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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                         -----------------------------

                                    FORM 10-Q
(Mark One)
|X|     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the quarterly period ended June 30, 2005
                                       OR

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

            For the transition period from                  to
                                           -----------------------------------

            Commission file number: 0-51077


                        Abington Community Bancorp, Inc.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

               Pennsylvania                                 02-0724068
----------------------------------------------  --------------------------------
(State or Other Jurisdiction of Incorporation           (I.R.S. Employer
             or Organization)                          Identification No.)


             180 Old York Road
          Jenkintown, Pennsylvania                             19046
----------------------------------------------  --------------------------------
  (Address of Principal Executive Offices)                   (Zip Code)


                                 (215) 886-8280
--------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

        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
                                             -------      -------

        Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes           No   X
                                                   -------      -------

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of August 12,
2005, 15,870,000 shares of the Registrant's common stock were issued and
outstanding.

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<CAPTION>
<S>                                                                           <C>
ABINGTON COMMUNITY BANCORP, INC.

TABLE OF CONTENTS
-----------------------------------------------------------------------------------------------

                                                                                         PAGE

PART I - FINANANCIAL INFORMATION

   ITEM 1. CONDENSED FINANCIAL STATEMENTS

     Unaudited Consolidated Statements of Financial Condition as of June 30, 2005
     and December 31, 2004                                                                1

     Unaudited Consolidated Statements of Income for the Three and Six Months Ended
     June 30, 2005 and 2004                                                               2

     Unaudited Consolidated Statements of Changes in Stockholders' Equity and
     Comprehensive Income for the Six Months Ended June 30, 2005 and 2004                 3

     Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30,
     2005 and 2004                                                                        4

     Notes to Unaudited Consolidated Financial Statements                                 5

   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                                    19

   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                     32

   ITEM 4. CONTROLS AND PROCEDURES                                                        35


PART II - OTHER INFORMATION


   ITEM 1. Legal Proceedings                                                              36

   ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds                    36

   ITEM 3. Defaults upon Senior Securities                                                36

   ITEM 4. Submission of Matters to a Vote of Security Holders                            37

   ITEM 5. Other Information                                                              37

   ITEM 6. Exhibits                                                                       37

   SIGNATURES                                                                             39

   CERTIFICATIONS
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<CAPTION>
ABINGTON COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
---------------------------------------------------------------------------------------------------------------------------------

                                                                                  June 30, 2005             December 31, 2004
                                                                          -------------------------------------------------------
<S>                                                                       <C>                          <C>
ASSETS

Cash and due from banks                                                   $               18,285,679   $               24,867,784
Interest-bearing bank balances                                                             7,430,778                    8,428,048
                                                                          --------------------------   --------------------------
      Total cash and cash equivalents                                                     25,716,457                   33,295,832
Investment securities held to maturity (estimated fair
  value--2005, $20,641,211; 2004, $10,336,485)                                            20,396,674                   10,219,764
Investment securities available for sale (amortized cost--
  2005, $80,892,839; 2004, $77,348,884)                                                   79,586,868                   76,163,951
Mortgage-backed securities held to maturity (estimated fair
  value--2005, $79,769,278; 2004, $81,322,041)                                            80,284,313                   81,703,737
Mortgage-backed securities available for sale (amortized cost--
  2005, $93,057,403; 2004, $83,300,963)                                                   92,298,822                   83,027,943
Loans receivable, net of allowance for loan loss
   (2005, $1,390,262; 2004, $1,412,697)                                                  459,389,129                  412,655,664
Accrued interest receivable                                                                3,023,169                    2,710,162
Federal Home Loan Bank stock--at cost                                                     11,285,700                   10,450,100
Cash surrender value - bank owned life insurance                                          15,164,340                            -
Property and equipment, net                                                                5,823,541                    5,533,085
Deferred tax asset                                                                         1,655,594                    1,313,068
Prepaid expenses and other assets                                                          2,442,169                      905,074
                                                                          --------------------------   --------------------------

TOTAL ASSETS                                                              $              797,066,776   $              717,978,380
                                                                          ==========================   ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits:
    Noninterest-bearing                                                   $               40,002,776   $               37,596,228
    Interest-bearing                                                                     408,342,692                  367,693,829
                                                                          --------------------------   --------------------------
      Total deposits                                                                     448,345,468                  405,290,057
  Advances from Federal Home Loan Bank                                                   191,167,155                  170,666,374
  Other borrowed money                                                                    20,748,104                   12,865,521
  Accrued interest payable                                                                 2,736,009                      910,040
  Advances from borrowers for taxes and insurance                                          3,703,136                    2,047,151
  Accounts payable and accrued expenses                                                   10,397,063                    3,144,536
                                                                          --------------------------   --------------------------

         Total liabilities                                                               677,096,935                  594,923,679
                                                                          --------------------------   --------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $0.01 par value, 10,000,000 shares authorized,
    none issued                                                                                    -                            -
  Common stock, $0.01 par value, 40,000,000 shares authorized,
    issued and outstanding: 15,870,000 in 2005 and 2004                                      158,700                      158,700
  Additional paid-in capital                                                              69,085,928                   69,096,936
  Unallocated common stock held by:
    Employee Stock Ownership Plan (ESOP)                                                  (7,125,960)                  (2,046,137)
    Deferred compensation plans trust                                                     (1,050,000)                  (1,074,200)
  Retained earnings                                                                       60,263,777                   57,881,651
  Accumulated other comprehensive loss                                                    (1,362,604)                    (962,249)
                                                                          --------------------------   --------------------------

         Total stockholders' equity                                                      119,969,841                  123,054,701
                                                                          --------------------------   --------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $              797,066,776   $              717,978,380
                                                                          ==========================   ==========================

                                                                1
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<CAPTION>
ABINGTON COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
---------------------------------------------------------------------------------------    ------------------------------------

                                                        Three Months Ended June 30,              SIX MONTHS ENDED JUNE 30,
                                                   ------------------------------------    ------------------------------------
                                                          2005               2004                2005                2004
                                                   ------------------------------------    ------------------------------------
<S>                                                 <C>                <C>                  <C>                <C>
INTEREST INCOME:
  Interest on loans                                 $    6,898,217     $     5,520,582      $   13,176,841     $    10,965,208
  Interest and dividends on investment and
    mortgage-backed securities:
      Taxable                                            2,621,826           1,815,721           5,138,415           3,692,423
      Tax-exempt                                           146,049               1,755             257,394               3,510
                                                   ----------------   -----------------    ----------------   -----------------

        Total interest income                            9,666,092           7,338,058          18,572,650          14,661,141

INTEREST EXPENSE:
  Interest on deposits                                   2,188,623           1,589,649           4,157,947           3,113,666
  Interest on Federal Home Loan Bank advances            2,126,542           1,833,466           4,031,043           3,662,742
  Interest on other borrowed money                         117,670              17,493             195,665              28,229
                                                   ----------------   -----------------    ----------------   -----------------

        Total interest expense                           4,432,835           3,440,608           8,384,655           6,804,637
                                                   ----------------   -----------------    ----------------   -----------------

NET INTEREST INCOME                                      5,233,257           3,897,450          10,187,995           7,856,504

PROVISION FOR LOAN LOSSES                                        -                   -                   -              45,000
                                                   ----------------   -----------------    ----------------   -----------------

NET INTEREST INCOME AFTER
  PROVISION FOR LOAN LOSSES                              5,233,257           3,897,450          10,187,995           7,811,504
                                                   ----------------   -----------------    ----------------   -----------------

NON-INTEREST INCOME
  Service charges                                          447,316             471,032             883,351             904,823
  Rental income                                              8,499              13,395              23,950              26,590
  Gain (loss) on derivative instruments, net                28,495             229,117              42,670             (49,225)
  Other income                                             277,742             109,119             391,570             212,428
                                                   ----------------   -----------------    ----------------   -----------------

        Total non-interest income                          762,052             822,663           1,341,541           1,094,616
                                                   ----------------   -----------------    ----------------   -----------------

NON-INTEREST EXPENSES
  Salaries and employee benefits                         1,864,667           1,419,304           3,665,102           3,039,643
  Net occupancy                                            384,538             294,192             790,283             587,942
  Depreciation                                             121,651             122,297             244,920             250,088
  Data processing                                          242,947             301,584             591,649             601,773
  ATM expense                                               82,193              84,958             168,030             113,187
  Deposit insurance premium                                 30,549              24,049              59,645              52,177
  Advertising and promotions                               109,902              88,819             201,986             160,516
  Other                                                    702,252             488,558           1,302,427             968,807
                                                   ----------------   -----------------    ----------------   -----------------

        Total non-interest expenses                      3,538,699           2,823,761           7,024,042           5,774,133
                                                   ----------------   -----------------    ----------------   -----------------

INCOME BEFORE INCOME TAXES                               2,456,610           1,896,352           4,505,494           3,131,987
                                                   ----------------   -----------------    ----------------   -----------------

PROVISION FOR INCOME TAXES                                 720,434             630,165           1,358,434           1,039,840
                                                   ----------------   -----------------    ----------------   -----------------

NET INCOME                                          $    1,736,176     $     1,266,187      $    3,147,060     $     2,092,147
                                                   ================   =================    ================   =================

BASIC EARNINGS PER COMMON SHARE                     $         0.11             n/a          $         0.20              n/a

DILUTED EARNINGS PER COMMON SHARE                   $         0.11             n/a          $         0.20              n/a

AVERAGE COMMON SHARES OUTSTANDING                       15,354,874             n/a              15,429,204              n/a


                                                                2
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ABINGTON COMMUNITY BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
------------------------------------------------------------------------------------------------------------------------------------

                                                         COMMON
                                                          STOCK
                                                         ACQUIRED                      ACCUMULATED
                                        ADDITIONAL         BY                             OTHER           TOTAL
                            COMMON        PAID-IN        BENEFIT        RETAINED      COMPREHENSIVE   STOCKHOLDERS'  COMPREHENSIVE
                             STOCK        CAPITAL         PLANS         EARNINGS          LOSS            EQUITY         INCOME

<S>                        <C>          <C>            <C>             <C>            <C>             <C>             <C>
BALANCE--JANUARY 1, 2005   $ 158,700    $69,096,936    $(3,120,337)    $57,881,651     $  (962,249)   $ 123,054,701

  Comprehensive income:
    Net income                     -              -              -       3,147,060               -        3,147,060   $ 3,147,060
    Net realized holding
     loss on available
     for sale securities
     arising during the
     period, net of tax
     benefit of $206,244           -              -              -               -        (400,355)        (400,355)     (400,355)
                                                                                                                      -----------

  Comprehensive income                                                                                                $ 2,746,705
                                                                                                                      ===========
  Cash dividend                    -              -              -        (764,934)              -         (764,934)
  Shares released from
     deferred compensation
     plans trust                   -              -         24,200               -               -           24,200
  ESOP shares committed to
     be released                   -        (11,008)       245,723                               -          234,715
  Common stock acquired
     by ESOP                       -              -     (5,325,546)              -               -       (5,325,546)
                           ---------    -----------    ------------    -----------    ------------    -------------

BALANCE--JUNE 30, 2005     $ 158,700    $69,085,928    $(8,175,960)    $60,263,777    $ (1,362,604)   $ 119,969,841
                           =========    ===========    ============    ===========    ============    =============

<CAPTION>
                                                         COMMON
                                                          STOCK
                                                         ACQUIRED                      ACCUMULATED
                                        ADDITIONAL         BY                             OTHER           TOTAL
                            COMMON        PAID-IN        BENEFIT        RETAINED      COMPREHENSIVE   STOCKHOLDERS'  COMPREHENSIVE
                             STOCK        CAPITAL         PLANS         EARNINGS          LOSS            EQUITY         INCOME

<S>                        <C>          <C>            <C>             <C>            <C>             <C>             <C>
BALANCE--JANUARY 1, 2004   $       -    $         -    $         -     $53,426,380     $  (192,112)   $  53,234,268

  Comprehensive income:
    Net income                     -              -              -       2,092,147               -        2,092,147   $ 2,092,147
    Net realized holding
     loss on available
     for sale securities
     arising during the
     period, net of tax
     benefit of $821,849           -              -              -               -      (1,595,355)      (1,595,355)   (1,595,355)
                           ---------    -----------    ------------    -----------    ------------    -------------  ------------

BALANCE--JUNE 30, 2004     $            $              $               $55,518,527     $(1,787,467)   $  53,731,060  $    496,792
                           =========    ===========    ============    ===========    ============    =============  ============


See notes to unaudited consolidated financial statements.

