10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from              to             

Commission file number: 000-54025

Fox Chase Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	35-2379633
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4390 Davisville Road, Hatboro, Pennsylvania	19040
(Address of principal executive offices)	(Zip Code)

(215) 682-7400

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

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

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

As of October 28, 2011, there were 13,667,310 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, 2011 (unaudited) and December 31, 2010	3
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Changes in Equity for the Nine Months ended September 30, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2011 and 2010 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
Part II. Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	(Removed and Reserved)	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
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,
	2011			2010
	(Unaudited)
ASSETS
Cash and due from banks	$	132		$	156
Interest-earning demand deposits in other banks	5,327			38,158
Total cash and cash equivalents	5,459			38,314
Investment securities available-for-sale	24,343			32,671
Mortgage related securities available-for-sale	258,562			278,632
Mortgage related securities held-to-maturity (fair value of $46,309 at September 30, 2011 and $50,817 at December 31, 2010)	45,517			51,835
Loans, net of allowance for loan losses of $12,581 at September 30, 2011 and $12,443 at December 31, 2010	648,149			642,653
Other real estate owned	2,907			3,186
Federal Home Loan Bank stock, at cost	8,499			9,913
Bank-owned life insurance	13,487			13,138
Premises and equipment	10,549			10,693
Real estate held for investment	1,620			1,730
Accrued interest receivable	4,626			4,500
Mortgage servicing rights, net	329			448
Deferred tax asset, net	854			1,376
Other assets	6,547			6,414
Total Assets	$	1,031,448		$	1,095,503
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits	$	666,522		$	711,763
Short-term borrowings	24,000			—
Federal Home Loan Bank advances	89,423			122,800
Other borrowed funds	50,000			50,000
Advances from borrowers for taxes and insurance	1,109			1,896
Accrued interest payable	435			580
Accrued expenses and other liabilities	2,588			2,760
Total Liabilities	834,077			889,799
STOCKHOLDERS’ EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2011 and December 31, 2010)	—			—
Common stock ($.01 par value; 60,000,000 shares authorized, 13,772,410 shares issued and outstanding at September 30, 2011 and 60,000,000 shares authorized, 14,547,173 shares issued and outstanding at December 31, 2010)	146			145
Additional paid-in capital	134,540			133,997
Treasury stock, at cost (789,800 shares at September 30, 2011 and 0 shares at December 31, 2010)	(10,398		)	—
Common stock acquired by benefit plans	(11,699		)	(9,283		)
Retained earnings	77,132			74,307
Accumulated other comprehensive income, net	7,650			6,538
Total Stockholders’ Equity	197,371			205,704
Total Liabilities and Stockholders’ Equity	$	1,031,448		$	1,095,503

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,
	2011			2010		2011			2010
INTEREST INCOME
Interest and fees on loans	$	9,021		$	9,382	$	26,579		$	27,317
Interest on mortgage related securities	2,425			2,691		7,651			9,438
Interest on investment securities available-for-sale
Taxable	116			142		380			315
Nontaxable	28			84		165			257
Other interest income	16			86		69			249
Total Interest Income	11,606			12,385		34,844			37,576
INTEREST EXPENSE
Deposits	2,099			3,734		6,769			12,531
Short-term borrowings	2			—		2			—
Federal Home Loan Bank advances	1,007			1,194		3,314			3,602
Other borrowed funds	437			437		1,296			1,296
Total Interest Expense	3,545			5,365		11,381			17,429
Net Interest Income	8,061			7,020		23,463			20,147
Provision for loan losses	1,034			2,889		2,909			4,855
Net Interest Income after Provision for Loan Losses	7,027			4,131		20,554			15,292
NONINTEREST INCOME
Service charges and other fee income	428			248		1,207			757
Net gain on sale of premises and equipment	—			6		—			6
Net gain on sale of other real estate owned	57			—		77			—
Impairment loss on real estate held for investment	(110		)	—		(110		)	—
Income on bank-owned life insurance	119			119		349			352
Other	133			57		222			152
Total other-than-temporary impairment loss	(206		)	—		(407		)	—
Less: Portion of loss recognized in other comprehensive income (before taxes)	46			—		46			—
Net other-than-temporary impairment loss	(160		)	—		(361		)	—
Net gains on sale of investment securities	—			1,963		—			1,963
Net investment securities (losses) gains	(160		)	1,963		(361		)	1,963
Total Noninterest Income	467			2,393		1,384			3,230
NONINTEREST EXPENSE
Salaries, benefits and other compensation	3,297			3,070		9,678			9,016
Occupancy expense	457			455		1,388			1,394
Furniture and equipment expense	107			113		314			346
Data processing costs	439			408		1,277			1,237
Professional fees	410			307		1,245			924
Marketing expense	95			75		240			241
FDIC premiums	170			343		682			1,116
Provision for loss on other real estate owned	310			345		410			379
Other real estate owned expense	5			46		49			75
Other	400			396		1,185			1,212
Total Noninterest Expense	5,690			5,558		16,468			15,940
Income Before Income Taxes	1,804			966		5,470			2,582
Income tax provision	572			274		1,735			731
Net Income	$	1,232		$	692	$	3,735		$	1,851
Earnings per share:
Basic	$	0.09		$	0.05	$	0.28		$	0.13
Diluted	$	0.09		$	0.05	$	0.28		$	0.13

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, 2011 and 2010

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

									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, 2010	$	145	$	133,997		$	—		$	(9,283	)	$	74,307		$	6,538	$	205,704
Purchase of treasury stock, net						(10,398		)									(10,398		)
Purchase common stock for equity incentive plan									(3,474		)						(3,474		)
Stock based compensation expense			759														759
Unallocated ESOP shares committed to employees			166						468								634
Issuance of stock for vested equity awards			(543		)				590			(47		)			—
Common stock issued for exercise of vested stock options	1		161														162
Dividends paid												(863		)			(863		)
Net income												3,735					3,735
Other comprehensive income															1,112		1,112
BALANCE - SEPTEMBER 30, 2011	$	146	$	134,540		$	(10,398	)	$	(11,699	)	$	77,132		$	7,650	$	197,371

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,
	2011			2010
	(Unaudited)
Cash Flows From Operating Activities
Net income	$	3,735		$	1,851
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,909			4,855
Provision for loss on other real estate owned	410			379
Impairment loss on real estate held for investment	110			—
Depreciation	509			530
Net amortization of securities premiums and discounts	2,474			3,608
Benefit for deferred income taxes	(94		)	(117		)
Stock compensation from benefit plans	1,394			1,111
Net gain on sale of other real estate owned	(77		)	—
Net gain on sale of premises and equipment	—			(6		)
Net gain on sales of securities	—			(1,963		)
Other-than-temporary impairment loss on investments	361			—
Income on in bank-owned life insurance	(349		)	(352		)
Decrease in mortgage servicing rights, net	119			218
Increase (decrease) in accrued interest receivable and other assets	1,561			(1,069		)
(Decrease) increase in accrued interest payable, accrued expenses and other liabilities	(317		)	9,394
Net Cash Provided by Operating Activities	12,745			18,439
Cash Flows from Investing Activities
Investment securities - available-for-sale:
Purchases	—			(19,786		)
Proceeds from maturities, calls and principal repayments	7,900			6,282
Mortgage related securities – available-for-sale:
Purchases	(35,031		)	(46,229		)
Proceeds from sales	—			36,480
Proceeds from maturities, calls and principal repayments	55,055			103,615
Mortgage related securities – held-to-maturity:
Proceeds from maturities, calls and principal repayments	5,808			—
Net decrease (increase) in loans	16,406			(7,446		)
Purchases of loans and loan participations	(28,244		)	(23,735		)
Net decrease in Federal Home Loan Bank stock	1,414			—
Purchases of premises and equipment	(365		)	(204		)
Proceeds from sales and payments on other real estate owned	1,435			1,085
Net Cash Provided by Investing Activities	24,378			50,062
Cash Flows from Financing Activities
Net decrease in deposits	(45,241		)	(119,443		)
Decrease in advances from borrowers for taxes and insurance	(787		)	(1,011		)
Principal payments on Federal Home Loan Bank advances	(33,377		)	(13,260		)
Short-term borrowings	24,000			—
Common stock issued for exercise of stock options	162			—
Merger of Fox Chase Mutual Holding Company	—			107
Proceeds from stock offering, net of offering expenses	—			81,169
Acquisition of common stock for ESOP	—			(3,485		)
Acquisition of common stock for equity incentive plan	(3,474		)	—
Purchase of treasury stock	(10,398		)	—
Cash dividends paid	(863		)	—
Net Cash Used in Financing Activities	(69,978		)	(55,923		)
Net (Decrease) Increase in Cash and Cash Equivalents	(32,855		)	12,578
Cash and Cash Equivalents – Beginning	38,314			65,418
Cash and Cash Equivalents – Ending	$	5,459		$	77,996
Supplemental Disclosure of Cash Flow Information
Interest paid	$	11,526		$	17,527
Income taxes paid	$	1,700		$	1,501
Transfers of loans to other real estate owned	$	1,479		$	1,198
Net charge-offs	$	2,771		$	4,149

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

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

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

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

The Company is subject to regulations of certain federal banking agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by regulatory agencies which may subject them to further changes with respect to asset valuations, amounts of required loan loss allowances and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.  Pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), effective July 21, 2011, the regulation and supervision of federal savings institutions, such as the Bank, was transferred from the Office of Thrift Supervision to the Office of the Comptroller of the Currency, the agency that regulates national banks.  As a result, the Office of the Comptroller of the Currency has assumed primary responsibility for examining the Bank and implementing and enforcing many of the laws and regulations applicable to federal savings associations.  The Office of Thrift Supervision was eliminated on July 21, 2011.  In addition, pursuant to the provisions of the Dodd-Frank Act, effective July 21, 2011, savings and loan holding companies, such as the Bancorp, are regulated by the Board of Governors of the Federal Reserve System.

The consolidated financial statements include the accounts of the Bancorp and the Bank. The Bank’s operations include the accounts of its wholly owned subsidiaries, Fox Chase Financial, Inc., Fox Chase Service Corporation, 104 S. Oakland Ave., LLC and Davisville Associates, LLC.  Fox Chase Financial Inc. is a Delaware chartered investment holding company and its sole purpose is to manage and hold investment securities.  Fox Chase Service Corporation is a Pennsylvania chartered company and its purposes are to facilitate the Bank’s investment in PMA and, for regulatory purposes, to hold commercial loans.  At September 30, 2011, Fox Chase Service Corporation held $20.0 million in commercial loans.  104 S. Oakland Ave., LLC is a New Jersey-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  Davisville Associates, LLC is a Pennsylvania-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  All material inter-company transactions and balances have been eliminated in consolidation. Prior period amounts are reclassified, when necessary, to conform with the current year’s presentation.

7

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)

During 2011 and 2010, 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 $142,000 and $209,000 for the nine months ended September 30, 2011 and 2010, respectively, as well as loan satisfaction fees, which are recorded in service charges and other fee income, from PMA of $37,000 and $44,000 for the nine months ended September 30, 2011 and 2010, respectively.  In addition, the Bank acquired total loans from PMA of $6.4 million and $22.5 million for the nine months ended September 30, 2011 and 2010, respectively, which includes the cost of the loans.   During September 2010, the Bank provided PMA a term loan in the amount of $1.2 million which is secured by a residential property owned by PMA.  This loan was paid in full in June 2011.  The Bank recorded interest income from PMA on this term loan of $25,000 and $0 for the nine months ended September 30, 2011 and 2010, respectively.

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.

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 14, 2011.   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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any other period.

Per Share Information

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.  Unallocated shares in the ESOP and shares purchased to fund shares of restricted stock available for grant under the Bancorp’s 2007 and 2011 Equity Incentive Plans are not included in either basic or diluted earnings per share.  Unvested shares in the Bancorp’s long-term incentive plans are not included in basic earnings per share. As a result of the mutual-to-stock conversion, all share information for periods prior to June 30, 2010 has been revised to reflect the 1.0692 exchange rate.

8

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income	$	1,232,000		$	692,000		$	3,735,000		$	1,851,000
Weighted-average common shares outstanding (1)	14,059,538			14,547,173			14,384,818			14,549,364
Average common stock acquired by stock benefit plans:
Unvested shares – long-term incentive plan	—			(7,582		)	—			(7,582		)
ESOP shares unallocated	(708,600		)	(773,648		)	(724,703		)	(556,655		)
Shares purchased by trust	(263,356		)	(203,106		)	(200,060		)	(209,961		)
Weighted-average common shares used to calculate basic earnings per share	13,087,582			13,562,837			13,460,055			13,775,166
Dilutive effect of:
Unvested shares – long-term incentive plans	—			7,582			—			7,582
Restricted stock awards	35,172			—			35,694			—
Stock option awards	52,935			2,831			49,936			3,399
Weighted-average common shares used to calculate diluted earnings per share	13,175,689			13,573,250			13,545,685			13,786,147
Earnings per share-basic	$	0.09		$	0.05		$	0.28		$	0.13
Earnings per share-diluted	$	0.09		$	0.05		$	0.28		$	0.13
Outstanding common stock equivalents having no dilutive effect	832,143			822,762			834,620			762,437

(1) Excludes treasury stock.

9

NOTE 2 — INVESTMENT AND MORTGAGE RELATED SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity as of September 30, 2011 and December 31, 2010 are summarized as follows:

	September 30, 2011 (Unaudited)
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	6,441	$	110	$	—		$	—		$	6,551
State and political subdivisions	1,865		8		—			—			1,873
Corporate securities	16,199		49		(329		)	—			15,919
	24,505		167		(329		)	—			24,343
Private label residential mortgage related security	175		—		—			(46		)	129
Private label commercial mortgage related securities	8,975		119		—			—			9,094
Agency residential mortgage related securities	237,363		11,976		—			—			249,339
Total mortgage related securities	246,513		12,095		—			(46		)	258,562
Total available-for-sale securities	$	271,018	$	12,262	$	(329	)	$	(46	)	$	282,905
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	45,517	$	792	$	—		$	—		$	46,309
Total mortgage related securities	45,517		792		—			—			46,309
Total held-to-maturity securities	$	45,517	$	792	$	—		$	—		$	46,309

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	6,489	$	32	$	—		$	—		$	6,521
State and political subdivisions	7,240		65		(26		)	—			7,279
Corporate securities	18,674		221		(24		)	—			18,871
	32,403		318		(50		)	—			32,671
Private label residential mortgage related security	559		55		—			(448		)	166
Private label commercial mortgage related securities	11,385		382		—			—			11,767
Agency residential mortgage related securities	256,796		10,057		(154		)	—			266,699
Total mortgage related securities	268,740		10,494		(154		)	(448		)	278,632
Total available-for-sale securities	$	301,143	$	10,812	$	(204	)	$	(448	)	$	311,303
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	51,835	$	19	$	(1,037	)	$	—		$	50,817
Total mortgage related securities	51,835		19		(1,037		)	—			50,817
Total held-to-maturity securities	$	51,835	$	19	$	(1,037	)	$	—		$	50,817

10

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The following tables show gross unrealized losses and fair value of securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010 (Dollars in thousands):

	September 30, 2011 (Unaudited)
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivisions	—		—			—		—			—		—
Corporate securities	5,989		(189		)	2,860		(140		)	8,849		(329		)
	5,989		(189		)	2,860		(140		)	8,849		(329		)
Private label residential mortgage related security	—		—			129		(46		)	129		(46		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	—		—			—		—			—		—
Total mortgage related securities	—		—			129		(46		)	129		(46		)
Total available-for-sale securities	$	5,989	$	(189	)	$	2,989	$	(186	)	$	8,978	$	(375	)
Held-to-Maturity Securities:
Agency residential mortgage related securities	—		—			—		—			—		—
Total mortgage related securities	—		—			—		—			—		—
Total held-to-maturity securities	$	—	$	—		$	—	$	—		$	—	$	—
Total Temporarily Impaired Securities	$	5,989	$	(189	)	$	2,989	$	(186	)	$	8,978	$	(375	)

	December 31, 2010
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
Available for Sale:
State and political subdivisions	$	831	$	(26	)	$	—	$	—		$	831	$	(26	)
Corporate securities	3,968		(24		)	—		—			3,968		(24		)
	4,799		(50		)	—		—			4,799		(50		)
Private label residential mortgage related security	—		—			166		(393		)	166		(393		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	21,254		(154		)	—		—			21,254		(154		)
Total mortgage related securities	21,254		(154		)	166		(393		)	21,420		(547		)
Total available-for-sale securities	$	26,053	$	(204	)	$	166	$	(393	)	$	26,219	$	(597	)
Held to Maturity:
Agency residential mortgage related securities	46,645		(1,037		)	—		—			46,645		(1,037		)
Total mortgage related securities	46,645		(1,037		)	—		—			46,645		(1,037		)
Total held-to-maturity securities	$	46,645	$	(1,037	)	$	—	$	—		$	46,645	$	(1,037	)
Total Temporarily Impaired Securities	$	72,698	$	(1,241	)	$	166	$	(393	)	$	72,864	$	(1,634	)

11

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

The Company held a private label residential mortgage related security which had an amortized cost, prior to the identified credit related impairments, of $693,000 at September 30, 2011 and $716,000 at December 31, 2010.  During the second quarter of 2009, management’s analysis indicated that the security was other-than-temporarily impaired in the amount of $605,000, of which $157,000 was recognized on the Company’s statement of operations and $448,000 was recognized in the Company’s statement of condition in other comprehensive income (before taxes).

During the nine months ended September 30, 2011, management determined that there was additional credit impairment of $361,000 which was recognized in the Company’s statement of operations.  This additional credit impairment was primarily due to a slowdown in principal payment speeds, an increase in default rates and an increase in estimated loss severity at default on the underlying residential mortgage collateral. At September 30, 2011 and December 31, 2010, after other-than-temporary credit impairment charges, the private label residential mortgage related security had an amortized cost of $175,000 and $559,000, respectively, and a fair value of $129,000 and $166,000, respectively, with a remaining net unrealized loss, including non-credit related impairment in accumulated other comprehensive income, of $46,000 and $393,000, respectively. The remaining unrealized loss is not considered an other-than-temporary credit impairment, as management does not have the intention to sell this security and it is not more likely than not that the security will be required to be sold before recovery of its amortized cost.

The Company held three private label commercial mortgage backed securities (“CMBS”) with an amortized cost of $9.0 million at September 30, 2011 and $11.4 million at December 31, 2010. The three CMBS were in an unrealized gain position with a total unrealized gain of $119,000 and $382,000 at September 30, 2011 and December 31, 2010, respectively.  The three CMBS securities are rated AAA.

