10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-32971

Fox Chase Bancorp, Inc.

(Exact name of registrant as specified in its charter)

United States	33-1145559
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4390 Davisville Road, Hatboro, Pennsylvania	19040
(Address of principal executive offices)	(Zip Code)

(215) 682-7400

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  oNo  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o	Smaller Reporting Company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of October 30, 2009, there were 13,667,687 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, 2009 (unaudited) and December 31, 2008	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)	4
	Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2009 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II. Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Submission of Matters to a Vote of Security Holders	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FOX CHASE BANCORP, INC

Consolidated Statements of Condition

(In Thousands, Except Share Data)

	September 30,			December 31,
	2009			2008
	(unaudited)
ASSETS
Cash and due from banks	$	241		$	642
Interest-earning demand deposits in other banks	57,933			3,302
Total cash and cash equivalents	58,174			3,944
Investment securities available-for-sale	27,235			25,041
Mortgage related securities available-for-sale	415,029			269,682
Loans, net of allowance for loan losses of $8,489at September 30, 2009 and $6,260 at December 31, 2008	636,749			588,975
Loans held for sale	167			—
Federal Home Loan Bank stock, at cost	10,435			9,707
Bank-owned life insurance	12,551			12,214
Premises and equipment	11,311			11,748
Real estate held for investment	1,880			1,957
Accrued interest receivable	4,583			3,721
Mortgage servicing rights	735			827
Deferred tax asset, net	—			1,869
Other assets	7,399			1,585
Total Assets	$	1,186,248		$	931,270
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits	$	860,529		$	608,472
Federal Home Loan Bank advances	143,232			146,379
Other borrowed funds	50,000			50,000
Advances from borrowers for taxes and insurance	1,221			2,589
Accrued interest payable	759			727
Deferred tax liability, net	1,187			—
Accrued expenses and other liabilities	2,385			1,883
Total Liabilities	1,059,313			810,050
STOCKHOLDERS’ EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2009 and December 31, 2008)	—			—
Common stock ($.01 par value; 35,000,000 shares authorized,14,679,750 shares issued and 13,679,287 shares outstanding at September 30, 2009 and 14,679,750 shares issued and 14,066,559 shares outstanding at December 31, 2008)	147			147
Additional paid-in capital	63,765			63,516
Treasury stock (at cost, 1,000,463 shares at September 30, 2009 and613,191 shares at December 31, 2008)	(11,112		)	(7,293		)
Common stock acquired by benefit plans	(6,957		)	(7,819		)
Retained earnings	74,044			72,664
Accumulated other comprehensive income, net	7,048			5
Total Stockholders’ Equity	126,935			121,220
Total Liabilities and Stockholders’ Equity	$	1,186,248		$	931,270

See accompanying notes to the unaudited consolidated financial statements.

3

FOX CHASE BANCORP, INC

Consolidated Statements of Operations

(Unaudited)

(In Thousands, Except Per Share Data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009			2008
INTEREST INCOME
Interest and fees on loans	$	8,698	$	8,106	$	25,833		$	22,415
Interest on money market funds	23		—		183			521
Interest on mortgage related securities available-for-sale	3,975		3,138		10,735			9,248
Interest on investment securities available-for-sale
Taxable	238		121		623			876
Nontaxable	107		146		390			469
Dividend income	—		69		1			193
Other interest income	290		17		426			124
Total Interest Income	13,331		11,597		38,191			33,846
INTEREST EXPENSE
Deposits	5,478		4,345		15,576			14,004
Federal Home Loan Bank advances	1,333		1,230		3,992			3,380
Other borrowed funds	437		203		1,298			567
Total Interest Expense	7,248		5,778		20,866			17,951
Net Interest Income	6,083		5,819		17,325			15,895
Provision for loan losses	1,450		500		2,412			900
Net Interest Income after Provision for Loan Losses	4,633		5,319		14,913			14,995
NONINTEREST INCOME
Service charges and other fee income	192		218		672			633
Net gain on sale of loans	—		6		3			10
Income on bank-owned life insurance	115		114		336			338
Other	58		21		269			56
Total other-than-temporary impairment loss	—		—		(605		)	—
Less: Portion of loss recognized in other comprehensive income (before taxes)	—		—		448			—
Net other-than-temporary impairment loss	—		—		(157		)	—
Net gains on sale of investment securities	958		—		1,546			118
Net investment securities gains	958		—		1,389			118
Total Noninterest Income	1,323		359		2,669			1,155
NONINTEREST EXPENSE
Salaries, benefits and other compensation	3,198		2,928		8,963			8,790
Occupancy expense	441		458		1,374			1,412
Furniture and equipment expense	170		226		571			669
Data processing costs	384		402		1,146			1,204
Professional fees	267		285		831			863
Marketing expense	72		117		242			337
FDIC premiums	343		26		1,415			81
Other	379		347		1,155			1,111
Total Noninterest Expense	5,254		4,789		15,697			14,467
Income Before Income Taxes	702		889		1,885			1,683
Income tax provision	189		230		473			375
Net Income	$	513	$	659	$	1,412		$	1,308
Earnings per share:
Basic	$	0.04	$	0.05	$	0.11		$	0.10
Diluted	$	0.04	$	0.05	$	0.11		$	0.10

See accompanying notes to the unaudited consolidated financial statements.

4

FOX CHASE BANCORP, INC

Consolidated Statements of Changes in Equity

Nine months ended September 30, 2009

(In Thousands, Unaudited)

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

See accompanying notes to the unaudited consolidated financial statements.

5

FOX CHASE BANCORP, INC

Consolidated Statements of Cash Flows

(In Thousands)

	Nine Months Ended September 30,
	2009			2008
	(Unaudited)
Cash Flows From Operating Activities
Net income	$	1,412		$	1,308
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,412			900
Depreciation	642			736
Net amortization of securities premiums and discounts	1,952			656
Benefit for deferred income taxes	(766		)	(397		)
Stock benefit plans	1,079			1,121
Pension plan settlement	—			137
Origination of loans held for sale	(585		)	(3,197		)
Proceeds from sales of loans held for sale	416			3,193
Net gain on sales of loans and loans held for sale	(3		)	(10		)
Net gain on sales of securities	(1,546		)	(118		)
Other-than-temporary impairment loss	157			—
Earnings on investment in bank-owned life insurance	(336		)	(338		)
Decrease in mortgage servicing rights	92			111
Increase in accrued interest receivable and other assets	(1,957		)	(454		)
Increase in accrued interest payable, accrued expensesand other liabilities	534			2,241
Net Cash Provided by Operating Activities	3,503			5,889
Cash Flows from Investing Activities
Equity investment in unconsolidated entity	(630		)	—
Investment securities - available for sale:
Purchases	(19,184		)	(17,128		)
Proceeds from sales	6,373			72,398
Proceeds from maturities, calls and principal repayments	9,705			11,495
Mortgage related securities – available for sale:
Purchases	(254,251		)	(108,495		)
Proceeds from sales	41,487			22,051
Proceeds from maturities, calls and principal repayments	74,545			48,525
Net increase in loans	(50,058		)	(107,449		)
Purchases of loan participations	(127		)	(19,254		)
Net increase in Federal Home Loan Bank stock	(728		)	(3,086		)
Increase in other investments	—			(83		)
Deposit on real estate held for investment	77			—
Purchases of premises and equipment	(205		)	(201		)
Proceeds from sales of premises and equipment and assetsacquired through foreclosure	—			10
Net Cash Used by Investing Activities	(192,996		)	(101,217		)
Cash Flows from Financing Activities
Net increase in deposits	252,057			7,838
Decrease in advances from borrowers for taxes and insurance	(1,368		)	(692		)
Federal Home Loan Bank advances	—			76,770
Principal payments on Federal Home Loan Bank advances	(3,147		)	(25,710		)
Other borrowings	—			15,000
Purchase of treasury stock	(3,819		)	(2,671		)
Net Cash Provided by Financing Activities	243,723			70,535
Net Increase (Decrease) in Cash and Cash Equivalents	54,230			(24,793		)
Cash and Cash Equivalents – Beginning	3,944			31,275
Cash and Cash Equivalents – Ending	$	58,174		$	6,482
Supplemental Disclosure of Cash Flow Information
Interest paid	$	20,834		$	17,804
Income taxes paid	$	1,379		$	836

See accompanying notes to the unaudited consolidated financial statements.

6

FOX CHASE BANCORP, INC

Notes to the Unaudited Consolidated Financial Statements

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION

Fox Chase Bancorp, Inc. (the “Bancorp”) was organized on September 29, 2006 under the laws of the United States for the purpose of being a holding company for Fox Chase Bank (the “Bank”), a stock savings bank also organized under the laws of the United States.  On September 29, 2006, the Bancorp completed its initial public offering in which it sold 6,395,835 shares, or 43.57% of its outstanding common stock to the public, including 575,446 shares purchased by the Fox Chase Bank Employee Stock Ownership Plan (the “ESOP”).  An additional 8,148,915 shares, or 55.51% of the Bancorp’s outstanding stock, were issued to Fox Chase MHC, the Bancorp’s federally chartered mutual holding company. Additionally, the Bancorp contributed $150,000 in cash and issued 135,000 shares, or 0.92% of its outstanding common stock, to the Fox Chase Bank Charitable Foundation.

The Bancorp’s primary business has been that of holding the common stock of the Bank and making a loan to the ESOP.   The Bancorp is authorized to pursue other business activities permissible by laws and regulations for other 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.  In February 2009, the Bank increased its ownership in Philadelphia Mortgage Advisors, Inc. (“PMA”), a licensed mortgage banker located in Blue Bell, Pennsylvania and Ocean City, New Jersey, from 20% to approximately 45%.  The operations of the Company are managed as a single business segment.  The Company competes with other financial institutions and other companies that provide financial services.

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

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

During 2009 and 2008, 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 $143,000 and $80,000 for the nine months ended September 30, 2009 and 2008, respectively, as well as loan satisfaction fees, which are recorded in service charges and other fee income, from PMA of $44,000 and $16,000 for the nine months ended September 30, 2009 and 2008, respectively.  In addition, the Bank acquired total loans from PMA of $39.5 million and $60.8 million for the nine months ended September 30, 2009 and 2008, respectively, which includes the cost of the loans.

Real estate held for investment represents undeveloped land located in Absecon, New Jersey.  This property is under an option to be sold in 2010, subject to certain conditions being met including zoning and land use approvals.

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 and the evaluation of other-than-temporary impairment and valuation of investment securities.

7

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 12, 2009.   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, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

In connection with the preparation of these financial statements, the Company has evaluated events and transactions through November 6, 2009, which is the date these financial statements were issued.

Per Share Information

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.  Unallocated shares in the ESOP and shares purchased to fund the Bancorp’s 2007 Equity Incentive Plan are not included in either basic or diluted earnings per share.  Unvested shares in the Bancorp’s long-term incentive plan are not included in basic earnings per share.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net income	$	513,000		$	659,000		$	1,412,000		$	1,308,000
Weighted-average common shares outstanding (1)	13,724,077			14,191,655			13,884,174			14,275,109
Average common stock acquired by stock benefit plans:
Unvested shares – long-term incentive plan	(16,743		)	(25,114		)	(16,743		)	(25,114		)
ESOP shares unallocated	(437,909		)	(476,272		)	(447,405		)	(485,804		)
Shares purchased by trust	(229,774		)	(274,254		)	(239,888		)	(283,053		)
Weighted-average common shares usedto calculate basic earnings per share	13,039,651			13,416,015			13,180,138			13,481,138
Dilutive effect of:
Unvested shares – long-term incentive plans	16,743			25,114			16,743			25,114
Restricted stock awards	1,695			1,712			4,167			6,934
Weighted-average common shares usedto calculate diluted earnings per share	13,058,089			13,442,841			13,201,048			13,513,186
Earnings per share-basic	$	0.04		$	0.05		$	0.11		$	0.10
Earnings per share-diluted	$	0.04		$	0.05		$	0.11		$	0.10
Outstanding common stock equivalents having no dilutive effect	792,373			793,068			789,901			787,846

(1) Excludes treasury stock.

