, or 12.6%, from $70.5 million at December 31, 2012 to $61.6 million at September 30, 2013.

Stockholders’ equity decreased $7.2 million to $174.2 million at September 30, 2013 compared to $181.5 million at December 31, 2012 primarily due to stock repurchases of $3.7 million, dividends paid of $2.3 million and a decrease in accumulated other comprehensive income of $7.1 million, offset by net income of $4.0 million and stock based compensation activity of $1.8 million for the nine months ended September 30, 2013.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2013 and 2012

General. Net income decreased $263,000, or 18.3%, to $1.2 million for the three months ended September 30, 2013, compared to $1.4 million for the three months ended September 30, 2012.  The decrease in net income was primarily due to increases in noninterest expense of $604,000 and provision for loan losses of $205,000, offset by an increase in noninterest income of $292,000 and a decrease in income tax expense of $255,000.

32

Net income increased $882,000, or 27.9%, to $4.0 million for the nine months ended September 30, 2013, compared to $3.2 million for the nine months ended September 30, 2012.  The increase in net income was due to a decrease in the provision for loan losses of $2.5 million and an increase in net interest income of $128,000, offset by a decrease in noninterest income of $1.3 million and increases in noninterest expenses of $247,000 and tax expense of $214,000.

Net Interest Income. Net interest income was $8.2 million for the three months ended September 30, 2013 and 2012. Total interest income decreased $390,000 for the three months ended September 30, 2013 compared to the same period in 2012. Total interest expense decreased $389,000 for the three months ended September 30, 2013 compared to the same period in 2012.  The decrease in total interest income was primarily due to a decrease in the yield on interest-earning assets from 4.25% to 3.81% offset by a $71.0 million increase in the average balance of interest-earning assets.  The decrease in yield was primarily due to decreases in the yields on total loans from 5.02% to 4.63% and mortgage related securities from 2.56% to 2.16%.  The decrease in yield reflects a reduction in the overall interest rate environment during 2011, 2012 and the first nine months of 2013.  The increase in the average balance of interest-earning assets was primarily due to a $40.0 million increase in mortgage related securities and a $26.6 million increase in total loans.  The decrease in total interest expense was due to a decrease in the cost of interest-bearing liabilities from 1.25% to 0.94% offset by a $71.0 million increase in average interest-bearing liabilities.  The decrease in the average cost of interest-bearing liabilities was due to a decrease in the average cost of borrowings from 2.36% to 1.44% and a decrease in the average cost of interest-bearing deposits from 1.03% to 0.74%.  The decrease in the average cost of borrowings reflects a reduction in the overall interest rate environment and the Company's strategy to utilize shorter-term lower cost funding vehicles. The decrease in the average cost of interest-bearing deposits reflects a reduction in the overall interest rate environment during 2011, 2012 and the first nine months of 2013 coupled with maturities of higher rate certificates of deposit and reduced rates on other deposit products.

Net interest income increased $128,000, or 0.5%, to $24.0 million for the nine months ended September 30, 2013 compared to $23.9 million for the same period in 2012, primarily due to a decrease in total interest expense of $2.2 million offset by a decrease in total interest income of $2.0 million.  The decrease in total interest expense was due to a decrease in the cost of interest-bearing liabilities from 1.48% to 0.99% offset by a $63.1 million increase in average interest-bearing liabilities.  The decrease in the average cost of interest-bearing liabilities was due to a decrease in the average cost of borrowings from 2.97% to 1.58% and a decrease in the average cost of interest-bearing deposits from 1.14% to 0.78%.  The decrease in the average cost of borrowings is primarily due to the termination of FHLB advances and other borrowed funds totaling $56.3 million, with an average cost of funds of 3.50%, during the three months ended June 30, 2012 coupled with a reduction in the overall interest rate environment and the Company's strategy to utilize shorter-term lower cost funding vehicles. The decrease in the average cost of interest-bearing deposits reflects a reduction in the overall interest rate environment during 2011, 2012 and the first nine months of 2013 coupled with 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 yield on interest-earning assets from 4.33% to 3.79% offset by a $70.0 million increase in the average balance of interest-earning assets.  The decrease in yield was primarily due to decreases in the yields on total loans from 5.15% to 4.67% and mortgage related securities from 2.74% to 2.14%.  The decrease in yield reflects a reduction in the overall interest rate environment during 2011, 2012 and the first nine months of 2013.  The increase in the average balance of interest-earning assets was primarily due to a $46.1 million increase in mortgage related securities and a $27.0 million increase in total loans. 