The Company evaluates current characteristics of each of these private label securities such as fair value, cash flows of the underlying properties, delinquency and foreclosure levels, credit enhancement and projected losses 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, slowdown of payment speeds, deteriorating credit enhancement and loss coverage ratios, or further illiquidity.

There are seven securities with a temporary impairment at September 30, 2011, one of which has a rating of AAA. The securities rated less than AAA are: (1) five corporate securities with a total fair value of $8.8 million with a rating of A; and (2) one private label collateralized mortgage obligation, discussed above, with a fair value of $129,000 and a rating of CC.

The two securities that have been impaired greater than twelve months as of September 30, 2011 and as of December 31, 2010 are the private label residential mortgage related security and one corporate security.

There were no gross realized gains or losses during the three or nine months ended September 30, 2011 and a gain of $2.0 million during the three and nine months ended September 30, 2010.

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

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

12

NOTE 2 - INVESTMENT AND MORTGAGE RELATED SECURITIES (CONTINUED)

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

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2011 and December 31, 2010 by contractual maturity are as follows:

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
September 30, 2011
Due in one year or less	$	9,211	$	9,246	$	—	$	—
Due after one year through five years	14,092		13,891		—		—
Due after five years through ten years	763		766		—		—
Due after ten years	439		440		—		—
Total mortgage related securities	246,513		258,562		45,517		46,309
	$	271,018	$	282,905	$	45,517	$	46,309

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
December 31, 2010
Due in one year or less	$	3,674	$	3,692	$	—	$	—
Due after one year through five years	23,420		23,649		—		—
Due after five years through ten years	3,046		3,079		—		—
Due after ten years	2,263		2,251		—		—
Total mortgage related securities	268,740		278,632		51,835		50,817
	$	301,143	$	311,303	$	51,835	$	50,817

Securities with a carrying value of $8.6 million and $10.2 million at September 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

Securities with a carrying value of $59.2 million and $58.7 million, at September 30, 2011 and December 31, 2010, 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, 2011, and December 31, 2010 is provided below (in thousands).

	September 30,			December 31,
	2011			2010
	(Unaudited)
Real estate loans:
One-to four-family	$	209,287		$	238,612
Multi-family and commercial	275,136			249,262
Construction	20,937			31,190
	505,360			519,064
Consumer loans	48,307			55,169
Commercial and industrial loans	106,854			80,645
Total loans	660,521			654,878
Deferred loan origination costs, net	209			218
Allowance for loan losses	(12,581		)	(12,443		)
Net loans	$	648,149		$	642,653

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

	Nine Months Ended						Year Ended
	September 30,						December 31,
	2011			2010			2010
	(Unaudited)
Balance, beginning	$	12,443		$	10,605		$	10,605
Provision for loan losses	2,909			4,855			6,213
Loans charged off	(3,000		)	(4,158		)	(4,402		)
Recoveries	229			9			27
Balance, ending	$	12,581		$	11,311		$	12,443

The following tables present changes in the allowance for loan losses by loan segment for the nine months ended September 30, 2011 and the year ended December 31, 2010:

	For the Period Ended September 30, 2011
	One- to Four- Family Loans			Multi-family and Commercial Real Estate Loans			Construction Loans			Consumer Loans			Commercial and Industrial Loans			Unallocated		Total
	(In thousands)
Balance, beginning	$	1,990		$	4,287		$	3,260		$	665		$	2,044		$	197	$	12,443
Provision for loan losses	311			1,466			(251		)	58			1,175			150		2,909
Loans charged off	(567		)	(318		)	(1,510		)	(9		)	(596		)	—		(3,000		)
Recoveries	13			170			43			3			—			—		229
Balance, ending	$	1,747		$	5,605		$	1,542		$	717		$	2,623		$	347	$	12,581

14

NOTE 3 - LOANS (CONTINUED)

	For the Year Ended December 31, 2010
	One- to Four- Family Loans			Multi-family and Commercial Real Estate Loans		Construction Loans			Consumer Loans			Commercial and Industrial Loans			Unallocated		Total
	(In thousands)
Balance, beginning	$	1,455		$	3,476	$	3,782		$	707		$	1,064		$	121	$	10,605
Provision for loan losses	1,938			800		1,468			456			1,475			76		6,213
Loans charged off	(1,403		)	—		(1,990		)	(514		)	(495		)	—		(4,402		)
Recoveries	—			11		—			16			—			—		27
Balance, ending	$	1,990		$	4,287	$	3,260		$	665		$	2,044		$	197	$	12,443

The recorded investment in impaired loans was $27.5 million at September 30, 2011 and $39.1 million at December 31, 2010. The recorded investment in impaired loans with an allowance for loan losses was $27.1 million at September 30, 2011 and $35.6 million at December 31, 2010. The related allowance for loan losses associated with these loans was $4.4 million at September 30, 2011 and $5.2 million at December 31, 2010. For the nine months ended September 30, 2011 the average recorded investment in these impaired loans was $28.6 million and for the year ended December 31, 2010, the average recorded investment in these impaired loans was $42.0 million. The interest income recognized on these impaired loans was $376,000 for the nine months ended September 30, 2011 and $399,000 for the year ended December 31, 2010.

The following tables set forth the breakdown of impaired loans by loan segment as of September 30, 2011 and December 31, 2010.  The table does not include accruing loans 90 days or more past due of $2.1 million at September 30, 2011 as management does not consider such loans impaired.

September 30, 2011 (Unaudited)

									Impaired		Impaired
					Other		Total		Loans		Loans
	Nonperforming		Accruing		Impaired		Impaired		with		without
	Loans		TDRs		Loans		Loans		Allowance		Allowance
	(in thousands)
Real estate loans:
One- to four-family	$	6,771	$	—	$	—	$	6,771	$	6,771	$	—
Multi-family and commercial	3,988		4,731		—		8,719		8,381		338
Construction	9,391		342		—		9,733		9,733		—
Consumer loans	479		—		—		479		418		61
Commercial and industrial	—		1,783		—		1,783		1,783		—
Total	$	20,629	$	6,856	$	—	$	27,485	$	27,086	$	399

15

NOTE 3 - LOANS (CONTINUED)

December 31, 2010

									Impaired		Impaired
					Other		Total		Loans		Loans
	Nonperforming		Accruing		Impaired		Impaired		with		without
	Loans		TDRs		Loans		Loans		Allowance		Allowance
	(in thousands)
Real estate loans:
One- to four-family	$	10,813	$	1,007	$	—	$	11,820	$	11,820	$	—
Multi-family and commercial	6,180		1,359		—		7,539		4,050		3,489
Construction	9,279		3,441		3,894		16,614		16,614		—
Consumer loans	365		—		—		365		303		62
Commercial and industrial	—		2,810		—		2,810		2,810		—
Total	$	26,637	$	8,617	$	3,894	$	39,148	$	35,597	$	3,551

Two troubled debt restructurings (“TDR”) totaling $5.2 million and $2.1 million are excluded from the accruing TDR column above as of September 30, 2011 and December 31, 2010, respectively, as they are included in the nonaccrual loans and total impaired loans.

A $3.9 million loan that was classified as impaired at December 31, 2010 is no longer considered impaired at September 30, 2011 nor is it classified as a TDR as the loan was renegotiated with no concession to the borrower and management has determined that the borrower is not experiencing financial difficulty.

The following table sets forth a summary of TDR activity for the three and nine months ended September 30, 2011:

	As of and for the Three Months Ended September 30, 2011
						TDRs that Defaulted in
						Current Quarter that
						were Restructured in
	Restructured Current Quarter					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in Thousands, Unaudited)
Real estate loans:
One- to four-family	—	$	—	$	—	—	$	—
Multi-family and commercial	—	—		—		—	—
Construction	—	—		—		1	3,164
Consumer loans	—	—				—	—
Commercial and industrial	—	—				—	—
Total	—	$	—	$	—	1	$	3,164

16

NOTE 3 - LOANS (CONTINUED)

	As of and for the Nine Months Ended September 30, 2011
						TDRs that Defaulted in
						Current Period that
						were Restructured in
	Restructured Current Year to Date					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in Thousands, Unaudited)
Real estate loans:
One- to four-family	—	$	—	$	—	—	$	—
Multi-family and commercial	1	4,673		4,673		—	—
Construction	—	—				1	3,164
Consumer loans	—	—		—		—	—
Commercial and industrial	—	—		—		1	600
Total	1	$	4,673	$	4,673	2	$	3,764

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

TDRs totaled $12.1 million at September 30, 2011 of which $6.9 million were on accrual status.  The remaining $5.2 million related to two construction loans classified as nonperforming assets.  TDRs totaled $10.7 million at December 31, 2010, of which $8.6 million were on accrual status. The remaining $2.1 million related to a construction loan classified as a nonperforming asset.

Four of the commercial loans classified as a TDR at September 30, 2011, totaling $7.4 million, were classified as TDRs during 2010.  These loans were classified as TDRs because they matured during 2010 and the Bank extended the loans with uncertainty as to whether the borrowers could obtain similar financing from another financial institution at the time of the extension, thus representing the granting of a financial concession.  The Bank did not lower the interest rate on these loans.  As of September 30, 2011, three of the loans are performing as agreed and one of the loans in the amount of $3.2 million is currently in default.

The other commercial loan classified as a TDR at September 30, 2011, totaling $4.7 million, was first classified as a TDR during the three months ended March 31, 2011.  The loan was classified as a TDR as the Bank agreed to restructure the terms of the loan, which included reducing payments to interest only for a period of nine months and reducing the rate for the term of the interest only period. This loan is secured by partially owner occupied commercial property located in Chester County, Pennsylvania.  As of September 30, 2011, this loan is performing in accordance with its restructured terms and is no longer reported as delinquent.

17

NOTE 3 - LOANS (CONTINUED)

The following tables set forth the allowance for loan loss for impaired loans and general allowance by loan segment as of September 30, 2011 and December 31, 2010.

September 30, 2011 (Unaudited)

	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonperforming		Accruing		Impaired		Impaired
	Loans		TDRs		Loans		Loans		General		Total
	(in thousands)
Real estate loans:
One- to four-family	$	1,336	$	—	$	—	$	1,336	$	411	$	1,747
Multi-family and commercial	475		849		—		1,324		4,281		5,605
Construction	1,246		26		—		1,272		270		1,542
Consumer loans	372		—		—		372		345		717
Commercial and industrial	—		134		—		134		2,489		2,623
Unallocated	—		—		—		—		347		347
Total allowance for loan losses	$	3,429	$	1,009	$	—	$	4,438	$	8,143	$	12,581

December 31, 2010

	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonperforming		Accruing		Impaired		Impaired
	Loans		TDRs		Loans		Loans		General		Total
	(in thousands)
Real estate loans:
One- to four-family	$	1,537	$	2	$	—	$	1,539	$	451	$	1,990
Multi-family and commercial	195		70		—		265		4,022		4,287
Construction	2,447		258		195		2,900		360		3,260
Consumer loans	294		—		—		294		371		665
Commercial and industrial	—		196		—		196		1,848		2,044
Unallocated	—		—		—		—		197		197
Total allowance for loan losses	$	4,473	$	526	$	195	$	5,194	$	7,249	$	12,443

Loans on which the accrual of interest has been discontinued amounted to $20.6 million at September 30, 2011 and $26.6 million at December 31, 2010. If interest on such loans had been recorded in accordance with contractual terms, interest income would have increased by $897,000 and $1.5 million for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively. As of September 30, 2011, the Bank held $2.1 million in consumer loans that were past due 90 days or more and still accruing.  There were no loans past due 90 days or more and still accruing interest at December 31, 2010. There were $12.1 million and $10.7 million of loans classified as troubled debt restructurings as of September 30, 2011 and December 31, 2010, respectively.

18

NOTE 3 - LOANS (CONTINUED)

The following table sets forth past due loans by segment as of September 30, 2011 and December 31, 2010.

	At September 30,				At December 31,
	2011				2010
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)				(In thousands)
One- to four-family real estate	$	253	$	392	$	96	$	144
Multi-family and commercial real estate	530		1,782		4,735
Construction real estate	—		—		—		—
Consumer	63		1,438		170		—
Commercial and industrial	—		—		—		—
Total	$	846	$	3,612	$	5,001	$	144

There are three classifications for problem loans: substandard, doubtful and loss. “Substandard loans” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful loans” have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified “loss” is considered uncollectible and of such little value that continuance as a loan of the institution is not warranted. The Company also maintains a “special mention” category, described as loans which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. If we classify a loan as loss, we allocate an amount equal to 100% of the portion of the loan classified loss.

The following tables set forth criticized and classified loans by segment as of September 30, 2011 and December 31, 2010.

	At September 30, 2011
	One- to Four- Family Loans		Multi-family and Commercial Real Estate Loans		Construction Loans		Consumer Loans		Commercial and Industrial Loans		Total
	(In thousands)
Special mention loans	$	—	$	17,780	$	1,308	$	—	$	704	$	19,792
Substandard loans	6,770		12,038		9,391		480		4,277		32,956
Doubtful loans	—		—		—		—		—		—
Total criticized and classified loans	$	6,770	$	29,818	$	10,699	$	480	$	4,981	$	52,748

	At December 31, 2010
	One- to Four- Family Loans		Multi-family and Commercial Real Estate Loans		Construction Loans		Consumer Loans		Commercial and Industrial Loans		Total
	(In thousands)
Special mention loans	$	—	$	19,889	$	114	$	—	$	1,099	$	21,102
Substandard loans	10,812		6,745		16,614		365		5,937		40,473
Doubtful loans	—		—		—		—		—		—
Total criticized and classified loans	$	10,812	$	26,634	$	16,728	$	365	$	7,036	$	61,575

19

NOTE 3 — LOANS (CONTINUED)

As of September 30, 2011 and December 31, 2010, the Bank had one interest rate swap in the notional amount of $1.0 million to hedge a 15-year fixed rate loan, which was earning interest at 7.43%. The Bank is receiving a variable rate payment of one-month LIBOR plus 2.24% and pays fixed rate payments of 7.43%. The swap matures in April 2022 and had a fair value loss position of $216,000 at September 30, 2011 and $161,000 at December 31, 2010, with a corresponding gain on the related loan.

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 $54.8 million and $75.1 million at September 30, 2011 and 2010, respectively, and $65.7 million at December 31, 2010.

The following summarizes mortgage servicing rights for the nine months ended September 30, 2011 and 2010 (in thousands):

							Net
	Servicing			Valuation			Carrying
	Rights			Allowance			Value
Balance at December 31, 2010	$	579		$	(131	)	$	448
Additions	—			(41		)	(41		)
Amortization	(78		)	—			(78		)
Balance at September 30, 2011	$	501		(172		)	$	329
Balance at December 31, 2009	$	768		$	(85	)	$	683
Reductions	—			(98		)	(98		)
Amortization	(120		)	—			(120		)
Balance at September 30, 2010	$	648		$	(183	)	$	465

At September 30, 2011, September 30, 2010 and December 31, 2010, the fair value of the mortgage servicing rights (“MSRs”) was $333,000, $475,000 and $462,000, respectively. The difference between fair value and carrying value is due to one tranche of mortgage servicing rights having a fair value greater than carrying value.  The fair value at these dates was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience and current interest rates. The discount rate used to determine the present value of future net servicing income is the required rate of return the market would expect for an asset with similar risk. Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change.

NOTE 5 — DEPOSITS

Deposits and their respective weighted average interest rate at September 30, 2011 and December 31, 2010 consist of the following (dollars in thousands):

	September 30,				December 31,
	2011				2010
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Unaudited)
Noninterest-bearing demand accounts	—	%	$	78,307	—	%	$	70,990
NOW accounts	0.38		41,930		0.30		40,505
Money market accounts	0.38		131,511		0.47		148,904
Savings and club accounts	0.25		72,794		0.05		54,921
Certificates of deposit	2.04		341,980		2.44		396,443
	1.17	%	$	666,522	1.48	%	$	711,763

20

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, 2011, the Bank had $125.7 million in qualifying collateral pledged against its advances.

Maturity Date	Amount		Interest Rate		Call Date	Rate if Called
	(in thousands)
July 2013	9,223		4.10	%
December 2013	5,000		2.80	%	December 2011	LIBOR + 1.04%
January 2015	15,200		3.49	%
December 2015	5,000		3.06	%	December 2011	LIBOR + 1.12%
November 2017	15,000		3.62	%	November 2011	LIBOR + 0.10%
November 2017	15,000		3.87	%	November 2011	LIBOR + 0.10%
December 2017	20,000		2.83	%	December 2011	LIBOR + 0.11%
December 2018	5,000		3.15	%	December 2012	LIBOR + 1.14%
	$	89,423	3.41	%

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 borrowing that matures in July 2013 has a five year contractual maturity with principal and interest being paid monthly utilizing a 25 year amortization period. The borrowing that matures in January 2015 is a seven year contractual maturity with principal and interest being paid monthly.

The Bank had a maximum borrowing capacity with the Federal Home Loan Bank of Pittsburgh of approximately $382.8 million at September 30, 2011. Additionally, the Bank had a maximum borrowing capacity of $64.5 million with the Federal Reserve Bank of Philadelphia through the Discount Window at September 30, 2011.

As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh in the amount of at least equal to 4.60% of its advances plus 0.35% of the Bank’s “eligible assets,” as such term is defined by the FHLB; and a maximum amount of 6.00% of its advances plus 1.0% of the Bank’s “eligible assets.”  As of September 30, 2011, the Company’s minimum stock obligation was $6.4 million and maximum stock obligation was $12.0 million.

The FHLB of Pittsburgh ceased paying a dividend on its common stock during the first quarter of 2009 and has not paid a dividend through September 30, 2011.

Other Borrowed Funds

Other borrowed funds obtained from large commercial banks totaled $50.0 million at September 30, 2011.  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 below may differ from actual maturities.

21

NOTE 6 — BORROWINGS (CONTINUED)

Maturity	Interest
Date	Rate		Call Date	Amount
				(in thousands)
November 2014	3.60	%	November 2011	$	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
	3.42	%		$	50,000

Mortgage backed securities with a fair value of $59.2 million at September 30, 2011 were pledged as collateral for these other borrowed funds.

As of September 30, 2011 and December 31, 2010, the Company had $24.0 million and $0, respectively, of short-term borrowings.  The short-term borrowings rate at September 30, 2011 ranged from 0.15% to 0.25%.  The short-term borrowings, which represent overnight borrowings, were obtained from a large commercial bank and a participant in the Federal Funds market.