8

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES

The amortized cost and fair value of securities available-for-sale as of September 30, 2009 and December 31, 2008 are summarized as follows:

	September 30, 2009 (Unaudited)
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
Obligations of U.S. government agencies	$	307	$	2	$	—		$	309
State and political subdivisions	9,993		178		(26		)	10,145
Corporate securities	16,509		298		(26		)	16,781
	26,809		478		(52		)	27,235
Private label residential mortgage related security	648		—		(434		)	214
Private label commercial mortgage related securities	18,296		301		(425		)	18,172
Agency residential mortgage related securities	385,656		11,153		(166		)	396,643
Total mortgage related securities	404,600		11,454		(1,025		)	415,029
Total securities	$	431,409	$	11,932	$	(1,077	)	$	442,264

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
State and political subdivisions	$	14,679	$	35	$	(251	)	$	14,463
Corporate securities	11,124		4		(550		)	10,578
	25,803		39		(801		)	25,041
Private label residential mortgage related security	889		—		(620		)	269
Private label commercial mortgage related securities	10,049		—		(2,745		)	7,304
Agency residential mortgage related securities	257,990		4,442		(323		)	262,109
Total mortgage related securities	268,928		4,442		(3,688		)	269,682
Total securities	$	294,731	$	4,481	$	(4,489	)	$	294,723

9

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, 2009 and December 31, 2008:

	September 30, 2009 (Unaudited)
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In Thousands)
State and political subdivisions	$	—	$	—		$	830	$	(26	)	$	830	$	(26	)
Corporate securities	2,313		(26		)	—		—			2,313		(26		)
	2,313		(26		)	830		(26		)	3,143		(52		)
Private label residential mortgage related security	—		—			214		(434		)	214		(434		)
Private label commercial mortgage related securities	—		—			9,609		(425		)	9,609		(425		)
Agency residential mortgage related securities	16,680		(166		)	—		—			16,680		(166		)
Total mortgage related securities	16,680		(166		)	9,823		(859		)	26,503		(1,025		)
Total securities	$	18,993	$	(192	)	$	10,653	$	(885	)	$	29,646	$	(1,077	)

	December 31, 2008
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In Thousands)
State and political subdivisions	$	8,645	$	(251	)	$	—	$	—		$	8,645	$	(251	)
Corporate securities	9,214		(550		)	—		—			9,214		(550		)
	17,859		(801		)	—		—			17,859		(801		)
Private label residential mortgage related security	269		(620		)	—		—			269		(620		)
Private label commercial mortgage related securities	7,304		(2,745		)	—		—			7,304		(2,745		)
Agency residential mortgage related securities	16,217		(301		)	717		(22		)	16,934		(323		)
Total mortgage related securities	23,790		(3,666		)	717		(22		)	24,507		(3,688		)
Total securities	$	41,649	$	(4,467	)	$	717	$	(22	)	$	42,366	$	(4,489	)

10

In the second quarter of 2009, the Company implemented new financial reporting guidance that changed the process for recognizing other-than-temporary impairment for debt securities and expanded disclosure requirements for other-than-temporarily impaired debt and equity securities.  Under the new guidance, companies are required to record other-than-temporary impairment charges, through earnings, if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, companies are required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as a company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis. Finally, companies were required to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption.  Since the Company did not have any other-than-temporary impairment as of March 31, 2009, no cumulative effect adjustments were required at adoption.  See below discussion regarding the other-than-temporary credit impairment of the private label residential mortgage related security recorded at June 30, 2009.   There was no additional other-than-temporary credit impairment charge on this investment in the third quarter of 2009.

The private label residential mortgage related security had an amortized cost, prior to the identified credit related impairment, of $805,000 at September 30, 2009 and $889,000 at December 31, 2008.  Fair value for this security was $214,000 at September 30, 2009 and $269,000 at December 31, 2008.  During the nine months ended September 30, 2009, delinquency levels for the security’s underlying collateral increased to 20.1% from 13.8% at December 31, 2008, principal payment rate slowed to an annualized rate of 13.0% from 16.1% in 2008, and the security was downgraded from AAA to BB+.  As a result of these negative trends, management’s analysis indicated that the security had $157,000 of other-than-temporary credit impairment at June 30, 2009.  This amount of credit related impairment is recorded as a charge through earnings, regardless of the intent or requirement to sell the security.   As of September 30, 2009, no additional other-than-temporary credit impairment was recorded.  As of September 30, 2009, after other-than-temporary impairment charges, the private label residential mortgage related security had an amortized cost of $648,000 and a fair value of $214,000, resulting in a remaining unrealized loss of $434,000.  The remaining unrealized loss is not considered other-than-temporary as management does not have the intention or requirement to sell this security.

The Company had one private label residential mortgage related security and three commercial mortgage related securities in an unrealized loss position at September 30, 2009.  The Company evaluates current characteristics of each of its private label securities such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage, 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.

Five of the commercial mortgage related securities each have a credit rating of AAA and one has a rating of BBB.  The securities have a gross amortized cost of $18.3 million and $10.0 million at September 30, 2009 and December 31, 2008, respectively. Three of the securities had a gross unrealized loss of $425,000 and  $2.7 million at September 30, 2009 and December 31, 2008, respectively. Management believes the impairment on these securities is temporary based on the cash flows, credit rating, credit enhancement and structure of the underlying securities and management does not have the intention or requirement to sell the securities.

Additionally, management evaluates all other non-private label investment securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant. Management does not believe that any individual unrealized loss represented an other-than-temporary impairment at September 30, 2009. Management believes the temporary impairment on the securities classified as (a) state and political subdivisions and (b) corporate securities is directly related to the volatility, absence of liquidity in the fixed income markets and/or changes in market interest rates.  Finally, the temporary impairment on the agency residential mortgage related securities is directly related to changes in market interest rates.

Of the 15 securities with a temporary impairment at September 30, 2009, nine have a rating of AAA.  The securities rated less than AAA are: (1) one corporate debt security with a fair value of $2.3 million having a rating of A3, (2) two state or political subdivision securities with a total fair value of $830,000, which do not have a rating, (3) two private label collateralized mortgage obligations with a total fair value of $853,000 have a rating of BB+ or no rating, and (4) one private commercial mortgage related security with a fair value of $3.8 million has a rating of BBB.

11

Securities that have been impaired greater than twelve months are the private label residential mortgage related security and three private label commercial mortgage related securities, which were identified and discussed in detail in the preceding paragraphs. The remaining securities impaired greater than twelve months are state and political subdivisions, the impairment of which was deemed temporary due to positive factors supporting the recoverability of these securities, and the Company does not have the intention to sell the securities. Positive factors considered include timely principal payments and the financial health of the issuer.

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

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

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

12

The amortized cost and estimated fair value of investment securities available-for-sale at September 30, 2009 and December 31, 2008 by contractual maturity are as follows (excluding mortgage related securities):

	September 30, 2009				December 31, 2008
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	9,776	$	9,920	$	6,913	$	6,776
Due after one year through five years	8,340		8,481		5,782		5,376
Due after five years through ten years	4,241		4,302		7,551		7,543
Due after ten years	4,452		4,532		5,557		5,346
	$	26,809	$	27,235	$	25,803	$	25,041

Securities with a carrying value of $3.4 million and $4.3 million at September 30, 2009 and December 31, 2008, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

Securities with a carrying value of $60.0 million both at September 30, 2009 and December 31, 2008, respectively, were pledged as collateral for $50.0 million in borrowed funds.   See Note 6.

13

NOTE 3 - LOANS

The composition of net loans at September 30, 2009, and December 31, 2008 is provided below (in thousands).

	September 30, 2009		December 31, 2008
	(Unaudited)
Real estate loans:
One-to four-family	268,640		$	260,833
Multi-family and commercial	206,756		155,564
Construction	51,785		65,002
	527,181		481,399
Consumer loans:
Home equity	53,933		63,987
Automobile	133		262
Lines of credit	14,338		11,486
Other	4,458		351
	72,862		76,086
Commercial loans	44,813		37,371
Total Loans	644,856		594,856
Deferred loan origination fees, net	382		379
Allowance for loan losses	(8,489	)	(6,260		)
Net Loans	636,749		$	588,975

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

	Nine Months						Year
	Ended						Ended
	September 30,						December 31,
	2009			2008			2008
	(Unaudited)
Balance, beginning	$	6,260		$	3,376		$	3,376
Provision for loan losses	2,412			900			2,900
Loans charged off	(183		)	(18		)	(19		)
Recoveries	—			3			3
Balance, ending	$	8,489		$	4,261		$	6,260

As of September 30, 2009, the Bank had one interest rate swap agreement that was entered into during the quarter ended June 30, 2007.  The Bank had entered into a 15-year fixed rate commercial loan and the Bank’s risk management objective was to lock in the fair value of the loan.  The Bank met this objective by entering into a swap agreement to exchange fixed rate cash flows for variable rate cash flows. The fair value of the swap is recorded in other assets in the Company’s consolidated statements of condition. The Bank has not entered into a swap since the June 2007 quarter and currently does not consider itself to be an active participant in the swap market.

As of September 30, 2009 and December 31, 2008, the Bank’s swap agreement had a notional amount of $1.2 million.  The Company is receiving a variable rate payment of three-month LIBOR plus 2.24% and is paying a fixed rate payment of 7.43%. The swap matures in April 2022 and had a fair value loss position of $161,000 and $236,000 at September 30, 2009 and December 31, 2008, respectively.

The Bank carries the loan at fair value.  The loan is contractually current and the critical terms of the loan and the swap are a mirror image except that the loan includes a default interest rate clause.  Accordingly, the Company has determined the fair value of the gain position of the loan approximates the fair value loss position of the swap as of September 30, 2009 and December 31, 2008, respectively.

14

NOTE 4 — MORTGAGE SERVICING ACTIVITY

Loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of these loans were $93.0 million and $110.9 million at September 30, 2009 and 2008, respectively, and $109.6 million at December 31, 2008.

The following summarizes mortgage servicing rights for the nine months ended September 30, 2009 and 2008 and the year ended December 31, 2008 (in thousands):

	Nine Months Ended September 30,						Year Ended December 31,
	2009			2008			2008
	(Unaudited)
Balance, beginning	$	827		$	1,066		$	1,066
Mortgage servicing rights capitalized	—			—			—
Mortgage servicing rights amortized	(149		)	(80		)	(106		)
Change in valuation allowance	57			(31		)	(133		)
Balance, ending	$	735		$	955		$	827

At September 30, 2009, September 30, 2008 and December 31, 2008, the fair value of the mortgage servicing rights (“MSRs”) was $754,000 (unaudited), $1.0 million (unaudited) and $836,000, 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.

During 2008, the Bank recorded a total valuation allowance of $133,000 on its MSRs, which was due to a significant decrease in interest rates for residential mortgages during the year resulting in assumed higher mortgage prepayments.  This valuation allowance was decreased by $57,000 during the nine months ended September 30, 2009.  The amount of the valuation adjustment is recorded as an adjustment to service charges and other fee income in the Company’s consolidated statement of operations.

NOTE 5 - DEPOSITS

Deposits and their respective weighted average interest rate at September 30, 2009 and December 31, 2008 consist of the following (dollars in thousands):

	September 30, 2009				December 31, 2008
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Unaudited)
Non-interest bearing demand accounts	—	%	$	53,640	—	%	$	46,716
NOW accounts	0.78		39,609		1.13		35,330
Money market accounts	1.38		177,194		2.01		101,295
Savings and club accounts	0.15		50,172		0.25		51,196
Certificates of deposit	3.40		539,914		3.96		373,935
	2.46	%	$	860,529	2.86	%	$	608,472

15

NOTE 6 — BORROWINGS

Pursuant to collateral agreements with the Federal Home Loan Bank of Pittsburgh (the “FHLB”), advances are secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As of September 30, 2009, the Bank has $214.8 million in qualifying collateral pledged against its advances.