33

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, 2013 and 2012.  Yields are not presented on a tax-equivalent basis.  Any adjustments necessary to present yields on a tax-equivalent basis are insignificant. 

	Three Months Ended September 30,														Nine Months Ended September 30,
	2013							2012							2013							2012
				Interest and Dividends							Interest and Dividends							Interest and Dividends							Interest and Dividends
	Average Balance					Yield/ Cost		Average Balance					Yield/ Cost		Average Balance					Yield/ Cost		Average Balance					Yield/ Cost
Assets:	(Dollars in thousands)														(Dollars in thousands)
Interest-earning assets:
Interest-earning demand deposits	$	5,652		$	1	0.03	%	$	5,741		$	—	0.05	%	$	5,540		$	2	0.04	%	$	7,213		$	5	0.10	%
Mortgage related securities
Available-for-sale	264,635			1,472		2.23	%	261,232			1,747		2.67	%	283,912			4,642		2.18	%	246,942			5,363		2.90	%
Held-to-maturity	70,248			335		1.91	%	33,682			141		1.68	%	45,876			654		1.90	%	36,736			459		1.67	%
Total mortgage related securities	334,883			1,807		2.16	%	294,914			1,888		2.56	%	329,788			5,296		2.14	%	283,678			5,822		2.74	%
Taxable securities	21,012			92		1.74	%	17,207			60		1.38	%	20,899			221		1.41	%	21,734			231		1.41	%
Nontaxable securities	—			—		—	%	4			1		87.75	%	—			—		—	%	984			34		4.65	%
Loans:
Residential loans	136,963			1,618		4.73	%	174,127			2,106		4.84	%	146,303			5,144		4.69	%	182,600			6,752		4.93	%
Commercial loans	547,250			6,326		4.59	%	470,864			6,076		5.13	%	522,996			18,210		4.66	%	444,956			17,726		5.32	%
Consumer loans	23,964			297		4.97	%	36,584			400		4.37	%	26,383			965		4.88	%	41,149			1,314		4.26	%
Total Loans	708,177			8,241		4.63	%	681,575			8,582		5.02	%	695,682			24,319		4.67	%	668,705			25,792		5.15	%
Allowance for loan losses	(10,854		)					(11,615		)					(11,420		)					(11,836		)
Net loans	697,323			8,241				669,960			8,582				684,262			24,319				656,869			25,792
Total interest-earning assets	1,058,870			10,141		3.81	%	987,826			10,531		4.25	%	1,040,489			29,838		3.79	%	970,478			31,884		4.33	%
Noninterest-earning assets	50,589							44,930							49,905							43,720
Total assets	$	1,109,459						$	1,032,756						$	1,090,394						$	1,014,198
Liabilities and equity:
Interest-bearing liabilities:
NOW and money market deposit accounts	$	167,691		$	88	0.21	%	$	164,733		$	138	0.33	%	$	165,711		258		0.21	%	$	164,706		444		0.36	%
Savings accounts	97,209			33		0.13	%	98,265			61		0.25	%	98,042			99		0.14	%	93,360			195		0.28	%
Brokered deposits	62,112			95		0.61	%	60,351			76		0.50	%	63,253			279		0.59	%	28,934			120		0.55	%
Certificates of deposit	239,733			839		1.39	%	285,853			1,303		1.81	%	249,048			2,737		1.47	%	298,409			4,227		1.89	%
Total interest-bearing deposits	566,745			1,055		0.74	%	609,202			1,578		1.03	%	576,054			3,373		0.78	%	585,409			4,986		1.14	%
Short-term borrowings	64,672			45		0.28	%	26,834			16		0.24	%	46,792			94		0.27	%	15,434			26		0.23	%
FHLB advances	140,111			555		1.57	%	64,484			450		2.78	%	131,076			1,606		1.64	%	77,504			1,892		3.26	%
Other borrowed funds	30,000			254		3.36	%	30,000			254		3.36	%	30,000			753		3.36	%	42,519			1,096		3.44	%
Total borrowings	234,783			854		1.44	%	121,318			720		2.36	%	207,868			2,453		1.58	%	135,457			3,014		2.97	%
Total interest-bearing liabilities	801,528			1,909		0.94	%	730,520			2,298		1.25	%	783,922			5,826		0.99	%	720,866			8,000		1.48	%
Noninterest-bearing deposits	128,437							114,983							121,778							103,299
Other noninterest-bearing liabilities	6,080							3,529							7,115							4,576
Total liabilities	936,045							849,032							912,815							828,741
Stockholders’ equity	176,915							178,169							176,893							179,178
Accumulated comprehensive income	(3,501		)					5,555							686							6,279
Total stockholders' equity	173,414							183,724							177,579							185,457
Total liabilities and stockholders’ equity	$	1,109,459						$	1,032,756						$	1,090,394						$	1,014,198
Net interest income				$	8,232						$	8,233						$	24,012						$	23,884
Interest rate spread						2.87	%						3.00	%						2.80	%						2.85	%
Net interest margin						3.06	%						3.29	%						3.05	%						3.24	%
Average interest-earning assets to average interest-bearing liabilities						132.11	%						135.22	%						132.73	%						134.63	%