NOTE 7 — STOCK BASED COMPENSATION

In 2007, stockholders approved the Fox Chase Bancorp, Inc. 2007 Equity Incentive Plan (the “2007 Plan”).  The 2007 Plan provides that 769,083 shares of common stock may be issued in connection with the exercise of stock options and 307,633 shares of common stock may be issued as restricted stock.  In 2007, Old Fox Chase Bancorp’s Board of Directors approved the funding of a trust that purchased 307,395 shares of Bancorp’s common stock to fund restricted stock awards under the 2007 Plan.  The 307,395 shares were purchased by the trust at a weighted average cost of $12.18 per share.

In August 2011, stockholders approved the Fox Chase Bancorp, Inc. 2011 Equity Incentive Plan (the “2011 Plan”).  The 2011 Plan provides that 685,978 shares of common stock may be issued in connection with the exercise of stock options and 274,391 shares of common stock may be issued as restricted stock; including performance based restricted stock.  In August 2011, the Board of Directors approved the funding of a trust that purchased 274,391 shares of Bancorp’s common stock to fund restricted stock awards under the 2011 Plan.  During the quarter ended September 30, 2011, 274,391 shares were purchased by the trust at a weighted average cost of $12.66 per share.

During the nine months ended September 30, 2011, the Company recorded $759,000 of stock based compensation expense in connection with the 2007 Plan and 2011 Plan, which was comprised of stock option expense of $321,000 and restricted stock expense of $438,000.

The following is a summary of the Bancorp’s stock option activity and related information for the 2007 Plan and 2011 Plan for the nine months ended September 30, 2011:

			Weighted
	Number of		Average
	Stock		Exercise
	Options		Price
Outstanding at December 31, 2010	692,178		$	10.97
Granted	133,994		12.49
Exercised	(15,037	)	10.69
Forfeited	(12,861	)	10.52
Outstanding at September 30, 2011	798,274		$	11.24
Exercisable at September 30, 2011	464,543		$	11.24

22

NOTE 7 — STOCK BASED COMPENSATION (CONTINUED)

The following is a summary of the Company’s unvested options as of September 30, 2011 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Stock		Grant Date
	Options		Fair Value
Unvested at December 31, 2010	343,997		$	2.90
Granted	133,994		3.60
Exercised	—		—
Vested	(134,395	)	2.99
Forfeited	(9,865	)	2.79
Unvested at September 30, 2011	333,731		$	3.15

Expected future expense relating to the 333,731 non-vested options outstanding as of September 30, 2011 is $961,000 over a weighted average period of 3.2 years.

During the nine months ended September 30, 2011, the fair value of the options granted in 2011 ranged from $3.36 to $4.60.  These values were estimated with the following assumptions:

Expected dividend yield	1.90% - 2.00%
Expected volatility	33.00% - 40.00%
Risk-free interest rate	1.21% - 2.51%
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, 2011 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Restricted		Grant Date
	Shares		Fair Value
Unvested at December 31, 2010	117,431		$	10.92
Granted	53,806		12.53
Vested	(48,470	)	11.20
Forfeited	(791	)	10.02
Unvested at September 30, 2011	121,976		$	11.52

Expected future compensation expense relating to the 121,976 restricted shares at September 30, 2011 is $1.3 million over a weighted average period of 3.2 years.

During August 2011, the Company granted 10,668 shares of performance based restricted stock to certain executive officers of the Company.  The performance metrics to be evaluated during the performance period are (1) return on assets compared to peer group and (2) earnings growth rate compared to peer group.  On the third anniversary of the grant date, the Company’s level of performance relative to the performance metrics will be evaluated and the amount of awards will be determined.  50% of the awarded performance based stock will vest on the third anniversary of the grant, 25% will vest on the fourth anniversary of the grant, and 25% will vest on the fifth anniversary of the grant.

23

NOTE 8 — FAIR VALUE

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010:

Cash and Cash Equivalents

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

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

Fair values for investment securities and mortgage related securities are obtained from 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. To determine the fair values of loans that are not impaired, we employ discounted cash flow analyses that use interest rates and terms similar to those currently being offered to borrowers. This methodology is consistent with the guidance in ASC 825-10-55 “Financial Instruments,” and we believe our disclosures provide fair value that is more indicative of an entry price. We do not record loans at fair value on a recurring basis, except one loan associated with the interest rate swap. We record fair value adjustments to loans on a nonrecurring basis to reflect full and partial charge-offs due to impairment. For impaired loans, we use a variety of techniques to measure fair value, such as using the current appraised value of the collateral, discounting the contractual cash flows, and analyzing market data that we may adjust due to specific characteristics of the loan or collateral.

Federal Home Loan Bank Stock

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

Mortgage Servicing Rights

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

Accrued Interest Receivable and Accrued Interest Payable

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

24

NOTE 8 — FAIR VALUE (CONTINUED)

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. This methodology is consistent with the guidance in ASC 825-10-55 “Financial Instruments,” and we believe our disclosures provide fair value that is more indicative of an entry price.

Short-Term Borrowings

Fair value of short-term borrowings is equal to the amount payable at the reporting date as such amount is due and payable on the next day.

Federal Home Loan Bank Advances and Other Borrowed Funds

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

Off-Balance Sheet Financial Instruments

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

The estimated fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010 were as follows (in thousands):

	September 30,				December 31,
	2011				2010
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	5,459	$	5,459	$	38,314	$	38,314
Available for sale securities:
Investment securities available-for-sale	24,343		24,343		32,671		32,671
Private label residential mortgage related security	129		129		166		166
Private label commercial mortgage related securities	9,094		9,094		11,767		11,767
Agency residential mortgage related securities	249,339		249,339		266,699		266,699
Held to maturity securities:
Agency mortgage related securities	45,517		46,309		51,835		50,817
Loans receivable, net	648,149		648,287		642,653		643,967
Federal Home Loan Bank stock	8,499		8,499		9,913		9,913
Accrued interest receivable	4,626		4,626		4,500		4,500
Mortgage servicing rights	329		333		448		462
Financial liabilities:
Savings and club accounts	72,794		72,794		54,921		54,921
Demand, NOW and money market deposits	251,748		251,748		260,399		260,399
Certificates of deposit	341,980		346,350		396,443		401,222
Short-term borrowings	24,000		24,000		—		—
Federal Home Loan Bank advances	89,423		96,906		122,800		129,522
Other borrowed funds	50,000		55,236		50,000		53,851
Accrued interest payable	435		435		580		580
Off-balance sheet instruments	—		1,487		—		1,238

25

NOTE 8 — FAIR VALUE (CONTINUED)

The Company determines the fair value of certain financial instruments using three levels of input:

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

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

Level 3—Valuations are derived 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, 2011. The first instrument is a private label collateralized mortgage obligation (“CMO”), the fair value of which, unlike U.S. agency mortgage related securities, is more difficult to determine because they are not actively traded in securities markets. The second type of instrument includes three private label commercial mortgage backed securities (“CMBS”), the fair value of which is also more difficult to determine because they are not actively traded in securities markets. The third instrument is a loan, which was recorded at fair value when the Company adopted ASC Topic 820 “Fair Value Measurements and Disclosures,” since lending credit risk is not an observable input for this individual commercial loan (see Note 3). The net unrealized loss, including other-than-temporary impairment in accumulated other comprehensive income, in the private label CMO was $46,000 at September 30, 2011 and $393,000 at December 31, 2010. As of September 30, 2011 and December 31, 2010, all of the securities in the private label CMBS portfolio were at an unrealized gain position.  The unrealized gain on the loan was $216,000 and $161,000 at September 30, 2011 and December 31, 2010, respectively.

The following tables, which set forth the Company’s fair value measurements included in the financial statements at September 30, 2011 and December 31, 2010, include (1) investment securities and mortgage related securities available-for-sale; (2) the two financial instruments, associated with the interest rate swap agreement as discussed in Note 3; (3) tranches of MSRs where the fair value is less than the carrying value and are recorded at fair value; (4) partially charged-off loans and (5) other real estate owned.

The following measures were made on a recurring basis as of September 30, 2011 and December 31, 2010:

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
	As of			for Identical		Observable			Unobservable
	September 30,			Assets		Inputs			Inputs
Description	2011			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Available for Sale Securities:
Obligations of U.S. government agencies	$	6,551		$	—	$	6,551		$	—
State and political subdivisions	1,873			—		1,873			—
Corporate securities	15,919			—		15,919			—
Private label residential mortgage related security	129			—		—			129
Private label commercial mortgage related securities	9,094			—		—			9,094
Agency residential mortgage related securities	249,339			—		249,339			—
Loan (1)	1,250			—		—			1,250
Swap contract (1)	(216		)	—		(216		)	—
Total	$	283,939		$	—	$	273,466		$	10,473

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

26

NOTE 8 — FAIR VALUE (CONTINUED)

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
	As of			for Identical		Observable			Unobservable
	December 31,			Assets		Inputs			Inputs
Description	2010			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Available for Sale Securities:
Obligations of U.S. government agencies	$	6,521		$	—	$	6,521		$	—
State and political subdivisions	7,279			—		7,279			—
Corporate securities	18,871			—		18,871			—
Private label residential mortgage related security	166			—		—			166
Private label commercial mortgage related securities	11,767			—		—			11,767
Agency residential mortgage related securities	266,699			—		266,699			—
Loan (1)	1,241			—		—			1,241
Swap contract (1)	(161		)	—		(161		)	—
Total	$	312,383		$	—	$	299,209		$	13,174

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

The following measures were made on a non-recurring basis as of September 30, 2011 and December 31, 2010:

The loans were partially charged off at September 30, 2011 and December 31, 2010.  The loans’ fair values are based on Level 3 inputs, which are either an appraised value or a sales agreement, less costs to sell. These amounts do not include fully charged-off loans, because we carry fully charged-off loans at zero on our balance sheet. Also, measurements for impaired loans that are determined using a present value technique are not considered fair value measurements under the standard and, therefore, are not included.

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

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
As of September 30, 2011
Loans	$	4,423	$	—	$	—	$	4,423
Mortgage servicing rights	293		—		293		—
Other real estate owned	2,907		—		—		2,907
Total	$	7,623	$	—	$	293	$	7,330
As of December 31, 2010
Loans	$	6,119	$	—	$	—	$	6,119
Mortgage servicing rights	405		—		405		—
Other real estate owned	3,186		—		—		3,186
Total	$	9,710	$	—	$	405	$	9,305

27

NOTE 8 — FAIR VALUE (CONTINUED)

The following tables include a roll forward of the financial instruments which fair value is determined using Significant Other Unobservable Inputs (Level 3) for the periods of January 1, 2010 to September 30, 2010 and January 1, 2011 to September 30, 2011.

Nine-Months Ended September 30, 2011

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loan			Total
	(In thousands)
Beginning balance, January 1, 2011	$	166		$	11,767		$	1,241		$	13,174
Purchases	—			—			—			—
Sales	—			—			—			—
Payments received	(23		)	(2,399		)	(47		)	(2,469		)
Premium amortization, net	—			(11		)	—			(11		)
Increase (decrease) in unrealized gain (loss)	(14		)	(263		)	56			(221		)
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2011	$	129		$	9,094		$	1,250		$	10,473

Nine-Months Ended September 30, 2010

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

There were no purchases, sales, issuances or settlements in any Level 3 asset during the nine months ended September 30, 2011 or the year ended December 31, 2010.  Additionally, there were no transfers made between levels during the nine months ended September 30, 2011 or the year ended December 31, 2010.

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

28

NOTE 9 - COMPREHENSIVE INCOME

Comprehensive income for the three and nine months ended September 30, 2011, and 2010 is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Net income	$	1,232		$	692		$	3,735		$	1,851
Other comprehensive income (loss):
Unrealized holding (losses) gains arising during the period, net of tax (benefit) (three months ended September 30, 2011 and 2010, $(45) and $(627) and for nine months ended September 30, 2011 and 2010 $632 and $1,134, respectively)	(57		)	(1,124		)	1,142			1,961
Non-credit related unrealized loss on other-than temporary impaired securities (net of taxes of $16 for both the three and nine months ended September 30, 2011)	(30		)	—			(30		)	—
Less: Reclassification adjustment for net investment securities gains included in net income, net of taxes (three months ended September 30, 2011 and 2010, $0 and $667 and for nine months ended September 30, 2011 and 2010 $0 and $667, respectively)	—			1,296			—			1,296
Other comprehensive (loss) income	(87		)	(2,420		)	1,112			665
Comprehensive income (loss)	$	1,145		$	(1,728	)	$	4,847		$	2,516

NOTE 10 — ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update (ASU) 2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of Levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for Level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for Level 3 activity on a gross basis, which was effective for fiscal years beginning after December 15, 2010. The Company adopted this ASU effective January 1, 2010.  Effective January 1, 2011 the Company adopted the requirements to provide the reconciliation for Level 3 activity on a gross basis.  The reconciliation was not shown as there were no purchases, sales, issuances or settlements in any Level 3 asset during the nine months ended September 30, 2011.  This ASU did not have a material effect on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) No. 2010-18 — Effect of a Loan Modification When the Loan Is Part of a Pool that is Accounted for as a Single Asset, a consensus of the FASB Emerging Issues Task Force (Issue No. 09-I).  This ASU amends FASB ASC Subtopic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality, so that modifications of loans that are accounted for within a pool under that Subtopic do not result in the removal of the loans from the pool even if the modifications of the loans would otherwise be considering a troubled debt restructuring.  A one-time election to terminate accounting for loans in a pool, which may be made on a pool-by-pool basis, is provided upon adoption of the new guidance.  An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.

29

NOTE 10 — ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The amendments are effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.  Early adoption is permitted. This ASU has no effect on the Company’s financial position or results of operations as the Company did not modify any loans that were pooled for accounting purposes as of December 31, 2010 or as of September 30, 2011.

Accounting Standards Update (ASU) No. 2010-20 — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. Disclosures related to period-end information (e.g., credit quality information and the ending financing receivables balance segregated by impairment method) are effective in all interim and annual reporting periods ending on or after December 15, 2010. Disclosures of activity that occurs during a reporting period (e.g., modifications and the rollforward of allowance for credit losses by portfolio segment) are effective in interim or annual periods beginning on or after December 15, 2010.  The Company has complied with the disclosures required as of December 31, 2010 and September 30, 2011.

Accounting Standards Update (ASU) No. 2011-01— Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No 2010-20.  The amendments in ASU 2011-01 temporarily delayed the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. As a result of ASU No. 2011-02, the provisions of ASU No. 2011-01 are effective for the Company’s reporting period ending September 30, 2011.  The Company has complied with the disclosures required as of September 30, 2011.

Accounting Standards Update (ASU) No. 2011-02 A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties.  A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20.  The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011.  The Company has evaluated the guidance included in this update and has determined that it does not result in any new troubled debt restructurings that should be reported as of September 30, 2011.

Accounting Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.  This ASU 2011 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 will be effective for the Company on January 1, 2012 and is not expected to have a material impact on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  The provisions of ASU 2011-05 are intended to improve the comparability, consistency and transparency of financial reporting and to increase prominence of the items reported in other comprehensive income.  The amendments require that all nonowner changes in stockholder’s equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total comprehensive income.  ASU 2011-05 should be applied retrospectively and will be effective for the Company on January 1, 2012.  This update is not expected to have a material impact on the Company’s financial position or results of operations.

30

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 sections titled “Risk Factors” in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 14, 2011, in the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 5, 2011 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 investment 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 collectability. The allowance is established through the provision for loan losses, which is charged against income. Management estimates the allowance balance required using loss experience in particular segments of the portfolio, trends in industry charge-offs by particular segments, the size and composition of the loan portfolio, trends and absolute levels of nonperforming loans, trends and absolute levels of classified and criticized loans, trends and absolute levels in delinquent loans and troubled debt restructurings, trends and absolute levels within different risk ratings, and changes in existing general economic and business conditions affecting our lending areas and the national economy.

Additionally, for loans identified by management as impaired, management will provide a reserve based on the expected discounted cash flows of the loan, or for loans determined to be collateral dependent, a reserve is established based on appraised value less costs to sell. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if actual conditions differ substantially from the assumptions used in making the evaluation. Further, current weak economic conditions, such as high unemployment and depressed real estate values, have increased the uncertainty inherent in these estimates and assumptions. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Valuation and Other-Than-Temporary Impairment of Investment Securities. Investment securities are reviewed quarterly to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its current carrying value, management is required to assess whether the decline is other-than-temporary. A review of other-than-temporary impairment requires us to make certain judgments regarding the nature of the decline, and the probability, extent and timing of a valuation recovery and Fox Chase Bancorp’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.

31

Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (1) fundamental factors specific to the issuer, such as financial condition, business prospects or other factors, or (2) market-related factors, such as required market yields, interest rates or equity market declines. If the decline in the market value of a security is determined to be other-than-temporary, the credit portion of the impairment is written down through earnings and the non-credit portion is an adjustment to other comprehensive income. See Note 2 to the consolidated financial statements for a schedule that shows gross unrealized losses, fair value of securities aggregated by security category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2011 and December 31, 2010, and Note 8 for a discussion related to the determination of fair value.

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

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

Total assets decreased $64.1 million, or 5.8%, to $1.03 billion at September 30, 2011, compared to $1.10 billion at December 31, 2010. Cash and cash equivalents decreased $32.9 million from December 31, 2010 to September 30, 2011 as the Company used these funds and the funds from the maturity of securities to pay down $33.4 million of FHLB advances, including $30.0 million that matured in the third quarter, to fund deposit outflows as deposits decreased $45.2 million and fund loans of $5.5 million.  Mortgage related securities available-for-sale decreased $20.1 million, as cash repayments of $54.9 million were greater than purchases of $35.0 million during the nine months ended September 30, 2011. Investment related securities available-for-sale and mortgage related securities held-to-maturity decreased $8.3 million and $6.3 million, respectively, primarily due to principal payments and bond calls. Loans increased $5.5 million from December 31, 2010 to September 30, 2011. During the nine months ended September 30, 2011, the Bank’s multi-family and commercial real estate portfolio increased $25.9 million and the commercial and industrial portfolio increased $26.2 million as a result of new loan originations by the Bank’s commercial lending teams. The Bank’s commercial construction portfolio decreased $10.3 million, primarily due to the payment in full of a $5.7 million construction loan, and additional principal payments and charge-offs related to nonperforming commercial construction loans.  One-to four-family real estate loans decreased $29.3 million and consumer loans decreased $6.9 million due to our decision to reduce new originations on these types of loans as a result of the current economic and interest rate environment.