Maturity Date	Amount		Interest Rate		Strike Rate		Call Date	Rate if Called
	(in thousands)
December 2009	$	5,000	2.26	%
February 2010	10,000		2.84	%
August 2011	20,000		4.89	%	7.50	%	November 2009	LIBOR+ .2175%
August 2011	10,000		4.87	%	7.50	%	November 2009	LIBOR+ .2175%
July 2013	9,725		4.10	%
December 2013	5,000		2.80	%			December 2010	LIBOR+ 1.04%
January 2015	23,507		3.49	%
December 2015	5,000		3.06	%			December 2011	LIBOR+ 1.12%
November 2017	15,000		3.62	%			November 2010	LIBOR+ 0.10%
November 2017	15,000		3.87	%			November 2011	LIBOR+ 0.10%
December 2017	20,000		2.83	%			December 2009	LIBOR+ 0.11%
December 2018	5,000		3.15	%			December 2012	LIBOR+ 1.14%
	$	143,232

For the two borrowings which have a “Strike Rate” disclosed in the above table, if three-month LIBOR is greater than or equal to the Strike Rate, the FHLB can notify the Bank of its intention to convert the borrowing to an adjustable-rate advance equal to three-month LIBOR (0.29% at September 30, 2009) plus ..2175% on a quarterly basis. If converted, the Bank has the option to repay these advances at each of the option dates without penalty. Accordingly, the contractual maturities above may differ from actual maturities.

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

The Bank has a maximum borrowing capacity with the FHLB of approximately $327.4 million at June 30, 2009, the latest date for which information is available.

As a member of the FHLB, the Bank is required to acquire and hold shares of capital stock in the FHLB in an amount that is at least equal to 4.75% of its advances from the FHLB, plus 0.75% of the unused borrowing capacity.  The Bank was in compliance with this requirement with a stock investment in the FHLB of $10.4 million at September 30, 2009.

During December 2008, the FHLB announced that it does not intend to pay a dividend on its common stock for the foreseeable future.  No dividend has been paid for the nine months ended September 30, 2009.  Additionally, the FHLB indicated it would not redeem any common stock associated with member advance repayments and that it may increase its individual member stock investment requirements. The FHLB is permitted to increase the amount of capital stock required to be owned by an FHLB member to 6.00% of a member’s advances, plus 1.50% of the unused borrowing capacity.  As of September 30, 2009, the Company’s maximum stock obligation was $11.4 million.

16

Other Borrowed Funds

Other borrowed funds obtained from large commercial banks totaled $50.0 million at September 30, 2009.  These borrowings contractually mature with dates ranging from November 2014 through November 2018 and may be called by the lender based on the underlying agreements.  Subsequent to the call date, these borrowings are callable by the lender quarterly. Accordingly, the contractual maturities above may differ from actual maturities.

Maturity		Interest
Date		Rate		Call Date	Amount
					(in thousands)
	November 2014	3.60	%	November 2009	$	20,000
	September 2018	3.40	%	September 2012	10,000
	September 2018	3.20	%	September 2012	5,000
	October 2018	3.15	%	October 2011	5,000
	October 2018	3.27	%	October 2011	5,000
	November 2018	3.37	%	November 2013	5,000
					$	50,000

Mortgage backed securities with a fair value of $60.0 million at September 30, 2009 were pledged as collateral for these other borrowed funds.

NOTE 7 — STOCK BASED COMPENSATION

During the nine months ended September 30, 2009, the Company recorded $731,000 of stock based compensation expense in connection with the 2007 Equity Incentive Plan, comprised of stock option expense of $315,000 and restricted stock expense of $416,000.

The following is a summary of the Company’s stock option activity and related information for the 2007 Equity Incentive Plan for the nine months ended September 30, 2009:

			Weighted
	Number of		Average
	Stock		Exercise
	Options		Price
Outstanding at December 31, 2008	615,200		$	12.22
Granted	80,359		8.79
Exercised	—		—
Forfeited	(40,254	)	12.38
Outstanding at September 30, 2009	655,305		$	11.79
Exercisable at September 30, 2009	226,100		$	12.30

17

The following is a summary of the Company’s unvested options as of September 30, 2009 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Stock		Grant Date
	Options		Fair Value
Unvested at December 31, 2008	512,140		$	3.28
Granted	80,359		2.39
Exercised	—		—
Vested	(123,040	)	3.30
Forfeited	(40,254	)	3.25
Unvested at September 30, 2009	429,205		$	3.11

Expected future expense relating to the 429,205 non-vested options outstanding as of September 30, 2009 is $1.3 million over a weighted average period of 3.2 years.

During the nine months ended September 30, 2009, the Company determined the fair value of the options granted in 2009 was $2.39.  This value was based on the following assumptions:

Expected dividend yield	1.90	%
Expected volatility	30.00	%
Risk —free interest rate	2.33	%
Expected option life in years	6.50

The following is a summary of the status of the Company’s restricted stock as of September 30, 2009 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Restricted		Grant Date
	Shares		Fair Value
Unvested at December 31, 2008	179,580		$	12.29
Granted	15,883		9.40
Vested	(44,040	)	12.31
Forfeited	(12,660	)	12.38
Unvested at September 30, 2009	138,763		$	11.95

Expected future compensation expense relating to the 138,763 restricted shares at September 30, 2009 is $1.6 million over a weighted average period of 3.1 years.

18

NOTE 8 — FAIR VALUE

The Company determines the fair value of investments using three levels of input as defined by related accounting pronouncements:

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

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

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

The Company classified three types of financial instruments as Level 3 as of September 30, 2009. The first instrument is a private label residential mortgage related security, the fair value of which, unlike U.S. agency mortgage related securities, is more difficult to determine because it is not actively traded in securities markets.  The second type of instrument is private label commercial mortgage backed securities (“CMBS”), the fair value of which is also more difficult to determine because they are not actively traded in securities markets.  The third instrument is a loan, since lending credit risk is not an observable input for this individual commercial loan (see Note 3).

As discussed in Note 2, the Company recorded an other-than-temporary credit impairment charge of $157,000 at June 30, 2009. No incremental other-than-temporary credit impairment was recorded at September 30, 2009. The remaining unrealized loss, after the impairment charge, in the private label collateralized mortgage obligation was $434,000 at September 30, 2009 compared to an unrealized loss of $620,000 at December 31, 2008.  The unrealized loss in the private label commercial mortgage related securities portfolio was $425,000 at September 30, 2009 compared to $2.7 million at December 31, 2008. The unrealized gain on the loan was $161,000 at September 30, 2009 compared to an unrealized gain of $236,000 at December 31, 2008.

19

The following table, which sets forth the Company’s fair value measurements at September 30, 2009, includes (1) investment securities and mortgage related securities available-for-sale; (2) the two financial instruments, associated with the interest rate swap agreement as discussed in Note 3 and (3) tranches of MSRs recorded at fair value.

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
				for Identical		Observable			Unobservable
	As of			Assets		Inputs			Inputs
Description	September 30, 2009			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Obligations of U.S. government agencies	$	309		$	—	$	309		$	—
State and political subdivisions	10,145			—		10,145			—
Corporate securities	16,781			—		16,781			—
Private label residential mortgage related security	214			—		—			214
Private label commercial mortgage related securities	18,172			—		—			18,172
Agency residential mortgage related securities	396,643			—		396,643			—
Loan (1)	1,309			—		—			1,309
Mortgage servicing rights	670			—		670			—
Other assets — swap contract (1)	(161		)	—		(161		)	—
Total	$	444,082		$	—	$	424,387		$	19,695

(1)Such assets recorded at fair value as further described in Note 3.

The following table includes a roll forward of the financial instruments with Significant Other Unobservable Inputs (Level 3) for the period of January 1, 2009 to September 30, 2009.

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

The Company utilizes an external third-party pricing service to perform evaluations on its investment portfolio on at least a quarterly basis.  The Company receives one value for each security and has made no adjustments to the values obtained from the pricing service at September 30, 2009.  The Company will continue to evaluate the appropriateness of the identified Level 1, 2 or 3 classifications on a recurring basis.

20

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following schedules and disclosures are presented in conjunction with the Company’s adoption of guidance on Interim Disclosures about Fair Value of Financial Instruments for the quarter ended September 30, 2009.

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2009 and December 31, 2008. There has been no significant change in methodology for estimating fair value of the Company’s financial instruments since December 31, 2008.

Cash and Cash Equivalents

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

Investment and Mortgage Related Securities — Available-for-Sale

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

Loans Held for Sale

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

Loans Receivable, Net

For variable-rate loans that reprice frequently and that entail no significant changes in credit risk, fair values are based on carrying values.  The fair value of fixed rate and other loans are estimated using discounted cash flow analyses at interest rates currently offered for loans with similar terms to borrowers of similar credit quality.

Federal Home Loan Bank Stock

The fair value of the Federal Home Loan Bank stock is estimated to be the carrying amount.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on third party estimates of value when available.

Accrued Interest Receivable and Accrued Interest Payable

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

21

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 are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.

Federal Home Loan Bank Advances and Other Borrowed Funds

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

Off-Balance Sheet Financial Instruments

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

The estimated fair values of the Company’s financial instruments at September 30, 2009 and December 31, 2008 were as follows (in thousands):

	September 30,				December 31,
	2009				2008
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	58,174	$	58,174	$	3,944	$	3,944
Investment securities available-for-sale	27,235		27,235		25,041		25,041
Private label residential mortgage related security	214		214		269		269
Private label commercial mortgage related securities	18,172		18,172		7,304		7,304
Agency residential mortgage related securities	396,643		396,643		262,109		262,109
Loans receivable, net	636,749		631,994		588,975		588,416
Loans held for sale	167		167		—		—
Federal Home Loan Bank stock	10,435		10,435		9,707		9,707
Mortgage servicing rights	735		754		827		836
Accrued interest receivable	4,583		4,583		3,721		3,721
Financial liabilities:
Savings and club accounts	50,172		50,172		51,196		51,196
Demand, NOW and money market deposits	270,443		270,443		183,341		183,341
Certificates of deposit	539,914		549,111		373,935		378,961
Federal Home Loan Bank advances	143,232		150,504		146,379		134,585
Other borrowed funds	50,000		48,350		50,000		47,631
Accrued interest payable	759		759		727		727
Off-balance sheet instruments	—		1,056		—		688

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NOTE 9 - COMPREHENSIVE INCOME

Comprehensive income for the three and nine months ended September 30, 2009, and 2008 is as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
	(Unaudited)
Net income	$	513	$	659		$	1,412		$	1,308
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period, net of tax (benefit) (for three months ended September 30, 2009 and 2008, $1,585 and $(209), respectively, and for nine months ended September 30, 2009 and 2008, $4,172 and $(884), respectively)	2,844		(322		)	7,722			(1,460		)
Non-credit related unrealized loss on other-than temporary impaired securities (net of tax benefit of $(152) for nine months ended September 30, 2009)	—		—			(296		)	—
Less: Reclassification adjustment for net investment securities gains included in net income, net of taxes (for three months ended September 30, 2009 and 2008, $55 and $0, respectively, and for nine months ended September 30, 2009 and 2008, $197 and $40, respectively)	106		—			383			78
Plus: Amortization of pension actuarial loss, net of taxes of $2 for the nine months ended September 30, 2008, respectively	—		—			—			4
Reversal of actuarial losses from pension plan settlement, net of taxes of $45 for the nine months ended September 30, 2008	—		—			—			87
Other comprehensive income (loss)	2,738		(322		)	7,043			(1,447		)
Comprehensive income (loss)	$	3,251	$	337		$	8,455		$	(139	)

23

NOTE 10 — ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued guidance that establishes the FASB Accounting Standards Codification TM (the “Codification” or “ASC”) as the source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB for nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also included in the Codification as sources of authoritative U.S. GAAP for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Codification supersedes all existing non-SEC accounting and reporting standards. Following Statement 168, instead of issuing new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts, the FASB issues Accounting Standards Updates, which serves only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. The Company started following the guidelines in the Codification on July 1, 2009.