                                                                3
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<CAPTION>

ABINGTON COMMUNITY BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------

                                                               Six Months Ended June 30,
                                                           --------------------------------
                                                                2005               2004
                                                           --------------------------------
<S>                                                        <C>                <C>
OPERATING ACTIVITIES:
  Net income                                               $   3,147,060      $   2,092,147
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for loan losses                                          -             45,000
    Depreciation                                                 244,920            250,088
    Amortization of ESOP                                         234,715                  -
    Unrealized gain on derivative instruments                    (83,680)          (330,500)
    Deferred income tax benefit (expense)                       (136,282)           123,624
    Amortization of:
      Deferred loan fees                                        (669,818)          (678,052)
      Premiums and discounts, net                                119,213            201,357
    Income from bank owned life insurance                       (164,340)                 -
    Changes in assets and liabilities which (used)
     provided cash:
      Accrued interest receivable                               (313,007)            49,203
      Prepaid expenses and other assets                       (1,537,095)        (1,106,333)
      Accrued interest payable                                 1,825,969          1,062,212
      Accounts payable and accrued expenses                    1,975,375          1,192,793
                                                           -------------      -------------

           Net cash provided by operating activities           4,643,030          2,901,539
                                                           -------------      -------------

INVESTING ACTIVITIES:
  Principal collected on loans                                71,229,225         63,878,536
  Disbursements for loans                                   (111,932,040)       (78,208,332)
  Purchases of:
    Mortgage-backed securities held to maturity               (8,774,897)       (10,956,924)
    Mortgage-backed securities available for sale            (20,553,403)       (24,423,289)
    Investments held to maturity                             (10,178,366)                 -
    Investments available for sale                            (4,043,582)       (24,045,298)
    Federal Home Loan Bank stock                              (2,770,900)          (966,300)
    Property and equipment                                      (535,376)           (94,051)
    Bank owned life insurance                                (15,000,000)                 -
  Proceeds from:
    Maturities of mortgage-backed securities available
      for sale                                                 1,211,522            101,504
    Maturities of investments available for sale                 500,000         30,500,000
    Principal repayments of mortgage-backed securities
      held to maturity                                        10,098,619          4,476,124
    Principal repayments of mortgage-backed securities
      available for sale                                       9,563,013         14,473,557
    Redemption of Federal Home Loan Bank stock                 1,935,300            979,300
                                                           -------------      -------------

           Net cash used in investing activities             (79,250,885)       (24,285,173)
                                                           -------------      -------------

FINANCING ACTIVITIES:
  Net (decrease) increase in demand deposits and
    savings accounts                                            (729,178)        15,088,852
  Net increase in certificate accounts                        43,784,589          7,353,394
  Net increase in other borrowed money                         7,882,583         12,069,604
  Advances from Federal Home Loan Bank                       174,825,000        202,835,000
  Repayments of advances from Federal Home Loan Bank        (154,324,219)      (211,241,655)
  Net increase in advances from borrowers
    for taxes and insurance                                    1,655,985          1,242,833
  Acquisition of stock for ESOP                               (5,325,546)                 -
  Release of stock from deferred compensation plans trust         24,200                  -
  Payment of cash dividend                                      (764,934)                 -
                                                           -------------      -------------

           Net cash provided by financing activities          67,028,480         27,348,028
                                                           -------------      -------------

NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                            (7,579,375)         5,964,394

CASH AND CASH EQUIVALENTS--Beginning of period                33,295,832         19,695,625
                                                           -------------      -------------

CASH AND CASH EQUIVALENTS--End of period                   $  25,716,457      $  25,660,019
                                                           =============      =============

SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash paid during the year for:
    Interest on deposits and other borrowings              $   6,558,686      $   5,742,425
                                                           =============      =============

    Income taxes                                           $   1,500,000      $   1,000,000
                                                           =============      =============

See notes to unaudited consolidated financial statements.

                                              4
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ABINGTON COMMUNITY BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.      FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

        BASIS OF FINANCIAL STATEMENT PRESENTATION-- Abington Community Bancorp,
        Inc. (the "Company") is a Pennsylvania corporation, which was organized
        to be a mid-tier holding company for Abington Savings Bank. Abington
        Savings Bank is a Pennsylvania-chartered, FDIC-insured savings bank,
        which conducts business under the name "Abington Bank" (the "Bank" or
        "Abington Bank"). The Company was organized in conjunction with the
        Bank's reorganization from the mutual savings bank to the mutual holding
        company structure in December 2004. Abington Mutual Holding Company, a
        Pennsylvania corporation, is the mutual holding company parent of the
        Company. Abington Mutual Holding Company owns 55% of the Company's
        outstanding common stock and must continue to own at least a majority of
        the voting stock of the Company. The Bank is a wholly owned subsidiary
        of the Company. The Company's results of operations are primarily
        dependent on the results of the Bank and the Bank's wholly owned
        subsidiaries, ASB Investment Co., Keswick Services II and its wholly
        owned subsidiaries, and Abington Corp. The consolidated financial
        statements include the accounts of the Company and its wholly owned
        subsidiaries. The consolidated financial statements presented for
        periods prior to December 2004 include the accounts of the Bank and its
        wholly owned subsidiaries. All significant intercompany balances and
        transactions have been eliminated.

        The Bank's executive offices are in Jenkintown, Pennsylvania, with seven
        other branches and four limited service facilities located in nearby
        Montgomery County and Bucks County neighborhoods. The Bank is
        principally engaged in the business of accepting customer deposits and
        investing these funds in loans that include residential mortgage,
        commercial, consumer and construction loans. The principal business of
        ASB Investment Co. is to hold certain investment securities for the
        Bank. Keswick Services II and its subsidiaries manage the Bank's real
        estate, including real estate rentals. Abington Corp. is a dormant
        subsidiary.

        The accompanying unaudited consolidated financial statements were
        prepared in accordance with the instructions to Form 10-Q, and
        therefore, do not include all the information or footnotes necessary for
        a complete presentation of financial position, results of operations,
        changes in equity and comprehensive income and cash flows in conformity
        with accounting principles generally accepted in the United States of
        America. However, all normal recurring adjustments that, in the opinion
        of management, are necessary for a fair presentation of the consolidated
        financial statements have been included. These financial statements
        should be read in conjunction with the audited consolidated financial
        statements of the Company and the accompanying notes thereto included in
        the Company's Annual Report on Form 10-K for the period ended December
        31, 2004. The results for the six months ended June 30, 2005 are not
        necessarily indicative of the results that may be expected for the
        fiscal year ending December 31, 2005, or any other period.

        USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The
        preparation of financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amounts of income and expenses during the reporting period. Actual


                                       5
<PAGE>

        results could differ from those estimates. The Company's most
        significant estimates are the allowance for loan losses and deferred
        income taxes.

        ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS--The Company recognizes
        all derivatives as either assets or liabilities in the statements of
        financial condition and measures those instruments at fair value. The
        accounting for changes in the fair value of a derivative depends on the
        intended use of the derivative and the resulting designation.

        The Company previously entered into interest rate cap and swap
        agreements in order to manage its exposure to fluctuations in interest
        rates on a portion of its fixed rate loans and variable rate deposits.
        The agreements do not qualify for hedge accounting under Statement of
        Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR
        DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Gains and losses in the
        fair value of the cap and swap agreements, as well as amounts paid or
        received under the agreements, are recognized in a separate line item,
        gain (loss) on derivative instruments, net, included in non-interest
        income in the Company's consolidated statements of income during the
        period in which they accrue. The Company does not hold any derivative
        financial instruments for trading purposes.

        In April 2003, the Financial Accounting Standards Board ("FASB") issued
        SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND
        HEDGING ACTIVITIES. SFAS No. 149 amends and clarifies accounting for
        derivative instruments and hedging activities under Statement 133. In
        addition, this statement clarifies under what circumstances a contract
        with an initial net investment meets the characteristic of a derivative
        and when a derivative contains a financing component that warrants
        special reporting in the statement of cash flows. This statement is
        effective for contracts entered into or modified after June 30, 2003.
        The adoption of SFAS No. 149 did not have a significant effect on the
        Company's financial position or results of operations.

        At June 30, 2005, the Company is party to one swap agreement with a term
        expiring in December 2005. Under this agreement, the Company either
        receives or pays on a quarterly basis, the amount by which the three
        month LIBOR exceeds or falls below 2.59% on the notional amount of $15
        million. This agreement effectively changed a portion of the Company's
        variable rate money market accounts to a fixed rate of interest. The
        Company had also been party to an additional swap agreement with a term
        that expired in June 2005. Under this agreement, the Company either
        received or paid, on a quarterly basis, the amount by which the ten-year
        Constant Maturity Treasury ("CMT") exceeded or fell below 5.57% on the
        notional amount of $15 million. This agreement effectively changed a
        portion of the Company's fixed rate mortgage portfolio to a variable
        rate of interest.

        The fair value of the swap agreements was a negative $2,000 and a
        negative $85,000 at June 30, 2005, and December 31, 2004, respectively.
        During the three months ended June 30, 2005 and 2004, the Company paid
        to the contra parties $9,625 and $208,133, respectively, under the
        agreements. During the six months ended June 30, 2005 and 2004, the
        Company paid to the contra parties $63,450 and $379,725, respectively,
        under the agreements. In addition, the unrealized gain (loss) on
        derivatives recognized in gain (loss) on derivative instruments, net in
        the Company's unaudited consolidated statements of income was $15,680
        and $437,250 for the three months ended June 30, 2005 and 2004,
        respectively. The unrealized gain (loss) on derivatives recognized in
        gain (loss) on derivative instruments, net in the Company's unaudited
        consolidated statements of income was $83,680 and $330,500 for the six
        months ended June 30, 2005 and 2004, respectively.

        BANK OWNED LIFE INSURANCE ("BOLI")-- In March 2005, the Company
        purchased $15 million in Bank Owned Life Insurance as a mechanism for
        funding various employee benefit costs. The

                                       6
<PAGE>

        Company is the beneficiary of this policy that insures the lives of
        certain officers of its subsidiaries. The Company has recognized the
        cash surrender value under the insurance policy as an asset in the
        consolidated statements of financial condition. Changes in the cash
        surrender value are recorded in other non-interest income in the
        consolidated statements of income.

        RECENT ACCOUNTING PRONOUNCEMENTS-- In March 2004, the FASB ratified the
        consensus reached by the Emerging Issues Task Force ("EITF") in Issue
        03-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION
        TO CERTAIN INVESTMENTS. EITF 03-1 provides guidance for determining when
        an investment is considered impaired, whether impairment is
        other-than-temporary, and measurement of an impairment loss. In
        September 2004, the FASB issued FASB Staff Position ("FSP") 03-1-1,
        which delayed the effective date for the measurement and recognition
        guidance contained in paragraphs 10-20 of Issue 03-1 due to additional
        proposed guidance. In June 2005, the Board decided not to provide
        additional guidance on the meaning of other-than-temporary impairment,
        but directed the staff to issue proposed FSP EITF 03-1-a, IMPLEMENTATION
        GUIDANCE FOR THE APPLICATION OF PARAGRAPH 16 OF EITF ISSUE NO. 03-1, as
        final. The final FSP will supersede Issue 03-1 and EITF Topic No. D-44,
        RECOGNITION OF OTHER-THAN-TEMPORARY IMPAIRMENT UPON THE PLANNED SALE OF
        A SECURITY WHOSE COST EXCEEDS FAIR VALUE. The final FSP (retitled FSP
        FAS 115-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS
        APPLICATION TO CERTAIN INVESTMENTS) will replace the guidance set forth
        in paragraphs 10-18 of Issue 03-1 with references to existing
        other-than-temporary impairment guidance, such as FASB Statement No.
        115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
        SEC Staff Accounting Bulletin No. 59, ACCOUNTING FOR NONCURRENT
        MARKETABLE EQUITY SECURITIES, and APB Opinion No. 18, THE EQUITY METHOD
        OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK. FSP FAS 115-1 will codify
        the guidance set forth in EITF Topic D-44 and clarify that an investor
        should recognize an impairment loss no later than when the impairment is
        deemed other than temporary, even if a decision to sell has not been
        made.

        The Board decided that FSP FAS 115-1 would be effective for
        other-than-temporary impairment analysis conducted in periods beginning
        after September 15, 2005. The Board directed the staff to proceed to a
        draft of a final FSP for vote by written ballot. The Company is
        continuing to evaluate the impact of these pronouncements and does not
        anticipate that the guidance will have a material impact on the Company.

        In December 2004, the FASB issued SFAS No. 123R (revised 2004),
        SHARE-BASED Payment, which revises SFAS No. 123, ACCOUNTING FOR
        STOCK-BASED COMPENSATION, and supersedes APB Opinion No. 25, ACCOUNTING
        FOR STOCK ISSUED TO EMPLOYEES. This Statement requires an entity to
        recognize the cost of employee services received in share-based payment
        transactions and measure the cost on a grant-date fair value of the
        award. That cost will be recognized over the period during which an
        employee is required to provide service in exchange for the award. The
        provisions of SFAS No. 123R will be effective for the Company's
        consolidated financial statements issued for periods beginning after
        January 1, 2006. Management is currently evaluating the effects of the
        adoption of this Statement on its financial statements. The Company did
        not issue and did not have outstanding any stock-based compensation
        during the six-month periods ended June 30, 2005 and 2004.