Deposits decreased $45.2 million, or 6.4%, from $711.8 million at December 31, 2010 to $666.5 million at September 30, 2011. Certificates of deposit decreased $54.5 million, or 13.7%, and money market accounts decreased $17.4 million, or 11.7%, from December 31, 2010 to September 30, 2011. These decreases were offset by increases in noninterest-bearing demand accounts of $7.3 million, or 10.3%, savings and club accounts of $17.9 million, or 32.5%, and NOW accounts of $1.4 million, or 3.5%, from December 31, 2010 to September 30, 2011. The decrease in certificates of deposit relates primarily to customer redemptions associated with certificates of deposit obtained during a pricing promotion offered in the first quarter of 2009. Specifically, during the first quarter of 2011, approximately $23.6 million of certificates of deposit with a rate of 3.50% matured.  This is the last maturity of certificates of deposit associated with the Bank’s first quarter 2009 certificate of deposit promotion.  The Bank did not offer any certificates of deposit promotions during the first half of 2011.  The decrease in money market deposits was primarily due to the Bank maintaining its money market rates at the midpoint of the market and not offering any promotional money market offers during the first nine months of 2011. The increase in savings and club accounts was primarily due to the introduction of the Fox Chase Advantage Savings product during the second quarter of 2011 which offered an introductory rate of 1.25% for three months for new deposits.  The increase in noninterest-bearing demand accounts was primarily due to deposits obtained from the Bank’s commercial borrowing relationships. Short-term borrowings increased by $24.0 million as the Bank obtained overnight borrowings from a large commercial bank and a participant in the Federal Funds Market at rates ranging from 0.15% to 0.25%.  Federal Home Loan Bank advances decreased $33.4 million, or 27.2%, from $122.8 million at December 31, 2010 to $89.4 million at September 30, 2011 due to $30.0 million in advances maturing in the quarter as well as principal amortization on two advances.

Stockholders’ equity decreased $8.3 million to $197.4 million at September 30, 2011 compared to $205.7 million at December 31, 2010 primarily due to the repurchase of 789,800 shares of treasury stock at a cost of $10.4 million as well as the funding of the 2011 Equity Incentive Plan, whereby a trustee purchased 274,391 shares of stock in the open market to

32

fund grants of restricted stock at a cost of $3.5 million, and payments of dividends totaling $863,000.  These uses of stockholders’ equity were offset by net income of $3.7 million for the nine months ended September 30, 2011, an increase of $1.1 million in other comprehensive income, stock-based compensation of $1.4 million and issuance of common stock related to exercised stock options of $162,000.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2011 and 2010

General. Net income increased $540,000, or 78.0%, to $1.2 million for the three months ended September 30, 2011, compared to $692,000 for the three months ended September 30, 2010. The increase in net income was due to a decrease of $1.9 million in the provision for loan losses and an increase in net interest income of $1.0 million offset by a decrease in noninterest income of $1.9 million, an increase in income tax expense of $298,000 and an increase in noninterest expense of $132,000.  The decrease in noninterest income was primarily the result of a decrease of $2.1 million in net investment securities gains.

Net income increased $1.9 million, or 101.8%, to $3.7 million for the nine months ended September 30, 2011, compared to $1.9 million for the nine months ended September 30, 2010. The increase in net income was due to an increase in net interest income of $3.3 million and a decrease of $1.9 million in the provision for loan losses, offset by a decrease in noninterest income of $1.8 million, an increase of $1.0 million in income tax expense and an increase of $528,000 in noninterest expense.  The decrease in noninterest income was primarily the result of a decrease of $2.3 million in net investment securities gains.

Net Interest Income. Net interest income increased $1.0 million, or 14.8%, to $8.1 million for the three months ended September 30, 2011 compared to $7.0 million for the same period in 2010 primarily due to a decrease in interest expense of $1.8 million offset by a $779,000 decrease in total interest income. The decrease in interest expense was primarily due to a decrease in average total interest-bearing liabilities of $172.9 million and a decrease in the average cost of interest-bearing liabilities from 2.28% to 1.85%.  The decrease in the average balance was primarily due to a $177.4 million decrease in the average balances of money market accounts and certificates of deposit.  The decrease in the average cost of interest-bearing liabilities was primarily due to a reduction in overall interest rate environment during 2010 and 2011 and the maturities of higher rate certificates of deposit and reduced rates on other deposit products which led to a reduction in the cost of interest-bearing deposits from 1.96% to 1.40%. The average balance of noninterest-bearing deposits increased $18.2 million, or 24.9%, to $91.4 million for the three months ended September 30, 2011 compared to $73.2 million for the same period in 2010, primarily due to deposits obtained from the Bank’s commercial borrowing relationships.  The decrease in interest income was primarily due to a decrease in average interest-earning assets from a reduction in interest-earning demand deposits of $109.1 million, mortgage related securities of $22.6 million and residential and consumer loans of $48.5 million and $13.1 million, respectively.  In addition, there was a reduction in yield on mortgage related securities from 3.18% to 3.07% due to new purchases having lower yields than the existing portfolio, a reduction in the yield on residential loans from 5.22% to 5.02% and a reduction in yield on consumer loans from 5.94% to 5.73%.

Net interest income increased $3.3 million, or 16.5%, to $23.5 million for the nine months ended September 30, 2011 compared to $20.1 million for the same period in 2010 primarily due to a decrease in interest expense of $6.0 million offset by a $2.7 million decrease in interest income. The decrease in interest expense was primarily due to a decrease in average total interest-bearing liabilities of $178.3 million and a decrease in the average cost of interest-bearing liabilities from 2.44% to 1.95%.  The decrease in the average balance was primarily due to a $180.2 million decrease in the average balances of money market accounts and certificates of deposit.  The decrease in the average cost of interest-bearing liabilities was primarily due to a reduction in the overall interest rate environment during 2010 and 2011 and maturities of higher rate certificates of deposit and reduced rates on other deposit products which led to a reduction in the cost of interest-bearing deposits from 2.16% to 1.49%. The average balance of noninterest-bearing deposits increased $22.8 million, or 33.9%, to $90.0 million for the nine months ended September 30, 2011 compared to $67.2 million for the same period in 2010, primarily due to deposits obtained from the Bank’s commercial borrowing relationships.  The decrease in interest income was primarily due to a decrease in average interest-earning assets from a reduction in interest-earning demand deposits of $49.1 million, mortgage related securities of $40.3 million and residential and consumer loans of $40.9 million and $13.7 million, respectively.  In addition, there was a reduction in yield on mortgage related securities from 3.44% to 3.14% due to new purchases having lower yields than the existing portfolio, a reduction in the yield on residential loans from 5.27% to 5.01% and a reduction in yield on consumer loans from 5.95% to 5.89%.

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, 2011 and 2010. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

33

	Three Months Ended September 30,														Nine Months Ended September 30,
	2011							2010							2011							2010
				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	$	28,268		$	16	0.22	%	$	137,373		$	86	0.25	%	$	40,141		$	69	0.23	%	$	89,233		$	249	0.37	%
Mortgage-related securities
Available-for-sale	268,606			2,240		3.34	%	338,400			2,691		3.18	%	276,119			6,993		3.38	%	365,720			9,438		3.44	%
Held-to-maturity	47,209			185		1.56	%	—			—		—		49,268			658		1.78	%	—			—		—
Total mortgage-related securities	315,815			2,425		3.07	%	338,400			2,691		3.18	%	325,387			7,651		3.14	%	365,720			9,438		3.44	%
Taxable securities	31,516			116		1.47	%	32,823			142		1.73	%	32,464			380		1.56	%	25,820			315		1.63	%
Nontaxable securities	2,105			28		5.30	%	8,206			84		4.09	%	4,767			165		4.62	%	8,538			257		4.02	%
Loans (1):
Residential loans	215,787			2,707		5.02	%	264,320			3,448		5.22	%	225,682			8,480		5.01	%	266,586			10,535		5.27	%
Commercial loans	387,128			5,601		5.66	%	344,908			5,002		5.67	%	368,607			15,813		5.66	%	325,895			13,864		5.61	%
Consumer loans	49,754			713		5.73	%	62,813			932		5.94	%	51,713			2,286		5.89	%	65,379			2,918		5.95	%
Total Loans	652,669			9,021		5.45	%	672,041			9,382		5.52	%	646,002			26,579		5.45	%	657,860			27,317		5.51	%
Allowance for loan losses	(12,834		)					(12,005		)					(12,851		)					(11,304		)
Net loans	639,835			9,021				660,036			9,382				633,151			26,579				646,556			27,317
Total interest-earning assets	1,017,539			11,606		4.46	%	1,176,838			12,385		4.13	%	1,035,910			34,844		4.41	%	1,135,867			37,576		4.35	%
Noninterest-earning assets	44,186							47,787							42,140							47,476
Total assets	$	1061,725						$	1,224,625						$	1,078,050						$	1,183,343
Liabilities and equity:
Interest-bearing liabilities:
NOW and money market deposit accounts	$	174,336		192		0.44	%	$	219,365		312		0.57	%	$	175,964		570		0.43	%	$	220,820		1,286		0.78	%
Savings accounts	72,707			49		0.27	%	53,777			7		0.05	%	64,750			95		0.20	%	54,009			37		0.09	%
Certificates of deposit	349,936			1,858		2.11	%	482,335			3,415		2.81	%	366,267			6,104		2.23	%	501,588			11,208		2.99	%
Total interest-bearing deposits	596,979			2,099		1.40	%	755,477			3,734		1.96	%	606,981			6,769		1.49	%	776,417			12,531		2.16	%
Short-term borrowings	2,116			2		0.29	%	—			—		0.00	%	705			2		0.30	%	—			—		0.00	%
FHLB advances	108,085			1,007		3.64	%	124,590			1,194		3.75	%	117,244			3,314		3.73	%	126,789			3,602		3.75	%
Other borrowed funds	50,000			437		3.42	%	50,000			437		3.42	%	50,000			1,296		3.42	%	50,000			1,296		3.42	%
Total borrowings	160,201			1,446		3.53	%	174,590			1,631		3.65	%	167,949			4,612		3.62	%	176,789			4,898		3.65	%
Total interest-bearing liabilities	757,180			3,545		1.85	%	930,067			5,365		2.28	%	774,930			11,381		1.95	%	953,206			17,429		2.44	%
Noninterest-bearing deposits	91,414							73,206							90,021							67,244
Other noninterest-bearing liabilities	9,176							14,155							6,686							9,334
Total liabilities	857,770							1,017,428							871,637							1,029,784
Stockholders’ equity	195,957							197,571							199,263							145,232
Accumulated comprehensive income	7,998							9,626							7,150							8,327
Total stockholder’s equity	203,955							207,197							206,413							153,559
Total liabilities and stockholders’ equity	$	1,061,725						$	1,224,625						$	1,078,050						$	1,183,343
Net interest income				$	8,061						$	7,020						$	23,463						$	20,147
Interest rate spread						2.61	%						1.85	%						2.46	%						1.91	%
Net interest margin						3.10	%						2.35	%						2.96	%						2.33	%
Average interest-earning assets to average interest-bearing liabilities						134.39	%						126.53	%						133.68	%						119.16	%

(1) Nonperforming loans are included in average balance computations

34

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

	Three Months Ended									Nine Months Ended
	September 30, 2011									September 30, 2011
	Compared to									Compared to
	Three Months Ended									Nine Months Ended
	September 30, 2010									September 30, 2010
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
	Rate			Volume			Net			Rate			Volume			Net
Interest and dividend income:
Interest-earning demand deposits	$	(2	)	$	(68	)	$	(70	)	$	(43	)	$	(137	)	$	(180	)
Mortgage-related securities
Available-for-sale	105			(556		)	(451		)	(132		)	(2,313		)	(2,445		)
Held-to-maturity	—			185			185			—			658			658
Total mortgage-related securities	105			(371		)	(266		)	(132		)	(1,655		)	(1,787		)
Taxable securities	(21		)	(5		)	(26		)	(17		)	82			65
Nontaxable securities	6			(62		)	(56		)	21			(113		)	(92		)
Loans:
Residential loans	(108		)	(633		)	(741		)	(439		)	(1,616		)	(2,055		)
Commercial loans	(12		)	611			599			133			1,816			1,949
Consumer loans	(26		)	(193		)	(219		)	(22		)	(610		)	(632		)
Total loans	(146		)	(215		)	(361		)	(328		)	(410		)	(738		)
Total interest-earning assets	(58		)	(721		)	(779		)	(499		)	(2,233		)	(2,732		)
Interest Expense:
NOW and money market deposits	(56		)	(64		)	(120		)	(454		)	(262		)	(716		)
Savings accounts	40			2			42			51			7			58
Certificates of deposit	(620		)	(937		)	(1,557		)	(2,081		)	(3,023		)	(5,104		)
Total interest-bearing deposits	(636		)	(999		)	(1,635		)	(2,484		)	(3,278		)	(5,762		)
Short-term borrowings	—			2			2			—			2			2
FHLB advances	(29		)	(158		)	(187		)	(18		)	(270		)	(288		)
Other borrowed funds	—			—			—			—			—			—
Total borrowings	(29		)	(156		)	(185		)	(18		)	(268		)	(286		)
Total interest-bearing liabilities	(665		)	(1,155		)	(1,820		)	(2,502		)	(3,546		)	(6,048		)
Net change in net interest income	$	607		$	434		$	1,041		$	2,003		$	1,313		$	3,316

35

Provision for Loan Losses. The Company recorded a provision for loan losses of $1.0 million and $2.9 million for the three and nine months ended September 30, 2011, respectively compared to $2.9 million and $4.9 million for the three and nine months ended September 30, 2010, respectively. The decrease in the provision for the three and nine months ended September 30, 2011 was primarily due to the decline in the Company’s nonperforming assets as outlined in the following table and a reduction in delinquent loans.

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

	At September 30,			At December 31,
	2011			2010
	(Dollars in thousands)
	(Unaudited)
Nonperforming Loans:
One- to four-family real estate	$	6,771		$	10,813
Multi-family and commercial real estate	3,988			6,180
Construction	9,391			9,279
Consumer	479			365
Commercial and industrial	—			—
Total	20,629			26,637
Accruing loans past due 90 days or more:
Consumer (1)	2,117			—
Total	2,117			—
Total of nonperforming loans and accruing loans 90 days or more past due	$	22,746		$	26,637
Other real estate owned	2,907			3,186
Total nonperforming assets	$	25,653		$	29,823
Total nonperforming loans and accruing loans past due 90 days or more to total loans	3.44		%	4.07		%
Total nonperforming loans to total assets	2.21			2.43
Total nonperforming assets to total assets	2.49			2.72
Impaired Loans:
Nonperforming loans	$	20,629		$	26,637
Troubled debt restructurings	6,856			8,617
Other impaired loans	—			3,894
Total impaired loans	$	27,485		$	39,148

(1)Accruing loans 90 days or more past due includes $2.1 million related to three consumer finance loans that matured during the September 2011 quarter and are currently in the process of being sold or liquidated.  Management anticipates the loans will be paid off in full and accordingly, such loans are not considered impaired at September 30, 2011.

36

The following table sets forth our nonaccrual loans by state and loan segment at September 30, 2011 and December 31, 2010. Table does not include accruing loans past due 90 days or more.

September 30, 2011

				Multi Family
	One- to Four-			and									Commercial
	Family Real			Commercial Real									and
	Estate			Estate			Construction			Consumer			Industrial			Total
	Number			Number			Number			Number			Number			Number
	of			of			of			of			of			of
	Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount
	(Dollars in thousands)
Pennsylvania	8	$	5,539	3	$	810	2	$	5,215	3	$	55	—	$	—	16	$	11,619
New Jersey	5	1,232		3	1,933		2	4,176		4	424		—	—		14	7,765
Delaware	—	—		1	1,245		—	—		—	—		—	—		1	1,245
Total	13	$	6,771	7	$	3,988	4	$	9,391	7	$	479	—	$	—	31	$	20,629

December 31, 2010

				Multi Family
	One- to Four-			and									Commercial
	Family Real			Commercial Real									and
	Estate			Estate			Construction			Consumer			Industrial			Total
	Number			Number			Number			Number			Number			Number
	of			of			of			of			of			of
	Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount		Loans	Amount
	(Dollars in thousands)
Pennsylvania	7	$	5,735	2	$	658	2	$	2,866	1	$	10	—	$	—	12	$	9,269
New Jersey	7	5,078		5	5,522		2	6,413		2	355		—	—		16	17,368
Delaware	—	—		—	—		—	—		—			—	—		—	—
Total	14	$	10,813	7	$	6,180	4	$	9,279	3	$	365	—	$	—	28	$	26,637

The following table provides a rollforward of our nonperforming assets, by loan segment and other real estate owned, from December 31, 2010 to September 30, 2011.

													Transfer
	At		Additional							Net			To Other			At
	December		Non-		Return to		Payments			Charge-offs/			Real			September
	31,		Performing		Accrual		Received,			Valuation			Estate			30,
	2010		Assets, Net		Status		Net			Allowances			Owned			2011
	(Dollars in thousands)
Nonperforming loans
One- to four-family real estate	$	10,813	$	403	$	—	$	(3,689	)	$	(568	)	$	(188	)	$	6,771
Multi-family and commercial real estate	6,180		2,110		—		(3,198		)	(156		)	(948		)	3,988
Construction	9,279		3,519		—		(1,554		)	(1,510		)	(343		)	9,391
Consumer	365		123		—		(9		)	—			—			479
Commercial and industrial	—		596		—		—			(596		)	—			—
Total	26,637		6,751		—		(8,450		)	(2,830		)	(1,479		)	20,629
Other real estate owned	3,186		10				(1,358		)	(410		)	1,479			2,907
Total nonperforming assets	$	29,823	$	6,761	$	—	$	(9,808	)	$	(3,240	)	$	—		$	23,536

37

At September 30, 2011, nonperforming assets were comprised of the following:

·Four construction loans for residential developments, the largest of which was a $3.2 million loan collateralized by a residential housing development in Montgomery County, Pennsylvania.  The three other nonaccrual construction loans totaled $6.2 million at September 30, 2011 and are collateralized by (1) a residential housing development in Cape May County, New Jersey; (2) land and improvements associated with a residential housing development in Chester County, Pennsylvania; and (3) a condominium project in Atlantic County, New Jersey.

·Seven multi-family and commercial real estate loans, the largest of which was a $1.6 million loan secured by a hotel in Cape May County, New Jersey.

·Thirteen one-to four-family loans, the largest of which is a $4.9 million loan secured by a residential home in Montgomery County, Pennsylvania.

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

·Six properties in other real estate owned, the largest of which is a single family residential development located in Atlantic County, New Jersey.  The five other real estate owned properties totaled $1.4 million at September 30, 2011 and are collateralized by (1) a single family residential home in Atlantic County, New Jersey; (2) a single family residential home in Cape May County, New Jersey; (3) a commercial property in Atlantic County, New Jersey; (4) a single family residential home in Montgomery County, Pennsylvania and (5) and an apartment building in Chester County, Pennsylvania.