In May 2009, the FASB issued guidance (ASC 855) that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosure that an entity should make about events or transactions that occurred after the balance sheet date.  ASC 855 is effective for fiscal years and interim periods ending after June 15, 2009, and shall be applied prospectively.  The Company adopted this guidance as of June 30, 2009 and such adoption did not have an impact on the results of operations or financial position.  The Company has evaluated subsequent events through November 6, 2009.

In April 2009, the FASB issued guidance (ASC 825-10-50) to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  All publicly traded companies are required to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods.  ASC 825-10-50 is effective for interim reporting periods ending after June 15, 2009.  The Company adopted this guidance as June 30, 2009 and has made the required disclosures in Note 8 of this Form 10-Q.

In April 2009, the FASB issued guidance (ASC 320-10-35) to amend the other-than-temporary impairment guidance for debt securities.  ASC 320-10-35 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  As discussed in Note 2, the Company adopted this guidance as of June 30, 2009.  Since the Company has not had any other-than-temporary impairment as of March 31, 2009, no cumulative-effect adjustments were required to be recorded at adoption.

In April 2009, the FASB issued guidance (ASC 320-10-35-15A) to provide additional guidance for estimating fair value, when the volume and level of activity for the asset or liability have significantly decreased.  ASC 320-10-35-15A is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively.   The Company adopted this guidance as of June 30, 2009 and such adoption did not have an impact on the results of operations or financial position.

In March 2008, the FASB issued guidance (ASC 815), which changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted this guidance in the first quarter of 2009.  The additional disclosure required regarding the Bank’s one interest rate swap agreement has been provided in Note 3 — Loans.

In June 2009, the FASB issued guidance (ASC 860), which amends the derecognition guidance and eliminates the concept of qualifying special-purpose entities (“QSPEs”). ASC 860 is effective for fiscal years and interim periods beginning after November 15, 2009. Early adoption is prohibited. The Company will adopt this guidance on January 1, 2010 and has not yet determined the effect of the adoption on its consolidated financial statements.

24

In June 2009, the FASB issued guidance (ASC 810), which amends the consolidation guidance applicable to variable interest entities (“VIEs”). An entity would consolidate a VIE, as the primary beneficiary, when the entity has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

Ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE is required. ASC 810 amends the guidance to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE. ASC 810 is effective for fiscal years and interim periods beginning after November 15, 2009. The Company will adopt this guidance on January 1, 2010 and has not yet determined the effect of the adoption on its consolidated financial statements.

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

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform their functions.  Additional factors that may affect our results are discussed in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 12, 2009, 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, valuation and other-than-temporary impairment of securities, and deferred income taxes.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of known and inherent losses in the loan portfolio, based on management’s evaluation of the portfolio’s collectibility. The allowance is established through the provision for loan losses, which is charged against income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: probability of default, loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the size and composition of the portfolio, loss experience in particular segments of the portfolio, trends and absolute levels of nonperforming loans, trends and absolute levels of classified and criticized loans, trends and absolute levels in delinquent loans, trends in risk ratings, actual charge-offs, trends in industry charge-offs by particular segments and changes in local and national economic and business conditions.  Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. Further, current economic conditions have increased the uncertainty inherent in these estimates and assumptions.  In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

25

Valuation and Other-Than-Temporary Impairment of Investment Securities.Financial reporting guidance requires companies to perform periodic reviews of individual securities in their investment portfolios to determine whether a decline in the value of a security is other-than-temporary. A review of other-than-temporary impairment requires companies to make certain judgments regarding the nature of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the company’s intent 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 security is written down by the amount of the determined credit loss, recognizing the decline as a realized loss on the income statement.  The Company recorded an other-than-temporary credit impairment charge of $157,000 during the second quarter of 2009.  There was no additional other-than-temporary credit impairment charge on this investment in the third quarter of 2009.  See Note 2 to the consolidated financial statements for a schedule that shows gross unrealized losses, fair value of securities as well as the impairment loss and other-than-temporary impairment write down, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2009 and December 31, 2008, and Note 8 for a discussion related to the determination of fair value.

Deferred Income Taxes. We use the asset and liability method of accounting for income.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. Specifically, the Company had a charitable contribution carryover of $599,000 as of September 30, 2009, resulting in a deferred tax asset of $204,000.  The charitable contribution carryover was $999,000, with a resulting deferred tax asset of $340,000 as of December 31, 2008.  Utilization of this carryover is limited to 10% of taxable income on an annual basis. Such carryover will expire on December 31, 2011, if not utilized. If the Company is unable to generate sufficient taxable income to utilize this carryover it may require us to record a valuation allowance against this deferred tax asset.  Any valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.

Comparison of Financial Condition at September 30, 2009 and December 31, 2008

Total assets increased $255.0 million, or 27.4%, to $1.19 billion at September 30, 2009, compared to $931.3 million at December 31, 2008.Cash and cash equivalents increased $54.2 million from December 31, 2008 to September 30, 2009 as excess funds from deposit inflows were invested in interest-earning demand deposits in other banks.  Loans increased $47.8 million from December 31, 2008 to September 30, 2009. Commercial and commercial real estate loans increased $58.6 million as we continue our strategic initiative to increase our commercial loan portfolio, while commercial construction loans decreased by $13.2 million as we de-emphasized construction lending during the past two quarters. Additionally, our one- to four-family real estate loans increased $7.8 million offset by a $3.2 million decrease in consumer loans.  The modest increase in one-to four-family real estate loans was due to increased originations through our correspondent relationships, while the decrease in consumer loans was due to the Company’s decision to de-emphasize these types of loans as a result of the current economic environment.  Mortgage related securities available-for-sale increased $145.3 million, primarily due to an increase in agency residential mortgage related securities.  Investment related securities available for sale increased $2.2 million, primarily due to an increase in corporate securities, offset by a decrease in securities of state and political subdivisions.  All of the increases in assets were directly funded by the increase in deposits.

Deposits increased $252.0 million, or 41.4%, from $608.5 at December 31, 2008 to $860.5 million at September 30, 2009. Certificates of deposits increased $166.0 million, or 44.4%, and money market accounts increased $75.9 million, or 74.9% from December 31, 2008 to September 30, 2009.  During March 2009, the Bank offered attractive rates on selected money market and certificate of deposit products to increase its market share resulting in approximately 6,500 new deposit accounts representing greater than $200 million in deposits, of which approximately 50% were new customers.   In addition to the deposits obtained during the first quarter, the Bank continued to increase deposits during the second and third quarters of 2009 as it maintained competitive rates on money market and certificate of deposit accounts during these periods.  The Company has gradually reduced interest rates on deposits during the third quarter of 2009.  The Company continues to invest these funds in loans to qualified businesses and consumers.

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Stockholders’ equity increased $5.7 million to $126.9 million at September 30, 2009 compared to $121.2 million at December 31, 2008 primarily due to unrealized gains, net of taxes, on the investment portfolio of $7.0 million and net income of $1.4 million offset by the repurchase of 387,272 shares of common stock at a cost of $3.8 million.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2009 and 2008

General. Net income decreased $146,000, or 22.2%, to $513,000 for the three months ended September 30, 2009, compared to $659,000 for the three months ended September 30, 2008.  The decrease in net income was primarily the result of an increase in the loan loss provision of $950,000 and an increase of $465,000 in noninterest expense, offset by an increase in net interest income of $264,000, an increase in noninterest income of $964,000 and a decrease in income taxes of $41,000.  Noninterest expense for the three months ended September 30, 2009 included a $317,000 increase in the Federal Deposit Insurance Corporation premiums related to the current year assessment compared to the same quarter in the prior year.  The increase in noninterest income was primarily related to the gain on sale of securities of $958,000 in the third quarter of 2009.

Net income increased $104,000, or 8.0%, to $1.4 million for the nine months ended September 30, 2009 from $1.3 million for the nine months ended September 30, 2008, primarily due to an increase in net interest income of $1.4 million and an increase in noninterest income of $1.5 million, offset by an increase in the provision for loan losses of $1.5 million, an increase in noninterest expense of $1.2 million, and an increase in income tax expense of $98,000. The increase in noninterest income of $1.5 million was primarily the result of gains on the sales of securities of $1.5 million offset by an other-than-temporary impairment loss recognized on a private label residential mortgage related security in the amount of $157,000 during the second quarter of 2009.  The Bank also had a net reduction in the valuation allowance on the mortgage servicing rights in the amount of $57,000. The increase in noninterest expense of $1.2 million includes an increase of $1.3 million in Federal Deposit Insurance Corporation premiums which is due to (1) a special assessment of $536,000 during the second quarter of 2009, (2) the Bank’s prior credit being fully utilized in the fourth quarter of 2008 resulting in an increased cost of $222,000 in 2009 and (3) increases associated with higher deposit premium rates and higher average deposit balances.  Noninterest expense for the nine months ended September 30, 2008 included an expense of $297,000 associated with final distributions from the Company’s terminated pension plan in the second quarter of 2008.

Net Interest Income. Net interest income increased $264,000, or 4.5%, during the three months ended September 30, 2009, compared to the same period in 2008 primarily due to an increase in total interest income of $1.7 million offset by a $1.5 million increase in total interest expense.  The increase in total interest income was primarily due to an increase in average total interest earning assets of $327.0 million, offset by a decrease in the average yield on interest-earning assets from 5.54% to 4.56%. The increase in average balances of interest-earning assets was primarily due to: (1) an increase in the average balance of loans of $83.1 million year over year primarily related to the Company’s focus on increasing its levels of commercial lending; (2) an increase in the average balance of mortgage related securities of $144.2 million year over year and (3) an increase in the average balance of interest-earning demand deposits of $68.3 million and money market funds of $23.8 million year over year, both a result of excess funds from deposit inflows.  The decrease in yield on interest-earning assets was primarily due to a reduction in overall interest rates from 2008 to 2009 as well as a mix shift from higher-yielding loans to lower-yielding mortgage-related securities, interest earning deposits and money market funds.

The increase in total interest expense was primarily due to an increase in the average balances of interest-bearing liabilities of $313.3 million offset by a decrease in the average cost on interest bearing-liabilities from 3.31% to 2.85%.  The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of interest-bearing deposits of $271.1 million, an increase in the average balance of other borrowed funds of  $27.9 million as well as an increase of $14.3 million in the average balance of Federal Home Loan Bank advances.  The increase in the average balance of interest-bearing deposits was primarily the result of the previously discussed promotion offered by the Bank in the first quarter of 2009 as well as maintaining competitively high rates on money market accounts throughout the second and third quarters of 2009. The decrease in average cost on interest bearing-liabilities was primarily due to reduction in overall interest rates from 2008 to 2009.

Net interest income increased $1.4 million, or 9.0%, to $17.3 million for the nine months ended September 30, 2009 compared to the same period in 2008 primarily due to an increase in total interest income of  $4.3 million offset by a $2.9 million increase in total interest expense. The increase in total interest income was primarily due to an increase in average total interest earning assets of $245.3 million, offset by a decrease in the average yield on interest-earning assets from 5.45% to 4.73%.  The increase in average balances of interest-earning assets was primarily due to: (1) an increase in the average balance of loans of $121.4 million year over year primarily related to the Company’s focus on increasing its levels of commercial lending; (2) an increase in the average balance of mortgage related securities of $86.1 million year over year and (3) an increase in the average balance of interest-earning demand deposits of $32.3 million and money market funds of $15.2 million year over year, both a result of excess funds from deposit inflows. The decrease in yield on interest-earning assets was primarily due to a reduction in overall

27

interest rates from 2008 to 2009, as well as a shift from higher-yielding loans to lower-yielding mortgage-related securities, interest earning deposits and money markets funds.