                                       7
<PAGE>

2.      EARNINGS PER SHARE

        Basic earnings per common share is computed based on the weighted
        average number of shares outstanding. Diluted earnings per share is
        computed based on the weighted average number of shares outstanding and
        common share equivalents ("CSEs") that would arise from the exercise of
        dilutive securities. During the six months ended June 30, 2005, the
        Company did not issue and did not have outstanding any CSEs.

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED MARCH 31, 2005
                                                    ------------------------------------
                                                          BASIC              DILUTED
                                                     --------------       -------------
<S>                                                  <C>                  <C>
        Net income                                   $   1,736,175        $   1,736,175
        Weighted average shares outstanding             15,354,874           15,354,874
        Effect of unvested common stock awards                   -                    -
                                                     --------------       -------------
        Adjusted weighted average shares used in
          earnings per share computation                15,354,874           15,354,874
                                                     --------------       -------------

        Earnings per share                           $        0.11        $        0.11
                                                     ==============       =============

<CAPTION>
                                                       SIX MONTHS ENDED JUNE 30, 2005
                                                    ------------------------------------
                                                          BASIC              DILUTED
                                                     --------------      --------------
<S>                                                  <C>                 <C>
        Net income                                   $   3,147,060       $   3,147,060
        Weighted average shares outstanding             15,429,204          15,429,204
        Effect of unvested common stock awards                   -                   -
                                                     --------------      --------------
        Adjusted weighted average shares used in
          earnings per share computation                15,429,204          15,429,204
                                                     --------------      --------------

        Earnings per share                           $        0.20       $        0.20
                                                     ==============      ==============
</TABLE>

        No common shares of the Company were outstanding during the three or six
        months ended June 30, 2004.

                                       8
<PAGE>

3.      INVESTMENT SECURITIES

        The amortized cost and estimated fair value of investment securities are
        summarized as follows:

<TABLE>
<CAPTION>
                                                                 HELD TO MATURITY
                                                                  JUNE 30, 2005
                                      ----------------------------------------------------------------------
                                                             GROSS           GROSS          ESTIMATED
                                           AMORTIZED       UNREALIZED     UNREALIZED           FAIR
                                             COST            GAINS          LOSSES            VALUE
<S>                                       <C>               <C>            <C>             <C>
        Debt securities:
          Municipal bonds                 $ 20,396,674      $ 245,109      $     (572)     $ 20,641,211
                                          ------------      ---------      -----------     ------------

             Total debt securities        $ 20,396,674      $ 245,109      $     (572)     $ 20,641,211
                                          ============      =========      ===========     ============

<CAPTION>
                                                                 AVAILABLE FOR SALE
                                                                   JUNE 30, 2005
                                      ----------------------------------------------------------------------
                                                             GROSS           GROSS          ESTIMATED
                                           AMORTIZED       UNREALIZED     UNREALIZED           FAIR
                                             COST            GAINS          LOSSES            VALUE
<S>                                       <C>               <C>            <C>             <C>
        Debt securities:
          Agency bonds                    $ 74,990,262      $  58,120      $(1,242,382)    $ 73,806,000
          Corporate bonds and
            commercial paper                   999,699          4,567             (626)       1,003,640
          Municipal bonds                      180,000          1,715                -          181,715
          Certificates of deposit            1,282,000              -                -        1,282,000
                                          ------------      ---------      -----------     ------------

             Total debt securities          77,451,961         64,402       (1,243,008)      76,273,355
                                          ------------      ---------      -----------     ------------

        Equity securities:
          Common stock                           2,510            574           (2,500)             584
          Mutual funds                       3,438,368              -         (125,439)       3,312,929
                                          ------------      ---------      -----------     ------------

             Total equity securities         3,440,878            574         (127,939)       3,313,513
                                          ------------      ---------      -----------     ------------

        Total                             $ 80,892,839      $  64,976      $(1,370,947)    $ 79,586,868
                                          ============      =========      ===========     ============
</TABLE>


                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                                  HELD TO MATURITY
                                                                 DECEMBER 31, 2004
                                      ----------------------------------------------------------------------
                                                             GROSS           GROSS          ESTIMATED
                                           AMORTIZED       UNREALIZED     UNREALIZED           FAIR
                                             COST            GAINS          LOSSES            VALUE
<S>                                       <C>               <C>            <C>             <C>
        Debt securities:
          Municipal bonds                 $ 10,219,764      $ 116,721      $         -     $ 10,336,485
                                          ------------      ---------      -----------     ------------

             Total debt securities        $ 10,219,764      $ 116,721      $         -     $ 10,336,485
                                          ============      =========      ===========     ============
<CAPTION>

                                                                AVAILABLE FOR SALE
                                                                 DECEMBER 31, 2004
                                      ----------------------------------------------------------------------
                                                             GROSS           GROSS          ESTIMATED
                                           AMORTIZED       UNREALIZED     UNREALIZED           FAIR
                                             COST            GAINS          LOSSES            VALUE
<S>                                       <C>               <C>            <C>             <C>
        Debt securities:
          Agency bonds                    $ 71,489,648      $  55,440      $(1,152,448)    $ 70,392,640
          Corporate bonds and
            commercial paper                   999,940         14,306           (1,951)       1,012,295
          Municipal bonds                      180,000          3,960                -          183,960
          Certificates of deposit            1,282,000              -                -        1,282,000
                                          ------------      ---------      -----------     ------------

             Total debt securities          73,951,588         73,706       (1,154,399)      72,870,895
                                          ------------      ---------      -----------     ------------

        Equity securities:
          Common stock                           2,510            702           (2,500)             712
          Mutual funds                       3,394,786              -         (102,442)       3,292,344
                                          ------------      ---------      -----------     ------------

             Total equity securities         3,397,296            702         (104,942)       3,293,056
                                          ------------      ---------      -----------     ------------

        Total                             $ 77,348,884      $  74,408      $(1,259,341)    $ 76,163,951
                                          ============      =========      ===========     ============
</TABLE>

                                       10
<PAGE>

        The table below sets forth investment securities which have an
        unrealized loss position as of June 30, 2005:

<TABLE>
<CAPTION>
                                                          LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                  -----------------------------------  -----------------------------------
                                                       GROSS            ESTIMATED            GROSS            ESTIMATED
                                                     UNREALIZED            FAIR            UNREALIZED           FAIR
                                                       LOSSES              VALUE             LOSSES             VALUE
<S>                                                  <C>                <C>               <C>                <C>
        Securities held to maturity:
           Municipal bonds                           $     (572)        $  1,712,161
                                                     -----------        ------------

             Total securities held to maturity             (572)           1,712,161
                                                     -----------        ------------

        Securities available for sale:
           Government agency securities              $  (54,150)        $ 11,445,850      $ (1,188,232)      $ 58,302,030
           Other securities                                (626)             498,645          (127,939)         3,312,928
                                                     -----------        ------------      -------------      ------------

             Total securities available for sale        (54,776)          11,944,495        (1,316,171)        61,614,958
                                                     -----------        ------------      -------------      ------------

        Total                                        $  (55,348)        $ 13,656,656      $ (1,316,171)      $ 61,614,958
                                                     ===========        ============      =============      ============
</TABLE>

        The table below sets forth investment securities which have an
        unrealized loss position as of December 31, 2004:

<TABLE>
<CAPTION>
                                                          LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                  -----------------------------------  -----------------------------------
                                                       GROSS            ESTIMATED            GROSS            ESTIMATED
                                                     UNREALIZED            FAIR            UNREALIZED           FAIR
                                                       LOSSES              VALUE             LOSSES             VALUE
<S>                                                  <C>                <C>               <C>                <C>
        Securities available for sale:
           Government agency securities              $ (392,850)        $ 30,607,150      $   (759,598)      $ 30,230,050
           Other securities                              (1,951)             497,195          (104,942)         3,292,344
                                                     -----------        ------------      -------------      ------------

             Total securities available for sale       (394,801)          31,104,345          (864,540)       33,522,394
                                                     -----------        ------------      -------------      ------------

        Total                                        $ (394,801)        $ 31,104,345      $   (864,540)      $ 33,522,394
                                                     ===========        ============      =============      ============
</TABLE>

        At June 30, 2005, securities in a gross unrealized loss position for
        twelve months or longer consist of 30 securities having an aggregate
        depreciation of 2.1% from the Company's amortized cost basis. Securities
        in a gross unrealized loss position for less than twelve months at June
        30, 2005, consist of 10 securities having an aggregate depreciation of
        0.4% from the Company's amortized cost basis. Management believes that
        the estimated fair value of the securities disclosed above is primarily
        dependent upon the movement in market interest rates. Although the fair
        value will fluctuate as market interest rates move, the majority of the
        Company's investment portfolio consists of securities from
        municipalities and government agencies considered to be low-risk. If
        held to maturity, the contractual principal and interest payments of the
        securities are expected to be received in full and the value of the
        securities is expected to recover. As such, no loss in value is expected
        over the lives of the securities. Although not all of the securities are
        classified as held to maturity, the Company has the ability to hold
        these securities until they mature and the value recovers, and the
        Company

                                       11
<PAGE>

        does not intend to sell the securities at a loss. Thus, the unrealized
        losses are not considered other-than-temporary. The determination of
        whether a decline in market value is other-than-temporary is necessarily
        a matter of subjective judgment. The timing and amount of any realized
        losses reported in the Company's financial statements could vary if
        actual outcomes differ from conclusions reached by management in
        determining whether an other-than-temporary impairment exists.

4.      MORTGAGE-BACKED SECURITIES

        The amortized cost and estimated fair value of mortgage-backed
        securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                            HELD TO MATURITY
                                                                             JUNE 30, 2005
                                            ----------------------------------------------------------------------------------
                                                                         GROSS              GROSS             ESTIMATED
                                                 AMORTIZED             UNREALIZED        UNREALIZED              FAIR
                                                    COST                 GAINS             LOSSES               VALUE
<S>                                            <C>                     <C>               <C>                <C>
        FNMA pass-through
          certificates                         $    31,814,319         $    86,527       $  (385,341)       $    31,515,505
        FHLMC pass-through
          certificates                              22,136,468              17,698          (232,250)            21,921,916
        Real estate mortgage
          investment conduits                       26,333,526              94,163           (95,832)            26,331,857
                                               ---------------         -----------       -----------        ---------------

                   Total                       $    80,284,313         $   198,388       $  (713,423)       $    79,769,278
                                               ===============         ===========       ===========        ===============


                                                                           AVAILABLE FOR SALE
                                                                             JUNE 30, 2005
                                            ----------------------------------------------------------------------------------
                                                                         GROSS              GROSS             ESTIMATED
                                                 AMORTIZED             UNREALIZED        UNREALIZED              FAIR
                                                    COST                 GAINS             LOSSES               VALUE

        GNMA pass-through
          certificates                         $       730,988         $    28,485       $         -        $       759,473
        FNMA pass-through
          certificates                              12,052,897             222,904           (55,372)            12,220,429
        FHLMC pass-through
          certificates                              73,155,861             292,647        (1,173,310)            72,275,198
        Real estate mortgage
          investment conduits                        7,117,657               4,440           (78,375)             7,043,722
                                               ---------------         -----------       -----------        ---------------

                   Total                       $    93,057,403         $   548,476       $(1,307,057)       $    92,298,822
                                               ===============         ===========       ===========        ===============
</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                          HELD TO MATURITY
                                                                          DECEMBER 31, 2004
                                            ----------------------------------------------------------------------------------
                                                                         GROSS              GROSS             ESTIMATED
                                                 AMORTIZED             UNREALIZED        UNREALIZED              FAIR
                                                    COST                 GAINS             LOSSES               VALUE
<S>                                            <C>                     <C>               <C>                <C>

        FNMA pass-through
          certificates                         $    33,609,534         $   135,032       $  (409,512)       $    33,335,054
        FHLMC pass-through
          certificates                              23,539,633              85,073          (216,836)            23,407,870
        Real estate mortgage
          investment conduits                       24,554,570              28,116            (3,569)            24,579,117
                                               ---------------         -----------       -----------        ---------------

                   Total                       $    81,703,737         $   248,221       $  (629,917)       $    81,322,041
                                               ===============         ===========       ===========        ===============


                                                                        AVAILABLE FOR SALE
                                                                         DECEMBER 31, 2004
                                            ----------------------------------------------------------------------------------
                                                                         GROSS              GROSS             ESTIMATED
                                                 AMORTIZED             UNREALIZED        UNREALIZED              FAIR
                                                    COST                 GAINS             LOSSES               VALUE

        GNMA pass-through
          certificates                         $       887,920         $    38,887       $         -        $       926,807
        FNMA pass-through
          certificates                              13,314,817             289,367           (30,370)            13,573,814
        FHLMC pass-through
          certificates                              59,823,297             420,808          (944,709)            59,299,396
        Real estate mortgage
          investment conduits                        9,274,929               7,117           (54,120)             9,227,926
                                               ---------------         -----------       -----------        ---------------

