Forward-Looking Statements

Alliance Bancorp, Inc. of Pennsylvania (the "Company") may from time to time make written or oral "forward-looking statements," including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Company's control). The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this report. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

General

The Company's profitability is highly dependent on net interest income. The components that drive net interest income are the amounts of interest-earning assets and interest-bearing liabilities along with rates earned or paid on such rate sensitive instruments. The Company manages interest rate exposure by attempting to match asset maturities with liability maturities. In addition to managing interest rate exposure, the Company also considers the credit risk, prepayment risk and extension risk of certain assets. The Company maintains asset quality by

utilizing comprehensive loan underwriting standards and collection efforts as well as originating or purchasing primarily secured or guaranteed assets.

The Company's profitability is also affected by fee income, gain or loss on the sale of other real estate owned, general and administrative expenses, provisions for loan losses, other real estate owned expenses and income taxes.

Critical Accounting Policies

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements included elsewhere herein. These policies are described in Note 2 of the notes to the consolidated financial statements in the December 31, 2007 annual report to stockholders. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (US GAAP) and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Charges against the allowance for loan losses are made when management believes that the collectibility of loan principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio, based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan losses have not required significant adjustments from management's initial estimates. In addition, the Department and the FDIC, as an integral part of their examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management's estimates, additional provisions to the allowance for loan

losses may be required that would adversely impact earnings in future periods.

Income Taxes. Management makes estimates and judgments to calculate various tax liabilities and determine the recoverability of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. As of September 30, 2008, the company recorded $645,000 in deferred tax asset from the loss on the sale and impairment charges taken on mutual funds. The company must generate capital gains within a certain time period to realize the tax benefit from these capital losses. We also estimate a deferred tax asset valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Other than Temporary Impairment of Securities. The Company is required to perform periodic reviews of individual securities in its investment portfolio to determine whether a decline in the fair value of a security is other than temporary. A review of other than temporary impairment requires management to make certain judgments regarding the nature of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the Company's intent and ability to hold the security. Management evaluates securities for other than temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluations. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If the decline in the market value of a security is determined to be other than temporary we would recognize the decline as a realized loss on the income statement.

Comparison of Financial Condition at September 30, 2008 and December 31, 2007

Total assets increased $6.6 million or 1.6% to $431.1 million at September 30, 2008 compared to $424.5 million at December 31, 2007. This increase was primarily due to a $13.1 million or 31.1% increase in cash and cash equivalents, a $13.4 million or 5.2% increase in loans receivable, net of allowance for loan losses, and a $2.0 million or 9.0% increase in investment securities held to maturity. The increase was partially offset by an $18.8 million or 41.3% decrease in investment securities available for sale and a $4.6 million or 12.8% decrease in mortgage-backed securities available for sale.

Total liabilities increased $9.1 million or 2.4% to $382.1 million at September 30, 2008 compared to $373.0 million at December 31, 2007. This increase was primarily due to a $4.7 million or 1.4% increase in total deposits and a $4.0 million in obligations to purchase investment securities available for sale.

Stockholders' equity decreased $2.5 million to $48.9 million as of September 30, 2008 compared to $51.5 million at December 31, 2007. Beginning January 31, 2008, the Company commenced a stock repurchase program and has repurchased 232,324 shares at an average price of $9.06 per share through September 30, 2008, which decreased stockholders' equity by $2.1 million. For the nine months ended September 30, 2008, the Company had comprehensive income of $118,000 which consisted of $383,000 of net income and a $265,000 other comprehensive loss.

Nonperforming assets, which consist of nonaccruing loans, accruing loans 90 days or more delinquent and other real estate owned (which includes real estate acquired through, or in lieu of, foreclosure) increased $2.1 million to $4.2 million or 1.0% of total assets at September 30, 2008 as compared to $2.1 million or 0.5% of total assets at December 31, 2007. Such increase was primarily due to the placement of five commercial real estate loan relationships on non-accrual status during the three months ended September 30, 2008. These loans are secured by properties located in the Company's primary lending area. At September 30, 2008, the $4.2 million of nonperforming assets consisted primarily of $1.1 million of accruing loans 90 days or more delinquent, and $3.0 million of nonaccrual loans. At September 30, 2008, the $1.1 million of accruing loans consisted of nine single family real estate loans and eighteen secured consumer loans. The non-accrual loans at September 30, 2008 consisted of one single-family residential loan of $762,000 and five commercial real estate loan relationships amounting to $2.3 million. Management continues to aggressively pursue the collection and resolution of all delinquent loans.

At September 30, 2008 and December 31, 2007, the allowance for loan losses amounted to $3.1 million and $2.8 million, respectively. At September 30, 2008, the allowance for loan losses amounted to 74.35% of nonperforming loans and 1.13% of total loans receivable, as compared to 135.00% and 1.09%, respectively, at December 31, 2007.

Although management believes that the allowance for loan losses at September 30, 2008 was appropriate based on facts and circumstances available to management at that time, there can be no assurances that additions to the allowance for loan losses will not be necessary in future periods.