The increase in net interest expense was primarily due to an increase in the average balances of interest-bearing liabilities of $238.2 million offset by a decrease in the average cost on interest bearing-liabilities from 3.50% to 3.02%.  The increase in the average balance of interest-bearing liabilities was primarily due to an increase in the average balance of interest-bearing deposits of $182.3 million, an increase in the average balance of other borrowed funds of $29.6 million as well as an increase in the average balance of Federal Home Loan Bank advances of $26.3.  The increase in the average balance of interest-bearing deposits was primarily the result of the previously discussed promotion offered by the Bank in the first quarter of 2009, as well as maintaining competitively high rates on money market accounts throughout the second and third quarters of 2009. The decrease in average cost on interest bearing-liabilities was primarily due to reduction in overall interest rates from 2008 to 2009.

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, 2009 and 2008. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

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	Three Months Ended September 30,														Nine Months Ended September 30,
	2009							2008							2009							2008
				Interest							Interest							Interest							Interest
	Average			and		Yield/		Average			and		Yield/		Average			and		Yield/		Average			and		Yield/
	Balance			Dividends		Cost		Balance			Dividends		Cost		Balance			Dividends		Cost		Balance			Dividends		Cost
	(Dollars in thousands)														(Dollars in thousands)
Assets:
Interest-earning assets:
Interest-earning demand deposits	$	76,140		$	290	1.51	%	$	7,830		$	17	0.84	%	$	42,065		$	426	1.35	%	$	9,749		$	124	1.70	%
Money market funds	23,842			23		0.39	%	2			—		2.42	%	36,753			183		0.67	%	21,515			521		3.23	%
Mortgage-related securities	389,715			3,975		4.08	%	245,497			3,138		5.11	%	334,331			10,735		4.28	%	248,184			9,248		4.97	%
Taxable securities	32,865			238		2.89	%	18,474			190		4.12	%	28,865			624		2.88	%	32,775			1,069		4.35	%
Nontaxable securities	11,028			107		3.87	%	14,558			146		4.02	%	12,916			390		4.02	%	15,707			469		3.98	%
Loans (1):
Residential loans	267,347			3,515		5.26	%	248,333			3,525		5.68	%	265,322			10,942		5.50	%	231,635			9,838		5.66	%
Commercial loans	288,626			4,129		5.60	%	221,723			3,494		6.17	%	278,234			11,727		5.56	%	188,227			9,254		6.46	%
Consumer loans	72,850			1,054		5.79	%	75,634			1,087		5.75	%	74,363			3,164		5.67	%	76,673			3,323		5.78	%
Total Loans	628,823			8,698		5.48	%	545,690			8,106		5.89	%	617,919			25,833		5.55	%	496,535			22,415		5.98	%
Allowance for loan losses	(7,255		)					(3,895		)					(6,772		)					(3,643		)
Net loans	621,568			8,698				541,795			8,106				611,147			25,833				492,892			22,415
Total interest-earning assets	1,155,158			13,331		4.56	%	828,156			11,597		5.54	%	1,066,077			38,191		4.73	%	820,822			33,846		5.45	%
Noninterest-earning assets	38,723							36,101							37,496							36,579
Total assets	$	1,193,881						$	864,257						$	1,103,573						$	857,401
Liabilities and equity:
Interest-bearing liabilities:
NOW and money market deposit accounts	$	214,489		778		1.44	%	$	113,013		581		2.04	%	$	177,110		2,257		1.70	%	$	101,902		1,571		2.06	%
Savings accounts	50,769			19		0.15	%	52,910			33		0.25	%	51,451			70		0.18	%	53,279			126		0.32	%
Certificates of deposit	545,680			4,681		3.40	%	373,883			3,731		3.97	%	497,724			13,249		3.56	%	388,788			12,307		4.23	%
Total interest-bearing deposits	810,938			5,478		2.68	%	539,806			4,345		3.20	%	726,285			15,576		2.87	%	543,969			14,004		3.44	%
FHLB advances	143,886			1,333		3.63	%	129,554			1,230		3.72	%	145,118			3,992		3.63	%	118,843			3,380		3.74	%
Other borrowed funds	50,142			437		3.41	%	22,278			203		3.57	%	50,378			1,298		3.40	%	20,759			567		3.59	%
Total borrowings	194,028			1,770		3.57	%	151,832			1,433		3.69	%	195,496			5,290		3.57	%	139,602			3,947		3.72	%
Total interest-bearing liabilities	1,004,966			7,248		2.85	%	691,638			5,778		3.31	%	921,781			20,866		3.02	%	683,571			17,951		3.50	%
Noninterest-bearing deposits	53,054							47,439							49,197							46,065
Other noninterest-bearing liabilities	10,195							4,336							8,521							5,586
Total liabilities	1,068,215							743,413							979,499							735,222
Retained earnings	119,959							121,738							120,788							121,835
Accumulated comprehensive income	5,707							(894		)					3,286							344
Total stockholder’s equity	125,666							120,844							124,074							122,179
Total liabilities and stockholders’ equity	$	1,193,881						$	864,257						$	1,103,573						$	857,401
Net interest income				$	6,083						$	5,819						$	17,325						$	15,895
Interest rate spread						1.71	%						2.23	%						1.71	%						1.95	%
Net interest margin						2.09	%						2.79	%						2.14	%						2.55	%
Average interest-earning assets to averageinterest-bearing liabilities						114.95	%						119.74	%						115.65	%						120.08	%

(1) Nonperforming loans are included in average balance computations

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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, 2009 Compared to Three Months Ended September 30, 2008									Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
	Rate			Volume			Net			Rate			Volume			Net
Interest and dividend income:
Interest-earning demand deposits	$	130		$	143		$	273		$	(110	)	$	412		$	302
Money market funds	(121		)	144			23			(706		)	368			(338		)
Mortgage related securities	(1,006		)	1,843			837			(1,723		)	3,210			1,487
Taxable securities	(101		)	149			48			(318		)	(127		)	(445		)
Nontaxable securities	(4		)	(35		)	(39		)	4			(83		)	(79		)
Loans:
Residential loans	(280		)	270			(10		)	(326		)	1,430			1,104
Commercial loans	(420		)	1,055			635			(1,952		)	4,425			2,473
Consumer loans	7			(40		)	(33		)	(60		)	(99		)	(159		)
Total loans	(693		)	1,285			592			(2,338		)	5,756			3,418
Total interest-earning assets	(1,795		)	3,529			1,734			(5,191		)	9,536			4,345
Interest Expense:
NOW and money market deposits	(325		)	522			197			(473		)	1,159			686
Savings accounts	(13		)	(1		)	(14		)	(51		)	(5		)	(56		)
Certificates of deposit	(763		)	1,713			950			(2,507		)	3,449			942
Total interest-bearing deposits	(1,101		)	2,234			1,133			(3,031		)	4,603			1,572
FHLB advances	(33		)	136			103			(135		)	747			612
Other borrowed funds	(20		)	254			234			(78		)	809			731
Total borrowings	(53		)	390			337			(213		)	1,556			1,343
Total interest-bearing liabilities	(1,154		)	2,624			1,470			(3,244		)	6,159			2,915
Net change in net interest income	$	(641	)	$	905		$	264		$	(1,947	)	$	3,377		$	1,430

30

Provision for Loan Losses. The Company recorded a provision for loan losses of $1.5 million and $2.4 million for the three and nine months ended September 30, 2009, respectively, compared to $500,000 and $900,000 for the three and nine months ended September 30, 2008, respectively.  The increase in the provision reflected loan growth, primarily in commercial categories, and an increase in nonperforming, delinquent and internally classified loans in both the residential and commercial loan portfolios.

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

	At September 30,			At December 31,
	2009			2008
	(Dollars in thousands)
Nonaccrual loans:
One- to four-family	$	6,474		$	1,503
Multi-family and commercial real estate	1,773			685
Construction	7,220			3,495
Consumer	349			167
Total	15,816			5,850
Accruing loans past due 90 days or more	400			—
Real estate owned	—			—
Total nonperforming assets	$	16,216		$	5,850
Total nonperforming loans to total loans	2.51		%	0.98		%
Total nonperforming loans to total assets	1.37			0.63
Total nonperforming assets to total assets	1.37			0.63

Nonperforming assets increased a total of $10.3 million to $16.2 million at September 30, 2009 from $5.9 million at December 31, 2008. This increase was primarily a result of the following groups of loans being placed on nonaccrual during the nine months ended September 30, 2009: (1) three commercial construction loans, primarily related to residential housing developments, totaling $4.0 million, (2) three commercial real estate loans totaling $1.1 million and (3) one- to four-family loans increasing by $5.0 million, primarily due to one loan totaling $4.3 million.

At September 30, 2009, there were a total of four commercial construction loans totaling $7.2 million on nonaccrual status.  The largest nonaccrual construction loan is a $3.2 million loan collateralized by a residential housing development located in Atlantic County, New Jersey.  The other three nonaccrual construction loans total $4.0 million and are collateralized by a condominium project located in Philadelphia County, Pennsylvania; a residential development located in Montgomery County, Pennsylvania; and a single house located in Ocean County, New Jersey.

At September 30, 2009, there were four multi-family and commercial real estate loans totaling $1.8 million on nonaccrual status. The largest single loan totaling $516,000 is secured by a commercial business located in Ocean City, New Jersey.

At September 30, 2009, there were ten one- to four-family loans totaling $6.5 million on nonaccrual status at September 30, 2009 compared to eight one-to four-family loans totaling $1.5 million on nonaccrual status at December 31, 2008. The largest nonaccrual one- to four-family loan was the previously mentioned $4.3 million loan which is secured by a residential home located in Somerset County, New Jersey.  Of the remaining nine one- to four-family loans on nonaccrual status at September 30, 2009, five are located in Atlantic County, New Jersey, three in Bucks County, Pennsylvania and one in Philadelphia County, Pennsylvania.

Impaired loans requiring an allowance for loan losses increased $9.8 million to $16.2 million at September 30, 2009 compared to $6.4 million at December 31, 2008.  The related allowance for loan losses associated with these loans was $1.9 million at September 30, 2009 compared to $1.0 million at December 31, 2008.  The increase is consistent with the previously described increase in the levels of nonaccrual loans.

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

	At September 30, 2009				At December 31, 2008
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)
Multi-family and commercial real estate	$	8,567	$	41	$	766	$	337
Construction	—		1,035		—		—
One- to four-family real estate	601		598		104		92
Consumer:
Home equity loans and lines of credit	402		31		63		83
Automobile	8		—		—		—
Total	$	9,578	$	1,705	$	933	$	512

Total delinquent loans increased to $11.3 million at September 30, 2009 as compared to $1.4 million at December 31, 2008.  The increase was primarily due to three commercial real estate loans totaling $8.6 million being delinquent at September 30, 2009.  At September 30, 2009, there were a total of 17 delinquent loans, the largest being a $5.5 million loan secured by a commercial self-storage facility in central New Jersey.

The Bank’s loan portfolio has many loans where the loan is collateralized by either residential homes, residential developments or commercial real estate.  Continued declines in real estate values and home sales, and an increase in the financial stress on borrowers from an uncertain economic environment, including rising unemployment, could have an adverse effect on our borrowers or their customers, which could adversely impact the repayment of individual loans in the loan portfolio.

Noninterest Income. The following table summarizes noninterest income for the three and nine months ended September 30, 2009 and 2008.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2009		2008		$ Change			% Change		2009			2008		$ Change			% Change
	(Dollars in thousands)
Service charges and other fee income	$	192	$	218	$	(26	)	(11.9	)%	$	672		$	633	$	39		6.2	%
Net gain (loss) on sale of loans	—		6		(6		)	(100.0	)%	3			10		(7		)	(70.0	)%
Income on bank-owned life insurance	115		114		1			0.9	%	336			338		(2		)	(0.6	)%
Other	58		21		37			176.2	%	269			56		213			380.4	%
Total other than temporary impairment loss	—		—		—			0.0	%	(605		)	—		(605		)	(100.0	)%
Less: Portion of loss recognized in othercomprehensive income (before taxes)	—		—		—			0.0	%	448			—		448			100.0	%
Net other-than-temporary impairment loss	—		—		—			0.0	%	(157		)	—		(157		)	(100.0	)%
Net gains on sale of investment securities	958		—		958			100.0	%	1,546			118		1,428			1210.2	%
Net investment securities gains	958		—		958			100.0	%	1,389			118		1,271			1077.1	%
Total Noninterest Income	$	1,323	$	359	$	964		268.5	%	$	2,669		$	1,155	$	1,514		131.1	%

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Noninterest income increased $964,000, or 268.5%, during the three months ended September 30, 2009 compared to the same period in 2008.  Net investment securities gains increased $958,000 during the third quarter of 2009 due to the sale of $30.8 million of corporate and agency residential mortgage related securities.  Service charges and other fee income decreased $26,000 primarily as a result of a $20,000 decrease in loan servicing income, including the previously discussed valuation allowance on mortgage servicing rights, compared to the three months ended September 30, 2008. Other income increased $37,000 during the three months ended September 30, 2009 compared to the same period in 2008 as the Bank recorded an increase of $36,000 on its investment in Philadelphia Mortgage Advisors, Inc.