                   Total                       $    83,300,963         $   756,179       $(1,029,199)       $    83,027,943
                                               ===============         ===========       ===========        ===============
</TABLE>

                                       13
<PAGE>

        The table below sets forth mortgage-backed securities which have an
        unrealized loss position as of June 30, 2005:

<TABLE>
<CAPTION>
                                                           LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                    -----------------------------------  -------------------------------------
                                                        GROSS             ESTIMATED             GROSS             ESTIMATED
                                                     UNREALIZED              FAIR            UNREALIZED              FAIR
                                                       LOSSES               VALUE              LOSSES               VALUE
<S>                                                  <C>                 <C>                 <C>                 <C>
        Securities held to maturity:
          FNMA pass-through
            certificates                             $   (21,100)        $   6,958,925       $  (364,241)       $  13,992,511
          FHLMC pass-through
            certificates                                       -                     -          (232,250)          10,680,258
          Real estate mortgage
            investment conduits                          (95,832)           13,363,001                 -                    -
                                                     -----------         -------------       -----------        -------------

                Total securities held to maturity       (116,932)           20,321,926          (596,491)          24,672,769
                                                     -----------         -------------       -----------        -------------

        Securities available for sale:
          FNMA pass-through
            certificates                             $         -         $           -       $   (55,372)       $   4,196,490
          FHLMC pass-through
            certificates                                (185,517)           28,322,641          (987,793)          30,136,441
          Real estate mortgage
            investment conduits                          (47,851)            4,854,890           (30,524)           2,065,441
                                                     -----------         -------------       -----------        -------------

                Total securities available for sale     (233,368)           33,177,531        (1,073,689)          36,398,372
                                                     -----------         -------------       -----------        -------------

        Total                                        $  (350,300)        $  53,499,457       $(1,670,180)       $  61,071,141
                                                     ===========         =============       ===========        =============
</TABLE>

                                       14
<PAGE>

        The table below sets forth mortgage-backed securities which have an
        unrealized loss position as of December 31, 2004:

<TABLE>
<CAPTION>
                                                           LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                    -----------------------------------  -------------------------------------
                                                        GROSS             ESTIMATED             GROSS             ESTIMATED
                                                     UNREALIZED              FAIR            UNREALIZED              FAIR
                                                       LOSSES               VALUE              LOSSES               VALUE
<S>                                                  <C>                 <C>                 <C>                 <C>
        Securities held to maturity:
          FNMA pass-through
            certificates                             $   (20,751)        $   7,643,729       $  (388,761)        $  15,249,573
          FHLMC pass-through
            certificates                                (209,218)            9,637,313            (7,618)            1,919,570
          Real estate mortgage
            investment conduits                           (3,569)            4,992,416                 -                     -
                                                     -----------         -------------       -----------         -------------

                   Total securities held to maturity    (233,538)           22,273,458          (396,379)           17,169,143
                                                     -----------         -------------       -----------         -------------

        Securities available for sale:
          FNMA pass-through
            certificates                            $   (21,656)         $   4,175,153       $    (8,714)        $     532,675
          FHLMC pass-through
            certificates                               (136,048)            13,137,255          (808,661)           30,845,239
          Real estate mortgage
            investment conduits                         (41,400)             7,297,748           (12,720)            1,783,796
                                                     -----------         -------------       -----------         -------------

                   Total securities available
                     for sale                          (199,104)            24,610,156          (830,095)           33,161,710
                                                     -----------         -------------       -----------         -------------

        Total                                       $  (432,642)         $  46,883,614       $(1,226,474)        $  50,330,853
                                                    ===========          =============       ===========         =============
</TABLE>

        At June 30, 2005, securities in a gross unrealized loss position for
        twelve months or longer consist of 26 securities having an aggregate
        depreciation of 2.7% from the Company's amortized cost basis. Securities
        in a gross unrealized loss position for less than twelve months at June
        30, 2005, consist of 13 securities having an aggregate depreciation of
        0.7% from the Company's amortized cost basis. Management believes that
        the estimated fair value of the securities disclosed above is primarily
        dependent upon the movement in market interest rates. Although the fair
        value will fluctuate as market interest rates move, a majority of the
        Company's mortgage-backed securities portfolio consists of securities
        from FNMA, FHLMC, GNMA or other highly rated and reliable issuers
        considered to be low-risk. If held to maturity, the contractual
        principal and interest payments of the securities are expected to be
        received in full and the value of the securities is expected to recover.
        As such, no loss in value is expected over the lives of the securities.
        Although not all of the securities are classified as held to maturity,
        the Company has the ability to hold these securities until they mature
        and the value recovers, and the Company does not intend to sell the
        securities at a loss. Thus, the unrealized losses are not considered
        other-than-temporary. The determination of whether a decline in market
        value is other-than-temporary is necessarily a matter of subjective
        judgment. The timing and amount of any realized losses reported in the
        Company's financial statements could vary if actual outcomes differ from
        conclusions reached by management in determining whether an
        other-than-temporary impairment exists.

                                       15
<PAGE>

5.      LOANS RECEIVABLE - NET

        Loans receivable consist of the following:

<TABLE>
<CAPTION>
                                                               JUNE 30, 2005         DECEMBER 31, 2004
                                                           ----------------------  -----------------------
<S>                                                             <C>                     <C>
        One-to four-family residential                         $ 292,093,550           $ 243,705,065
        Multi-family residential and commercial                   68,420,077              74,642,109
        Construction                                              93,129,029              83,253,027
        Home equity lines of credit                               39,043,828              32,048,508
        Commercial business loans                                  9,394,652               8,539,781
        Consumer non-real estate loans                             4,465,620               3,433,536
                                                               -------------           -------------

                   Total loans                                   506,546,756             445,622,026

        Less:
          Construction loans in process                          (44,457,115)            (30,130,703)
          Deferred loan fees                                      (1,310,250)             (1,422,962)
          Allowance for loan loss                                 (1,390,262)             (1,412,697)
                                                               -------------           -------------

        Loans receivable--net                                  $ 459,389,129           $ 412,655,664
                                                               =============           =============
</TABLE>

        Following is a summary of changes in the allowance for loan losses:

<TABLE>
<CAPTION>
                                                   SIX MONTHS ENDED               YEAR ENDED
                                               ------------------------ ------------------------------
                                                    JUNE 30, 2005             DECEMBER 31, 2004
                                               ------------------------ ------------------------------
<S>                                                 <C>                          <C>
        Balance--beginning of year                  $   1,412,697                $  1,455,889
          Provision for loan losses                             -                      45,000
          Charge-offs                                     (33,744)                   (146,736)
          Recoveries                                       11,309                      58,544
                                                    -------------                ------------
            Charge-offs/recoveries--net                   (22,435)                    (88,192)
                                                    -------------                ------------

        Balance--end of period                      $   1,390,262                $  1,412,697
                                                    =============                ============
</TABLE>

        The provision for loan losses charged to expense is based upon past loan
        and loss experience and an evaluation of losses in the current loan
        portfolio, including the evaluation of impaired loans. A loan is
        considered to be impaired when, based upon current information and
        events, it is probable that the Company will be unable to collect all
        amounts due according to the contractual terms of the loan. An
        insignificant delay or insignificant shortfall in amount of payments
        does not necessarily result in the loan being identified as impaired.
        For this purpose, delays less than 90 days are considered to be
        insignificant. During the periods presented, loan impairment was
        evaluated based on the fair value of the loans' collateral. Impairment
        losses are included in the provision for loan losses. Large groups of
        smaller balance, homogeneous loans are collectively evaluated for
        impairment, except for those loans restructured under a troubled debt
        restructuring. Loans collectively evaluated for impairment include
        smaller balance commercial real estate loans, residential real estate
        loans and consumer loans. At June 30, 2005 and December 31, 2004, the
        Company had no loans that were determined to be impaired.

                                       16
<PAGE>

        Commercial business loans and commercial real estate loans are placed on
        nonaccrual at the time the loan is 90 days delinquent unless the credit
        is well secured and in the process of collection. Commercial loans are
        charged off when the loan is deemed uncollectible. Residential real
        estate loans are typically placed on nonaccrual only when the loan is 90
        days delinquent and not well secured and in the process of collection.
        Other consumer loans are typically charged off when they become 90 days
        delinquent. In all cases, loans must be placed on nonaccrual or charged
        off at an earlier date if collection of principal or interest is
        considered doubtful. At June 30, 2005 and December 31, 2004, we had no
        nonaccrual loans. Non-performing loans, which consist of non-accruing
        loans plus accruing loans 90 days or more past due, at June 30, 2005 and
        December 31, 2004, amounted to approximately $282,000, and $227,000,
        respectively.

        Interest payments on impaired loans and nonaccrual loans are typically
        applied to principal unless the ability to collect the principal amount
        is fully assured, in which case interest is recognized on the cash
        basis. For the six months ended June 30, 2005 and 2004, no cash basis
        interest income was recognized. Interest income foregone on nonaccrual
        loans was zero and $7,000 for the six-month periods ended June 30, 2005,
        and 2004, respectively.

6.      DEFERRED INCOME TAXES

        Items that gave rise to significant portions of the deferred tax
        accounts are as follows:

<TABLE>
<CAPTION>
                                                                          JUNE 30, 2005          DECEMBER 31, 2004
                                                                     --------------------------------------------------
<S>                                                                       <C>                      <C>
        Deferred tax assets:
          Allowance for loan losses                                       $     472,689            $     480,317
          Deferred compensation                                                 928,375                  839,320
          Unrealized loss on securities available-for-sale
            and cap and swap contracts                                          701,268                  524,604
                                                                          -------------            -------------

                   Total deferred tax assets                                  2,102,332                1,844,241
                                                                          -------------            -------------

        Deferred tax liabilities:
          Property and equipment                                               (165,654)                (201,066)
          Deferred loan fees                                                   (258,067)                (259,767)
          Other                                                                 (23,017)                 (70,340)
                                                                          -------------            -------------

                   Total deferred tax liabilities                              (446,738)                (531,173)
                                                                          -------------            -------------

        Net deferred tax asset                                            $   1,655,594            $   1,313,068
                                                                          =============            =============
</TABLE>

                                       17
<PAGE>

7.      PENSION AND PROFIT SHARING PLANS

        The Company maintains a nonqualified, unfunded, defined benefit pension
        plan for the Board of Directors and certain officers. The components of
        the Company's net periodic cost for the plan is as follows:

<TABLE>
<CAPTION>
                                                                      SIX MONTHS ENDED JUNE 30,
                                                             -----------------------------------------------
                                                                      2005                   2004
                                                               --------------------  ---------------------
<S>                                                                <C>                    <C>
        Components of net periodic benefit cost:
        Service cost                                               $   49,310             $   47,549
        Interest cost                                                  57,995                 55,924
        Expected return on assets                                           -                      -
        Amortization of prior service cost                             60,695                 58,527
                                                                   ----------             ----------

        Net periodic pension cost                                  $  168,000             $  162,000
                                                                   ==========             ==========

        Weighted average assumptions:

        Discount rate                                                   6.50%                  6.50%
        Rate of return on assets                                         n/a                    n/a
        Rate of increase in future board fees/salary levels             4.00%                  4.00%
</TABLE>

        In 2004, the Company established an employee stock ownership plan
        ("ESOP") for substantially all of its full-time employees. Shares of the
        Company's common stock purchased by the ESOP are held in a suspense
        account until released for allocation to participants. Shares released
        are allocated to each eligible participant based on the ratio of each
        such participant's base compensation to the total base compensation of
        all eligible plan participants. As the unearned shares are released and
        allocated among participants, the Company recognizes compensation
        expense equal to the current market price of the shares released. As of
        June 30, 2005, 571,320 shares of the Company's common stock had been
        purchased for approximately $7.4 million by the ESOP. Of these shares,
        418,820 were purchased in the six months ended June 30, 2005 for
        approximately $5.3 million. No additional purchases will be made by the
        ESOP under this plan. The average purchase price of the 571,320 shares
        held at June 30, 2005 was $12.90 per share. The fair value of these
        shares at June 30, 2005 was approximately $7.1 million. During the three
        months and six months ended June 30, 2005, approximately 9,500 and
        19,000 shares, respectively, were committed to be released to
        participants resulting in recognition of approximately $108,000 and
        $235,000 in compensation expense, respectively.

        In June 2005, the shareholders of the Company approved the adoption of
        the 2005 Stock Option Plan (the "Option Plan"). The Option Plan provides
        for the grant of incentive and compensatory, or non-qualified, stock
        options to officers, employees and directors of the Company to acquire
        shares of common stock with an exercise price equal to the fair market
        value of the common stock on the grant date. Options will generally
        become vested and exercisable at the rate of 20% per year over five
        years, commencing one year from the date of grant. A total of 714,150
        shares of common stock have been reserved for future issuance pursuant
        to the Option Plan. No stock options were awarded under this plan as of
        June 30, 2005.