Comparison of Results of Operations for the Three and Nine Months ended September 30, 2008 and September 30, 2007

General. Net income decreased $196,000 or 43.2% to $257,000 or $0.04 per share for the three months ended September 30, 2008 as compared to $453,000 or $0.06 per share for the same period in 2007. The decrease in net income was primarily due to a $253,000 impairment charge on certain mutual funds and an increase in total other expenses, partially offset by an increase in net interest income and a decrease in income tax expense.

Net income decreased $869,000 or 69.4% to $383,000 or $0.05 per share for the nine months

ended September 30, 2008 as compared to $1.3 million or $0.18 per share for the same period in 2007. The decrease in net income was primarily due to an $882,000 impairment charge on certain mutual funds, a $157,000 loss on sale of certain mutual funds, and an increase in total other expenses, partially offset by an increase in net interest income and a decrease in income tax expense.

On August 20, 2008, the Company recorded a $253,000 impairment charge on its investment in $2.7 million of mutual funds and subsequently sold these certain mutual funds to Alliance Mutual Holding Company at fair value.

Net Interest Income. Net interest income is determined by the interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest income increased $206,000 or 7.8% during the three months ended September 30, 2008 as compared to the same period in 2007. This increase was primarily due to a 95 basis point or 23.1% decrease in the average rates paid on interest bearing liabilities. Such increase was partially offset by a $5.0 million or 1.4% increase in the average balance of interest bearing liabilities, by a 9.0% or 56 basis point decrease in the average rates earned on interest earning assets and a $1.4 million or 0.4% decrease in the average balance of interest earning assets. As a result, the interest rate spread increased 39 basis points to 2.53% for the three months ended September 30, 2008 from 2.14% for the three months ended September 30, 2007.

Net interest income increased $285,000 or 3.6% during the nine months ended September 30, 2008 as compared to the same period in 2007. This increase was primarily due to a 61 basis point or 15.3% decrease in the average rates paid on interest bearing liabilities. The increase was partially offset by a 41 basis point or 6.7% decrease in the average rates earned on interest earning assets. As a result, the interest rate spread increased 20 basis points to 2.32% for the nine months ended September 30, 2008 from 2.12% for the nine months ended September 30, 2007.

Interest Income. Interest income decreased $580,000 or 9.3% to $5.6 million for the three months ended September 30, 2008, compared to the same period in 2007. The decrease was due to a $341,000 or 65.1% decrease in interest income on balances due from depository institutions, a $253,000 or 28.2% decrease on interest income on investment securities, and an $81,000 or 18.5% decrease in interest income from mortgage-backed securities. These decreases were partially offset by a $95,000 or 2.2% increase in interest income on loans. The decrease in interest income on balances due from depository institutions was due to a $2.3 million or 5.5% decrease in the average balance of the balances due from depository institutions and a 319 basis point or 62.9% decrease in rates earned on balances due from depository institutions. The decrease in interest earned on investment securities was due to a $16.3 million or 23.4% decrease in the average balance in investment securities and a 31 basis point or 6.0% decrease in rates earned on investment securities. The decrease in interest income on mortgage backed securities was due to a $7.3 million or 19.0% decrease in the average balance of the mortgage backed securities. The cash from the decreases in balances due from depository institutions, mortgage backed securities, and investment securities were primarily used to fund loan growth. The increase in interest income on loans was due to a $24.5 million or 9.9% increase in the average balance of loans, partially offset by a 49 basis point or 7.0% decrease in the average yield earned on loans.

Interest income decreased $1.2 million or 6.4% to $17.1 million for the nine months ended September 30, 2008, compared to the same period in 2007. The decrease was due to a $1.1 million or 62.7% decrease in interest income on balances due from depository institutions, a $267,000 or 19.2% decrease on interest income on mortgage backed securities, and a $307,000 or 12.5% decrease in investment securities. These decreases were partially offset by a $514,000 or 4.1% increase in interest income on loans. The decrease in interest income on balances due from depository institutions was due to a 272 basis point or 53.6% decrease in the in the average yield earned and a $9.1 million or 19.7% decrease in the average balances of funds due from depository institutions. The decrease in interest income on mortgage-backed securities was due to an $8.1 million or 20.0% decrease in the average balance outstanding, partially offset by a 4 basis point increase in the average yield earned. The decrease in interest income on investment securities was due to a $6.9 million or 10.6% decrease in the average balance outstanding and a 11 basis point or 2.2% decrease in the average yield earned. The cash from the decreases in balances due from depository institutions, mortgage backed securities, and investment securities were primarily used to fund loan growth. The increase in interest income on loans was due to a $25.8 million or 10.5% increase in the average balance of loans, partially offset by an 40 basis point or 5.8% decrease in the average yield earned on loans.

Interest Expense. Interest expense decreased $786,000 or 22.0% to $2.8 million for the three months ended September 30, 2008, compared to the same period in 2007. This decrease was due to a decrease of $781,000 or 26.3% in interest expense on deposits and a decrease of $5,000 or 0.8% in interest expense on FHLB advances and other borrowings. The decrease in interest expense on deposits was due to a 105 basis point or 27.4% decrease in the average rate paid, partially offset by a $4.5 million or 1.5% increase in the average balance outstanding. The decrease in interest expense on FHLB advances and other borrowings was due to a 13 basis point or 2.0% decrease in the average rate paid, partially offset by a $452,000 or 1.2% increase in the average balance outstanding.