Noninterest income increased $1.5 million, or 131.1%, during the nine months ended September 30, 2009 compared to the same period in 2008.  Net investment securities gains increased $1.3 million as the Bank recognized a gain of $1.5 million on the sale of $50.9 million of corporate and agency residential mortgage related securities offset by an other-than-temporary credit impairment loss recognized on a private label residential mortgage related security in the amount of $157,000 during the second quarter of 2009.  Service charges and other fee income increased by $39,000 primarily as a result of (1) loan satisfaction fee income from Philadelphia Mortgage Advisors, Inc. increasing $26,000 to $44,000 for the nine months ended September 30, 2009 as compared to $18,000 for the nine months ended September 30, 2008; (2) a $2,000 decrease in loan servicing income, including a change in valuation allowance on mortgage servicing rights, compared to the nine months ended September 30, 2008 and (3) an increase of $11,000 in deposit fee income. Other income increased $213,000 during the nine-month period as the Bank recorded an increase of income of $210,000 on its investment in Philadelphia Mortgage Advisors, Inc., primarily due to a higher volume of mortgage banking activity and sales during the nine months ended September 30, 2009.

Noninterest Expense. The following table summarizes noninterest expense for the three and nine months ended September 30, 2009 and 2008.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2009		2008		$ Change			% Change		2009		2008		$ Change			% Change
	(Dollars in thousands)
Salaries, benefits and other compensation	$	3,198	$	2,928	$	270		9.2	%	$	8,963	$	8,790	$	173		2.0	%
Occupancy expense	441		458		(17		)	(3.7	)%	1,374		1,412		(38		)	(2.7	)%
Furniture and equipment expense	170		226		(56		)	(24.8	)%	571		669		(98		)	(14.6	)%
Data processing costs	384		402		(18		)	(4.5	)%	1,146		1,204		(58		)	(4.8	)%
Professional fees	267		285		(18		)	(6.3	)%	831		863		(32		)	(3.7	)%
Marketing expense	72		117		(45		)	(38.5	)%	242		337		(95		)	(28.2	)%
FDIC premiums	343		26		317			1219.2	%	1,415		81		1,334			1646.9	%
Other	379		347		32			9.2	%	1,155		1,111		44			4.0	%
Total	$	5,254	$	4,789	$	465		9.7	%	$	15,697	$	14,467	$	1,230		8.5	%

Noninterest expense increased by $465,000, or 9.7%, and $1.2 million, or 8.5%, during the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008.  The largest changes for the three-month period ended September 30, 2009 were an increase in (1) FDIC premiums of $317,000, primarily due to (a) the FDIC insurance assessment rate increasing, on average, by nine basis points from five basis points during the three months ended September 30, 2008 to fourteen basis points during the three months ended September 30, 2009,  (b) an increase in the average deposit balances, and (c) the Bank’s FDIC insurance credit from the prior year being fully utilized during the fourth quarter of 2008 and (2) salaries and benefits expense of $270,000 primarily related to the hiring of a new middle market lending team in the second quarter of 2009 and due to severance accruals in the amount of $185,000 recorded during the quarter ended September 30, 2009.  These increases were offset by a reduction of furniture and equipment expense of $56,000, primarily as a result of certain fixed assets becoming fully depreciated in 2009, and a reduction of marketing expense of $45,000 due to reduced promotional offers and advertising performed during 2009.

The largest changes for the nine month period were and increase in (1) FDIC premiums of $1.3 million, primarily due to (a) an FDIC special assessment of $536,000, (b) the average FDIC insurance assessment rate increased by eight basis points to thirteen basis points during the nine months ended September 30, 2009 from five basis points during the nine months ended September 30, 2008, (c) an increase in the average deposit balances and (d) the Bank’s FDIC insurance credit from the prior year was fully utilized during the fourth quarter of 2008 and (2) salaries and benefits expense of $173,000 primarily related to the hiring of a new middle market lending team in the second quarter of 2009,  severance accruals in the amount of $185,000

33

recorded during the quarter ended September 30, 2009 and normal increases in salaries offset by $297,000 of expense in the nine-month period ended September 30, 2008 associated with final distributions from the Company’s terminated pension plan.  Additional changes in noninterest expense included a reduction of furniture and equipment expense of $98,000 primarily as a result of certain fixed assets becoming fully depreciated in 2009 and a reduction of marketing expense of $95,000 due to reduced promotional offers and advertising performed during 2009.

Income Taxes. The income tax provision for the three and nine months ended September 30, 2009 was $189,000 and $473,000, respectively, compared to $230,000 and $375,000 for the three and nine months ended September 30, 2008, respectively.   The Company’s effective income tax rate was 26.9% and 25.1% for the three and nine months ended September 30, 2009, respectively, compared to 25.9% and 22.3% for the three and nine months ended September 30, 2008, 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, securities repayments, maturities and sales and funds available from the FHLB. 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.

The following table presents certain of our contractual obligations as of September 30, 2009 and December 31, 2008.

			Payments Due by Period
					One to
			Less Than		Three		Three to		More Than
Contractual Obligations	Total		One Year		Years		Five Years		Five Years
	(In thousands)
At September 30, 2009
Operating lease obligations (1)	$	1,329	$	480	$	849	$	—	$	—
FHLB advances and other borrowings (2)	229,758		25,984		50,111		31,624		122,039
Other long-term obligations (3)	6,349		1,656		2,986		1,707		—
Total	$	237,436	$	28,120	$	53,946	$	33,331	$	122,039
At December 31, 2008
Operating lease obligations (1)	$	1,702	$	498	$	929	$	275	$	—
FHLB advances and other borrowings (2)	238,197		16,260		61,237		32,221		128,479
Other long-term obligations (3)	7,443		1,651		3,131		2,661		—
Total	$	247,342	$	18,409	$	65,297	$	35,157	$	128,479

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

(2)   Includes principal and projected interest payments.

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2009, cash and cash equivalents totaled $58.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $442.3 million at September 30, 2009. In addition, at June 30, 2009, the latest date available, we had the ability to borrow a total of approximately $327.4

34

million from the FHLB. On September 30, 2009, we had $143.2 million of borrowings outstanding with the FHLB as well as $50.0 million of borrowings outstanding with another financial institution.

At September 30, 2009, we had $140.7 million in loan commitments outstanding, which consisted of $5.1 million of mortgage loan commitments, $21.7 million in unused home equity lines of credit, $2.4 million in consumer loans, $111.5 million in commercial loan commitments and $50,000 in standby letters of credit. Certificates of deposit due within one year of September 30, 2009 totaled $353.3 million, or 65.4% of total certificates of deposit, at September 30, 2009, an increase from   53.5% at December 31, 2008 as a result of the Company’s first quarter 2009 certificate of deposit promotion, which attracted a greater portion of certificates of deposit with a term of eighteen months or longer, which are now maturing in less than twelve months.  As a result, we have approximately $128 million of certificates of deposit maturing in the quarter ended September 30, 2010. 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, 2010. Historically, the Bank has had a significant portion of matured certificates of deposit remain with the Bank.  Given the sizeable portion of certificates of deposits maturing in one quarter, the Bank intends to proactively communicate with customers and possibly adjust interest rates above current offered rates to help retain deposits from its first quarter 2009 certificate of deposit program. Additionally, we have the ability to attract and retain all types of deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase and sale of securities. Our primary financing activities consist of activity in deposit accounts, FHLB advances and other borrowed funds.  Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

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

	Nine Months Ended September 30,2009			Year Ended December 31, 2008
Investing activities:
Loan originations	$	(151,474	)	$	(207,687	)
Other decreases in loans	101,416			82,182
Purchase of loan participations	(127		)	(19,335		)
Security purchases	(273,435		)	(163,303		)
Security sales	47,860			94,449
Security maturities, calls and principal repayments	84,250			68,893
Financing activities:
Increase in deposits	252,057			22,912
(Decrease) increase in FHLB advances	(3,147		)	66,379
Increase in other borrowings	—			30,000
Purchase of treasury stock	(3,819		)	(3,369		)

The Bancorp is a separate entity and apart from the Bank and must provide for its own liquidity. As of September 30, 2009, the Bancorp had $12.4 million in cash and cash equivalents.   In addition to its operating expenses, the Bancorp may utilize its cash position for the payment of dividends to stockholders or through the repurchase of its common stock.  Through September 30, 2009 no dividends have been paid. Substantially all of the Bancorp’s cash and cash equivalents was obtained from proceeds it retained from its initial public offering in 2006.  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 Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2009, the Bank exceeded all of regulatory capital requirements and was considered a “well capitalized” institution under regulatory guidelines.

35

The following table presents the Bank’s capital ratios and the minimum capital requirements to be considered ‘‘well capitalized” by the OTS as of September 30, 2009 and December 31, 2008:

	Ratio		Minimum to be Well Capitalized
September 30, 2009:
Total risk-based capital (to risk-weighted assets)	16.53	%	>10.0	%
Tier 1 capital (to risk-weighted assets)	15.39	%	>  6.0	%
Tier 1 capital (to adjusted assets)	8.63	%	>  5.0	%
December 31, 2008:
Total risk-based capital (to risk-weighted assets)	19.25	%	>10.0	%
Tier 1 capital (to risk-weighted assets)	18.11	%	>  6.0	%
Tier 1 capital (to adjusted assets)	10.70	%	>  5.0	%

Total stockholders’ equity to total assets was 10.7% at September 30, 2009, 13.0% at December 31, 2008 and 13.6% at September 30, 2008.  .. The Company’s financial condition and results of operations have been enhanced by the capital from the initial public offering in 2006, resulting in increased net interest-earning assets.  However, the large increase in equity resulting from the capital raised in the offering has had an adverse impact on our return on equity.  The Company may use capital management tools such as cash dividends and share repurchases as well as improving operating income to increase its return on equity.

Off-Balance Sheet Arrangements

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

For the period ended September 30, 2009, 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, 2009, there has not been any material change to the market risk disclosure from that contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

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, 2009 that has materially affected, or is reasonably likely to materially effect, Company’s internal control over financial reporting.

36

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.

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, 2008, which could materially affect our business, financial condition or future results.  As of September 30, 2009, 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

				Total Number
				of Shares
				Purchased	Maximum
	Total			as Part of	Number of Shares
	Number of	Average		Publicly	that May Yet be
	Shares	Price Paid		Announced Plans or	Purchased Under
Period	Purchased	Per Share		Programs (1)	the Plans or Programs
July 1, 2009 throughJuly 31, 2009	59,800	$	9.91	59,800	368,420
August 1, 2009 throughAugust 31, 2009	42,700	$	9.67	42,700	325,720
September 1, 2009 throughSeptember 30, 2009	18,183	$	9.54	18,183	307,537
Total	120,683	$	9.77	120,683

(1)  On July 31, 2008, the Company announced that the Board of Directors approved the repurchase of up to 327,000 shares of the Company’s common stock (the “July 2008 program”).  On August 24, 2009, the Company completed the repurchase of all shares approved in the July 2008 program.  On May 21, 2009, the Company announced that the Board of Directors approved the repurchase of up to an additional 327,000 shares of the Company’s common stock.  During the third quarter of 2009, the Company repurchased 19,463 shares as part of the May 2009 program and 307,537 shares remain to be purchased under the May 2009 program as of September 30, 2009.  This repurchase program will continue until it is completed or terminated by the Board of Directors.

