<PAGE>

                                  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, 2006

                                       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 Identification
               or Organization)                               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)

                                 Not Applicable
--------------------------------------------------------------------------------
(Former name, former address or former fiscal year if changed since last report)

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

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

  Large accelerated filer [_]  Accelerated filer [_]  Non-accelerated filer [X]

     Indicate by check mark whether the registrant is a shell company (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 4, 2006,
15,288,220 shares of the Registrant's common stock were outstanding.

<PAGE>

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, 2006 and December 31, 2005                                     1

      Unaudited Consolidated Statements of Income for the Three and Six
      Months Ended June 30, 2006 and 2005                                     2

      Unaudited Consolidated Statements of Stockholders' Equity and
      Comprehensive Income for the Six Months Ended June 30, 2006             3
      and 2005

      Unaudited Consolidated Statements of Cash Flows for the Six Months
      Ended June 30, 2006 and 2005                                            4

      Notes to Unaudited Consolidated Financial Statements                    5

   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS                                         23

   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK        38

   ITEM 4. CONTROLS AND PROCEDURES                                           41

PART II - OTHER INFORMATION

   ITEM 1. Legal Proceedings                                                 42

   ITEM 1A. Risk Factors                                                     42

   ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds       42

   ITEM 3. Defaults upon Senior Securities                                   42

   ITEM 4. Submission of Matters to a Vote of Security Holders               43

   ITEM 5. Other Information                                                 43

   ITEM 6. Exhibits                                                          43

   SIGNATURES                                                                44

   CERTIFICATIONS

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     JUNE 30, 2006   DECEMBER 31, 2005
                                                                     -------------   -----------------
<S>                                                                   <C>               <C>
ASSETS

Cash and due from banks                                               $ 22,475,521      $ 19,460,237
Interest-bearing bank balances                                           7,386,320         8,254,004
                                                                      ------------      ------------
      Total cash and cash equivalents                                   29,861,841        27,714,241
Investment securities held to maturity (estimated fair
   value--2006, $19,914,744; 2005, $20,316,775)                         20,394,511        20,395,593
Investment securities available for sale (amortized cost--
   2006, $79,658,366; 2005, $80,775,605)                                77,261,482        78,828,696
Mortgage-backed securities held to maturity (estimated fair
   value--2006, $58,293,279; 2005, $65,505,255)                         61,652,249        67,410,735
Mortgage-backed securities available for sale (amortized cost--
   2006, $85,076,504; 2005, $82,212,270)                                81,470,959        79,943,379
Loans receivable, net of allowance for loan losses
   (2006, $1,445,726; 2005, $1,454,510)                                580,326,426       529,487,209
Accrued interest receivable                                              3,734,826         3,475,350
Federal Home Loan Bank stock--at cost                                   11,478,700        11,061,200
Cash surrender value - bank owned life insurance                        15,832,209        15,498,958
Property and equipment, net                                              8,147,091         6,510,144
Deferred tax asset                                                       3,370,946         2,648,200
Prepaid expenses and other assets                                          719,850         1,098,106
                                                                      ------------      ------------
TOTAL ASSETS                                                          $894,251,090      $844,071,811
                                                                      ============      ============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Deposits:
      Noninterest-bearing                                             $ 44,418,705      $ 43,333,286
      Interest-bearing                                                 497,602,068       457,849,738
                                                                      ------------      ------------
         Total deposits                                                542,020,773       501,183,024
  Advances from Federal Home Loan Bank                                 203,620,254       201,444,952
  Other borrowed money                                                  22,998,861        16,113,949
  Accrued interest payable                                               5,126,112         1,909,234
  Advances from borrowers for taxes and insurance                        4,224,574         2,384,314
  Accounts payable and accrued expenses                                  5,827,040         3,805,571
                                                                      ------------      ------------
            Total liabilities                                          783,817,614       726,841,044
                                                                      ------------      ------------
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: 15,870,000 in 2006 and 2005, oustanding:
      15,293,464 in 2006 and 15,870,000 in 2005                            158,700           158,700
   Additional paid-in capital                                           69,407,739        69,234,964
   Treasury stock--at cost, 576,536 shares                              (8,240,427)               --
   Unallocated common stock held by:
      Employee Stock Ownership Plan (ESOP)                              (6,634,512)       (6,880,236)
      Recognition & Retention Plan Trust (RRP)                          (2,974,680)       (3,339,413)
      Deferred compensation plans trust                                 (1,059,876)       (1,050,000)
   Retained earnings                                                    63,738,136        61,889,180
   Accumulated other comprehensive loss                                 (3,961,604)       (2,782,428)
                                                                      ------------      ------------
            Total stockholders' equity                                 110,433,476       117,230,767
                                                                      ------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $894,251,090      $844,071,811
                                                                      ============      ============
</TABLE>

See notes to unaudited consolidated financial statements.