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

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

	At September 30,				At December 31,
	2011				2010
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)				(In thousands)
One- to four-family real estate	$	253	$	392	$	96	$	144
Multi-family and commercial real estate	530		1,782		4,735
Construction real estate	—		—		—		—
Consumer	63		1,438		170		—
Commercial and industrial	—		—		—		—
Total	$	846	$	3,612	$	5,001	$	144

At September 30, 2011, delinquent loans were comprised of twelve different loan relationships. The largest delinquent loan relationship was a $1.8 million warehouse line of credit and term facility secured primarily by real estate properties in Pennsylvania and Maryland.  The loans are current as to payments due as of September 30, 2011 however, the loans are 60 days past maturity and the borrower is currently in Chapter 11 bankruptcy reorganization.

Consumer loans past due 60-89 days includes three consumer loans totaling $1.4 million that matured during the September 2011 quarter and are currently in the process of being sold or liquidated.  Management anticipates the loans will be paid off in full.

Total delinquent loans decreased by $687,000 to $4.5 million at September 30, 2011 as compared to $5.1 million at December 31, 2010.  The decrease was primarily due to a $4.7 million commercial real estate loan, which was also classified as a TDR at March 31, 2011 (see following paragraphs discussing TDRs), performing under its restructured terms, offset by the addition of $2.3 million to the multi-family and commercial real estate delinquencies, a $405,000 increase in residential delinquencies and a $1.3 million increase in consumer loan delinquencies.

38

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

TDRs totaled $12.1 million at September 30, 2011 of which $6.9 million were on accrual status.   The remaining $5.2 million related to two construction loans classified as nonperforming assets.  TDRs totaled $10.7 million at December 31, 2010, of which $8.6 million were on accrual status. The remaining $2.1 million related to a construction loan classified as a nonperforming asset.

Four of the commercial loans classified as a TDR at September 30, 2011, totaling $7.4 million, were classified as TDRs during 2010.  These loans were classified as TDRs because they matured during 2010 and the Bank extended the loans with uncertainty as to whether the borrowers could obtain similar financing from another financial institution at the time of the extension, thus representing the granting of a financial concession.  The Bank did not lower the interest rate on these loans.  As of September 30, 2011, three of the loans are performing as agreed and one of the loans in the amount of $3.2 million is currently in default.

The other commercial loan classified as a TDR at September 30, 2011, totaling $4.7 million, was first classified as a TDR during the three months ended March 31, 2011.  The loan was classified as a TDR as the Bank agreed to restructure the terms of the loan, which included reducing payments to interest only for a period of nine months and reducing the rate for the term of the interest only period. This loan is secured by partially owner occupied commercial property located in Chester County, Pennsylvania.  As of September 30, 2011, this loan is performing in accordance with its restructured terms and is no longer reported as delinquent.

The decrease in “Other impaired loans” from December 31, 2010 to September 30, 2011 is a result of the Bank modifying a $3.9 million construction loan, which has a total commitment of $5.5 million, during the quarter ended June 30, 2011.  The loan is secured by land and homes in a retirement community in Delaware, and was classified as impaired at December 31, 2010 as the loan matured in February 2011 and it was unlikely the borrower would be able to pay the loan off in full, as contractually due at maturity. This loan is on accrual status as of September 30, 2011 as the borrower (1) has demonstrated a history of making payments as contractually due and is current as of September 30, 2011, (2) has provided evidence supporting the ability to make payments for the foreseeable future, and (3) a recent appraisal indicates the borrower has equity in the underlying property.  Additionally, the Bank evaluated the renegotiated loan and determined that the modification did not represent a TDR as the borrower is not considered to be experiencing financial difficulty and was not granted a concession.

Noninterest Income. The following table summarizes noninterest income for the three and nine months ended September 30, 2011 and 2010.

	Three Months											Nine Months
	Ended September 30,					$			%			Ended September 30,					$			%
	2011			2010		Change			Change			2011			2010		Change			Change
	(Dollars in thousands)
Service charges and other fee income	$	428		$	248	$	180		72.6	%	$		1,207		$	757	$	450		59.4	%
Net gain on sale of premises and equipment	—			6		(6		)	(100.0	)	—				6		(6		)	(100.0	)
Net gain on sale of other real estate owned	57			—		57			100.0		77				—		77			100.0
Impairment loss on real estate held for investment	(110		)	—		(110		)	(100.0	)	(110			)	—		(110		)	(100.0	)
Income on bank-owned life insurance	119			119		—			—		349				352		(3		)	(0.9	)
Other	133			57		76			133.3		222				152		70			46.1
Total other than temporary impairment loss	(206		)	—		(206		)	(100.0	)	(407			)	—		(407		)	(100.0	)
Less: Portion of loss recognized in other comprehensive income (before taxes)	46			—		46			100.0		46				—		46			100.0
Net other-than-temporary impairment loss	(160		)	—		(160		)	(100.0	)	(361			)	—		(361		)	(100.0	)
Net gains on sale of investment securities	—			1,963		(1,963		)	(100.0	)	—				1,963		(1,963		)	(100.0	)
Net investment securities (losses) gains	(160		)	1,963		(2,123		)	(108.2	)	(361			)	1,963		(2,324		)	(118.4	)
Total Noninterest Income	$	467		$	2,393	$	(1,926	)	(80.5	)%	$		1,384		$	3,230	$	(1,846	)	(57.2	)%

39

Service charges and other fee income increased $180,000, or 72.6% for the three months ended September 30, 2011 compared to the same period in 2010, primarily due to an increase in commercial loan fees of $132,000, cash management fees of $39,000 and loan servicing income of $11,000.  The increase in commercial loan fees was primarily due to an increase in commercial customer fees, which included an increase in unused lines and letters of credit fees of $145,000. The increase in cash management fees was due to an increase in commercial customer usage.  Loan servicing income increased primarily due to reduced amortization expense as mortgage loan repayments slowed offset by a higher valuation adjustment on the Bank’s mortgage servicing rights.  Other income increased by $76,000 primarily as a result of an increase of $53,000 of income earned on the Bank’s investment in Philadelphia Mortgage Advisors, Inc. due to higher volume of mortgage loans sold. These increases were also offset by an other-than-temporary credit impairment loss recognized on a private label residential mortgage related security of $160,000 and impairment loss on real estate held for investment of $110,000 during the three months ended September 30, 2011.

Service charges and other fee income increased $450,000, or 59.4% for the nine months ended September 30, 2011 compared to the same period in 2010, primarily due to an increase in commercial loan fees of $279,000, cash management fees of $130,000 and loan servicing income of $60,000.  The increase in commercial loan fees was primarily due to an increase in commercial customer fees, which included an increase in unused lines and letters of credit fees of $219,000 and an increase in international banking transaction fees of $70,000.  The increase in cash management fees was due to an increase in commercial customer usage.  Loan servicing income increased primarily due to a lower valuation adjustment on the Bank’s mortgage servicing rights. Other income increased by $70,000 primarily as a result of an increase of $49,000 of income earned on the Bank’s investment in Philadelphia Mortgage Advisors, Inc. due to higher volume of mortgage loans sold. These increases were also offset by an other-than-temporary credit impairment loss recognized on a private label residential mortgage related security of $361,000 and impairment loss on real estate held for investment of $110,000 during the nine months ended September 30, 2011.

Noninterest Expense. The following table summarizes noninterest expense for the three and nine months ended September 30, 2011 and 2010.

	Three Months									Nine Months
	Ended September 30,				$			%		Ended September 30,				$			%
	2011		2010		Change			Change		2011		2010		Change			Change
	(Dollars in thousands)
Salaries, benefits and other compensation	$	3,297	$	3,070	$	227		7.4	%	$	9,678	$	9,016	$	662		7.3	%
Occupancy expense	457		455		2			0.4		1,388		1,394		(6		)	(0.4	)
Furniture and equipment expense	107		113		(6		)	(5.3	)	314		346		(32		)	(9.2	)
Data processing costs	439		408		31			7.6		1,277		1,237		40			3.2
Professional fees	410		307		103			33.6		1,245		924		321			34.7
Marketing expense	95		75		20			26.7		240		241		(1		)	(0.4	)
FDIC premiums	170		343		(173		)	(50.4	)	682		1,116		(434		)	(38.9	)
Provision for loss on other real estate owned	310		345		(35		)	(10.1	)	410		379		31			8.2
Other real estate owned expense	5		46		(41		)	(89.1	)	49		75		(26		)	(34.7	)
Other	400		396		4			1.0		1,185		1,212		(27		)	(2.2	)
Total Noninterest Expense	$	5,690	$	5,558	$	132		2.4	%	$	16,468	$	15,940	$	528		3.3	%

Noninterest expense increased $132,000 for the three months ended September 30, 2011 primarily due to the following:  Salaries, benefits and other compensation increased $227,000 primarily as a result of increased employee stock ownership benefits implemented in conjunction with the Bank’s mutual-to-stock conversion in the second quarter of 2010 and higher incentive compensation accruals.  Professional fees increased $103,000 primarily due to incremental legal costs associated with the Bank’s nonperforming assets as well as other consulting costs.  FDIC premiums decreased $173,000 due to lower deposit balances, a lower assessment rate as well as the FDIC implementing a new assessment process beginning April 2011.

Noninterest expense increased $528,000 for the nine months ended September 30, 2011 primarily due to the following:  Salaries, benefits and other compensation increased $662,000 primarily as a result of increased employee stock ownership benefits implemented in in conjunction with the Bank’s mutual-to-stock conversion in the second quarter of 2010 and higher incentive compensation accruals.  Professional fees increased $321,000 primarily due to incremental legal costs associated

40

with the Bank’s nonperforming assets as well as other consulting costs.  Provision for loss on other real estate owned increased $31,000 as a result of an additional impairment on two properties owned by the Bank.  FDIC premiums decreased $434,000 due to lower deposit balances, a lower assessment rate as well as the FDIC implementing a new assessment process beginning April 2011.

Income Taxes. The income tax provision for the three and nine months ended September 30, 2011 was $572,000 and $1.7 million, respectively compared to $274,000 and $731,000 for the three and nine months ended September 30, 2010, respectively. The Bancorp’s effective income tax rate was 31.7% for both the three and nine months ended September 30, 2011, respectively, compared to 28.4% and 28.3% for the three and nine months ended September 30, 2010, respectively. The increase in the effective tax rate is due to tax exempt income representing a smaller relative portion of pre-tax income during the three and nine months ended September 30, 2011 as compared to the same periods in 2010.

Liquidity and Capital Management

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

The following table presents certain of our contractual obligations as of September 30, 2011 and December 31, 2010.

			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, 2011
Operating lease obligations (1)	$	416	$	416	$	—	$	—	$	—
FHLB advances and other borrowings (2)	187,054		33,391		31,624		32,661		89,378
Other long-term obligations (3)	3,683		1,729		1,954		—		—
Total	$	191,153	$	35,536	$	33,578	$	32,661	$	89,378
At December 31, 2010
Operating lease obligations (1)	$	748	$	473	$	275	$	—	$	—
FHLB advances and other borrowings (2)	201,046		40,347		32,220		36,943		91,536
Other long-term obligations (3)	4,876		1,785		3,091		—		—
Total	$	206,670	$	42,605	$	35,586	$	36,943	$	91,536

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

(2)  Includes principal and projected interest payments.

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

We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) cash flows on our investments; (4) yields available on interest-earning deposits and securities; and (5) the objectives of our asset/liability management policy. We use a variety of measures to assess our liquidity needs, which are provided to our Asset/Liability Management Committee on a regular basis. Our policy is to maintain net liquidity of at least 50% of our funding obligations over the next month. Additionally, our policy is to maintain an amount of cash and short-term marketable securities equal to at least 15% of net deposits and liabilities that will mature in one year or less.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2011, cash and cash equivalents totaled $5.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $282.9 million at September 30, 2011.   In addition, at September 30, 2011, we had the ability to borrow a total of approximately $382.8 million from the FHLB of which we had $89.4 million outstanding.  As of September 30, 2011, the Bank also had a maximum borrowing capacity of $64.5 million with the Federal Reserve Bank of Philadelphia, through the Discount Window.  At September 30,

41

2011, we had $198.2 million in loan commitments outstanding, which consisted of $816,000 of mortgage loan commitments, $20.6 million in home equity and consumer loan commitments, $165.6 million in commercial loan commitments and $11.2 million in standby letters of credit.

Certificates of deposit due within one year of September 30, 2011 totaled $183.4 million, representing 53.6% of certificates of deposit at September 30, 2011, an increase from 44.6% at December 31, 2010. We believe the large percentage of certificates of deposit that mature within one year reflect customers’ hesitancy to invest their funds for long periods in the current low interest rate environment. Depending on the liquidity position of the Company, we may implement marketing and pricing strategies that we believe will help retain a significant portion of these maturities, as needed. 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, 2012.

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

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

	Nine Months
	Ended			Year Ended
	September 30, 2011			December 31, 2010
	(In thousands)
Investing activities:
Loan originations	$	(415,220	)	$	(396,841	)
Other decreases in loans	431,626			405,707
Purchase of loans	(6,460		)	(18,724		)
Purchase of loan participations	(21,784		)	(9,064		)
Security purchases	(35,031		)	(118,616		)
Security sales	—			36,480
Security maturities, calls and principal repayments	68,763			139,062
Financing activities:
Changes in deposits	(45,241		)	(146,514		)
Net increase in short-term borrowings	24,000			—
Net decrease in FHLB advances	(33,377		)	(14,365		)
Issuance of stock for vested options	162			—
Cash dividends paid	(863		)	—
Merger of Fox Chase MHC	—			107
Net Proceeds from common stock offering	—			81,169
Acquisition of common stock for ESOP	—			(3,485		)
Acquisition of common stock for equity incentive plan	(3,474		)	—
Purchase of treasury stock	(10,398		)	—

The Bancorp is a separate entity and apart from the Bank and must provide for its own liquidity. As of September 30, 2011, the Bancorp had $28.1 million in cash and cash equivalents compared to $42.6 million as of December 31, 2010.  Substantially all of the Bancorp’s cash and cash equivalents were obtained from proceeds it retained from the Bank’s mutual-to-stock conversion completed in June 2010.  In addition to its operating expenses, Bancorp may utilize its cash position for the payment of dividends or to repurchase common stock, subject to applicable restrictions.

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.

42

Capital Management. The Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (and prior to its elimination on July 21, 2011, 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, 2011, the Bank exceeded all of regulatory capital requirements and was considered a “well capitalized” institution under regulatory guidelines.

The following table presents the Bank’s capital ratios and the minimum capital requirements to be considered ‘‘well capitalized” under applicable regulatory guidelines as of September 30, 2011 and December 31, 2010:

	Ratio		Minimum to be Well Capitalized
September 30, 2011:
Total risk-based capital (to risk-weighted assets)	24.28	%	³10.0	%
Tier 1 capital (to risk-weighted assets)	23.27	%	³ 6.0	%
Tier 1 capital (to adjusted assets)	14.95	%	³ 5.0	%

	Ratio		Minimum to be Well Capitalized
December 31, 2010:
Total risk-based capital (to risk-weighted assets)	23.76	%	³10.0	%
Tier 1 capital (to risk-weighted assets)	22.53	%	³ 6.0	%
Tier 1 capital (to adjusted assets)	13.60	%	³ 5.0	%

Total stockholders’ equity to total assets was 19.1% at September 30, 2011 and 18.8% at December 31, 2010.  As a result of the mutual-to-stock conversion completed in June 2010, the Company has significant capital.  The Company’s financial condition and results of operations have been enhanced by the capital from the offering, resulting in increased net interest earning assets.  However, the large increase in equity resulting from the capital raised in the conversion has and will likely continue to have an adverse impact on our return on equity until such funds can be deployed into higher yielding assets. The Company may use capital management tools such as cash dividends and share repurchases as well as improving operating income to increase its return on equity.

The Company paid a cash dividend of $0.02 per common share during each of the first three quarters in 2011. On April 27, 2011, the Board of Directors approved a 10% stock repurchase plan.  Such plan began on June 30, 2011, as permitted, after the one-year anniversary of the Company’s mutual-to-stock conversion to a public company.  The Company repurchased 789,800 shares, or $10.4 million, of treasury stock during the nine months ended September 30, 2011.

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, 2011, 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.

43

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

At September 30, 2011, 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, 2010.

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, 2011 that has materially affected, or is reasonably likely to materially effect, Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the section “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 14, 2011, which could materially affect our business, financial condition and/or operating results.  As of September 30, 2011, the risk factors of the Company have not changed materially from those reported in the Form 10-K, except as described above.  The risks described in the 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.

44

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

The table provides certain information with regard to shares repurchased by the Company in the third quarter of 2011:

				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 (1)
July 1, 2011 through July 31, 2011	290,000	$	13.58	290,000	1,165,038
August 1, 2011 through August 31, 2011	383,000	$	13.04	383,000	782,038
September 1, 2011 through September 30, 2011	116,800	$	12.32	116,800	665,238
Total	789,800	$	13.13	789,800

(1)On April 27, 2011, the Company announced a repurchase program under which, beginning on June 30, 2011, it would repurchase up to 10% of the then-outstanding shares of the Company’s common stock (1,455,038 shares) from time to time, depending on market conditions (the “April Plan”). On October 26, 2011, the Board of Directors approved an additional stock repurchase plan (the “October 2011 Plan”) under which it would repurchase up to 5% of the then-outstanding shares of the Company’s common stock (683,966 shares).  Repurchases under the October 2011 Plan would begin subsequent to completion of purchases under the April 2011 Plan, subject to market conditions and other factors.  Each repurchase program would continue until it is completed or terminated by the Company’s Board of Directors.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other Information

Not applicable.

45

Item 6. Exhibits

3.1	Articles of Incorporation of Fox Chase Bancorp, Inc. (1)
3.2	Bylaws of Fox Chase Bancorp, Inc. (1)
4.0	Stock Certificate of Fox Chase Bancorp, Inc. (1)
10.0	Fox Chase Bancorp, Inc. 2011 Equity Incentive Plan (2)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.0*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text.

(1)	Incorporated by reference to this document from the exhibits to the Company’s Registration Statement on Form S-1 as initially filed with the Securities and Exchange Commission on March 12, 2010.
(2)	Incorporated by reference into this document from Appendix A to the Company’s 2011 Annual Meeting Proxy Statemnt as filed of July 5, 2011.
*	Furnished, not filed.