        In June 2005, the shareholders of the Company also approved the adoption
        of the 2005 Recognition and Retention Plan (the "RRP"). The RRP provides
        for the grant of shares of common stock of the Company to certain
        officers, employees and directors of the Company. In order to fund the
        RRP, the

                                       18
<PAGE>

        Recognition Plan Trust will purchase 285,660 shares of the Company's
        common stock in the open market. The Company will make sufficient
        contributions to the Trust to fund these purchases. Purchases will be
        made from time to time at the discretion of management. No shares were
        purchased or granted pursuant to the RRP as of June 30, 2005.


ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW--The Company was formed by the Bank in connection with the Bank's
reorganization into the mutual holding company form and commenced operations in
December 2004. The Company's results of operations are primarily dependent on
the results of the Bank, which is a wholly owned subsidiary of the Company. The
Bank's results of operations depend to a large extent on net interest income,
which is the difference between the income earned on its loan and investment
portfolios and the cost of funds, which is the interest paid on deposits and
borrowings. Results of operations are also affected by our provisions for loan
losses, gains or losses on derivative instruments, service charges and other
non-interest income and non-interest expense. Non-interest expense principally
consists of salaries and employee benefits, office occupancy and equipment
expense, data processing expense, advertising and promotions and other expense.
Our results of operations are also significantly affected by general economic
and competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities. Future changes in applicable
laws, regulations or government policies may materially impact our financial
condition and results of operations. The Bank is subject to regulation by the
Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department
of Banking. The Bank's executive offices and loan processing office are in
Jenkintown, Pennsylvania, with seven other branches and four limited service
facilities located in nearby Montgomery County neighborhoods. The Bank is
principally engaged in the business of accepting customer deposits and investing
these funds in loans, primarily residential mortgages.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES--In reviewing and
understanding financial information for Abington Community Bancorp, Inc., you
are encouraged to read and understand the significant accounting policies used
in preparing our consolidated financial statements. These policies are described
in Note 1 of the notes to our consolidated financial statements. The accounting
and financial reporting policies of Abington Community Bancorp, Inc. conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. The preparation of the Company's
consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Management evaluates these estimates and assumptions on an ongoing basis
including those related to the allowance for loan losses and deferred income
taxes. Management bases its estimates on historical experience and various other
factors and assumptions that are believed to be reasonable under the
circumstances. These form the bases for making judgments on the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is established through
a provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the 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 regular 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, delinquency and nonperforming
loan data, historical loss experience, adverse situations that may affect the
borrower's

                                       19
<PAGE>

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 impacted 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
valuations, adjustments to the allowance may be necessary based on changes in
economic and other conditions, changes in the composition of the loan portfolio
or changes in accounting guidance. In times of economic slowdown, either
regional or national, the risk inherent in the loan portfolio could increase
resulting in the need for additional provisions to the allowance for loan losses
in future periods. An increase could also be necessitated by an increase in the
size of the loan portfolio or in any of its components even though the credit
quality of the overall portfolio may be improving. Historically, our estimates
of the allowance for loan loss have approximated actual losses incurred. In
addition, the Pennsylvania Department of Banking and the FDIC, as an integral
part of their examination processes, periodically review our allowance for loan
losses. The Pennsylvania Department of Banking and the FDIC may require the
recognition of adjustment 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 some of our
tax liabilities and determine the recoverability of some of our deferred tax
assets, which arise from temporary differences between the tax and financial
statement recognition of revenues and expenses. Management also estimates a
reserve for deferred tax assets 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 from
management's initial estimates.

In evaluating our ability to recover deferred tax assets, management considers
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, management makes 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 an additional 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.


COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2005 AND DECEMBER 31, 2004

The Company's total assets increased $79.1 million, or 11.0%, to $797.1 million
at June 30, 2005 compared to $718.0 million at December 31, 2004. During the
first six months of 2005, net loans receivable increased $46.7 million or 11.3%
to $459.4 million, with growth in mortgage, construction, commercial and
consumer loans. Our loan growth is due to a mix of traditional loan
originations, loan participations with other financial institutions, and loan
purchases as part of the Company's long-term strategy to leverage our capital
through loan growth. For the six months ended June 30, 2005, total cash and cash
equivalents decreased $7.6 million as such assets were primarily redeployed into
loans. Our investment securities, both held-to-maturity and available-for-sale,
increased by an aggregate of $13.6

                                       20
<PAGE>

million or 15.7% to an aggregate of $100.0 million at June 30, 2005 compared to
an aggregate of $86.4 million at December 31, 2004. During the first six months
of 2005, purchases of $14.2 million in the aggregate, consisting primarily of
municipal bonds, were only partially offset by $500,000 in calls and maturities
of our held-to-maturity and available-for-sale investment securities. Our
mortgage-backed securities, both held-to-maturity and available-for-sale,
increased by an aggregate of $7.9 million or 4.8% to an aggregate of $172.6
million at June 30, 2005 compared to an aggregate of $164.7 million at December
31, 2004. During the first six months of 2005, purchases of $29.3 million in the
aggregate, consisting primarily of balloon mortgage-backed securities, were
partially offset by $20.9 million in calls and maturities and repayments of our
held-to-maturity and available-for-sale mortgage-backed securities. Also in the
first half of 2005, the Company purchased $15.0 million of bank owned life
insurance ("BOLI"), which is reflected in the Company's balance sheet at its
cash surrender value. The BOLI is intended to fund various benefit programs of
the Company.

The $43.1 million or 10.6% increase in deposits to $448.3 million at June 30,
2005 from $405.3 million at December 31, 2004 resulted from a $43.8 million
increase in certificate accounts and a $6.4 million increase in savings and
money market accounts that were partially offset by a $7.2 million decrease in
checking accounts. The shift towards higher rate time deposits is a result of
the increased rates now available on those products in the current interest rate
environment. The Company, however, continues to remain focused on maintaining
and growing its base of core deposits over the long term. Our advances from the
Federal Home Loan Bank ("FHLB") increased $20.5 million or 12.0% during the
first half of 2005 to $191.2 million at June 30, 2005 compared to $170.7 million
at December 31, 2004. We utilize advances from the FHLB as an alternative to
retail deposits to fund operations and additional asset growth. The $7.9 million
increase in other borrowed money to $20.7 million at June 30, 2005 compared to
$12.9 million at December 31, 2004 reflects an increase in the amount of
securities repurchase agreements entered into with certain commercial checking
account customers.

Our stockholders' equity decreased $3.1 million to $120.0 million at June 30,
2005 compared to $123.1 million at December 31, 2004. The decrease was primarily
due to the purchase of approximately 419,000 shares of the Company's common
stock for an aggregate of $5.3 million by the Bank's Employee Stock Ownership
Plan ("ESOP"), partially offset by a commitment to release approximately 19,000
unallocated ESOP shares for an aggregate cost of approximately $235,000.
Additionally, accumulated other comprehensive loss increased $400,000. These
decreases to stockholders' equity were partially offset by a $2.4 million
increase in retained earnings resulting from net income for the first six months
of 2005 reduced by $765,000 for the payment of the Company's first quarterly
dividend of $0.05 per share in June.


LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are from deposits, amortization of loans, loan
prepayments and pay-offs, mortgage-backed securities and other investments, and
other funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities are relatively predictable sources of funds, deposit flows and loan
prepayments can be greatly influenced by general interest rates, economic
conditions and competition. We also maintain excess funds in short-term,
interest-bearing assets that provide additional liquidity. At June 30, 2005, our
cash and cash equivalents amounted to $25.7 million. In addition, at such date
we had $11.3 million in investment securities scheduled to mature within the
next 12 months. Our available for sale investment and mortgage-backed securities
amounted to an aggregate of $171.9 million at June 30, 2005.

We use our liquidity to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating

                                       21
<PAGE>

expenses. At June 30, 2005, we had certificates of deposit maturing within the
next 12 months amounting to $106.4 million. Based upon historical experience, we
anticipate that a significant portion of the maturing certificates of deposit
will be redeposited with us. For the six months ended June 30, 2005, and the
year ended December 31, 2004, the average balance of our outstanding FHLB
advances was $181.2 million and $169.7 million, respectively. At June 30, 2005,
we had $191.2 million in outstanding FHLB advances and we had $282.6 million in
additional FHLB advances available to us.

In addition to cash flow from loan and securities payments and prepayments as
well as from sales of available for sale securities, we have significant
borrowing capacity available to fund liquidity needs. We have increased our
utilization of borrowings in recent years as an alternative to deposits as a
source of funds. Our borrowings consist primarily of advances from the Federal
Home Loan Bank of Pittsburgh, of which we are a member. Under terms of the
collateral agreement with the Federal Home Loan Bank, we pledge substantially
all of our residential mortgage loans and mortgage-backed securities as well as
all of our stock in the Federal Home Loan Bank as collateral for such advances.

Our stockholders' equity amounted to $120.0 million at June 30, 2005, inclusive
of $69.3 million in net proceeds from the Company's initial public offering
completed on December 16, 2004. The capital raised in the offering has provided
us with additional flexibility to grow and diversify. Proceeds that had been
initially invested conservatively in instruments that yield a market rate are
beginning to be redeployed into loans. As part of our long-term strategic plan
to leverage our capital through retail deposit and loan growth, we anticipate
opening a new branch in Warrington, Bucks County, Pennsylvania in the second
half of 2005. Planning is also under way for two additional branches, which are
projected to open within the next twelve months. Additionally, a portion of the
net proceeds from the offering has been used to buy shares of the Company's
common stock for our ESOP. As noted above, our ESOP purchased approximately
419,000 shares of the Company's common stock in the open market for an aggregate
of $5.3 million in the six months ended June 30, 2005. Also, in June 2005, the
Company paid its first quarterly dividend of $0.05 per share.

The following table summarizes the Bank's capital ratios as of the dates
indicated and compares them to current regulatory requirements.

<TABLE>
<CAPTION>
                                                 Actual Ratios At
                                          ---------------------------
                                             June 30,    December 31,   Regulatory     To Be Well
                                              2005          2004          Minimum     Capitalized
                                          ------------  -------------  ------------  -------------
<S>                                           <C>            <C>            <C>           <C>
        CAPITAL RATIOS:
        Tier 1 leverage ratio                 11.28%         12.73%         4.00%          5.00%
        Tier 1 risk-based capital ratio       18.67          21.24          4.00           6.00
        Total risk-based capital ratio        18.97          21.57          8.00          10.00
</TABLE>

DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. On occasion, we have used interest rate caps and swap
agreements to manage our exposure to fluctuations in interest rates on a portion
of our fixed-rate loans and variable rate deposits. We have used interest rate
swap agreements to economically hedge interest rate risk resulting from our
portfolio of interest-earning loans and interest-bearing deposit liabilities. We
do not hold any derivative financial instruments for trading purposes.

At June 30, 2005, we are a party to one interest rate swap agreement, which we
entered into in December 2002, with a notional amount of $15.0 million and with
a term expiring in December 2005. Previously,

                                       22
<PAGE>

we also were a party to two swap agreements, with notional amounts of $15.0
million each, which we entered into in December 2001 and June 2002,
respectively, and which expired in December 2004 and June 2005, respectively.
Previously we were also party to one interest rate cap agreement, with a
notional amount of $15.0 million, which we entered into in June 2001 and which
expired in June 2004. The contra party on each of our cap and swap agreements is
the FHLB of Pittsburgh. We entered into these cap and swap agreements as a part
of our strategy to manage our interest rate risk, and we intended them to serve
as a direct hedge against a specified portion of our loans or deposits. Under
the cap agreement, which was intended to hedge a portion of our fixed-rate
single-family residential mortgage loan portfolio, we were entitled to receive
the amount, if any, by which the ten-year Constant Maturity Treasury ("CMT")
exceeded 7.53% on the notional amount. Given the low interest rates in recent
periods, we did not receive any payments from the cap agreement. However, had we
experienced a rising interest rate environment, the cap agreement would have
provided additional income that would have ameliorated the adverse impact of our
fixed-rate, long-term mortgage loans. The premium cost of the cap was $99,000,
which was amortized over its three-year term. Our swap agreements that expired
in December 2004 and June 2005 also were designed to serve as hedges against our
fixed-rate, single-family mortgage loan portfolio. Under the agreement which
expired in December 2004, we either paid or received the amount by which the
ten-year CMT fell below or exceeded 5.92%. Under the agreement which expired in
June 2005, we either paid or received the amount by which the ten-year CMT fell
below or exceeded 5.57%. Again, given the low interest rate environment in
recent periods, these swap agreements have resulted in us making payments to the
contra party. The intent of these two agreements was to effectively convert a
portion of our fixed-rate loan portfolio to a variable interest rate. Our
current interest rate swap agreement was designed to hedge a portion of our
variable rate money market deposit accounts against rising interest rates. Under
this swap agreement, we either pay or receive the amount by which the
three-month LIBOR falls below or exceeds 2.59%. Again, as a result of market
rates in recent periods, we have made payments on this swap agreement to the
contra-party for the majority of the term of the swap. In the most recent
quarter, however, we began receiving payments from the contra-party, and we
expect to continue to receive interest payments from the contra-party over the
remaining term of the swap. Our intent with this agreement was to effectively
convert a portion of our deposits from a variable rate liability to a fixed-rate
liability.