                                       1

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                 ---------------------------   --------------------------
                                                     2006           2005           2006          2005
                                                 ---------------------------   --------------------------
<S>                                               <C>           <C>            <C>           <C>
INTEREST INCOME:
   Interest on loans                              $ 9,457,145   $ 6,898,217    $18,174,928   $13,176,841
   Interest and dividends on investment and
    mortgage-backed securities:
      Taxable                                       2,538,558     2,621,826      4,884,370     5,138,415
      Tax-exempt                                      212,726       146,049        427,208       257,394
                                                  -----------   -----------    -----------   -----------
         Total interest income                     12,208,429     9,666,092     23,486,506    18,572,650

INTEREST EXPENSE:
   Interest on deposits                             3,847,817     2,188,623      7,146,477     4,157,947
   Interest on Federal Home Loan Bank advances      2,382,909     2,126,542      4,672,337     4,031,043
   Interest on other borrowed money                   207,690       117,670        351,817       195,665
                                                  -----------   -----------    -----------   -----------
         Total interest expense                     6,438,416     4,432,835     12,170,631     8,384,655
                                                  -----------   -----------    -----------   -----------
NET INTEREST INCOME                                 5,770,013     5,233,257     11,315,875    10,187,995

PROVISION FOR LOAN LOSSES                               8,000            --          8,000            --
                                                  -----------   -----------    -----------   -----------
NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES                        5,762,013     5,233,257     11,307,875    10,187,995
                                                  -----------   -----------    -----------   -----------
NON-INTEREST INCOME
   Service charges                                    437,788       447,316        846,423       883,351
   Rental income                                        7,536         8,499         15,172        23,950
   Gain on derivative instruments, net                     --        28,495             --        42,670
   Income on bank owned life insurance                166,564       161,875        333,251       164,340
   Loss on sale of investment securities                   --            --           (601)           --
   Other income                                       138,748       115,867        251,379       227,230
                                                  -----------   -----------    -----------   -----------
         Total non-interest income                    750,636       762,052      1,445,624     1,341,541
                                                  -----------   -----------    -----------   -----------
NON-INTEREST EXPENSES
   Salaries and employee benefits                   2,122,290     1,873,024      4,243,698     3,678,063
   Occupancy                                          386,946       384,538        774,691       790,283
   Depreciation                                       168,232       121,651        317,151       244,920
   Professional services                              225,229       258,727        385,860       448,711
   Data processing                                    309,727       246,171        634,075       599,387
   ATM expense                                         81,545        82,193        164,038       168,030
   Deposit insurance premium                           34,802        30,549         69,278        59,645
   Advertising and promotions                         138,424       109,902        231,405       201,986
   Other                                              543,300       447,944        982,170       849,077
                                                  -----------   -----------    -----------   -----------
         Total non-interest expenses                4,010,495     3,554,699      7,802,366     7,040,102
                                                  -----------   -----------    -----------   -----------
INCOME BEFORE INCOME TAXES                          2,502,154     2,440,610      4,951,133     4,489,434

PROVISION FOR INCOME TAXES                            731,092       704,434      1,433,560     1,342,374
                                                  -----------   -----------    -----------   -----------
NET INCOME                                        $ 1,771,062   $ 1,736,176    $ 3,517,573   $ 3,147,060
                                                  ===========   ===========    ===========   ===========

BASIC EARNINGS PER COMMON SHARE                   $      0.12   $      0.11    $      0.24   $      0.20
DILUTED EARNINGS PER COMMON SHARE                 $      0.12   $      0.11    $      0.23   $      0.20

BASIC AVERAGE COMMON SHARES OUTSTANDING:           14,841,286    15,354,874     14,928,361    15,429,204
DILUTED AVERAGE COMMON SHARES OUTSTANDING:         15,079,793    15,354,874     15,173,970    15,429,204
</TABLE>

See notes to unaudited consolidated financial statements.