Interest expense decreased $1.4 million or 13.9% to $9.0 million for the nine months ended September 30, 2008, compared to the same period in 2007. This decrease was due to a decrease of $1.4 million or 16.7% in interest expense on deposits and a $9,000 or 0.5% decrease in interest expense on FHLB advances and other borrowings. The decrease in interest expense on deposits was due to a 68 basis point or 18.3% decrease in the average rate paid, partially offset by a $6.3 million or 2.0% increase in the average balance of deposits. The decrease in interest expense on FHLB advances and other borrowings was due to a $334,000 or 0.9% decrease in the average balance outstanding, partially offset by a 3 basis point or 0.5% increase in the average rate paid.

Average Balances, Net Interest Income and Yields Earned and Rates Paid. The following average balance sheet table sets forth for the periods indicated, information on the Company regarding: (i) the total dollar amounts of interest income on interest-earning assets and the resulting average yields; (ii) the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs; (iii) net interest income; (iv) interest rate spread;
(v) net interest-earning assets (interest-bearing liabilities); (vi) the net yield earned on interest-earning assets; and (vii) the ratio of total interest-earning assets to total interest-bearing liabilities. Information is based on average daily balances during the periods presented.

                             Average Balance Sheet



                                              Three Months Ended September 30,
                                           2008                               2007
                              Average                            Average
(Dollars in Thousands)        Balance     Interest     Rate      Balance     Interest     Rate
Interest-earning assets:
Loans receivable
(1) (2) (4)                  $ 272,608   $    4,446      6.52 % $ 248,149   $    4,351      7.01 %
Mortgage-backed securities
(4)                             30,986          357      4.61      38,242          438      4.58
Investment securities (4)       53,511          644      4.81      69,834          897      5.14
Other interest-earning
assets                          39,036          183      1.88      41,304          524      5.07
Total interest-earning
assets                         396,141        5,630      5.69     397,529        6,210      6.25
Noninterest-earning assets      24,670                             23,742
Total assets                 $ 420,811                          $ 421,271

Interest-bearing
liabilities:
Deposits                     $ 314,420        2,184      2.78   $ 309,908        2,965      3.83
FHLB advances and other
borrowings                      37,900          596      6.29      37,448          601      6.42
Total interest-bearing
liabilities                    352,320        2,780      3.16     347,356        3,566      4.11
Noninterest-bearing
Liabilities                     19,351                             24,171
Total liabilities              371,671                            371,527
Stockholders' equity            49,140                             49,744
Total liabilities and
stockholders' equity         $ 420,811                          $ 421,271

Net interest-earning
assets                       $  43,821                          $  50,173
Net interest
income/interest rate
spread                                   $    2,850      2.53 %             $    2,644      2.14 %
Net yield on
interest-earning assets
(3) (4)                                                  2.88 %                             2.66 %

(2) Nonaccrual loans and loan fees have been included.

(3) Net interest income divided by interest-earning assets.

(4) The indicated yields are not reflected on a tax equivalent basis.

                             Average Balance Sheet



                                              Nine Months Ended September 30,
                                          2008                              2007
                              Average                           Average
(Dollars in Thousands)        Balance    Interest     Rate      Balance    Interest     Rate
Interest-earning assets:
Loans receivable
(1) (2) (4)                  $ 270,516   $  13,126      6.47 % $ 244,722   $  12,612      6.87 %
Mortgage-backed securities
(4)                             32,496       1,127      4.62      40,629       1,394      4.58
Investment securities (4)       58,413       2,155      4.92      65,303       2,462      5.03
Other interest-earning
assets                          37,086         655      2.35      46,200       1,759      5.07
Total interest-earning
assets                         398,511      17,063      5.71     396,854      18,227      6.12
Noninterest-earning assets      25,963                            22,759
Total assets                 $ 424,474                         $ 419,613

Interest-bearing
liabilities:
Deposits                     $ 315,628       7,188      3.04   $ 309,329       8,628      3.72
FHLB advances and other
borrowings                      37,086       1,774      6.38      37,420       1,783      6.35
Total interest-bearing
liabilities                    352,714       8,962      3.39     346,749      10,411      4.00
Noninterest-bearing
Liabilities                     21,972                            25,068
Total liabilities              374,686                           371,817
Stockholders' equity            49,788                            47,796
Total liabilities and
stockholders' equity         $ 424,474                         $ 419,613

Net interest-earning
assets                       $  45,797                         $  50,105
Net interest
income/interest rate
spread                                   $   8,101      2.32 %             $   7,816      2.12 %
Net yield on
interest-earning assets
(3) (4)                                                 2.71 %                            2.63 %

(2) Nonaccrual loans and loan fees have been included.

(3) Net interest income divided by interest-earning assets.

(4) The indicated yields are not reflected on a tax equivalent basis. . . .