The swaps do not qualify as hedges under SFAS No. 133. As such, the fair value
of the interest rate swaps are reflected as a liability in the accompanying
consolidated statements of financial condition and the change in fair value is
recorded in gain (loss) on derivative instruments, net in the consolidated
statements of income. The fair value of the swap agreements was a negative
$2,000 and a negative $85,000 at June 30, 2005 and December 31, 2004,
respectively. During the three months ended June 30, 2005 and 2004, the Company
paid to the contra parties $9,625 and $208,133, respectively, under the
agreements. During the six months ended June 30, 2005 and 2004, the Company paid
to the contra parties $63,450 and $379,725, respectively, under the agreements.
In addition, the unrealized gain (loss) on derivatives recognized in gain (loss)
on derivative instruments, net in the Company's unaudited consolidated
statements of income was $15,680 and $437,250 for the three months ended June
30, 2005 and 2004, respectively. The unrealized gain (loss) on derivatives
recognized in gain (loss) on derivative instruments, net in the Company's
unaudited consolidated statements of income was $83,680 and $330,500 for the six
months ended June 30, 2005 and 2004, respectively.


COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit and the unused
portions of lines of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of

                                       23
<PAGE>

financial condition. Commitments to extend credit and lines of credit are not
recorded as an asset or liability by us until the instrument is exercised. At
June 30, 2005 and December 31, 2004 we had no commitments to originate loans for
sale.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. The amount and type of collateral required
varies, but may include accounts receivable, inventory, equipment, real estate
and income-producing commercial properties. At June 30, 2005 and December 31,
2004, commitments to originate loans and commitments under unused lines of
credit, including undisbursed portions of construction loans in process, for
which the Bank is obligated, amounted to approximately $83.1 million and $92.4
million, respectively.

Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, bond financing and similar transactions. Standby letters of credit
are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Collateral may be required to support letters of
credit based upon management's evaluation of the creditworthiness of each
customer. The credit risk involved in issuing letters of credit is substantially
the same as that involved in extending loan facilities to customers. Most
letters of credit expire within one year. At June 30, 2005 and December 31,
2004, the Bank had letters of credit outstanding of approximately $13.0 million
and $11.3 million, respectively, of which $11.3 million and $10.5 million,
respectively, were standby letters of credit. At June 30, 2005, the
uncollateralized portion of the letters of credit extended by the Bank was
approximately $215,000 of which $99,000 was for standby letters of credit.

The Bank is also subject to various pending claims and contingent liabilities
arising in the normal course of business, which are not reflected in the
unaudited consolidated financial statements. Management considers that the
aggregate liability, if any, resulting from such matters will not be material.

Among the Company's contingent liabilities are exposures to limited recourse
arrangements with respect to the Bank's sales of whole loans and participation
interests. At June 30, 2005, the exposure, which represents a portion of credit
risk associated with the sold interests, amounted to $185,000. The exposure is
for the life of the related loans and payable, on our proportional share, as
losses are incurred.

We anticipate that we will continue to have sufficient funds and alternative
funding sources to meet our current commitments.



                                       24
<PAGE>

The following table summarizes our outstanding commitments to originate loans
and to advance additional amounts pursuant to outstanding letters of credit,
lines of credit and under our construction loans at June 30, 2005.

<TABLE>
<CAPTION>
                                                                   Amount of Commitment Expiration - Per Period
                                                            ---------------------------------------------------------
                                          Total Amount          To             1-3           4-5          After 5
                                           Committed          1 Year          Years         Years          Years
                                       ------------------  -------------  -------------  ------------  --------------
                                                                       (In Thousands)
<S>                                        <C>               <C>             <C>           <C>             <C>
Letters of credit                              $12,972       $11,841         $ 1,126        $  --          $     5
Recourse obligations on loans sold                 185            --              --           --              185
Commitments to originate loans                   5,718         5,718              --           --               --
Unused portion of home equity
   lines of credit                              22,493            --              --           --           22,493
Unused portion of commercial
   lines of credit                              10,444        10,444              --           --               --
Undisbursed portion of
   construction loans in process                44,457         8,167          36,290           --               --
                                       ------------------  -------------  -------------  ------------  --------------
      Total commitments                        $96,269       $36,170         $37,416        $  --         $ 22,683
                                       ==================  =============  =============  ============  ==============
</TABLE>

The following table summarizes our contractual cash obligations at June 30,
2005.

<TABLE>
<CAPTION>
                                                                             Payments Due By Period
                                                            ---------------------------------------------------------
                                          Total Amount          To             1-3           4-5          After 5
                                           Committed          1 Year          Years         Years          Years
                                       ------------------  -------------  -------------  ------------  --------------
                                                                       (In Thousands)
<S>                                        <C>               <C>             <C>           <C>             <C>
Certificates of deposit                     $226,556         $106,395        $ 95,525      $11,786         $12,850
                                       ------------------  -------------  -------------  ------------  --------------
FHLB advances                                191,167           10,692          53,743       48,300          78,432
Repurchase agreements                         20,748           20,748              --           --              --
                                       ------------------  -------------  -------------  ------------  --------------
   Total debt                                211,915           31,440          53,743       48,300          78,432
                                       ------------------  -------------  -------------  ------------  --------------
Operating lease obligations                    4,897              540           1,094          786           2,477
                                       ------------------  -------------  -------------  ------------  --------------
   Total contractual obligations            $443,368         $138,375        $150,362      $60,872         $93,759
                                       ==================  =============  =============  ============  ==============
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND
2004

GENERAL. We had net income of $1.7 million for the quarter ended June 30, 2005,
representing an increase of 37.1% over the comparable 2004 period. Earnings per
share was $0.11 for the quarter ended June 30, 2005. Our results for the second
quarter of 2005 reflect, in part, increases in the average amount of
interest-earning assets combined with increases in the average yield on such
assets. The accompanying increase in interest income was partially offset by an
increase in interest expense that resulted from increases in the average amount
of interest-earning liabilities and the average rate on those liabilities. Our
average interest spread increased to 2.33% for the quarter ended June 30, 2005
from 2.25% for the quarter ended June 30, 2004, and our net interest margin
increased to 2.84% from 2.57% for the same periods, respectively. Our
non-interest income decreased by 7.4% for the quarter ended June 30, 2005 when
compared to the quarter ended June 30, 2004 due primarily to a $201,000 decrease
in gain on derivative

                                       25
<PAGE>

instruments, net partially offset by $162,000 of income on bank owned life
insurance ("BOLI") purchased in March 2005. Our non-interest expense for the
quarter ended June 30, 2005 increased 25.3% over the comparable 2004 period,
primarily as a result of increases in salaries and employee benefits, net
occupancy expense and other non-interest expense.

INTEREST INCOME. Our total interest income was $9.7 million for the quarter
ended June 30, 2005 compared to $7.4 million for the quarter ended June 30,
2004, a $2.3 million or 31.7% increase. This increase was due to increases in
the average balances of all categories of interest-earning assets accompanied by
increases in the average yields of all categories of interest-earning assets.
The most substantial growth was seen in our loan portfolio. Our average loan
balance increased $69.8 million or 18.6% to $445.5 million for the quarter ended
June 30, 2005 from $375.7 million for the quarter ended June 30, 2004.
Additionally, our average balance of mortgage-backed securities increased $38.9
million or 28.7% to $174.5 million and our average balance of investment
securities increased $16.1 million or 20.3% to $95.3 million over the same
periods. Our average yield on interest-earning assets increased 41 basis points
to 5.24% for the second quarter of 2005 from 4.83% for the second quarter of
2004.

INTEREST EXPENSE. Our total interest expense was $4.4 million for the quarter
ended June 30, 2005 compared to $3.4 million for the quarter ended June 30,
2004, an increase of $992,000 or 28.8%. The increase in interest expense for the
second quarter of 2005 when compared to the same period in the prior year
resulted mainly from increases in the average balances of deposits, FHLB
advances and other borrowings, as well as increases in the average rates paid on
those liabilities. Our average deposit balance increased $50.8 million or 14.7%
to $397.0 million for the quarter ended June 30, 2005 from $346.2 million for
the quarter ended June 30, 2004. This occurred primarily from a $39.8 million
increase in the average balance of certificates of deposit and an $11.2 million
increase in the average balance of savings and money market accounts. Our
average rate on deposits increased to 2.21% for the quarter ended June 30, 2005
from 1.84% for the quarter ended June 30, 2004, driven largely by the growth in
our certificate of deposit accounts, which generally pay a higher rate of
interest than other deposit products. The average rate on these accounts
increased 35 basis points to 3.39% for the quarter ended June 30, 2005 from
3.04% for the quarter ended June 30, 2004. Our average rates on FHLB advances
and other borrowings increased to 4.51% and 2.02%, respectively, for the quarter
ended June 30, 2005 from 4.37% and 0.35%, respectively, for the quarter ended
June 30, 2004. Our average rate on interest-bearing liabilities as a whole
increased 33 basis points to 2.91% for the quarter ended June 30, 2005 from
2.58% for the quarter ended June 30, 2004.



                                       26
<PAGE>

AVERAGE BALANCES, NET INTEREST INCOME, AND YIELDS EARNED AND RATES PAID. The
following table shows for the periods indicated the total dollar amount of
interest from average interest-earning assets and the resulting yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollars and rates, and the net interest margin. Tax-exempt income and yields
have not been adjusted to a tax-equivalent basis. All average balances are based
on monthly balances. Management does not believe that the monthly averages
differ significantly from what the daily averages would be.

<TABLE>
<CAPTION>
                                                                      Three Months
                                                                     Ended June 30,
                                             ---------------------------------------------------------------------
                                                          2005                              2004
                                             ----------------------------------  ---------------------------------
                                              Average                 Average     Average                Average
                                              Balance    Interest   Yield/Rate    Balance   Interest   Yield/Rate
                                             ----------  ---------  -----------  ---------  ---------  -----------
                                                                  (Dollars in Thousands)
<S>                                        <C>           <C>              <C>   <C>              <C>        <C>
Interest-earning assets:
     Investment securities(1)                $   95,348  $     770        3.23%  $  79,239  $     469        2.37%
     Mortgage-backed securities                 174,467      1,773        4.06     135,611      1,295        3.82
     Loans receivable(2)                        445,507      6,898        6.19     375,749      5,520        5.88
     Other interest-earning assets               21,916        225        4.11      16,552         54        1.30
                                             ----------  ---------               ---------  ---------
       Total interest-earning assets            737,238      9,666        5.24%    607,151      7,338        4.83%
                                                         ---------     -------              ---------     -------
     Cash and non-interest earning
       balances                                  21,060                             16,615
     Other non-interest-earning assets           23,877                             10,723
                                             ----------                          ---------
       Total assets                          $  782,175                          $ 634,489
                                             ==========                          =========
Interest-bearing liabilities:
  Deposits:
     Savings and money market accounts       $  131,729        372        1.13%  $ 120,495        252        0.84%
     Checking accounts                           51,577          5        0.04      51,761         15        0.12
     Certificate accounts                       213,696      1,812        3.39     173,919      1,323        3.04
                                             ----------  ---------               ---------  ---------
       Total deposits                           397,002      2,189        2.21     346,175      1,590        1.84
  FHLB advances                                 188,497      2,126        4.51     167,812      1,834        4.37

  Other borrowings                               23,387        118        2.02      19,556         17        0.35
                                             ----------  ---------               ---------  ---------
     Total interest-bearing liabilities         608,886  $   4,433        2.91%    533,543  $   3,441        2.58%
                                                         ---------     -------              ---------     -------
Non-interest-bearing liabilities:
     Non-interest-bearing demand
       accounts                                  41,150                             37,516
     Real estate tax escrow accounts              3,111                              2,845
     Other liabilities                            8,906                              5,877
                                             ----------                          ---------
       Total liabilities                        662,053                            579,781
     Retained earnings                          120,122                             54,708
                                             ----------                          ---------
       Total liabilities and retained
         earnings                            $  782,175                          $ 634,489
                                             ==========                          =========
     Net interest-earning assets             $  128,352                          $  73,608
                                             ==========                          =========
     Net interest income                                 $   5,233                          $   3,897
                                                         =========                          =========
     Average interest rate spread                                         2.33%                              2.25%
                                                                       =======                            =======
     Net interest margin(3)                                               2.84%                              2.57%
                                                                       =======                            =======
</TABLE>
-----------------------
(1)     Investment securities for the 2005 period include 47 non-taxable
        municipal bonds with an aggregate average balance of $13.4 million and
        an average yield of 4.2%. Investment securities for the 2004 period
        include one non-taxable municipal bond in the amount of $180,000 and a
        yield of 3.9%. The tax-exempt income from such securities has not been
        calculated on a tax equivalent basis.
(2)     Includes nonaccrual loans during the respective periods. Calculated net
        of deferred fees and discounts and loans in process.
(3)     Equals net interest income divided by average interest-earning assets.