                                       2

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

<TABLE>
<CAPTION>
                                                                                                 COMMON
                                                                                                 STOCK
                                                                                                ACQUIRED
                                            COMMON                 ADDITIONAL                      BY
                                             STOCK      COMMON      PAID-IN       TREASURY       BENEFIT
                                            SHARES       STOCK      CAPITAL        STOCK          PLANS
                                          ----------   --------   -----------   -----------   ------------
<S>                                       <C>          <C>        <C>           <C>           <C>
BALANCE--JANUARY 1, 2006                  15,870,000   $158,700   $69,234,964   $        --   $(11,269,649)

   Comprehensive income:
      Net income                                  --         --            --            --             --
      Net realized holding loss on
         available for sale securities
         arising during the period, net
         of tax benefit of $607,453               --         --            --            --             --

   Comprehensive income

   Treasury stock purchased                       --         --            --    (8,240,427)            --
   Cash dividends declared,
      ($.11 per share)                            --         --            --            --             --
   Stock options expense                          --         --       183,163            --             --
   Dividends reinvested in deferred
      compensation plans trust                    --         --            --            --         (9,876)
   Amortization of RRP shares                     --         --       (26,074)           --        364,733
   ESOP shares committed to
      be released                                 --         --        15,686            --        245,724
                                          ----------   --------   -----------   -----------   ------------
BALANCE--JUNE 30, 2006                    15,870,000   $158,700   $69,407,739   $(8,240,427)  $(10,669,068)
                                          ==========   ========   ===========   ===========   ============
<CAPTION>
                                                         ACCUMULATED
                                                            OTHER           TOTAL
                                            RETAINED    COMPREHENSIVE   STOCKHOLDERS'
                                            EARNINGS         LOSS          EQUITY
                                          -----------   -------------   -------------
<S>                                       <C>            <C>             <C>
BALANCE--JANUARY 1, 2006                  $61,889,180    $(2,782,428)    $117,230,767
   Comprehensive income:
      Net income                            3,517,573             --        3,517,573
      Net realized holding loss on
         available for sale securities
         arising during the period, net
         of tax benefit of $607,453                --     (1,179,176)      (1,179,176)
                                                                         ------------

   Comprehensive income                                                     2,338,397
                                                                         ------------

   Treasury stock purchased                        --             --       (8,240,427)
   Cash dividends declared,
      ($.11 per share)                     (1,668,617)            --       (1,668,617)
   Stock options expense                           --             --          183,163
   Dividends reinvested in deferred
      compensation plans trust                     --             --           (9,876)
   Amortization of RRP shares                      --             --          338,659
   ESOP shares committed to
      be released                                  --             --          261,410
                                          -----------    -----------     ------------
BALANCE--JUNE 30, 2006                    $63,738,136    $(3,961,604)    $110,433,476
                                          ===========    ===========     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                              COMMON
                                                                                              STOCK
                                                                                             ACQUIRED
                                            COMMON                 ADDITIONAL                   BY
                                             STOCK      COMMON      PAID-IN     TREASURY     BENEFIT
                                            SHARES       STOCK      CAPITAL       STOCK        PLANS
                                          ----------   --------   -----------   --------   ------------
<S>                                       <C>          <C>        <C>             <C>      <C>
BALANCE--JANUARY 1, 2005                  15,870,000   $158,700   $69,096,936     $--      $(3,120,337)
   Comprehensive income:
      Net income                                  --         --            --      --               --
      Net realized holding loss on
         available for sale securities
         arising during the period, net
         of tax benefit of $698,677               --         --            --      --               --
   Comprehensive income
   Cash dividends declared,
     ($.05 per share)                             --         --            --      --               --
   Shares released from
      deferred compensation
      plans trust                                 --         --            --      --           24,200
   Common stock acquired by ESOP                  --         --            --      --       (5,325,546)
   ESOP shares committed to
      be released                                 --         --       (11,008)     --          245,723
                                          ----------   --------   -----------     ---      -----------
BALANCE--JUNE 30, 2005                    15,870,000   $158,700   $69,085,928     $--      $(8,175,960)
                                          ==========   ========   ===========     ===      ===========