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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   September 30, 2013									Nine Months Ended   September 30, 2013
	Compared to									Compared to
	Three Months Ended   September 30, 2012									Nine Months Ended   September 30, 2012
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
	Rate			Volume			Net			Rate			Volume			Net
Interest and Dividend Income:	(In thousands)
Interest-earning demand deposits	$	1		$	—		$	1		$	(2	)	$	(1	)	$	(3	)
Mortgage related securities
Available-for-sale	(298		)	23			(275		)	(1,525		)	804			(721		)
Held-to-maturity	40			154			194			81			114			195
Total mortgage related securities	(258		)	177			(81		)	(1,444		)	918			(526		)
Taxable securities	19			13			32			(1		)	(9		)	(10		)
Nontaxable securities	—			(1		)	(1		)	—			(34		)	(34		)
Loans:
Residential loans	(38		)	(450		)	(488		)	(266		)	(1,342		)	(1,608		)
Commercial loans	(738		)	988			250			(2,621		)	3,105			484
Consumer loans	35			(138		)	(103		)	123			(472		)	(349		)
Total loans	(741		)	400			(341		)	(2,764		)	1,291			(1,473		)
Total interest-earning assets	(979		)	589			(390		)	(4,211		)	2,165			(2,046		)
Interest Expense:
NOW and money market deposits	(52		)	2			(50		)	(189		)	3			(186		)
Savings accounts	(27		)	(1		)	(28		)	(106		)	10			(96		)
Brokered deposits	17			2			19			17			142			159
Certificates of deposit	(254		)	(210		)	(464		)	(792		)	(698		)	(1,490		)
Total interest-bearing deposits	(316		)	(207		)	(523		)	(1,070		)	(543		)	(1,613		)
Short-term borrowings	6			23			29			14			54			68
FHLB advances	(425		)	530			105			(1,592		)	1,306			(286		)
Other borrowed funds	—			—			—			(21		)	(322		)	(343		)
Total borrowings	(419		)	553			134			(1,599		)	1,038			(561		)
Total interest-bearing liabilities	(735		)	346			(389		)	(2,669		)	495			(2,174		)
Net change in net interest income	$	(244	)	$	243		$	(1	)	$	(1,542	)	$	1,670		$	128

35

Provision for Loan Losses. The Company recorded a provision for loan losses of $675,000 for the three months ended September 30, 2013, compared to $470,000 for the three months ended September 30, 2012. The provision for loan losses was lower for the three months ended September 30, 2012 primarily due to the payoff of two substandard loan relationships during that reporting period. The Company recorded a provision for loan losses of $532,000 for the nine months ended September 30, 2013, compared to $3.0 million for the nine months ended September 30, 2012. The decrease in provision for the nine months ended September 30, 2013 was primarily due to: (1) a reduced provision related to nonperforming loans; (2) a reduction in nonperforming loans and criticized and classified loans; and (3) a reduction in general reserve loss factors for commercial and industrial loans during 2013. The Company has experienced significant growth in its commercial and industrial segment of its loan portfolio since a middle market lending team was hired in the second half of 2009.  Initially, the general reserve loss factors for this segment were based on industry loss data and management judgment.  Beginning in 2012, loss factors for this segment were based on actual Company loss experience adjusted by qualitative risk adjustment factors.  The strong credit performance of this segment, evidenced by the fact that the Company has experienced no loan charge-offs in this segment since December 31, 2011, has resulted in a decrease in the qualitative risk adjustment factors used in developing the general reserve loss factors beginning during the three months ended June 30, 2013.