                                       27
<PAGE>

PROVISION FOR LOAN LOSSES. We made no provision for loan losses during the
second quarter of 2005 or 2004. The provision for loan losses is charged to
expense as necessary to bring our allowance for loan losses to a sufficient
level to cover known and inherent losses in the loan portfolio. Despite our
growth in the loan portfolio, our allowance for loan loss remained sufficient
due to the high quality of the portfolio. At June 30, 2005, non-performing loans
amounted to 0.06% of loans receivable and our allowance for loan loss amounted
to 492.91% of non-performing loans.

NON-INTEREST INCOME. Our total non-interest income amounted to $762,000 for the
quarter ended June 30, 2005 compared to $823,000 for the quarter ended June 30,
2004. The decrease was due primarily to a $201,000 decrease in the gain on
derivative instruments and a $24,000 decrease in service charge income for the
second quarter of 2005 when compared to the second quarter of 2004. These
decreases were partially offset by $162,000 of income on BOLI recognized during
the second quarter of 2005 with no comparable income on BOLI in 2004.

NON-INTEREST EXPENSES. Our total non-interest expense for the quarter ended June
30, 2005 amounted to $3.5 million, representing an increase of $715,000 or 25.3%
from the quarter ended June 30, 2004. The overall increase was due to increases
in all categories of non-interest expense with the exception of depreciation
expense, data processing expense and ATM expense. Salaries and employee benefits
expense increased $445,000 or 31.4% in the second quarter of 2005 when compared
to the second quarter of 2004, due to additional expenses relating to new
employee benefit plans that began in 2005, as well as to normal merit increases
in salaries. Net occupancy expense increased approximately $90,000 or 30.7%, due
in part to new leases entered into for new branches that are expected to open
later this year and next year. Other non-interest expense increased
approximately $214,000 or 43.7% due largely to increased audit and professional
fees as the result of becoming a public reporting entity.

INCOME TAX EXPENSE. Income tax expense for second quarter of 2005 amounted to
$720,000 compared to $630,000 for the second quarter of 2004. The increase in
income tax expense was due to the increase in our pre-tax income, partially
offset by a decrease in our effective tax rate. Our effective tax rate decreased
to 29.3% for the three months ended June 30, 2005 from 33.2% for the three
months ended June 30, 2004, primarily as a result of increased investment in
tax-exempt municipal securities and bank owned life insurance.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

GENERAL. We had net income of $3.1 million for the six months ended June 30,
2005, representing an increase of 50.4% over the comparable 2004 period.
Earnings per share was $0.20 for the six months ended June 30, 2005. As was the
case for the second quarter of 2005, our results for the first six months of
2005 reflect, in part, increases in the average amount of interest-earning
assets combined with increases in the average yield on such assets. The
accompanying increase in interest income was partially offset by an increase in
interest expense that resulted from increases in the average amount of
interest-earning liabilities and the average rate paid on those liabilities. Our
average interest spread decreased slightly to 2.31% for the six months ended
June 30, 2005 from 2.33% for the six months ended June 30, 2004, while our net
interest margin increased to 2.82% from 2.65% for the same periods,
respectively. Our non-interest income increased by 22.6% for the six months
ended June 30, 2005 when compared to the six months ended June 30, 2004 due
primarily to income on BOLI purchased in March 2005 of $164,000 and a $43,000
gain on derivative instruments for the first six months of 2005 compared to a
loss of $49,000 for the first six months of 2004. Our non-interest expense for
the six months ended June 30, 2005 increased 21.6% over the comparable 2004
period, predominantly from the same factors that increased expenses for the
second quarter of 2005 when compared to the second quarter of 2004,

                                       28
<PAGE>

including increases in salaries and employee benefits, net occupancy expense and
other non-interest expense.

INTEREST INCOME. Our total interest income was $18.6 million for the six months
ended June 30, 2005 compared to $14.7 million for the six months ended June 30,
2004, a $3.9 million or 26.7% increase. This increase was due to increases in
the average balances of all categories of interest-earning assets. The most
substantial growth was seen in our loan portfolio. Our average loan balance
increased $61.4 million or 16.6% to $430.8 million for the six months ended June
30, 2005 from $369.3 million for the six months ended June 30, 2004.
Additionally, our average balance of mortgage-backed securities increased $44.4
million or 34.4% to $173.7 million and our average balance of investment
securities increased $12.3 million or 15.3% to $92.3 million over the same
periods. The increases in the average balances of our interest-earning assets
were accompanied by increases in the average yields of all categories of
interest-earning assets. Our average yield on interest-earning assets increased
20 basis points to 5.14% for the first six months of 2005 from 4.94% for the
first six months of 2004.

INTEREST EXPENSE. Our total interest expense was $8.4 million for the six months
ended June 30, 2005 compared to $6.8 million for the six months ended June 30,
2004, an increase of $1.6 million or 23.2%. The increase in interest expense for
the first six months of 2005 when compared to the same period in the prior year
resulted mainly from increases in the average balances of deposits, FHLB
advances and other borrowings, as well as increases in the average rates paid on
those liabilities. Our average deposit balance increased $51.0 million or 15.1%
to $389.4 million for the six months ended June 30, 2005 from $338.4 million for
the six months ended June 30, 2004. This occurred primarily from a $37.0 million
increase in the average balance of certificates of deposit and a $13.6 million
increase in the average balance of savings and money market accounts. Our
average rate on deposits increased to 2.14% for the six months ended June 30,
2005 from 1.84% for the six months ended June 30, 2004, driven largely by the
growth in our certificate of deposit accounts, which generally pay a higher rate
of interest than other deposit products. The average rate on these accounts
increased 26 basis points to 3.32% for the six months ended June 30, 2005 from
3.06% for the six months ended June 30, 2004. Our average rates on FHLB advances
and other borrowings increased to 4.45% and 1.76%, respectively, for the six
months ended June 30, 2005 from 4.44% and 0.35%, respectively, for the six
months ended June 30, 2004. Our average rate on interest-bearing liabilities as
a whole increased 22 basis points to 2.83% for the six months ended June 30,
2005 from 2.61% for the six months ended June 30, 2004.



                                       29
<PAGE>

AVERAGE BALANCES, NET INTEREST INCOME, AND YIELDS EARNED AND RATES PAID. The
following table shows for the periods indicated the total dollar amount of
interest from average interest-earning assets and the resulting yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollars and rates, and the net interest margin. Tax-exempt income and yields
have not been adjusted to a tax-equivalent basis. All average balances are based
on monthly balances. Management does not believe that the monthly averages
differ significantly from what the daily averages would be.

<TABLE>
<CAPTION>
                                                                           Six Months
                                                                         Ended June 30,
                                             ---------------------------------------------------------------------
                                                          2005                              2004
                                             ----------------------------------  ---------------------------------
                                              Average                 Average     Average                Average
                                              Balance    Interest   Yield/Rate    Balance   Interest   Yield/Rate
                                             ----------  ---------  -----------  ---------  ---------  -----------
                                                                  (Dollars in Thousands)
<S>                                        <C>           <C>              <C>   <C>              <C>        <C>
Interest-earning assets:
     Investment securities(1)                $   92,298  $   1,510        3.27%  $  80,030  $   1,074        2.68%
     Mortgage-backed securities                 173,705      3,571        4.11     129,280      2,552        3.95
     Loans receivable(2)                        430,774     13,177        6.12     369,325     10,965        5.94
     Other interest-earning assets               25,911        315        2.43      15,236         70        0.92
                                             ----------  ---------               ---------  ---------
       Total interest-earning assets            722,688     18,573        5.14%    593,871     14,661        4.94%
                                                         ---------     -------              ---------     -------
     Cash and non-interest earning
       balances                                  20,721                             14,954
     Other non-interest-earning assets           20,100                             10,104
                                             ----------                          ---------
       Total assets                          $  763,509                          $ 618,929
                                             ==========                          =========
Interest-bearing liabilities:
  Deposits:
     Savings and money market accounts       $  129,991        691        1.06%  $ 116,416        475        0.82%
     Checking accounts                           51,729         15        0.06      51,373         30        0.12
     Certificate accounts                       207,693      3,452        3.32     170,660      2,609        3.06
                                             ----------  ---------               ---------  ---------
       Total deposits                           389,413      4,158        2.14     338,449      3,114        1.84
  FHLB advances                                 181,237      4,031        4.45     166,310      3,663        4.44

  Other borrowings                               22,259        196        1.76      15,848         28        0.35
                                             ----------  ---------               ---------  ---------
     Total interest-bearing liabilities         592,909  $   8,385        2.83%    520,607  $   6,805        2.61%
                                                         ---------     -------              ---------     -------
Non-interest-bearing liabilities:
     Non-interest-bearing demand
       accounts                                  38,839                             35,830
     Real estate tax escrow accounts              2,855                              2,773
     Other liabilities                            7,740                              5,363
                                             ----------                          ---------
       Total liabilities                        642,343                            564,573
     Retained earnings                          121,166                             54,356
                                             ----------                          ---------
       Total liabilities and retained
         earnings                            $  763,509                          $ 618,929
                                             ==========                          =========
     Net interest-earning assets             $  129,779                          $  73,264
                                             ==========                          =========
     Net interest income                                 $  10,188                          $   7,856
                                                         =========                          =========
     Average interest rate spread                                         2.31%                              2.33%
                                                                       =======                            =======
     Net interest margin(3)                                               2.82%                              2.65%
                                                                       =======                            =======
</TABLE>
---------------------------
(4)     Investment securities for the 2005 period include 47 non-taxable
        municipal bonds with an aggregate average balance of $6.8 million and an
        average yield of 4.2%. Investment securities for the 2004 period include
        one non-taxable municipal bond in the amount of $180,000 and a yield of
        3.9%. The tax-exempt income from such securities has not been calculated
        on a tax equivalent basis.
(5)     Includes nonaccrual loans during the respective periods. Calculated net
        of deferred fees and discounts and loans in process.
(6)     Equals net interest income divided by average interest-earning assets.

                                       30
<PAGE>

PROVISION FOR LOAN LOSSES. We made no provision for loan losses in the first six
months of 2005 compared to a provision of $45,000 in the first six months of
2004. The provision for loan losses is charged to expense as necessary to bring
our allowance for loan losses to a sufficient level to cover known and inherent
losses in the loan portfolio. Despite our growth in the loan portfolio, our
allowance for loan loss remained sufficient due to the high quality of the
portfolio. At June 30, 2005, non-performing loans amounted to 0.06% of loans
receivable and our allowance for loan loss amounted to 492.91% of non-performing
loans.

NON-INTEREST INCOME. Our total non-interest income amounted to $1.3 million for
the six months ended June 30, 2005 compared to $1.1 million for the six months
ended June 30, 2004. The increase was due primarily to income on BOLI purchased
in March 2005 of $164,000 and a $43,000 gain on derivative instruments for the
first six months of 2005 compared to a loss of $49,000 for the first six months
of 2004. These gains were partially offset by a $21,000 decrease in service
charge income for the first six months of 2005 compared to the first six months
of 2004.

NON-INTEREST EXPENSES. Our total non-interest expense for the six months ended
June 30, 2005 amounted to $7.0 million, representing an increase of $1.3 million
or 21.6% from the six months ended June 30, 2004. The overall increase was due
to increases in all categories of non-interest expense with the exception of
depreciation expense and data processing expense, which decreased slightly.
Salaries and employee benefits expense, the largest component of non-interest
expense, increased $625,000 or 20.6% in the first six months of 2005 when
compared to the first six months of 2004. This increase was due to additional
expenses relating to new employee benefit plans that began in 2005, as well as
to normal merit increases in salaries. Our net occupancy expense increased
approximately $202,000 or 34.4%, due in part to new leases entered into for new
branches that are expected to open later this year and next year. Other
non-interest expense increased approximately $334,000 or 34.4% due largely to
increased audit and professional fees as the result of becoming a public
reporting entity.

INCOME TAX EXPENSE. Income tax expense for the six months ended June 30, 2005
amounted to $1.4 million compared to $1.0 million for the six months ended June
30, 2004. The increase in income tax expense was due to the increase in our
pre-tax income, partially offset by a decrease in our effective tax rate. Our
effective tax rate decreased to 30.2% for the six months ended June 30, 2005
from 33.2% for the six months ended June 30, 2004. The decreased rate was
primarily a result of increased investment in tax-exempt municipal securities
and bank owned life insurance.

FORWARD LOOKING STATEMENTS

This document contains forward-looking statements, which can be identified by
the use of words such as "estimate," "project," "believe," "intend,"
"anticipate," "plan," "seek," "expect" and similar expressions. These
forward-looking statements include:

        o       statements of goals, intentions and expectations;

        o       statements regarding prospects and business strategy;

        o       statements regarding asset quality and market risk; and

        o       estimates of future costs, benefits and results.