<CAPTION>
                                                         ACCUMULATED
                                                            OTHER           TOTAL
                                            RETAINED    COMPREHENSIVE   STOCKHOLDERS'
                                            EARNINGS         LOSS          EQUITY
                                          -----------   -------------   -------------
<S>                                       <C>            <C>            <C>
BALANCE--JANUARY 1, 2005                  $57,881,651    $  (962,249)   $123,054,701
   Comprehensive income:
      Net income                            3,147,060            --        3,147,060
      Net realized holding loss on
         available for sale securities
         arising during the period, net
         of tax benefit of $698,677                --       (400,355)       (400,355)
                                                                        ------------
   Comprehensive income                                                    2,746,705
                                                                        ------------
   Cash dividends declared,
     ($.05 per share)                        (764,934)           --         (764,934)
   Shares released from
      deferred compensation
      plans trust                                  --            --           24,200
   Common stock acquired by ESOP                   --            --       (5,325,546)
   ESOP shares committed to
      be released                                  --            --          234,715
                                          -----------    -----------    ------------
BALANCE--JUNE 30, 2005                    $60,263,777    $(1,362,604)   $119,969,841
                                          ===========    ===========    ============
</TABLE>

See notes to unaudited consolidated financial statements.


                                       3

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

<TABLE>
<CAPTION>
                                                                      SIX MONTHS ENDED JUNE 30,
                                                                    -----------------------------
                                                                         2006            2005
                                                                    -----------------------------
<S>                                                                 <C>             <C>
OPERATING ACTIVITIES:
   Net income                                                       $   3,517,573   $   3,147,060
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Provision for loan losses                                             8,000              --
      Depreciation                                                        317,151         244,920
      Share-based compensation expense                                    783,232         234,715
      Unrealized gain on derivative instruments                                --         (83,680)
      Loss on sale of investment securities                                   601              --
      Deferred income tax benefit                                        (115,293)       (136,282)
      Amortization of:
         Deferred loan fees                                              (427,182)       (669,818)
         Premiums and discounts, net                                       67,803         119,213
      Income from bank owned life insurance                              (333,251)       (164,340)
      Changes in assets and liabilities
      which (used) provided cash:
         Accrued interest receivable                                     (259,476)       (313,007)
         Prepaid expenses and other assets                                378,256      (1,537,095)
         Accrued interest payable                                       3,216,878       1,825,969
         Accounts payable and accrued expenses                          2,011,593       1,975,375
                                                                    -------------   -------------
            Net cash provided by operating activities                   9,165,885       4,643,030
                                                                    -------------   -------------
INVESTING ACTIVITIES:
   Principal collected on loans                                        74,378,611      71,229,225
   Disbursements for loans                                           (124,798,646)   (111,932,040)
   Purchases of:
      Mortgage-backed securities held to maturity                              --      (8,774,897)
      Mortgage-backed securities available for sale                   (10,064,597)    (20,553,403)
      Investments held to maturity                                             --     (10,178,366)
      Investments available for sale                                  (10,062,371)     (4,043,582)
      Federal Home Loan Bank stock                                     (1,416,191)     (2,770,900)
      Property and equipment                                           (1,954,098)       (535,376)
      Bank owned life insurance                                                --     (15,000,000)
   Proceeds from:
      Maturities of mortgage-backed securities available for sale              --       1,211,522
      Sales and maturities of investments available for sale           11,179,688         500,000
      Principal repayments of mortgage-backed securities
         held to maturity                                               5,690,564      10,098,619
      Principal repayments of mortgage-backed securities
         available for sale                                             7,200,885       9,563,013
      Redemption of Federal Home Loan Bank stock                          998,691       1,935,300
                                                                    -------------   -------------
            Net cash used in investing activities                     (48,847,464)    (79,250,885)
                                                                    -------------   -------------
FINANCING ACTIVITIES:
   Net decrease in demand deposits and savings accounts               (15,757,779)       (729,178)
   Net increase in certificate accounts                                56,595,528      43,784,589
   Net increase in other borrowed money                                 6,884,912       7,882,583
   Advances from Federal Home Loan Bank                               476,200,000     174,825,000
   Repayments of advances from Federal Home Loan Bank                (474,024,698)   (154,324,219)
   Net increase in advances from borrowers
      for taxes and insurance                                           1,840,260       1,655,985
   Acquisition of stock for ESOP and RRP                                       --      (5,325,546)
   Purchase of treasury stock                                          (8,240,427)             --
   Release of stock from deferred compensation plans trust                     --          24,200
   Payment of cash dividend                                            (1,668,617)       (764,934)
                                                                    -------------   -------------
            Net cash provided by financing activities                  41,829,179      67,028,480
                                                                    -------------   -------------
NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                     2,147,600      (7,579,375)

CASH AND CASH EQUIVALENTS--Beginning of period                         27,714,241      33,295,832
                                                                    -------------   -------------
CASH AND CASH EQUIVALENTS--End of period                            $  29,861,841   $  25,716,457
                                                                    =============   =============
SUPPLEMENTAL DISCLOSURES OF CASH
   FLOW INFORMATION:

   Cash paid during the year for:
      Interest on deposits and other borrowings                     $   8,953,753   $   6,558,686
                                                                    =============   =============
      Income taxes                                                  $   1,475,000   $   1,500,000
                                                                    =============   =============
</TABLE>

See notes to unaudited consolidated financial statements.