37

Item 3. Defaults upon Senior Securities

Not applicable.

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

None

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1	Charter of Fox Chase Bancorp, Inc. (1)
3.2	Bylaws of Fox Chase Bancorp, Inc. (2)
4.1	Stock Certificate of Fox Chase Bancorp, Inc. (1)
10.1	Employment Agreement between Michael Fitzgerald, Fox Chase Bancorp, Inc. and Fox Chase Bank
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

(1)	Incorporated by reference to this document from the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-134160), as amended, initially filed with the Securities and Exchange Commission on May 16, 2006.
(2)	Incorporated by reference to this document from the exhibits to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2008.

38

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, 2009	By:	/s/ Thomas M. Petro
		Thomas M. Petro
		President and Chief Executive Officer
		(principal executive officer)
Dated: November 6, 2009	By:	/s/ Roger S. Deacon
		Roger S. Deacon
		Chief Financial Officer
		(principal financial officer)

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”), is made this 1st day of August, 2009 by and between Fox Chase Bancorp, Inc. (the “Company”), a corporation organized under the laws of the United States of America, with its principal offices at 4390 Davisville Road, Hatboro, Pennsylvania 19040, Fox Chase Bank (the “Bank”), a federally chartered stock savings bank organized under the laws of the United States of America, with its principal offices at 4390 Davisville Road, Hatboro, Pennsylvania 19040 and Michael Fitzgerald (“Executive”).

WHEREAS, Executive and the Board of Directors of both the Company and Bank desire to enter into an agreement setting forth the terms and conditions of the employment of Executive and the related rights and obligations of each of the parties.; and

WHEREAS, Executive and the Board of Directors of both the Company and Bank desire to enter into an agreement setting forth the terms and conditions of the employment of Executive and the related rights and obligations of each of the parties for the period provided for in this Agreement in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and guidance issued with respect to 409A of the Code.; and

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:

1.             Position and Responsibilities.

(a)           During the period of Executive’s employment under this Agreement, Executive agrees to serve as Executive Vice President and Senior Lending Officer of the Company and Bank.  Executive shall have responsibility for the general management and control of the business and affairs of the Company and its subsidiaries, including the Bank, and shall perform all duties and shall have all powers which are commonly incident to the offices of Executive Vice President and Senior Lending Officer or which, consistent with those offices, are delegated to him by the Board of Directors of the Company and Bank.

(b)           During the period of Executive’s employment under this Agreement, except for periods of absence occasioned by illness, vacation, and reasonable leaves of absence, Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement, including activities and services related to the organization, operation and management of the Company and its subsidiaries, including the Bank, as well as participation in community, professional and civic organizations; provided, however, that, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or organizations listed by Executive on his annual conflict of interest reporting.

(c)           The Bank or the Company (as they shall determine), will furnish Executive with the working facilities and staff customary for executive officers with the titles and duties set forth

in this Agreement and as are necessary for him to perform his duties.  The location of such facilities and staff shall be at the principal administrative offices of the Bank.

2.             Term of Employment.

(a)           The term of Executive’s employment under this Agreement shall be deemed to have commenced as of June 15, 2009 and shall continue for a period of thirty-six (36) full calendar months thereafter.

(b)           The Compensation Committees of the Boards of Directors of the Company and Bank will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement for an additional year.  The Chairman of the Boards of Directors will give notice to the Executive as soon as possible if the Boards have decided not to extend the Agreement.

(c)           Notwithstanding anything contained in this Agreement to the contrary, either Executive, the Company or the Bank may terminate Executive’s employment at any time during the term of this Agreement, subject to the terms and conditions of this Agreement.

3.             Compensation and Benefits.

(a)           The Bank or the Company (as they shall determine), shall pay Executive as compensation a salary of $175,000.00 per year (“Base Salary”).  In addition to the Base Salary provided in this Section 3(a), the Bank shall also provide Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.  If Executive’s Base Salary is increased, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement.  For purposes of Section 4(b) of this Agreement, Base Salary shall be deemed to include the highest cash bonus or similar cash incentive compensation paid to or accrued on behalf of the Executive with respect to the three (3) taxable years preceding his termination of employment.  For purposes of Section 5(c) of this Agreement, Base Salary shall be defined as the amount reported in Box 1 of the Executive’s Form W-2, plus amounts deferred under the Bank’s 401(k) Plan and/or Section 125 Plan (if any), or deferred at the Executive’s election or on behalf of the Executive to any non-qualified deferred compensation plan of the Bank or the Company.

(b)           Executive shall be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, profit-sharing plans, or any other employee benefit plan or arrangement made available by the Bank or Company in the future to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive shall be entitled to incentive compensation and bonuses as provided in any plan of the Bank or Company in which Executive is eligible to participate.  Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.  From time to time, and as determined by the Boards of Directors of the Company and the Bank, Executive may be entitled to participate in or receive benefits under plans relating

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to stock options and restricted stock awards that are made available by the Company or the Bank at any time in the future during the term of this Agreement, subject to and on a basis consistent with the terms, conditions and overall administration of such plans.

(c)           The Company or Bank (as they shall determine) shall also pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred in the performance of Executive’s obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board of Directors of the Company or Bank may from time to time determine.

(d)           Executive shall take vacation at a time mutually agreed upon by the Company, Bank and Executive.  Executive shall receive his Base Salary and other benefits during periods of vacation. Executive shall also be entitled to paid legal holidays in accordance with the policies of the Bank.

4.             Payments to Executive Upon an Event of Termination.

(a)           Upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement, the provisions of this Section 4 shall apply.  Unless Executive otherwise agrees, as used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:  (i) the termination by the Company or Bank of Executive’s full-time employment for any reason other than a termination governed by Section 7 of this Agreement; or (ii) Executive’s resignation from the Bank or Company, upon, any (A) notice to Executive of non-renewal of the term of this Agreement (B) failure to reappoint Executive as Executive Vice President and Senior Lending Officer, (C) material change in Executive’s functions, duties, or responsibilities with the Bank, the Company or its subsidiaries, which change would cause Executive’s position(s) to become of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 of this Agreement, (D) material reduction in the benefits and perquisites provided to Executive from those being provided as of the effective date of this Agreement, except to the extent such coverage may be changed in its application to all Bank employees, (E) liquidation or dissolution of the Company or the Bank, or (F) breach of this Agreement by the Bank or Company.  Upon the occurrence of any event described in clauses (A), (B), (C), (E) or (F), above, Executive shall have the right to terminate his employment under this Agreement by resignation upon not less than sixty (60) days prior written notice given within six (6) full calendar months after the event giving rise to Executive’s right to elect to terminate his employment.

(b)           Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8, the Company and Bank (as they shall determine) shall be obligated to pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be the value of the Executive’s base salary for the remaining term of the Agreement plus the value of all benefits he would have received during the remaining term of the Agreement under any retirement programs (whether tax-qualified or non-qualified) in which Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination).  Executive shall receive this payment

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in a single lump sum within ten (10) days of his termination of employment.  In addition, Executive and his dependents will continue to participate in any benefit plans of the Company or the Bank that provide health (including medical and dental), or life insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Company and the Bank during the remaining term of the Agreement.  In the event that the Company and the Bank are unable to provide such coverage by reason of Executive no longer being an employee, the Company and the Bank shall provide Executive with comparable coverage on an individual policy basis.  In the event the Bank or the Company is not in compliance with its minimum capital requirements or if such payments pursuant to this subsection (b) would cause the Company or Bank’s capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as either the Company or the Bank or successor thereto is in capital compliance.  No payments under this Section 4(b) shall be reduced in the event the Executive obtains other employment following termination of employment.

(c)           During the period commencing on the effective date of Executive’s termination under Section 4(a) of this Agreement and ending one (1) year thereafter (the “Restricted Period”), Executive shall not, without express prior written consent from the Company or the Bank, directly or indirectly, own or hold any proprietary interest in, or be employed by or receive remuneration from, any corporation, partnership, sole proprietorship of other entity (collectively, an “entity”) “engaged in competition” (as defined below) with the Bank or any other affiliates (“Competitor”).  For purposes of the preceding sentence, the term “proprietary interest” means direct or indirect ownership of an equity interest in an entity other than ownership of less than two percent (2%) of any class of stock in a publicly-held entity.  Further, an entity shall be considered to be “engaged in competition” if such entity is, or is a holding company for, or a subsidiary of an entity which is engaged in the business of providing banking, trust services, asset management advice, or similar financial services to consumers, businesses, individuals or other entities; and the entity, holding company or subsidiary maintains physical offices for the transaction of such business or businesses in any city, town or county in which the Executive’s normal business office is located or the Bank has an office or has filed an application for regulatory approval to establish an office, as determined on the date of Executive’s termination of employment.

(d)           During the Restricted Period, Executive shall not, without express prior written consent of the Bank or the Company, solicit or assist any other person in soliciting for the account of any Competitor, any customer or client of the Bank or any of its subsidiaries.

(e)           During the Restricted Period, Executive shall not, without the express prior written consent of the Bank, directly or indirectly, (i) solicit or assist any third party in soliciting for employment any person employed by the Bank or any of its subsidiaries at the time of the termination of Executive’s employment (collectively, “Employees”), (ii) employ, attempt to employ or materially assist any third party in employing or attempting to employ any Employee, or (iii) otherwise act on behalf of any Competitor to interfere with the relationship between the Bank or any of its affiliates and their respective Employees.

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(f)            Executive acknowledges that the restrictions contained in this Sections (c) through (e) of this Section 4 are reasonable and necessary to protect the legitimate interests of the Bank and the Company and that any breach by Executive of any provision contained in Sections (c) through (e) of this Section 4 will result in irreparable injury to the Bank and Company for which a remedy at law would be inadequate.  Accordingly, Executive acknowledges that the Bank and Company shall be entitled to temporary, preliminary and permanent injunctive relief against Executive in the event of any breach or threatened breach by Executive of Sections (c) through (e) of this Section 4, in addition to any other remedy that may be available to the Bank or the Company whether at law or in equity.  With respect to Sections (c) through (e) of this Section 4 finally determined by a court of competent jurisdiction to be unenforceable, such court shall be authorized to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law.  If the covenants of Sections (c) through (e) above are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the Bank’s or the Company’s right to enforce such covenants in any other jurisdiction and shall not bar or limit the enforceability of any other provisions.    The Bank and the Company shall not be required to post any bond or other security in connection with any proceeding to enforce Sections (c) through (e) of this Section 4.

(g)           The parties to this Agreement intend for the payments to satisfy the short-term deferral exception under Section 409A of the Code or, in the case of health and welfare benefits, not constitute deferred compensation (since such amounts are not taxable to Executive).  However, notwithstanding anything to the contrary in this Agreement, to the extent payments do not meet the short-term deferral exception of Section 409A of the Code and, in the event Executive is a “Specified Employee” (as defined herein) no payment shall be made to Executive under this Agreement prior to the first day of the seventh month following the Event of Termination in excess of the “permitted amount” under Section 409A of the Code.  For these purposes the “permitted amount” shall be an amount that does not exceed two times the lesser of: (A) the sum of Executive’s annualized compensation based upon the annual rate of pay for services provided to the Company for the calendar year preceding the year in which Executive has an Event of Termination, or (B) the maximum amount that may be taken into account under a tax-qualified plan pursuant to Section 401(a)(17) of the Code for the calendar year in which occurs the Event of Termination.  The payment of the “permitted amount” shall be made within sixty (60) days of the occurrence of the Event of Termination.  Any payment in excess of the permitted amount shall be made to Executive on the first day of the seventh month following the Event of Termination.  “Specified Employee” shall be interpreted to comply with Section 409A of the Code and shall mean a key employee within the meaning of Section 416(i) of the Code (without regard to Section 5 thereof), but an individual shall be a “Specified Employee” only if the Company is a publicly-traded institution or the subsidiary of a publicly-traded holding company.