The following table provides information with respect to our nonperforming assets at the dates indicated. 

	September 30, 2013			December 31, 2012
	(Dollars in thousands)
Nonaccruing Loans:
One- to four-family real estate	$	1,981		$	3,355
Multi-family and commercial real estate	2,966			5,284
Construction	3,991			6,434
Consumer	119			2,051
Commercial and industrial	—			—
Total	9,057			17,124
Accruing Loans Past Due 90 Days or More:
Multi-family and commercial real estate	1,640			—
Total	$	1,640		$	—
Nonperforming Loans	10,697			17,124
Assets Acquired Through Foreclosure	6,588			8,524
Total Nonperforming Assets	$	17,285		$	25,648
Total nonperforming loans to total loans	1.50		%	2.46		%
Total nonperforming loans to total assets	0.97		%	1.57		%
Total nonperforming assets to total assets	1.56		%	2.36		%
Impaired Loans:
Nonaccruing loans	$	9,057		$	17,124
Troubled debt restructurings	7,265			7,388
Total impaired loans	$	16,322		$	24,512

36

The following tables set forth our nonaccrual loans by state and loan segment at September 30, 2013 and December 31, 2012. This table does not include accruing loans past due 90 days or more.

September 30, 2013
	One- to Four- Family Real Estate			Multi-family and Commercial Real Estate									Commercial and Industrial
							Construction			Consumer						Total
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
	(Dollars in thousands)
Pennsylvania	5	$	1,130	3	$	1,486	2	$	3,991	4	$	119	—	$	—	14	$	6,726
New Jersey	3	594		2	387		—	—		—	—		—	—		5	981
Delaware	2	257		1	1,093		—	—		—	—		—	—		3	1,350
Total	10	$	1,981	6	$	2,966	2	$	3,991	4	$	119	—	$	—	22	$	9,057
December 31, 2012
	One- to Four- Family Real Estate			Multi-family and Commercial Real Estate									Commercial and Industrial
							Construction			Consumer						Total
	Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount		Number of Loans	Amount
	(Dollars in thousands)
Pennsylvania	7	$	1,399	1	$	1,380	2	$	6,434	8	$	189	—	$	—	18	$	9,402
New Jersey	7	1,956		4	2,738		—	—		—	—		—	—		11	4,694
Delaware	—	—		1	1,166		—	—		—	—		—	—		1	1,166
Other	—	—		—	—		—	—		3	1,862		—	—		3	1,862
Total	14	$	3,355	6	$	5,284	2	$	6,434	11	$	2,051	—	$	—	33	$	17,124

At September 30, 2013, nonperforming assets were comprised of the following:

�� Two construction loans for residential developments, the largest of which is collateralized by land and improvements associated with a residential housing development located in Chester County, Pennsylvania. The other nonaccrual construction loan is collateralized by a residential housing development located in Montgomery County, Pennsylvania.

• Seven multi-family and commercial real estate loans, the largest of which is secured by multi-use rental properties located in Montgomery County, Pennsylvania.

• Ten one- to four-family loans, the largest of which is secured by a single-family home located in Montgomery County, Pennsylvania.

• Four consumer loans which are secured by second or third lien mortgage positions.

• Assets acquired through foreclosure consisting of two properties and nine insurance policies, with a total carrying value of $6.6 million.

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

	September 30, 2013				December 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due
	(In thousands)
One- to four-family real estate	$	1,363	$	256	$	18	$	284
Multi-family and commercial real estate	—		277		—		1,691
Construction	—		—		—		—
Consumer	118		36		23		51
Commercial and industrial	—		—		—		—
Total	$	1,481	$	569	$	41	$	2,026

At September 30, 2013, delinquent loans were comprised of thirteen different loan relationships.  Total delinquent loans decreased by $17,000 from December 31, 2012 to $2.1 million at September 30, 2013.