                                       4

<PAGE>

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 approximately 57% 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. All significant intercompany balances
     and transactions have been eliminated.

     The Bank's executive offices are in Jenkintown, Pennsylvania, with eight
     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
     wholly owned subsidiaries and Abington Corp. are dormant subsidiaries.

     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, 2005. The
     results for the six months ended June 30, 2006 are not necessarily
     indicative of the results that may be expected for the fiscal year ending
     December 31, 2006, 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 results
     could differ from those estimates. The Company's most significant estimates
     are the allowance for loan losses and deferred income taxes.


                                       5

<PAGE>

     ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is increased by
     charges to income through the provision for loan losses and decreased by
     charge-offs (net of recoveries). The allowance is maintained at a level
     that management considers adequate to provide for losses based upon
     evaluation of the known and inherent risks in the loan portfolio.
     Management's periodic evaluation of the adequacy of the allowance is based
     on the Company's past loan loss experience, the volume and composition of
     lending conducted by the Company, adverse situations that may affect a
     borrower's ability to repay, the estimated value of any underlying
     collateral, current economic conditions and other factors affecting the
     known and inherent risk in the portfolio.

     The allowance consists of specific allowances for impaired loans, a general
     allowance on all classified loans which are not impaired and a general
     allowance on the remainder of the portfolio. Although we determine the
     amount of each element of the allowance separately, the entire allowance
     for loan losses is available for the entire portfolio. The allowance on
     impaired loans is established for the amount by which the discounted cash
     flows, observable market price or fair value of collateral if the loan is
     collateral dependent is lower than the carrying value of the loan. The
     general valuation allowance on classified loans which are not impaired
     relates to loans that are classified as either doubtful, substandard or
     special mention. Such classifications are based on identified weaknesses
     that increase the credit risk of the loan. The general allowance on
     non-classified loans is established to recognize the inherent losses
     associated with lending activities, but which, unlike specific allowances,
     have not been allocated to particular problem loans. This allowance is
     based on historical loss experience adjusted for qualitative factors.

     The Company measures impaired loans based on the present value of expected
     future cash flows discounted at the loan's effective interest rate, the
     loan's observable market price, or the fair value of the collateral if the
     loan is collateral dependent. Impairment losses are included in the
     provision for loan losses.

     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
     did 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, were 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
     accrued. The Company did not hold any derivative financial instruments for
     trading purposes. We were not party to any derivative financial instrument
     agreements at June 30, 2006 or at any time during the six months ended June
     30, 2006.

     SHARE-BASED COMPENSATION-- In December 2004, the Financial Accounting
     Standards Board ("FASB") issued SFAS No. 123R (revised 2004), Share-Based
     Payment, which revises SFAS No. 123, Accounting for Stock-Based
     Compensation, and supersedes Accounting Principles Board ("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 the 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 were adopted by the Company as of
     July 1, 2005.


                                       6

<PAGE>

     In March 2005, the Securities and Exchange Commission (the "SEC") issued
     Staff Accounting Bulletin ("SAB") No. 107 which expressed the views of the
     SEC regarding the interaction between SFAS No. 123R and certain SEC rules
     and regulations. SAB No. 107 provides guidance related to the valuation of
     share-based payment arrangements for public companies, including
     assumptions such as expected volatility and expected term.

     At June 30, 2006, the Company has two share-based compensation plans, the
     2005 Recognition and Retention Plan and the 2005 Stock Option Plan. Share
     awards were first issued under these plans in July 2005. These plans are
     more fully described in Note 6.

     The Company also has an employee stock ownership plan ("ESOP"). This plan
     is more fully described in Note 6. Shares awarded under the ESOP are
     accounted for in accordance with AICPA Statement of Position ("SOP") 93-6,
     EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. As ESOP shares
     are committed to be released and allocated among participants, the Company
     recognizes compensation expense equal to the average market price of the
     shares over the period earned.