46

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 7, 2011	By:	/s/ Thomas M. Petro
		Thomas M. Petro
		President and Chief Executive Officer
		(principal executive officer)
Dated: November 7, 2011	By:	/s/ Roger S. Deacon
		Roger S. Deacon
		Chief Financial Officer
		(principal financial and accounting officer)

47

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 7, 2011	/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 7, 2011	/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, 2011, 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 7, 2011
By:	/s/ Roger S. Deacon
	Roger S. Deacon
	Chief Financial Officer
	November 7, 2011

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
INTEREST INCOME
Interest and fees on loans	$ 9,021	$ 9,382	$ 26,579	$ 27,317
Interest on mortgage related securities	2,425	2,691	7,651	9,438
Interest on investment securities available-for-sale
Taxable	116	142	380	315
Nontaxable	28	84	165	257
Other interest income	16	86	69	249
Total Interest Income	11,606	12,385	34,844	37,576
INTEREST EXPENSE
Deposits	2,099	3,734	6,769	12,531
Short-term borrowings	2		2
Federal Home Loan Bank advances	1,007	1,194	3,314	3,602
Other borrowed funds	437	437	1,296	1,296
Total Interest Expense	3,545	5,365	11,381	17,429
Net Interest Income	8,061	7,020	23,463	20,147
Provision for loan losses	1,034	2,889	2,909	4,855
Net Interest Income after Provision for Loan Losses	7,027	4,131	20,554	15,292
NONINTEREST INCOME
Service charges and other fee income	428	248	1,207	757
Net gain on sale of premises and equipment		6		6
Net gain on sale of other real estate owned	57		77
Impairment loss on real estate held for investment	(110)		(110)
Income on bank-owned life insurance	119	119	349	352
Other	133	57	222	152
Total other-than-temporary impairment loss	(206)		(407)
Less: Portion of loss recognized in other comprehensive income (before taxes)	46		46
Net other-than-temporary impairment loss	(160)		(361)
Net gains on sale of investment securities		1,963		1,963
Net investment securities (losses) gains	(160)	1,963	(361)	1,963
Total Noninterest Income	467	2,393	1,384	3,230
NONINTEREST EXPENSE
Salaries, benefits and other compensation	3,297	3,070	9,678	9,016
Occupancy expense	457	455	1,388	1,394
Furniture and equipment expense	107	113	314	346
Data processing costs	439	408	1,277	1,237
Professional fees	410	307	1,245	924
Marketing expense	95	75	240	241
FDIC premiums	170	343	682	1,116
Provision for loss on other real estate owned	310	345	410	379
Other real estate owned expense	5	46	49	75
Other	400	396	1,185	1,212
Total Noninterest Expense	5,690	5,558	16,468	15,940
Income Before Income Taxes	1,804	966	5,470	2,582
Income tax provision	572	274	1,735	731
Net Income	$ 1,232	$ 692	$ 3,735	$ 1,851
Earnings per share:
Basic (in dollars per share)	$ 0.09	$ 0.05	$ 0.28	$ 0.13
Diluted (in dollars per share)	$ 0.09	$ 0.05	$ 0.28	$ 0.13

XML

Consolidated Statements of Changes in Equity (USD $) In Thousands	Total	Common Stock	Additional Paid in Capital	Treasury Stock	Common Stock Acquired by Benefit Plans	Retained Earnings	Accumulated Other Comprehensive Income, net
BALANCE at Dec. 31, 2009	$ 123,634	$ 147	$ 64,016	$ (11,814)	$ (6,862)	$ 71,604	$ 6,543
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense	690		690
Unallocated ESOP shares committed to employees	354		6		348
Issuance of stock for vested equity awards			(518)		558	(40)
Shares allocated in long-term incentive plan	67		67
Forfeited shares transferred to treasury stock			30	(30)
Corporate Reorganization:
Merger of Fox Chase Mutual Holding Company	107	(81)	188
Treasury stock retired		(11)	(11,833)	11,844
Exchange of common stock		(55)	55
Proceeds from stock offering, net of offering expenses	81,169	145	81,024
Purchase of common stock by ESOP	(3,485)				(3,485)
Net income	1,851					1,851
Other comprehensive income	665						665
BALANCE at Sep. 30, 2010	205,052	145	133,725		(9,441)	73,415	7,208
BALANCE at Dec. 31, 2010	205,704	145	133,997		(9,283)	74,307	6,538
Increase (Decrease) in Stockholders' Equity
Purchase of treasury stock, net	(10,398)			(10,398)
Purchase common stock for equity incentive plan	(3,474)				(3,474)
Stock based compensation expense	759		759
Unallocated ESOP shares committed to employees	634		166		468
Issuance of stock for vested equity awards			(543)		590	(47)
Common stock issued for exercise of vested stock options	162	1	161
Corporate Reorganization:
Dividends paid	(863)					(863)
Net income	3,735					3,735
Other comprehensive income	1,112						1,112
BALANCE at Sep. 30, 2011	$ 197,371	$ 146	$ 134,540	$ (10,398)	$ (11,699)	$ 77,132	$ 7,650

XML

Consolidated Statements of Condition (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 132	$ 156
Interest-earning demand deposits in other banks	5,327	38,158
Total cash and cash equivalents	5,459	38,314
Investment securities available-for-sale	24,343	32,671
Mortgage related securities available-for-sale	258,562	278,632
Mortgage related securities held-to-maturity (fair value of $46,309 at September 30, 2011 and $50,817 at December 31, 2010)	45,517	51,835
Loans, net of allowance for loan losses of $12,581 at September 30, 2011 and $12,443 at December 31, 2010	648,149	642,653
Other real estate owned	2,907	3,186
Federal Home Loan Bank stock, at cost	8,499	9,913
Bank-owned life insurance	13,487	13,138
Premises and equipment	10,549	10,693
Real estate held for investment	1,620	1,730
Accrued interest receivable	4,626	4,500
Mortgage servicing rights, net	329	448
Deferred tax asset, net	854	1,376
Other assets	6,547	6,414
Total Assets	1,031,448	1,095,503
LIABILITIES
Deposits	666,522	711,763
Short-term borrowings	24,000
Federal Home Loan Bank advances	89,423	122,800
Other borrowed funds	50,000	50,000
Advances from borrowers for taxes and insurance	1,109	1,896
Accrued interest payable	435	580
Accrued expenses and other liabilities	2,588	2,760
Total Liabilities	834,077	889,799
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value; 1,000,000 shares authorized, none issued and outstanding at September 30, 2011 and December 31, 2010)
Common stock ($.01 par value; 60,000,000 shares authorized, 13,772,410 shares issued and outstanding at September 30, 2011 and 60,000,000 shares authorized, 14,547,173 shares issued and outstanding at December 31, 2010)	146	145
Additional paid-in capital	134,540	133,997
Treasury stock, at cost (789,800 shares at September 30, 2011 and 0 shares at December 31, 2010)	(10,398)
Common stock acquired by benefit plans	(11,699)	(9,283)
Retained earnings	77,132	74,307
Accumulated other comprehensive income, net	7,650	6,538
Total Stockholders' Equity	197,371	205,704
Total Liabilities and Stockholders' Equity	$ 1,031,448	$ 1,095,503

XML

STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

NOTE 7 — STOCK BASED COMPENSATION

In 2007, stockholders approved the Fox Chase Bancorp, Inc. 2007 Equity Incentive Plan (the “2007 Plan”).  The 2007 Plan provides that 769,083 shares of common stock may be issued in connection with the exercise of stock options and 307,633 shares of common stock may be issued as restricted stock.  In 2007, Old Fox Chase Bancorp’s Board of Directors approved the funding of a trust that purchased 307,395 shares of Bancorp’s common stock to fund restricted stock awards under the 2007 Plan.  The 307,395 shares were purchased by the trust at a weighted average cost of $12.18 per share.

In August 2011, stockholders approved the Fox Chase Bancorp, Inc. 2011 Equity Incentive Plan (the “2011 Plan”).  The 2011 Plan provides that 685,978 shares of common stock may be issued in connection with the exercise of stock options and 274,391 shares of common stock may be issued as restricted stock; including performance based restricted stock.  In August 2011, the Board of Directors approved the funding of a trust that purchased 274,391 shares of Bancorp’s common stock to fund restricted stock awards under the 2011 Plan.  During the quarter ended September 30, 2011, 274,391 shares were purchased by the trust at a weighted average cost of $12.66 per share.

During the nine months ended September 30, 2011, the Company recorded $759,000 of stock based compensation expense in connection with the 2007 Plan and 2011 Plan, which was comprised of stock option expense of $321,000 and restricted stock expense of $438,000.

The following is a summary of the Bancorp’s stock option activity and related information for the 2007 Plan and 2011 Plan for the nine months ended September 30, 2011:

			Weighted
	Number of		Average
	Stock		Exercise
	Options		Price
Outstanding at December 31, 2010	692,178		$	10.97
Granted	133,994		12.49
Exercised	(15,037	)	10.69
Forfeited	(12,861	)	10.52
Outstanding at September 30, 2011	798,274		$	11.24
Exercisable at September 30, 2011	464,543		$	11.24

The following is a summary of the Company’s unvested options as of September 30, 2011 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Stock		Grant Date
	Options		Fair Value
Unvested at December 31, 2010	343,997		$	2.90
Granted	133,994		3.60
Exercised	—		—
Vested	(134,395	)	2.99
Forfeited	(9,865	)	2.79
Unvested at September 30, 2011	333,731		$	3.15

Expected future expense relating to the 333,731 non-vested options outstanding as of September 30, 2011 is $961,000 over a weighted average period of 3.2 years.

During the nine months ended September 30, 2011, the fair value of the options granted in 2011 ranged from $3.36 to $4.60.  These values were estimated with the following assumptions:

Expected dividend yield	1.90% - 2.00%
Expected volatility	33.00% - 40.00%
Risk-free interest rate	1.21% - 2.51%
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, 2011 and changes therein during the nine months then ended:

			Weighted
	Number of		Average
	Restricted		Grant Date
	Shares		Fair Value
Unvested at December 31, 2010	117,431		$	10.92
Granted	53,806		12.53
Vested	(48,470	)	11.20
Forfeited	(791	)	10.02
Unvested at September 30, 2011	121,976		$	11.52

Expected future compensation expense relating to the 121,976 restricted shares at September 30, 2011 is $1.3 million over a weighted average period of 3.2 years.

During August 2011, the Company granted 10,668 shares of performance based restricted stock to certain executive officers of the Company.  The performance metrics to be evaluated during the performance period are (1) return on assets compared to peer group and (2) earnings growth rate compared to peer group.  On the third anniversary of the grant date, the Company’s level of performance relative to the performance metrics will be evaluated and the amount of awards will be determined.  50% of the awarded performance based stock will vest on the third anniversary of the grant, 25% will vest on the fourth anniversary of the grant, and 25% will vest on the fifth anniversary of the grant.

XML

LOANS

9 Months Ended

Sep. 30, 2011

LOANS

LOANS

NOTE 3 - LOANS

The composition of net loans at September 30, 2011, and December 31, 2010 is provided below (in thousands).

	September 30,			December 31,
	2011			2010
	(Unaudited)
Real estate loans:
One-to four-family	$	209,287		$	238,612
Multi-family and commercial	275,136			249,262
Construction	20,937			31,190
	505,360			519,064
Consumer loans	48,307			55,169
Commercial and industrial loans	106,854			80,645
Total loans	660,521			654,878
Deferred loan origination costs, net	209			218
Allowance for loan losses	(12,581		)	(12,443		)
Net loans	$	648,149		$	642,653

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

	Nine Months Ended						Year Ended
	September 30,						December 31,
	2011			2010			2010
	(Unaudited)
Balance, beginning	$	12,443		$	10,605		$	10,605
Provision for loan losses	2,909			4,855			6,213
Loans charged off	(3,000		)	(4,158		)	(4,402		)
Recoveries	229			9			27
Balance, ending	$	12,581		$	11,311		$	12,443

The following tables present changes in the allowance for loan losses by loan segment for the nine months ended September 30, 2011 and the year ended December 31, 2010:

	For the Period Ended September 30, 2011
	One- to Four- Family Loans			Multi-family and Commercial Real Estate Loans			Construction Loans			Consumer Loans			Commercial and Industrial Loans			Unallocated		Total
	(In thousands)
Balance, beginning	$	1,990		$	4,287		$	3,260		$	665		$	2,044		$	197	$	12,443
Provision for loan losses	311			1,466			(251		)	58			1,175			150		2,909
Loans charged off	(567		)	(318		)	(1,510		)	(9		)	(596		)	—		(3,000		)
Recoveries	13			170			43			3			—			—		229
Balance, ending	$	1,747		$	5,605		$	1,542		$	717		$	2,623		$	347	$	12,581

	For the Year Ended December 31, 2010
	One- to Four- Family Loans			Multi-family and Commercial Real Estate Loans		Construction Loans			Consumer Loans			Commercial and Industrial Loans			Unallocated		Total
	(In thousands)
Balance, beginning	$	1,455		$	3,476	$	3,782		$	707		$	1,064		$	121	$	10,605
Provision for loan losses	1,938			800		1,468			456			1,475			76		6,213
Loans charged off	(1,403		)	—		(1,990		)	(514		)	(495		)	—		(4,402		)
Recoveries	—			11		—			16			—			—		27
Balance, ending	$	1,990		$	4,287	$	3,260		$	665		$	2,044		$	197	$	12,443

The recorded investment in impaired loans was $27.5 million at September 30, 2011 and $39.1 million at December 31, 2010. The recorded investment in impaired loans with an allowance for loan losses was $27.1 million at September 30, 2011 and $35.6 million at December 31, 2010. The related allowance for loan losses associated with these loans was $4.4 million at September 30, 2011 and $5.2 million at December 31, 2010. For the nine months ended September 30, 2011 the average recorded investment in these impaired loans was $28.6 million and for the year ended December 31, 2010, the average recorded investment in these impaired loans was $42.0 million. The interest income recognized on these impaired loans was $376,000 for the nine months ended September 30, 2011 and $399,000 for the year ended December 31, 2010.

The following tables set forth the breakdown of impaired loans by loan segment as of September 30, 2011 and December 31, 2010.  The table does not include accruing loans 90 days or more past due of $2.1 million at September 30, 2011 as management does not consider such loans impaired.

September 30, 2011 (Unaudited)

									Impaired		Impaired
					Other		Total		Loans		Loans
	Nonperforming		Accruing		Impaired		Impaired		with		without
	Loans		TDRs		Loans		Loans		Allowance		Allowance
	(in thousands)
Real estate loans:
One- to four-family	$	6,771	$	—	$	—	$	6,771	$	6,771	$	—
Multi-family and commercial	3,988		4,731		—		8,719		8,381		338
Construction	9,391		342		—		9,733		9,733		—
Consumer loans	479		—		—		479		418		61
Commercial and industrial	—		1,783		—		1,783		1,783		—
Total	$	20,629	$	6,856	$	—	$	27,485	$	27,086	$	399

December 31, 2010

									Impaired		Impaired
					Other		Total		Loans		Loans
	Nonperforming		Accruing		Impaired		Impaired		with		without
	Loans		TDRs		Loans		Loans		Allowance		Allowance
	(in thousands)
Real estate loans:
One- to four-family	$	10,813	$	1,007	$	—	$	11,820	$	11,820	$	—
Multi-family and commercial	6,180		1,359		—		7,539		4,050		3,489
Construction	9,279		3,441		3,894		16,614		16,614		—
Consumer loans	365		—		—		365		303		62
Commercial and industrial	—		2,810		—		2,810		2,810		—
Total	$	26,637	$	8,617	$	3,894	$	39,148	$	35,597	$	3,551

Two troubled debt restructurings (“TDR”) totaling $5.2 million and $2.1 million are excluded from the accruing TDR column above as of September 30, 2011 and December 31, 2010, respectively, as they are included in the nonaccrual loans and total impaired loans.

A $3.9 million loan that was classified as impaired at December 31, 2010 is no longer considered impaired at September 30, 2011 nor is it classified as a TDR as the loan was renegotiated with no concession to the borrower and management has determined that the borrower is not experiencing financial difficulty.

The following table sets forth a summary of TDR activity for the three and nine months ended September 30, 2011:

	As of and for the Three Months Ended September 30, 2011
						TDRs that Defaulted in
						Current Quarter that
						were Restructured in
	Restructured Current Quarter					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in Thousands, Unaudited)
Real estate loans:
One- to four-family	—	$	—	$	—	—	$	—
Multi-family and commercial	—	—		—		—	—
Construction	—	—		—		1	3,164
Consumer loans	—	—				—	—
Commercial and industrial	—	—				—	—
Total	—	$	—	$	—	1	$	3,164

	As of and for the Nine Months Ended September 30, 2011
						TDRs that Defaulted in
						Current Period that
						were Restructured in
	Restructured Current Year to Date					the Prior Twelve Months
		Pre-		Post-			Post-
		Modification		Modification			Modification
		Outstanding		Outstanding			Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment
	(Dollars in Thousands, Unaudited)
Real estate loans:
One- to four-family	—	$	—	$	—	—	$	—
Multi-family and commercial	1	4,673		4,673		—	—
Construction	—	—				1	3,164
Consumer loans	—	—		—		—	—
Commercial and industrial	—	—		—		1	600
Total	1	$	4,673	$	4,673	2	$	3,764

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

TDRs totaled $12.1 million at September 30, 2011 of which $6.9 million were on accrual status.  The remaining $5.2 million related to two construction loans classified as nonperforming assets.  TDRs totaled $10.7 million at December 31, 2010, of which $8.6 million were on accrual status. The remaining $2.1 million related to a construction loan classified as a nonperforming asset.

Four of the commercial loans classified as a TDR at September 30, 2011, totaling $7.4 million, were classified as TDRs during 2010.  These loans were classified as TDRs because they matured during 2010 and the Bank extended the loans with uncertainty as to whether the borrowers could obtain similar financing from another financial institution at the time of the extension, thus representing the granting of a financial concession.  The Bank did not lower the interest rate on these loans.  As of September 30, 2011, three of the loans are performing as agreed and one of the loans in the amount of $3.2 million is currently in default.

The other commercial loan classified as a TDR at September 30, 2011, totaling $4.7 million, was first classified as a TDR during the three months ended March 31, 2011.  The loan was classified as a TDR as the Bank agreed to restructure the terms of the loan, which included reducing payments to interest only for a period of nine months and reducing the rate for the term of the interest only period. This loan is secured by partially owner occupied commercial property located in Chester County, Pennsylvania.  As of September 30, 2011, this loan is performing in accordance with its restructured terms and is no longer reported as delinquent.