Noninterest Income. The following table summarizes noninterest income for the three and nine months ended September 30, 2013 and 2012. 

	Three Months Ended   September 30,				$			%		Nine Months Ended   September 30,				$			%
	2013		2012		Change			Change		2013		2012		Change			Change
	(Dollars in thousands)									(Dollars in thousands)
Service charges and other fee income	$	437	$	364	$	73		20.1	%	$	1,260	$	1,138	$	122		10.7	%
Net gain on sale of assets acquired through foreclosure	303		8		295			3,687.5		484		135		349			258.5
Income on bank-owned life insurance	118		117		1			0.9		351		354		(3		)	(0.8	)
Equity in earnings of affiliate	135		210		(75		)	(35.7	)	470		445		25			5.6
Net gain on sale of investment securities	—		—		—			—		532		2,340		(1,808		)	(77.3	)
Other	36		38		(2		)	(5.3	)	125		99		26			26.3
Total Noninterest Income	$	1,029	$	737	$	292		39.6	%	$	3,222	$	4,511	$	(1,289	)	(28.6	)%

Noninterest income increased $292,000 from the three months ended September 30, 2012 compared to the same period in 2013. This increase was driven by an increase in net gain on sale of assets acquired through foreclosure of $295,000. Service charges and other fee income increased $73,000, primarily due to increases in loan-related fees of $26,000 and deposit-related fees of $47,000.  The deposit-related fee increase is primarily driven by a $34,000 increase in cash management fees. Equity in earnings of affiliate decreased $75,000 due to decreased income on the Bank’s investment in PMA as a result of lower mortgage loan volume for the 2013 period.

Noninterest income decreased $1.3 million from the nine months ended September 30, 2012 compared to the same period in 2013. Net gain on sale of investment securities decreased $1.8 million due to the sale of $72.9 million of investment securities during the nine months ended September 30, 2012 compared to the sale of $9.0 million of investment securities during the nine months ended September 30, 2013. Net gain on sale of assets acquired through foreclosure increased $349,000. Service charges and other fee income increased $122,000, primarily due to increases in loan-related fees of $25,000 and deposit-related fees of $97,000.  Equity in earnings of affiliates increased $25,000 due to increased income on the Bank’s investment in PMA due to slightly higher mortgage loan volume for the 2013 period. 

38

Noninterest Expense. The following table summarizes noninterest expense for the three and nine months ended September 30, 2013 and 2012. 

	Three Months Ended September 30,				$			%		Nine Months Ended September 30,				$			%
	2013		2012		Change			Change		2013		2012		Change			Change
	(Dollars in thousands)									(Dollars in thousands)
Salaries, benefits and other compensation	$	3,644	$	3,458	$	186		5.4	%	$	10,629	$	10,150	$	479		4.7	%
Occupancy expense	403		415		(12		)	(2.9	)	1,243		1,294		(51		)	(3.9	)
Furniture and equipment expense	117		119		(2		)	(1.7	)	358		409		(51		)	(12.5	)
Data processing costs	390		441		(51		)	(11.6	)	1,155		1,359		(204		)	(15.0	)
Professional fees	474		369		105			28.5		1,250		1,327		(77		)	(5.8	)
Marketing expense	59		65		(6		)	(9.2	)	167		217		(50		)	(23.0	)
FDIC premiums	175		199		(24		)	(12.1	)	525		581		(56		)	(9.6	)
Assets acquired through foreclosure expense	1,370		962		408			42.4		4,465		1,115		3,350			300.4
Loss on extinguishment of debt	—		—		—			—		—		3,018		(3,018		)	(100.0	)
Other	370		370		—			—		1,192		1,267		(75		)	(5.9	)
Total Noninterest Expense	$	7,002	$	6,398	$	604		9.4	%	$	20,984	$	20,737	$	247		1.2	%

Noninterest expense increased $604,000 from the three months ended September 30, 2012 compared to the same period in 2013. Assets acquired through foreclosure expense increased $408,000, which related to an increase in valuation adjustments on assets acquired through foreclosure.  Valuation adjustments on assets acquired through foreclosure totaled $1.3 million for the three months ended September 30, 2013, which related solely to valuation adjustment on insurance policies. Valuation adjustments totaled $887,000 for the three months ended September 30, 2012.  Salaries, benefits and other compensation increased $186,000, or 5.4%, for the three months ended September 30, 2013 compared to the three months ended September 30, 2012, primarily as a result of increased staffing costs.  Professional fees increased $105,000 for the three months ended September 30, 2013 compared to the three months ended September 30, 2012 due to increased loan work-out expense.