5.             Change in Control.

(a)           For purposes of this Agreement, a Change in Control means any of the following events:

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i.Merger:  The Bank or the Company merges into or consolidates with another entity, or merges another entity into the Bank or the Company, and as a result less than a majority of the combined voting power of the resulting entity immediately after the merger or consolidation is held by persons who were shareholders of the Bank or the Company immediately before the merger or consolidation.

ii.Change in Board Composition:  During any period of two consecutive years, individuals who constitute the Boards of Directors of the Bank or the Company at the beginning of the two-year period cease for any reason to constitute at least a majority of the Boards of Directors of the Bank or the Company; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the members) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period.

iii.Acquisition of Significant Share Ownership:There is filed, or required to be filed, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner(s) of 20% or more of a class of the Bank’s or the Company’s voting securities, however this clause (iii) shall not apply to beneficial ownership of Bank or Company voting shares held in a fiduciary capacity by an entity of which the Bank or the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

iv.Sale of Assets:  The Bank or the Company sells to a third party all or substantially all of its assets.

v.Proxy Statement Distribution:  An individual or company (other than current management of the Company) solicits proxies from stockholders of the Company seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or Bank with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Bank or the Company.

vi.Tender Offer:  A tender offer is made for 20% or more of the voting securities of the Bank or Company then outstanding.

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Notwithstanding anything in this Agreement to the contrary, in no event shall the reorganization of the Bank from the mutual holding company form of organization to the full stock holding company form of organization (including the elimination of the mutual holding company) constitute a “Change in Control” for purposes of this Agreement.

(b)           If any of the events described in Section (a) of this Section 5, constituting a Change in Control, have occurred or the Boards of Directors determine that a Change in Control has occurred, Executive shall be entitled to the benefits provided for in subsections (c) and (d) of this Section 5 upon his termination of employment at any time during the term of this Agreement and any extensions thereof, on or after the date the Change in Control occurs due to (i) Executive’s dismissal, (ii) Executive’s resignation following any demotion, loss of title, office or significant authority or responsibility, reduction in annual compensation or benefits or relocation of his principal place of employment by more than thirty (30) miles from its location immediately prior to the Change in Control or (iii) Executive’s resignation for any reason within the sixty (60) day period following the date that is one year from the date the Change in Control occurred, unless Executive’s termination is for Cause as defined in Section 7 of this Agreement; provided, however, that such benefits shall be reduced by any payment made under Section 4 of this Agreement.

(c)           Upon the occurrence of a Change in Control followed by Executive’s termination of employment, as provided for in Section (b) of this Section 5, the Company or Bank (as they shall determine) shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries or his estate, as the case may be, as severance pay, a sum equal to the greater of:  (i) the payments and benefits due for the remaining term of the Agreement or (ii) three (3) times Executive’s average Base Salary for the three (3) taxable years preceding the Change in Control or (iii) three (3) times Executive’s Base Salary for the most recent taxable year or portion thereof preceding the Change in Control.  The benefit shall be payable in one lump sum within 10 days of Executive’s last day of employment.

(d)           Upon the occurrence of a Change in Control and Executive’s termination of employment in connection therewith, the Bank and Company (as they shall determine) will cause to be continued life, medical and dental coverage substantially identical to the coverage maintained by the Bank for Executive and any of his dependents covered under such plans immediately prior to the Change in Control. Such coverage and payments shall cease upon the expiration of thirty-six (36) full calendar months following the Date of Termination.  In the event Executive’s participation in any such plan or program is barred, the Bank and/or Company (as they shall determine) shall arrange to provide Executive and his dependents with benefits substantially similar to those of which Executive and his dependents would otherwise have been entitled to receive under such plans and programs from which their continued participation is barred or at the election of Executive, provide their economic equivalent.

(e)           The parties to this Agreement intend for the payments to satisfy the short-term deferral exception under Section 409A of the Code or, in the case of health and welfare benefits, not constitute deferred compensation (since such amounts are not taxable to Executive).  However, notwithstanding anything to the contrary in this Agreement, to the extent payments do

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not meet the short-term deferral exception of Section 409A of the Code and, in the event Executive is a “Specified Employee” (as defined herein) no payment shall be made to Executive under this Agreement prior to the first day of the seventh month following the Event of Termination in excess of the “permitted amount” under Section 409A of the Code.  For these purposes the “permitted amount” shall be an amount that does not exceed two times the lesser of: (A) the sum of Executive’s annualized compensation based upon the annual rate of pay for services provided to the Company for the calendar year preceding the year in which Executive has an Event of Termination, or (B) the maximum amount that may be taken into account under a tax-qualified plan pursuant to Section 401(a)(17) of the Code for the calendar year in which occurs the Event of Termination.  The payment of the “permitted amount” shall be made within sixty (60) days of the occurrence of the Event of Termination.  Any payment in excess of the permitted amount shall be made to Executive on the first day of the seventh month following the Event of Termination.  “Specified Employee” shall be interpreted to comply with Section 409A of the Code and shall mean a key employee within the meaning of Section 416(i) of the Code (without regard to paragraph 5 thereof), but an individual shall be a “Specified Employee” only if the Company is a publicly-traded institution or the subsidiary of a publicly-traded holding company.

6.             Change in Control Related Provisions.

Notwithstanding the provisions of Section 5, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said sections (the “Termination Benefits”) constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986 or any successor thereto, and in order to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to the maximum amount allowable as a deduction by the Bank or Company, as determined in accordance with said Section 280G.  The allocation of the reduction required hereby among the Termination Benefits provided by Section 5 shall be determined by Executive.

7.             Termination for Cause.

The phrase termination for “Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), Executive’s breach of a final cease and desist order issued by the Office of Thrift Supervision, the Securities and Exchange Commission, or any regulatory agency having jurisdiction over the Bank or Company, or material breach of any provision of this Agreement.

8.             Notice.

(a)           Any purported termination by the Bank or Company or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the

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specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

(b)           “Date of Termination” shall mean the date specified in the Notice of Termination.

(c)           If, within thirty (30) days after any Notice of Termination (except for termination for Cause) is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, except upon the occurrence of a Change in Control and voluntary termination by Executive in which case the Date of Termination shall be the date specified in the Notice, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected), and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Bank and Company (as they shall determine) will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue him as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement. Amounts paid pursuant to this provision shall be in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.

9.             Post-Termination Obligations.

All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with this Section 9 for one (1) full year after the earlier of the expiration of this Agreement or termination of Executive’s employment with the Company. Executive shall, upon reasonable notice, furnish such information and assistance to the Company and Bank as may reasonably be required by the Company and Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.  Bank and Company (as they shall determine) shall reimburse Executive all reasonable expenses, including costs, fees and expenses for Executive’s counsel in complying with the provisions of this Section 9.

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10.          Loyalty and Confidentiality.

(a)           During the term of this Agreement Executive:  (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company and the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Company and the Bank.

(b)           Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Company and the Bank, or, solely as a passive, minority investor, in any business.

(c)           Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Company and the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Company and the Bank to which he may be exposed during the course of his employment.  The Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Company and the Bank.

11.          Death and Disability.

(a)           Death.  Notwithstanding any other provision of this Agreement to the contrary, in the event of Executive’s death during the term of this Agreement, the Bank or Company (as they shall determine) shall immediately pay his estate any salary and bonus accrued but unpaid as of the date of his death, and, for a period of six (6) months after Executive’s death, the Bank shall continue to provide his dependents’ medical insurance benefits existing on the date of his death and shall pay Executive’s designated beneficiary all compensation that would otherwise be payable to him pursuant to Section 3(a) of this Agreement.  This provision shall not negate any rights Executive or his beneficiaries may have to death benefits under any employee benefit plan of the Company or the Bank.

(b)           Disability.

(i)The Bank or Company or Executive may terminate Executive’s employment after having established Executive’s Disability.  For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under the Company’s or the Bank’s long-term disability plan (or, if the Company or the Bank has no such plan in effect, that

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impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days).  The Boards of Directors shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant.  As a condition to any benefits, the Boards of Directors may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

(ii)In the event of Disability, Executive’s obligation to perform services under this Agreement will terminate.  In the event of such termination, Executive shall continue to receive two-thirds (66.667%) of his monthly Base Salary (at the annual rate in effect on the Date of Termination) following termination through the earlier of:  (A) the date Executive returns to full-time employment at the Company or the Bank in the same capacity as he was prior to his termination for Disability; (B) Executive’s death; or (C) Executive’s attainment of age 65.  Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to Executive under any disability program sponsored by the Company or the Bank.  In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Company or the Bank in which Executive participated prior to the occurrence of Executive’s Disability, on the same terms as if Executive were actively employed by the Bank or Company.

12.          Source of Payments.

All payments provided for in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  Company and Bank reserve the right to make payments provided for in this Agreement from general funds of the Company.

13.          Effect of Prior Agreements and Existing Benefit Plans.

This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Bank, Company or any predecessor of the Bank, Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided.  No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.

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14.          No Attachment.

(a)           Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void and of no effect.

(b)           This Agreement shall be binding upon, and inure to the benefit of Executive, the Bank, the Company and their respective successors and assigns.

15.          Modification and Waiver.

(a)           This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

(b)           No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

16.       Severability.

If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity’ shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

17.          Headings for Reference Only.

The headings of sections and Sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

18.          Governing Law.

This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania (without regard to principles of conflicts of law of that state).

19.          Arbitration.

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Bank, in

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accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

In the event any dispute or controversy arising under or in connection with Executive’s termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement.

20.       Payment of Legal Fees.

All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank or Company (as they shall determine), only if Executive is successful pursuant to a legal judgment, arbitration or settlement.

21.          Indemnification.

The Bank and Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense and shall indemnify Executive (and his heirs, executors and administrators) (in accordance with the By-Laws of both Bank and Company) to the fullest extent permitted under federal law or under the Bank and Company Charters against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company or Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

22.          Successor to the Company.

The Bank and Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank and Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and Company would be required to perform if no such succession or assignment had taken place.

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23.          Required Provisions.

In the event any of the foregoing provisions of this Section 23 are in conflict with the terms of this Agreement, this Section 23 shall prevail.

(a)           The Boards of Directors may terminate Executive’s employment at any time, but any termination by the Bank or the Company, other than termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement.  Executive shall not have the right to receive compensation or other benefits for any period after termination for Cause as defined in this Agreement.

(b)           If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Bank by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1); the Bank’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion:  (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

(c)           If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(d)           If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank under this contract shall terminate as of the date of default, but this Section shall not affect any vested rights of the contracting parties.

(e)           All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank:  (i) by the Director of the OTS (or his designee) at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by such action.

(f)            Any payments made to employees pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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IN WITNESS WHEREOF, Fox Chase Bancorp, Inc. andFox Chase Bank have caused this Agreement to be executed andits seal to be affixed hereunto by their duly authorized officer and Executive has signed this Agreement, on the 1st day of August, 2009.

ATTEST:	FOX CHASE BANCORP, INC.
/s/ Mary Beth Osbeck	By:	/s/ Thomas M. Petro
		For the Entire Board of Directors
ATTEST:	FOX CHASE BANK
/s/ Mary Beth Osbeck	By:	/s/ Thomas M. Petro
		For the Entire Board of Directors
WITNESS:
/s/ Jerry Holbrook	/s/ Michael S. Fitzgerald
	EXECUTIVE

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EX-31.1

Exhibit 31.1

Certification

I, Thomas M. Petro, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Fox Chase Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2009	/s/ Thomas M. Petro
	Thomas M. Petro
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Roger S. Deacon, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Fox Chase Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2009	/s/ Roger S. Deacon
	Roger S. Deacon
	Chief Financial Officer

EX-32.0

Exhibit 32.0

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Fox Chase Bancorp, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2009, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company as of and for the period covered by the Report.

By:	/s/ Thomas M. Petro
	Thomas M. Petro
	President and Chief Executive Officer
	November 6, 2009
By:	/s/ Roger S. Deacon
	Roger S. Deacon
	Chief Financial Officer
	November 6, 2009