The following tables set forth the allowance for loan loss for impaired loans and general allowance by loan segment as of September 30, 2011 and December 31, 2010.

September 30, 2011 (Unaudited)

	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonperforming		Accruing		Impaired		Impaired
	Loans		TDRs		Loans		Loans		General		Total
	(in thousands)
Real estate loans:
One- to four-family	$	1,336	$	—	$	—	$	1,336	$	411	$	1,747
Multi-family and commercial	475		849		—		1,324		4,281		5,605
Construction	1,246		26		—		1,272		270		1,542
Consumer loans	372		—		—		372		345		717
Commercial and industrial	—		134		—		134		2,489		2,623
Unallocated	—		—		—		—		347		347
Total allowance for loan losses	$	3,429	$	1,009	$	—	$	4,438	$	8,143	$	12,581

December 31, 2010

	Allowance for Loan Losses
	Impaired Loans
					Other		Total
	Nonperforming		Accruing		Impaired		Impaired
	Loans		TDRs		Loans		Loans		General		Total
	(in thousands)
Real estate loans:
One- to four-family	$	1,537	$	2	$	—	$	1,539	$	451	$	1,990
Multi-family and commercial	195		70		—		265		4,022		4,287
Construction	2,447		258		195		2,900		360		3,260
Consumer loans	294		—		—		294		371		665
Commercial and industrial	—		196		—		196		1,848		2,044
Unallocated	—		—		—		—		197		197
Total allowance for loan losses	$	4,473	$	526	$	195	$	5,194	$	7,249	$	12,443

Loans on which the accrual of interest has been discontinued amounted to $20.6 million at September 30, 2011 and $26.6 million at December 31, 2010. If interest on such loans had been recorded in accordance with contractual terms, interest income would have increased by $897,000 and $1.5 million for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively. As of September 30, 2011, the Bank held $2.1 million in consumer loans that were past due 90 days or more and still accruing.  There were no loans past due 90 days or more and still accruing interest at December 31, 2010. There were $12.1 million and $10.7 million of loans classified as troubled debt restructurings as of September 30, 2011 and December 31, 2010, respectively.

The following table sets forth past due loans by segment as of September 30, 2011 and December 31, 2010.

	At September 30,				At December 31,
	2011				2010
	30-59		60-89		30-59		60-89
	Days		Days		Days		Days
	Past Due		Past Due		Past Due		Past Due
	(In thousands)				(In thousands)
One- to four-family real estate	$	253	$	392	$	96	$	144
Multi-family and commercial real estate	530		1,782		4,735
Construction real estate	—		—		—		—
Consumer	63		1,438		170		—
Commercial and industrial	—		—		—		—
Total	$	846	$	3,612	$	5,001	$	144

There are three classifications for problem loans: substandard, doubtful and loss. “Substandard loans” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful loans” have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified “loss” is considered uncollectible and of such little value that continuance as a loan of the institution is not warranted. The Company also maintains a “special mention” category, described as loans which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. If we classify a loan as loss, we allocate an amount equal to 100% of the portion of the loan classified loss.

The following tables set forth criticized and classified loans by segment as of September 30, 2011 and December 31, 2010.

	At September 30, 2011
	One- to Four- Family Loans		Multi-family and Commercial Real Estate Loans		Construction Loans		Consumer Loans		Commercial and Industrial Loans		Total
	(In thousands)
Special mention loans	$	—	$	17,780	$	1,308	$	—	$	704	$	19,792
Substandard loans	6,770		12,038		9,391		480		4,277		32,956
Doubtful loans	—		—		—		—		—		—
Total criticized and classified loans	$	6,770	$	29,818	$	10,699	$	480	$	4,981	$	52,748

	At December 31, 2010
	One- to Four- Family Loans		Multi-family and Commercial Real Estate Loans		Construction Loans		Consumer Loans		Commercial and Industrial Loans		Total
	(In thousands)
Special mention loans	$	—	$	19,889	$	114	$	—	$	1,099	$	21,102
Substandard loans	10,812		6,745		16,614		365		5,937		40,473
Doubtful loans	—		—		—		—		—		—
Total criticized and classified loans	$	10,812	$	26,634	$	16,728	$	365	$	7,036	$	61,575

As of September 30, 2011 and December 31, 2010, the Bank had one interest rate swap in the notional amount of $1.0 million to hedge a 15-year fixed rate loan, which was earning interest at 7.43%. The Bank is receiving a variable rate payment of one-month LIBOR plus 2.24% and pays fixed rate payments of 7.43%. The swap matures in April 2022 and had a fair value loss position of $216,000 at September 30, 2011 and $161,000 at December 31, 2010, with a corresponding gain on the related loan.

XML

COMPREHENSIVE INCOME

9 Months Ended

Sep. 30, 2011

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME

NOTE 9 - COMPREHENSIVE INCOME

Comprehensive income for the three and nine months ended September 30, 2011, and 2010 is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Net income	$	1,232		$	692		$	3,735		$	1,851
Other comprehensive income (loss):
Unrealized holding (losses) gains arising during the period, net of tax (benefit) (three months ended September 30, 2011 and 2010, $(45) and $(627) and for nine months ended September 30, 2011 and 2010 $632 and $1,134, respectively)	(57		)	(1,124		)	1,142			1,961
Non-credit related unrealized loss on other-than temporary impaired securities (net of taxes of $16 for both the three and nine months ended September 30, 2011)	(30		)	—			(30		)	—
Less: Reclassification adjustment for net investment securities gains included in net income, net of taxes (three months ended September 30, 2011 and 2010, $0 and $667 and for nine months ended September 30, 2011 and 2010 $0 and $667, respectively)	—			1,296			—			1,296
Other comprehensive (loss) income	(87		)	(2,420		)	1,112			665
Comprehensive income (loss)	$	1,145		$	(1,728	)	$	4,847		$	2,516

XML

ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2011

ACCOUNTING PRONOUNCEMENTS

ACCOUNTING PRONOUNCEMENTS

NOTE 10 — ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update (ASU) 2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of Levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for Level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for Level 3 activity on a gross basis, which was effective for fiscal years beginning after December 15, 2010. The Company adopted this ASU effective January 1, 2010.  Effective January 1, 2011 the Company adopted the requirements to provide the reconciliation for Level 3 activity on a gross basis.  The reconciliation was not shown as there were no purchases, sales, issuances or settlements in any Level 3 asset during the nine months ended September 30, 2011.  This ASU did not have a material effect on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) No. 2010-18 — Effect of a Loan Modification When the Loan Is Part of a Pool that is Accounted for as a Single Asset, a consensus of the FASB Emerging Issues Task Force (Issue No. 09-I).  This ASU amends FASB ASC Subtopic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality, so that modifications of loans that are accounted for within a pool under that Subtopic do not result in the removal of the loans from the pool even if the modifications of the loans would otherwise be considering a troubled debt restructuring.  A one-time election to terminate accounting for loans in a pool, which may be made on a pool-by-pool basis, is provided upon adoption of the new guidance.  An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.

The amendments are effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.  Early adoption is permitted. This ASU has no effect on the Company’s financial position or results of operations as the Company did not modify any loans that were pooled for accounting purposes as of December 31, 2010 or as of September 30, 2011.

Accounting Standards Update (ASU) No. 2010-20 — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. Disclosures related to period-end information (e.g., credit quality information and the ending financing receivables balance segregated by impairment method) are effective in all interim and annual reporting periods ending on or after December 15, 2010. Disclosures of activity that occurs during a reporting period (e.g., modifications and the rollforward of allowance for credit losses by portfolio segment) are effective in interim or annual periods beginning on or after December 15, 2010.  The Company has complied with the disclosures required as of December 31, 2010 and September 30, 2011.

Accounting Standards Update (ASU) No. 2011-01— Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No 2010-20.  The amendments in ASU 2011-01 temporarily delayed the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. As a result of ASU No. 2011-02, the provisions of ASU No. 2011-01 are effective for the Company’s reporting period ending September 30, 2011.  The Company has complied with the disclosures required as of September 30, 2011.

Accounting Standards Update (ASU) No. 2011-02 A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties.  A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20.  The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011.  The Company has evaluated the guidance included in this update and has determined that it does not result in any new troubled debt restructurings that should be reported as of September 30, 2011.

Accounting Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.  This ASU 2011 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 will be effective for the Company on January 1, 2012 and is not expected to have a material impact on the Company’s financial position or results of operations.

Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  The provisions of ASU 2011-05 are intended to improve the comparability, consistency and transparency of financial reporting and to increase prominence of the items reported in other comprehensive income.  The amendments require that all nonowner changes in stockholder’s equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total comprehensive income.  ASU 2011-05 should be applied retrospectively and will be effective for the Company on January 1, 2012.  This update is not expected to have a material impact on the Company’s financial position or results of operations.

XML

FAIR VALUE

9 Months Ended

Sep. 30, 2011

FAIR VALUE

FAIR VALUE

NOTE 8 — FAIR VALUE

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010:

Cash and Cash Equivalents

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

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

Fair values for investment securities and mortgage related securities are obtained from 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. To determine the fair values of loans that are not impaired, we employ discounted cash flow analyses that use interest rates and terms similar to those currently being offered to borrowers. This methodology is consistent with the guidance in ASC 825-10-55 “Financial Instruments,” and we believe our disclosures provide fair value that is more indicative of an entry price. We do not record loans at fair value on a recurring basis, except one loan associated with the interest rate swap. We record fair value adjustments to loans on a nonrecurring basis to reflect full and partial charge-offs due to impairment. For impaired loans, we use a variety of techniques to measure fair value, such as using the current appraised value of the collateral, discounting the contractual cash flows, and analyzing market data that we may adjust due to specific characteristics of the loan or collateral.

Federal Home Loan Bank Stock

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

Mortgage Servicing Rights

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

Accrued Interest Receivable and Accrued Interest Payable

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

Deposit Liabilities

Fair values for demand deposits (including NOW accounts), savings and club accounts and money market deposits are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities. This methodology is consistent with the guidance in ASC 825-10-55 “Financial Instruments,” and we believe our disclosures provide fair value that is more indicative of an entry price.

Short-Term Borrowings

Fair value of short-term borrowings is equal to the amount payable at the reporting date as such amount is due and payable on the next day.

Federal Home Loan Bank Advances and Other Borrowed Funds

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

Off-Balance Sheet Financial Instruments

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

The estimated fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010 were as follows (in thousands):

	September 30,				December 31,
	2011				2010
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	5,459	$	5,459	$	38,314	$	38,314
Available for sale securities:
Investment securities available-for-sale	24,343		24,343		32,671		32,671
Private label residential mortgage related security	129		129		166		166
Private label commercial mortgage related securities	9,094		9,094		11,767		11,767
Agency residential mortgage related securities	249,339		249,339		266,699		266,699
Held to maturity securities:
Agency mortgage related securities	45,517		46,309		51,835		50,817
Loans receivable, net	648,149		648,287		642,653		643,967
Federal Home Loan Bank stock	8,499		8,499		9,913		9,913
Accrued interest receivable	4,626		4,626		4,500		4,500
Mortgage servicing rights	329		333		448		462
Financial liabilities:
Savings and club accounts	72,794		72,794		54,921		54,921
Demand, NOW and money market deposits	251,748		251,748		260,399		260,399
Certificates of deposit	341,980		346,350		396,443		401,222
Short-term borrowings	24,000		24,000		—		—
Federal Home Loan Bank advances	89,423		96,906		122,800		129,522
Other borrowed funds	50,000		55,236		50,000		53,851
Accrued interest payable	435		435		580		580
Off-balance sheet instruments	—		1,487		—		1,238

The Company determines the fair value of certain financial instruments using three levels of input:

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

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

Level 3—Valuations are derived 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, 2011. The first instrument is a private label collateralized mortgage obligation (“CMO”), the fair value of which, unlike U.S. agency mortgage related securities, is more difficult to determine because they are not actively traded in securities markets. The second type of instrument includes three private label commercial mortgage backed securities (“CMBS”), the fair value of which is also more difficult to determine because they are not actively traded in securities markets. The third instrument is a loan, which was recorded at fair value when the Company adopted ASC Topic 820 “Fair Value Measurements and Disclosures,” since lending credit risk is not an observable input for this individual commercial loan (see Note 3). The net unrealized loss, including other-than-temporary impairment in accumulated other comprehensive income, in the private label CMO was $46,000 at September 30, 2011 and $393,000 at December 31, 2010. As of September 30, 2011 and December 31, 2010, all of the securities in the private label CMBS portfolio were at an unrealized gain position.  The unrealized gain on the loan was $216,000 and $161,000 at September 30, 2011 and December 31, 2010, respectively.

The following tables, which set forth the Company’s fair value measurements included in the financial statements at September 30, 2011 and December 31, 2010, include (1) investment securities and mortgage related securities available-for-sale; (2) the two financial instruments, associated with the interest rate swap agreement as discussed in Note 3; (3) tranches of MSRs where the fair value is less than the carrying value and are recorded at fair value; (4) partially charged-off loans and (5) other real estate owned.

The following measures were made on a recurring basis as of September 30, 2011 and December 31, 2010:

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
	As of			for Identical		Observable			Unobservable
	September 30,			Assets		Inputs			Inputs
Description	2011			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Available for Sale Securities:
Obligations of U.S. government agencies	$	6,551		$	—	$	6,551		$	—
State and political subdivisions	1,873			—		1,873			—
Corporate securities	15,919			—		15,919			—
Private label residential mortgage related security	129			—		—			129
Private label commercial mortgage related securities	9,094			—		—			9,094
Agency residential mortgage related securities	249,339			—		249,339			—
Loan (1)	1,250			—		—			1,250
Swap contract (1)	(216		)	—		(216		)	—
Total	$	283,939		$	—	$	273,466		$	10,473

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

				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant			Significant
				Active Markets		Other			Other
	As of			for Identical		Observable			Unobservable
	December 31,			Assets		Inputs			Inputs
Description	2010			(Level 1)		(Level 2)			(Level 3)
	(In Thousands)
Available for Sale Securities:
Obligations of U.S. government agencies	$	6,521		$	—	$	6,521		$	—
State and political subdivisions	7,279			—		7,279			—
Corporate securities	18,871			—		18,871			—
Private label residential mortgage related security	166			—		—			166
Private label commercial mortgage related securities	11,767			—		—			11,767
Agency residential mortgage related securities	266,699			—		266,699			—
Loan (1)	1,241			—		—			1,241
Swap contract (1)	(161		)	—		(161		)	—
Total	$	312,383		$	—	$	299,209		$	13,174

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

The following measures were made on a non-recurring basis as of September 30, 2011 and December 31, 2010:

The loans were partially charged off at September 30, 2011 and December 31, 2010.  The loans’ fair values are based on Level 3 inputs, which are either an appraised value or a sales agreement, less costs to sell. These amounts do not include fully charged-off loans, because we carry fully charged-off loans at zero on our balance sheet. Also, measurements for impaired loans that are determined using a present value technique are not considered fair value measurements under the standard and, therefore, are not included.

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

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Balance		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
As of September 30, 2011
Loans	$	4,423	$	—	$	—	$	4,423
Mortgage servicing rights	293		—		293		—
Other real estate owned	2,907		—		—		2,907
Total	$	7,623	$	—	$	293	$	7,330
As of December 31, 2010
Loans	$	6,119	$	—	$	—	$	6,119
Mortgage servicing rights	405		—		405		—
Other real estate owned	3,186		—		—		3,186
Total	$	9,710	$	—	$	405	$	9,305

The following tables include a roll forward of the financial instruments which fair value is determined using Significant Other Unobservable Inputs (Level 3) for the periods of January 1, 2010 to September 30, 2010 and January 1, 2011 to September 30, 2011.

Nine-Months Ended September 30, 2011

	Private Label			Private Label
	Residential			Commercial
	Mortgage			Mortgage
	Security			Securities			Loan			Total
	(In thousands)
Beginning balance, January 1, 2011	$	166		$	11,767		$	1,241		$	13,174
Purchases	—			—			—			—
Sales	—			—			—			—
Payments received	(23		)	(2,399		)	(47		)	(2,469		)
Premium amortization, net	—			(11		)	—			(11		)
Increase (decrease) in unrealized gain (loss)	(14		)	(263		)	56			(221		)
Reclassification to Level 3	—			—			—			—
Ending balance, September 30, 2011	$	129		$	9,094		$	1,250		$	10,473

Nine-Months Ended September 30, 2010

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

There were no purchases, sales, issuances or settlements in any Level 3 asset during the nine months ended September 30, 2011 or the year ended December 31, 2010.  Additionally, there were no transfers made between levels during the nine months ended September 30, 2011 or the year ended December 31, 2010.

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

XML

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

9 Months Ended

Sep. 30, 2011

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION

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

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

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

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

The Company is subject to regulations of certain federal banking agencies.  These regulations can and do change significantly from period to period.  The Company also undergoes periodic examinations by regulatory agencies which may subject them to further changes with respect to asset valuations, amounts of required loan loss allowances and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.  Pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), effective July 21, 2011, the regulation and supervision of federal savings institutions, such as the Bank, was transferred from the Office of Thrift Supervision to the Office of the Comptroller of the Currency, the agency that regulates national banks.  As a result, the Office of the Comptroller of the Currency has assumed primary responsibility for examining the Bank and implementing and enforcing many of the laws and regulations applicable to federal savings associations.  The Office of Thrift Supervision was eliminated on July 21, 2011.  In addition, pursuant to the provisions of the Dodd-Frank Act, effective July 21, 2011, savings and loan holding companies, such as the Bancorp, are regulated by the Board of Governors of the Federal Reserve System.

The consolidated financial statements include the accounts of the Bancorp and the Bank. The Bank’s operations include the accounts of its wholly owned subsidiaries, Fox Chase Financial, Inc., Fox Chase Service Corporation, 104 S. Oakland Ave., LLC and Davisville Associates, LLC.  Fox Chase Financial Inc. is a Delaware chartered investment holding company and its sole purpose is to manage and hold investment securities.  Fox Chase Service Corporation is a Pennsylvania chartered company and its purposes are to facilitate the Bank’s investment in PMA and, for regulatory purposes, to hold commercial loans.  At September 30, 2011, Fox Chase Service Corporation held $20.0 million in commercial loans.  104 S. Oakland Ave., LLC is a New Jersey-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  Davisville Associates, LLC is a Pennsylvania-chartered limited liability company formed to secure, manage and hold foreclosed real estate.  All material inter-company transactions and balances have been eliminated in consolidation. Prior period amounts are reclassified, when necessary, to conform with the current year’s presentation.