Noninterest expense increased $247,000 from the nine months ended September 30, 2012 compared to the same period in 2013. Assets acquired through foreclosure expense increased $3.4 million, which resulted from an increase in valuation adjustments on assets acquired through foreclosure.  Valuation adjustments on assets acquired through foreclosure totaled $4.3 million for the nine months ended September 30, 2013, which was primarily driven by a $4.5 million valuation adjustment on insurance policies. Valuation adjustments on assets acquired through foreclosure for the nine months ended September 30, 2012 totaled $932,000.  Salaries, benefits and other compensation increased $479,000, or 4.7%, for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, primarily as a result of increased staffing costs.  These increases were offset by a decrease in loss on extinguishment of debt of $3.0 million due to the extinguishment of debt totaling $56.3 million during the nine months ended September 30, 2012. No debt was extinguished during the nine months ended September 30, 2013. Data processing costs decreased $204,000 primarily due to the renegotiation of a data processing contract that became effective in January 2013.

Income Taxes. The income tax provision for the three and nine months ended September 30, 2013 was $411,000 and $1.7 million, respectively, compared to $666,000 and $1.5 million for the three and nine months ended September 30, 2012, respectively.  The Bancorp’s effective income tax rate was 25.9% and 29.3% for the three and nine months ended September 30, 2013, respectively, compared to 31.7% and 31.6% for the three and nine months ended September 30, 2012, respectively.  These rates 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, security repayments, maturities and sales and funds available from the FHLB and Federal Reserve Bank.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loans and securities sales and prepayments 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, 2013 and December 31, 2012.

			Payments Due by Period
			Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Contractual Obligations	Total
	(In thousands)
September 30, 2013
Operating lease obligations (1)	$	1,010	$	440	$	570	$	—	$	—
FHLB advances and other borrowings (2)	255,001		89,906		76,035		74,018		15,042
Other long-term obligations (3)	3,524		1,652		1,872		—		—
Total	$	259,535	$	91,998	$	78,477	$	74,018	$	15,042
December 31, 2012
Operating lease obligations (1)	$	1,280	$	399	$	845	$	36	$	—
FHLB advances and other borrowings (2)	225,308		73,517		65,725		55,291		30,775
Other long-term obligations (3)	2,272		1,952		320		—		—
Total	$	228,860	$	75,868	$	66,890	$	55,327	$	30,775

 _________________________________________________________________

(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 (which was extended until December 2015 in January 2013) and other vendors.

We regularly adjust our investments in liquid assets and our short-term borrowing position based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) cash flows on our loans and 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 policy is to maintain net liquidity of at least 50% of our funding obligations over the next month.  Additionally, our policy is to maintain an amount of cash and short-term marketable securities equal to at least 15% of net deposits and liabilities that will mature in one year or less.

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, 2013, cash and cash equivalents totaled $6.4 million.  Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $268.9 million at September 30, 2013.   In addition, at September 30, 2013, we had the ability to borrow a total of approximately $392.3 million from the FHLB of which we had $150.0 million outstanding.  As of September 30, 2013, the Bank also had a maximum borrowing capacity of $50.9 million with the Federal Reserve Bank of Philadelphia, through the Discount Window.  Additionally, as of September 30, 2013, the Bank had overnight borrowing facilities with the FHLB of Pittsburgh and the Federal Reserve Bank as well as federal funds lines of credit with three other commercial banks.

At September 30, 2013, we had $158.0 million in commitments outstanding, which consisted of $16.2 million in home equity and consumer loan commitments, $128.3 million in commercial loan commitments, $12.8 million in standby letters of credit, and $714,000 in commercial letters of credit.

Certificates of deposit due within one year of September 30, 2013 totaled $181.4 million, including $34.6 million of brokered deposits, representing 59.1% of certificates of deposit at September 30, 2013, a decrease from 60.8% at December 31, 2012.  We believe the large percentage of certificates of deposit that mature within one year reflect 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 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 30,2014.