These forward-looking statements are subject to significant risks, assumptions
and uncertainties, including, among other things, the following: (1) general
economic conditions, (2) competitive pressure among financial services
companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand,

                                       31
<PAGE>

(6) changes in legislation or regulation, (7) changes in accounting principles,
policies and guidelines, (8) litigation liabilities, including costs, expenses,
settlements and judgments, and (9) other economic, competitive, governmental,
regulatory and technological factors affecting our operations, pricing, products
and services.

Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. We have no obligation to update or revise any forward-looking
statements to reflect any changed assumptions, any unanticipated events or any
changes in the future.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET/LIABILITY MANAGEMENT AND MARKET RISK. Market risk is the risk of loss from
adverse changes in market prices and rates. Our market risk arises primarily
from the interest rate risk which is inherent in our lending and deposit taking
activities. To that end, management actively monitors and manages interest rate
risk exposure. In addition to market risk, our primary risk is credit risk on
our loan portfolio. We attempt to manage credit risk through our loan
underwriting and oversight policies.

The principal objective of our interest rate risk management function is to
evaluate the interest rate risk embedded in certain balance sheet accounts,
determine the level of risk appropriate given our business strategy, operating
environment, capital and liquidity requirements and performance objectives, and
manage the risk consistent with approved guidelines. We seek to manage our
exposure to risks from changes in interest rates while at the same time trying
to improve our net interest spread. We monitor interest rate risk as such risk
relates to our operating strategies. We have established an Asset/Liability
Committee, which is comprised of our President and Chief Executive Officer,
three Senior Vice Presidents and two Vice Presidents of Lending, and which is
responsible for reviewing our asset/liability policies and interest rate risk
position. The Asset/Liability Committee meets on a regular basis. The extent of
the movement of interest rates is an uncertainty that could have a negative
impact on future earnings.

In recent years, we primarily have utilized the following strategies in our
efforts to manage interest rate risk:

        o       we have increased our originations of shorter term loans and/or
                loans with adjustable rates of interest, particularly
                construction loans, commercial real estate and multi-family
                residential mortgage loans and home equity lines of credit;

        o       we have attempted to match fund a portion of our securities
                portfolio with borrowings having similar expected lives;

        o       we have reduced our reliance on certificates of deposit as a
                funding source and increased the amount of our transaction
                accounts;

        o       we have attempted, where possible, to extend the maturities of
                our deposits and borrowings;

        o       we have invested in securities with relatively short anticipated
                lives, generally three to five years, and increased our holding
                of liquid assets; and

                                       32
<PAGE>

        o       on occasion, we have utilized certain off-balance sheet
                derivative products, consisting of interest rate cap and swap
                agreements, in our efforts to protect our net interest income
                from sudden shifts.

GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
and liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to affect adversely
net interest income while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income while a
positive gap would tend to affect adversely net interest income. Our current
asset/liability policy provides that our one-year interest rate gap as a
percentage of total assets should not exceed positive or negative 20%. This
policy was adopted by our management and Board based upon their judgment that it
established an appropriate benchmark for the level of interest-rate risk,
expressed in terms of the one-year gap, for the Bank. In the event our one-year
gap position were to approach or exceed the 20% policy limit, we would review
the composition of our assets and liabilities in order to determine what steps
might appropriately be taken, such as selling certain securities or loans or
repaying certain borrowings, in order to maintain our one-year gap in accordance
with the policy. Alternatively, depending on the then-current economic scenario,
we could determine to make an exception to our policy or we could determine to
revise our policy. In recent periods, our one-year gap position was well within
our policy. Our one-year cumulative gap was a negative 1.65% at June 30, 2005,
compared to a positive 0.57% at December 31, 2004. We have increased our
originations of commercial real estate and multi-family residential real estate
loans, construction loans, home equity lines and commercial business loans. This
was done, in part, because all of these loans generally have shorter terms to
maturity than single-family residential mortgage loans and are more likely to
have floating or adjustable rates of interest, thereby increasing the amount of
our interest rate sensitive assets in the one- to three-year time horizon. By
increasing the amount of our interest rate sensitive assets in the one-to
three-year time horizon, we felt that we better positioned ourselves to benefit
from a rising interest rate environment because the average interest rates on
our loans would increase as general market rates of interest were increasing.

The following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2005, which we expect,
based upon certain assumptions, to reprice or mature in each of the future time
periods shown (the "GAP Table"). Except as stated below, the amount of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at June 30,
2005, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate loans and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
Annual prepayment rates for adjustable-rate and fixed-rate single-family and
multi-family mortgage loans are assumed to range from 10% to 26%. The annual
prepayment rate for mortgage-backed securities is assumed to range from 9% to
63%. Money market deposit accounts, savings accounts and interest-bearing
checking accounts are assumed to have annual rates of withdrawal, or "decay
rates," of 16%, 12.5% and 0%, respectively.

                                       33
<PAGE>
<TABLE>
<CAPTION>
                                                    More than      More than     More than
                                      6 Months      6 Months        1 Year        3 Years       More than
                                      or Less       to 1 Year      to 3 Years    to 5 Years      5 Years     Total Amount
                                   -------------  -------------  -------------  ------------  -------------  ------------
                                                                   (Dollars in Thousands)
<S>                                <C>            <C>            <C>            <C>           <C>            <C>
Interest-earning assets(1):
  Loans receivable(2)              $     157,755  $      26,747  $      87,004  $     79,224  $     110,049  $    460,779
  Mortgage-backed securities              34,229         24,754         59,551        26,852         27,210       172,596
  Investment securities                    3,759         11,067         38,598        14,500         33,365       101,289
  Other interest-earning assets           18,716             --             --            --             --        18,716
                                   -------------  -------------  -------------  ------------  -------------  ------------
    Total interest-earning
      assets                             214,459         62,568        185,153       120,576        170,624       753,380
                                   =============  =============  =============  ============  =============  ============
Interest-bearing liabilities:
  Savings and money market
    accounts                       $      19,786  $      19,786  $      49,436  $     22,743  $      19,889  $    131,640
  Checking accounts                           --             --             --            --         50,147        50,147
  Certificate accounts                    72,483         33,912         95,525        11,786         12,850       226,556
  FHLB advances                          112,235         11,253         37,601         6,983         23,095       191,167
  Other borrowed money                    20,748             --             --            --             --        20,748
                                   -------------  -------------  -------------  ------------  -------------  ------------
    Total interest-bearing
      liabilities                        225,252         64,951        182,562        41,512        105,981       620,258
                                   =============  =============  =============  ============  =============  ============

Interest-earning assets less
   interest-bearing liabilities    $     (10,793) $      (2,383) $       2,591  $     79,064  $      64,643  $    133,122
                                   =============  =============  =============  ============  =============  ============

Cumulative interest-rate
   sensitivity gap(3)              $     (10,793) $     (13,176) $     (10,585) $     68,479  $     133,122
                                   =============  =============  =============  ============  =============

Cumulative
   interest-rate
   gap as a percentage of total
   assets at June 30, 2005                 (1.35)%        (1.65)%        (1.33)%        8.59%         16.70%
                                   =============  =============  =============  ============  =============

Cumulative interest-earning
   assets as a percentage of
   cumulative interest-bearing
   liabilities at June 30, 2005            95.21%         95.46%         97.76%       113.32%        121.46%
                                   =============  =============  =============  ============  =============
</TABLE>

---------------------
(1)     Interest-earning assets are included in the period in which the balances
        are expected to be redeployed and/or repriced as a result of anticipated
        prepayments, scheduled rate adjustments and contractual maturities.

(2)     For purposes of the gap analysis, loans receivable includes
        non-performing loans net of undisbursed loan funds, unamortized
        discounts and deferred loan fees.

(3)     Interest-rate sensitivity gap represents the difference between net
        interest-earning assets and interest-bearing liabilities.

                                       34
<PAGE>

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.


ITEM 4. - CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rule
13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.



                                       35
<PAGE>

PART II                            OTHER INFORMATION

Item 1.      Legal Proceedings

             Not applicable.

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

(a)     Not applicable.

(b)     Not applicable.

(c)     PURCHASES OF EQUITY SECURITIES

The Company did not make any purchases of its common stock during the quarter
ended June 30, 2005, however, the Company's employee stock ownership plan made
certain purchases pursuant to a publicly-announced plan as set forth in the
table below.

<TABLE>
<CAPTION>
                                                                        TOTAL NUMBER OF       MAXIMUM NUMBER OF
                                    TOTAL                             SHARES PURCHASED AS    SHARES THAT MAY YET
                                   NUMBER OF                           PART OF PUBLICLY      BE PURCHASED UNDER
                                    SHARES         AVERAGE PRICE      ANNOUNCED PLANS OR          THE PLAN OR
          PERIOD                   PURCHASED      PAID PER SHARE           PROGRAMS               PROGRAMS(1)
------------------------------   -------------   -----------------   --------------------   ---------------------
<S>                                   <C>        <C>                             <C>                      <C>
April 1 - April 30, 2005                6,000          12.06                     474,300                  97,020
May 1 - May 31, 2005                   97,020          11.17                     571,320                      --
June 1 - June 30, 2005                     --             --                     571,320                      --
                                 -------------

Total                                 103,020    $     11.22                     571,320                      --
                                 ==============   ================               =======    =====================
</TABLE>

(1) On December 15, 2004, the Board of Directors authorized the Company's
employee stock ownership plan to purchase up to 571,320 shares of the Company's
common stock. A total of 152,500 shares were purchased in December 2004. An
additional 315,800 shares were purchased by the ESOP in the first quarter of
2005. No additional purchases will be made by the ESOP under this plan.

Item 3.      Defaults upon Senior Securities

             Not applicable.


                                       36
<PAGE>

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

        On June 23, 2005, the Company held its first Annual Meeting of
Shareholders to obtain approval for four proxy proposals submitted on behalf of
the Company's Board of Directors. Shareholders of record as of April 26, 2005,
received proxy materials and were considered eligible to vote on these
proposals. The following is a brief summary of each proposal and the result of
the vote.

1. The following directors were elected by the requisite plurality of the votes
cast to serve on the Company's Board of Directors:

<TABLE>
<CAPTION>
<S>                                                                           <C>
                                              For*          Withheld
                                         --------------  --------------
Jane Margraff Kieser                       14,414,346       543,315
Robert W. White                            14,844,981       112,680

                                              For*          Against         Abstain      Broker Non-Votes
                                         --------------  --------------  --------------  -----------------

2. To adopt the 2005 Stock Option Plan      12,705,571      693,932          29,974          1,528,184

3. To adopt the 2005 Recognition and
Retention Plan and Trust Agreement          12,591,767      767,763          69,847          1,528,284

4. To ratify the appointment of
Deloitte & Touche LLP as independent
registered public accounting firm for the
year ended December 31, 2005                14,855,736       77,561          24,364             n/a
</TABLE>

----------------
*       Includes 8,728,500 shares owned by Abington Mutual Holding Company (the
"MHC") which were voted for these proposals. Excluding the shares owned by the
MHC, 3,977,071 shares were voted "for" the proposal to adopt the 2005 Stock
Option Plan and 3,863,267 shares were voted "for" the proposal to adopt the 2005
Recognition and Retention Plan and Trust Agreement. A majority vote exclusive of
the MHC shares was required for passage of these plans.

Item 5.      Other Information

             Not applicable.

Item 6.      Exhibits

                No.                           Description
                ---                           -----------

                31.1    Certification of the Chief Executive Officer pursuant to
                        Rule 13a-14 and 15d-14 of the Securities Exchange Act of
                        1934, as amended, as adopted pursuant to Section 302 of
                        the Sarbanes-Oxley Act of 2002.

                31.2    Certification of the Chief Financial Officer pursuant to
                        Rule 13a-14 and 15d-14 of the Securities Exchange Act of
                        1934, as amended, as adopted pursuant to Section 302 of
                        the Sarbanes-Oxley Act of 2002.

                                       37
<PAGE>

                32.1    Certification pursuant to 18 U.S.C. Section 1350, as
                        adopted pursuant to Section 906 of the Sarbanes-Oxley
                        Act of 2002.

                32.2    Certification pursuant to 18 U.S.C. Section 1350, as
                        adopted pursuant to Section 906 of the Sarbanes-Oxley
                        Act of 2002.




                                       38
<PAGE>

                                   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.


                                      ABINGTON COMMUNITY BANCORP, INC.


Date: August 15, 2005                 By:   /s/ Robert W. White
                                            ------------------------------------
                                            Robert W. White
                                            Chairman, President and
                                            Chief Executive Officer


Date: August 15, 2005                 By:   /s/ Jack J. Sandoski
                                            ------------------------------------
                                            Jack J. Sandoski
                                            Senior Vice President and
                                            Chief Financial Officer




                                       39