During 2011 and 2010, 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 $142,000 and $209,000 for the nine months ended September 30, 2011 and 2010, respectively, as well as loan satisfaction fees, which are recorded in service charges and other fee income, from PMA of $37,000 and $44,000 for the nine months ended September 30, 2011 and 2010, respectively.  In addition, the Bank acquired total loans from PMA of $6.4 million and $22.5 million for the nine months ended September 30, 2011 and 2010, respectively, which includes the cost of the loans.   During September 2010, the Bank provided PMA a term loan in the amount of $1.2 million which is secured by a residential property owned by PMA.  This loan was paid in full in June 2011.  The Bank recorded interest income from PMA on this term loan of $25,000 and $0 for the nine months ended September 30, 2011 and 2010, respectively.

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.

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 14, 2011.   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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any other period.

Per Share Information

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.  Unallocated shares in the ESOP and shares purchased to fund shares of restricted stock available for grant under the Bancorp’s 2007 and 2011 Equity Incentive Plans are not included in either basic or diluted earnings per share.  Unvested shares in the Bancorp’s long-term incentive plans are not included in basic earnings per share. As a result of the mutual-to-stock conversion, all share information for periods prior to June 30, 2010 has been revised to reflect the 1.0692 exchange rate.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income	$	1,232,000		$	692,000		$	3,735,000		$	1,851,000
Weighted-average common shares outstanding (1)	14,059,538			14,547,173			14,384,818			14,549,364
Average common stock acquired by stock benefit plans:
Unvested shares – long-term incentive plan	—			(7,582		)	—			(7,582		)
ESOP shares unallocated	(708,600		)	(773,648		)	(724,703		)	(556,655		)
Shares purchased by trust	(263,356		)	(203,106		)	(200,060		)	(209,961		)
Weighted-average common shares used to calculate basic earnings per share	13,087,582			13,562,837			13,460,055			13,775,166
Dilutive effect of:
Unvested shares – long-term incentive plans	—			7,582			—			7,582
Restricted stock awards	35,172			—			35,694			—
Stock option awards	52,935			2,831			49,936			3,399
Weighted-average common shares used to calculate diluted earnings per share	13,175,689			13,573,250			13,545,685			13,786,147
Earnings per share-basic	$	0.09		$	0.05		$	0.28		$	0.13
Earnings per share-diluted	$	0.09		$	0.05		$	0.28		$	0.13
Outstanding common stock equivalents having no dilutive effect	832,143			822,762			834,620			762,437

(1) Excludes treasury stock.

XML

MORTGAGE SERVICING ACTIVITY

9 Months Ended

Sep. 30, 2011

MORTGAGE SERVICING ACTIVITY

MORTGAGE SERVICING ACTIVITY

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 $54.8 million and $75.1 million at September 30, 2011 and 2010, respectively, and $65.7 million at December 31, 2010.

The following summarizes mortgage servicing rights for the nine months ended September 30, 2011 and 2010 (in thousands):

							Net
	Servicing			Valuation			Carrying
	Rights			Allowance			Value
Balance at December 31, 2010	$	579		$	(131	)	$	448
Additions	—			(41		)	(41		)
Amortization	(78		)	—			(78		)
Balance at September 30, 2011	$	501		(172		)	$	329
Balance at December 31, 2009	$	768		$	(85	)	$	683
Reductions	—			(98		)	(98		)
Amortization	(120		)	—			(120		)
Balance at September 30, 2010	$	648		$	(183	)	$	465

At September 30, 2011, September 30, 2010 and December 31, 2010, the fair value of the mortgage servicing rights (“MSRs”) was $333,000, $475,000 and $462,000, respectively. The difference between fair value and carrying value is due to one tranche of mortgage servicing rights having a fair value greater than carrying value.  The fair value at these dates was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience and current interest rates. The discount rate used to determine the present value of future net servicing income 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.

XML

DEPOSITS

9 Months Ended

Sep. 30, 2011

DEPOSITS.

DEPOSITS

NOTE 5 — DEPOSITS

Deposits and their respective weighted average interest rate at September 30, 2011 and December 31, 2010 consist of the following (dollars in thousands):

	September 30,				December 31,
	2011				2010
	Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount
	(Unaudited)
Noninterest-bearing demand accounts	—	%	$	78,307	—	%	$	70,990
NOW accounts	0.38		41,930		0.30		40,505
Money market accounts	0.38		131,511		0.47		148,904
Savings and club accounts	0.25		72,794		0.05		54,921
Certificates of deposit	2.04		341,980		2.44		396,443
	1.17	%	$	666,522	1.48	%	$	711,763

XML

BORROWINGS

9 Months Ended

Sep. 30, 2011

BORROWINGS

BORROWINGS

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, 2011, the Bank had $125.7 million in qualifying collateral pledged against its advances.

Maturity Date	Amount		Interest Rate		Call Date	Rate if Called
	(in thousands)
July 2013	9,223		4.10	%
December 2013	5,000		2.80	%	December 2011	LIBOR + 1.04%
January 2015	15,200		3.49	%
December 2015	5,000		3.06	%	December 2011	LIBOR + 1.12%
November 2017	15,000		3.62	%	November 2011	LIBOR + 0.10%
November 2017	15,000		3.87	%	November 2011	LIBOR + 0.10%
December 2017	20,000		2.83	%	December 2011	LIBOR + 0.11%
December 2018	5,000		3.15	%	December 2012	LIBOR + 1.14%
	$	89,423	3.41	%

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 borrowing that matures in July 2013 has a five year contractual maturity with principal and interest being paid monthly utilizing a 25 year amortization period. The borrowing that matures in January 2015 is a seven year contractual maturity with principal and interest being paid monthly.

The Bank had a maximum borrowing capacity with the Federal Home Loan Bank of Pittsburgh of approximately $382.8 million at September 30, 2011. Additionally, the Bank had a maximum borrowing capacity of $64.5 million with the Federal Reserve Bank of Philadelphia through the Discount Window at September 30, 2011.

As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of capital stock in the FHLB of Pittsburgh in the amount of at least equal to 4.60% of its advances plus 0.35% of the Bank’s “eligible assets,” as such term is defined by the FHLB; and a maximum amount of 6.00% of its advances plus 1.0% of the Bank’s “eligible assets.”  As of September 30, 2011, the Company’s minimum stock obligation was $6.4 million and maximum stock obligation was $12.0 million.

The FHLB of Pittsburgh ceased paying a dividend on its common stock during the first quarter of 2009 and has not paid a dividend through September 30, 2011.

Other Borrowed Funds

Other borrowed funds obtained from large commercial banks totaled $50.0 million at September 30, 2011.  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 below may differ from actual maturities.

Maturity	Interest
Date	Rate		Call Date	Amount
				(in thousands)
November 2014	3.60	%	November 2011	$	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
	3.42	%		$	50,000

Mortgage backed securities with a fair value of $59.2 million at September 30, 2011 were pledged as collateral for these other borrowed funds.

As of September 30, 2011 and December 31, 2010, the Company had $24.0 million and $0, respectively, of short-term borrowings.  The short-term borrowings rate at September 30, 2011 ranged from 0.15% to 0.25%.  The short-term borrowings, which represent overnight borrowings, were obtained from a large commercial bank and a participant in the Federal Funds market.

XML

Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash Flows From Operating Activities
Net income	$ 3,735	$ 1,851
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,909	4,855
Provision for loss on other real estate owned	410	379
Impairment loss on real estate held for investment	110
Depreciation	509	530
Net amortization of securities premiums and discounts	2,474	3,608
Benefit for deferred income taxes	(94)	(117)
Stock compensation from benefit plans	1,394	1,111
Net gain on sale of other real estate owned	(77)
Net gain on sale of premises and equipment		(6)
Net gain on sales of securities		(1,963)
Other-than-temporary impairment loss on investments	361
Income on in bank-owned life insurance	(349)	(352)
Decrease in mortgage servicing rights, net	119	218
Increase (decrease) in accrued interest receivable and other assets	1,561	(1,069)
(Decrease) increase in accrued interest payable, accrued expenses and other liabilities	(317)	9,394
Net Cash Provided by Operating Activities	12,745	18,439
Investment securities - available-for-sale:
Purchases		(19,786)
Proceeds from maturities, calls and principal repayments	7,900	6,282
Mortgage related securities - available-for-sale:
Purchases	(35,031)	(46,229)
Proceeds from sales		36,480
Proceeds from maturities, calls and principal repayments	55,055	103,615
Mortgage related securities - held-to-maturity:
Proceeds from maturities, calls and principal repayments	5,808
Net decrease (increase) in loans	16,406	(7,446)
Purchases of loans and loan participations	(28,244)	(23,735)
Net decrease in Federal Home Loan Bank stock	1,414
Purchases of premises and equipment	(365)	(204)
Proceeds from sales and payments on other real estate owned	1,435	1,085
Net Cash Provided by Investing Activities	24,378	50,062
Cash Flows from Financing Activities
Net decrease in deposits	(45,241)	(119,443)
Decrease in advances from borrowers for taxes and insurance	(787)	(1,011)
Principal payments on Federal Home Loan Bank advances	(33,377)	(13,260)
Short-term borrowings	24,000
Common stock issued for exercise of stock options	162
Merger of Fox Chase Mutual Holding Company		107
Proceeds from stock offering, net of offering expenses		81,169
Acquisition of common stock for ESOP		(3,485)
Acquisition of common stock for equity incentive plan	(3,474)
Purchase of treasury stock	(10,398)
Cash dividends paid	(863)
Net Cash Used in Financing Activities	(69,978)	(55,923)
Net (Decrease) Increase in Cash and Cash Equivalents	(32,855)	12,578
Cash and Cash Equivalents - Beginning	38,314	65,418
Cash and Cash Equivalents - Ending	5,459	77,996
Supplemental Disclosure of Cash Flow Information
Interest paid	11,526	17,527
Income taxes paid	1,700	1,501
Transfers of loans to other real estate owned	1,479	1,198
Net charge-offs	$ 2,771	$ 4,149

XML

INVESTMENT AND MORTGAGE RELATED SECURITIES

9 Months Ended

Sep. 30, 2011

INVESTMENT AND MORTGAGE RELATED SECURITIES

INVESTMENT AND MORTGAGE RELATED SECURITIES

NOTE 2 — INVESTMENT AND MORTGAGE RELATED SECURITIES

The amortized cost and fair value of securities available-for-sale and held-to-maturity as of September 30, 2011 and December 31, 2010 are summarized as follows:

	September 30, 2011 (Unaudited)
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	6,441	$	110	$	—		$	—		$	6,551
State and political subdivisions	1,865		8		—			—			1,873
Corporate securities	16,199		49		(329		)	—			15,919
	24,505		167		(329		)	—			24,343
Private label residential mortgage related security	175		—		—			(46		)	129
Private label commercial mortgage related securities	8,975		119		—			—			9,094
Agency residential mortgage related securities	237,363		11,976		—			—			249,339
Total mortgage related securities	246,513		12,095		—			(46		)	258,562
Total available-for-sale securities	$	271,018	$	12,262	$	(329	)	$	(46	)	$	282,905
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	45,517	$	792	$	—		$	—		$	46,309
Total mortgage related securities	45,517		792		—			—			46,309
Total held-to-maturity securities	$	45,517	$	792	$	—		$	—		$	46,309

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			OTTI			Fair
	Cost		Gains		Losses			in AOCI			Value
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	6,489	$	32	$	—		$	—		$	6,521
State and political subdivisions	7,240		65		(26		)	—			7,279
Corporate securities	18,674		221		(24		)	—			18,871
	32,403		318		(50		)	—			32,671
Private label residential mortgage related security	559		55		—			(448		)	166
Private label commercial mortgage related securities	11,385		382		—			—			11,767
Agency residential mortgage related securities	256,796		10,057		(154		)	—			266,699
Total mortgage related securities	268,740		10,494		(154		)	(448		)	278,632
Total available-for-sale securities	$	301,143	$	10,812	$	(204	)	$	(448	)	$	311,303
Held-to-Maturity Securities:
Agency residential mortgage related securities	$	51,835	$	19	$	(1,037	)	$	—		$	50,817
Total mortgage related securities	51,835		19		(1,037		)	—			50,817
Total held-to-maturity securities	$	51,835	$	19	$	(1,037	)	$	—		$	50,817

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, 2011 and December 31, 2010 (Dollars in thousands):

	September 30, 2011 (Unaudited)
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivisions	—		—			—		—			—		—
Corporate securities	5,989		(189		)	2,860		(140		)	8,849		(329		)
	5,989		(189		)	2,860		(140		)	8,849		(329		)
Private label residential mortgage related security	—		—			129		(46		)	129		(46		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	—		—			—		—			—		—
Total mortgage related securities	—		—			129		(46		)	129		(46		)
Total available-for-sale securities	$	5,989	$	(189	)	$	2,989	$	(186	)	$	8,978	$	(375	)
Held-to-Maturity Securities:
Agency residential mortgage related securities	—		—			—		—			—		—
Total mortgage related securities	—		—			—		—			—		—
Total held-to-maturity securities	$	—	$	—		$	—	$	—		$	—	$	—
Total Temporarily Impaired Securities	$	5,989	$	(189	)	$	2,989	$	(186	)	$	8,978	$	(375	)

	December 31, 2010
	Less than 12 Months					12 Months or More					Total
								Unrealized
								Losses
								Plus
	Fair		Unrealized			Fair		OTTI			Fair		Unrealized
	Value		Losses			Value		in AOCI			Value		Losses
	(In Thousands)
Available for Sale:
State and political subdivisions	$	831	$	(26	)	$	—	$	—		$	831	$	(26	)
Corporate securities	3,968		(24		)	—		—			3,968		(24		)
	4,799		(50		)	—		—			4,799		(50		)
Private label residential mortgage related security	—		—			166		(393		)	166		(393		)
Private label commercial mortgage related securities	—		—			—		—			—		—
Agency residential mortgage related securities	21,254		(154		)	—		—			21,254		(154		)
Total mortgage related securities	21,254		(154		)	166		(393		)	21,420		(547		)
Total available-for-sale securities	$	26,053	$	(204	)	$	166	$	(393	)	$	26,219	$	(597	)
Held to Maturity:
Agency residential mortgage related securities	46,645		(1,037		)	—		—			46,645		(1,037		)
Total mortgage related securities	46,645		(1,037		)	—		—			46,645		(1,037		)
Total held-to-maturity securities	$	46,645	$	(1,037	)	$	—	$	—		$	46,645	$	(1,037	)
Total Temporarily Impaired Securities	$	72,698	$	(1,241	)	$	166	$	(393	)	$	72,864	$	(1,634	)

The Company held a private label residential mortgage related security which had an amortized cost, prior to the identified credit related impairments, of $693,000 at September 30, 2011 and $716,000 at December 31, 2010.  During the second quarter of 2009, management’s analysis indicated that the security was other-than-temporarily impaired in the amount of $605,000, of which $157,000 was recognized on the Company’s statement of operations and $448,000 was recognized in the Company’s statement of condition in other comprehensive income (before taxes).

During the nine months ended September 30, 2011, management determined that there was additional credit impairment of $361,000 which was recognized in the Company’s statement of operations.  This additional credit impairment was primarily due to a slowdown in principal payment speeds, an increase in default rates and an increase in estimated loss severity at default on the underlying residential mortgage collateral. At September 30, 2011 and December 31, 2010, after other-than-temporary credit impairment charges, the private label residential mortgage related security had an amortized cost of $175,000 and $559,000, respectively, and a fair value of $129,000 and $166,000, respectively, with a remaining net unrealized loss, including non-credit related impairment in accumulated other comprehensive income, of $46,000 and $393,000, respectively. The remaining unrealized loss is not considered an other-than-temporary credit impairment, as management does not have the intention to sell this security and it is not more likely than not that the security will be required to be sold before recovery of its amortized cost.

The Company held three private label commercial mortgage backed securities (“CMBS”) with an amortized cost of $9.0 million at September 30, 2011 and $11.4 million at December 31, 2010. The three CMBS were in an unrealized gain position with a total unrealized gain of $119,000 and $382,000 at September 30, 2011 and December 31, 2010, respectively.  The three CMBS securities are rated AAA.

The Company evaluates current characteristics of each of these private label securities such as fair value, cash flows of the underlying properties, delinquency and foreclosure levels, credit enhancement and projected losses 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, slowdown of payment speeds, deteriorating credit enhancement and loss coverage ratios, or further illiquidity.

There are seven securities with a temporary impairment at September 30, 2011, one of which has a rating of AAA. The securities rated less than AAA are: (1) five corporate securities with a total fair value of $8.8 million with a rating of A; and (2) one private label collateralized mortgage obligation, discussed above, with a fair value of $129,000 and a rating of CC.

The two securities that have been impaired greater than twelve months as of September 30, 2011 and as of December 31, 2010 are the private label residential mortgage related security and one corporate security.

There were no gross realized gains or losses during the three or nine months ended September 30, 2011 and a gain of $2.0 million during the three and nine months ended September 30, 2010.

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

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

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

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2011 and December 31, 2010 by contractual maturity are as follows:

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
September 30, 2011
Due in one year or less	$	9,211	$	9,246	$	—	$	—
Due after one year through five years	14,092		13,891		—		—
Due after five years through ten years	763		766		—		—
Due after ten years	439		440		—		—
Total mortgage related securities	246,513		258,562		45,517		46,309
	$	271,018	$	282,905	$	45,517	$	46,309

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
December 31, 2010
Due in one year or less	$	3,674	$	3,692	$	—	$	—
Due after one year through five years	23,420		23,649		—		—
Due after five years through ten years	3,046		3,079		—		—
Due after ten years	2,263		2,251		—		—
Total mortgage related securities	268,740		278,632		51,835		50,817
	$	301,143	$	311,303	$	51,835	$	50,817

Securities with a carrying value of $8.6 million and $10.2 million at September 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

Securities with a carrying value of $59.2 million and $58.7 million, at September 30, 2011 and December 31, 2010, respectively, were pledged as collateral for $50.0 million in borrowed funds.  See Note 6.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 28, 2011
Document and Entity Information
Entity Registrant Name	Fox Chase Bancorp Inc
Entity Central Index Key	0001485176
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		13,667,310
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML

Consolidated Statements of Condition (Parenthetical) (USD $) In Thousands, except Share data	Sep. 30, 2011	Dec. 31, 2010
Consolidated Statements of Condition
Mortgage related securities held-to-maturity, fair value (in dollars)	$ 46,309	$ 50,817
Loans, allowance for loan losses (in dollars)	$ 12,581	$ 12,443
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	13,772,410	14,547,173
Common stock, shares outstanding	13,772,410	14,547,173
Treasury stock, shares	789,800	0