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 and borrowed funds.  Deposit flows are affected by the overall levels of interest rates, the interest rates and products offered by us and our local competitors and other factors.  We generally manage the pricing of our

40

deposits to be competitive and to increase core deposit relationships.  Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The Bancorp is a separate entity and apart from the Bank and must provide for its own liquidity.  As of September 30, 2013, the Bancorp had $22.9 million in cash and cash equivalents compared to $29.6 million as of December 31, 2012. In addition to its operating expenses, Bancorp may utilize its cash position for the payment of dividends or to repurchase common stock, subject to applicable restrictions.  Bancorp paid cash dividends of $0.06 per outstanding share of common stock during the first and second quarters of 2013 and $0.08 per outstanding share of common stock during the third quarter of 2013. Bancorp also repurchased 218,572 shares of common stock during the nine months ended September 30, 2013.

The Bancorp can receive dividends from the Bank.  Payment of such dividends to the 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.  The 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 the Comptroller of the Currency, 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, 2013, the Bank exceeded all applicable regulatory capital requirements and was considered a “well capitalized” institution under regulatory guidelines.

The following table presents the Bank’s capital ratios and the minimum capital requirements to be considered ‘‘well capitalized” under applicable regulatory guidelines as of September 30, 2013 and December 31, 2012.

	Ratio		Minimum to be Well Capitalized
September 30, 2013
Total risk-based capital (to risk-weighted assets)	20.02	%	>10.0%
Tier 1 capital (to risk-weighted assets)	18.98	%	> 6.0%
Tier 1 capital (to adjusted assets)	13.10	%	> 5.0%
	Ratio		Minimum to be Well Capitalized
December 31, 2012
Total risk-based capital (to risk-weighted assets)	20.48	%	>10.0%
Tier 1 capital (to risk-weighted assets)	19.45	%	> 6.0%
Tier 1 capital (to adjusted assets)	12.90	%	> 5.0%

Total stockholders’ equity to total assets was 15.7% at September 30, 2013 and 16.7% at December 31, 2012.  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 continue to have an adverse impact on our return on equity until such funds can be deployed into higher yielding assets.  The Company may rely on capital management tools such as cash dividends and share repurchases as well as improving operating income to increase its return on equity.

The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies, including savings and loan holding companies, that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In early July 2013, the Federal Reserve Board and the Office of the Comptroller of the Currency approved revisions to their capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

41

The rules include new risk-based capital and leverage ratios, which are effective January 1, 2015, and revise the definition of what constitutes “capital” for calculating those ratios. The proposed new minimum capital level requirements applicable to the Company and the Bank will be: (1) a new common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6% (increased from 4%); (3) a total capital ratio of 8% (unchanged from current rules); and (4) a Tier 1 leverage ratio of 4%. The rules eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. The rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5% and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

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 nine-month period ended September 30, 2013, 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, 2013, there has not been any material change to the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Item 4.  Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially effect, Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Periodically, there have been 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.

42

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. As of September 30, 2013, the risk factors of the Company have not changed materially from those reported in the Company’s Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

During 2011, the Company announced two repurchase programs under which it would repurchase, in the aggregate, up to 15% of the then-outstanding shares of the Company’s common stock from time to time, depending on market conditions.  On April 25, 2012, the Board of Directors approved an additional stock repurchase plan (the “April 2012 Plan”) under which it would repurchase up to 5% of the then-outstanding shares of the Company’s common stock (637,697 shares).  Under these plans, through September 30, 2013, the Company has purchased a total of 2.5 million shares at a cost of $33.4 million.  The Company did not repurchase any shares during the third quarter of 2013. There are currently 308,529 shares available to be purchased under the April 2012 Plan, which will continue until it is completed or terminated by the Company’s Board of Directors.

Item 3.  Defaults upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

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
101.0 *		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.
(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.
*	Furnished, not filed.

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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 6, 2013	By:	/s/ Thomas M. Petro
			Thomas M. Petro
			President and Chief Executive Officer
			(principal executive officer)
Dated:	November 6, 2013	By:	/s/ Roger S. Deacon
			Roger S. Deacon
			Chief Financial Officer
			(principal financial officer)

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