     EARNINGS PER SHARE--Earnings per share ("EPS") consists of two separate
     components, basic EPS and diluted EPS. Basic EPS is computed based on the
     weighted average number of shares of common stock outstanding for each
     period presented. Diluted EPS is calculated based on the weighted average
     number of shares of common stock outstanding plus dilutive common stock
     equivalents ("CSEs"). CSEs consist of shares that are assumed to have been
     purchased with the proceeds from the exercise of stock options, as well as
     unvested common stock awards. Common stock equivalents which are considered
     antidilutive are not included for the purposes of this calculation. At June
     30, 2006, there were 640,900 antidilutive CSEs, resulting from outstanding
     options. Earnings per share were calculated as follows:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED JUNE 30,
                                        -----------------------------------------------------
                                                   2006                        2005
                                        -------------------------   -------------------------
                                           BASIC        DILUTED        BASIC        DILUTED
                                        -----------   -----------   -----------   -----------
<S>                                     <C>           <C>           <C>           <C>
Net income                              $ 1,771,062   $ 1,771,062   $ 1,736,176   $ 1,736,176
                                        ===========   ===========   ===========   ===========
Weighted average shares outstanding      14,841,286    14,841,286    15,354,874    15,354,874
Effect of common share equivalents               --       238,507            --            --
                                        -----------   -----------   -----------   -----------
Adjusted weighted average shares used
   in earnings per share computation     14,841,286    15,079,793    15,354,874    15,354,874
                                        ===========   ===========   ===========   ===========
Earnings per share                      $      0.12   $      0.12   $      0.11   $      0.11
                                        ===========   ===========   ===========   ===========
</TABLE>


                                       7

<PAGE>

<TABLE>
<CAPTION>
                                                      SIX MONTHS ENDED JUNE 30,
                                        -----------------------------------------------------
                                                   2006                        2005
                                        -------------------------   -------------------------
                                           BASIC        DILUTED        BASIC        DILUTED
                                        -----------   -----------   -----------   -----------
<S>                                     <C>           <C>           <C>           <C>
Net income                              $ 3,517,573   $ 3,517,573   $ 3,147,060   $ 3,147,060
                                        ===========   ===========   ===========   ===========
Weighted average shares outstanding      14,928,361    14,928,361    15,429,204    15,429,204
Effect of common share equivalents               --       245,609            --            --
                                        -----------   -----------   -----------   -----------
Adjusted weighted average shares used
   in earnings per share computation     14,928,361    15,173,970    15,429,204    15,429,204
                                        ===========   ===========   ===========   ===========
Earnings per share                      $      0.24   $      0.23   $      0.20   $      0.20
                                        ===========   ===========   ===========   ===========
</TABLE>

     RECENT ACCOUNTING PRONOUNCEMENTS-- In July 2006, the FASB issued FASB
     Interpretation ("FIN") No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
     This Interpretation clarifies the accounting for uncertainty in income
     taxes recognized in an enterprise's financial statements in accordance with
     SFAS No. 109, ACCOUNTING FOR INCOME TAXES. This Interpretation prescribes a
     recognition threshold and measurement attribute for the financial statement
     recognition and measurement of a tax position taken or expected to be taken
     in a tax return. This Interpretation also provides guidance on
     derecognition, classification, interest and penalties, accounting in
     interim periods, disclosure, and transition. This Interpretation is
     effective for fiscal years beginning after December 15, 2006. The Company
     is continuing to evaluate the impact of this interpretation and does not
     expect that the guidance will have a material effect on the Company's
     financial position or results of operations.

     RECLASSIFICATIONS--Certain items in the 2005 consolidated financial
     statements have been reclassified to conform to the presentation in the
     2006 consolidated financial statements. Such reclassifications did not have
     a material impact on the presentation of the overall financial statements.


                                       8

<PAGE>

2.   INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                           HELD TO MATURITY
                                                            JUNE 30, 2006
                                         ---------------------------------------------------
                                                          GROSS        GROSS      ESTIMATED
                                          AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                             COST         GAINS       LOSSES        VALUE
                                         -----------   ----------   ----------   -----------
      <S>                                <C>               <C>      <C>          <C>
      Debt securities:
         Municipal bonds                 $20,394,511       $--      $(479,767)   $19,914,744
                                         -----------       ---      ---------    -----------
            Total debt securities        $20,394,511       $--      $(479,767)   $19,914,744
                                         ===========       ===      =========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                           AVAILABLE FOR SALE
                                                             JUNE 30, 2006
                                         -----------------------------------------------------
                                                          GROSS         GROSS       ESTIMATED
                                          AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                             COST         GAINS        LOSSES         VALUE
                                         -----------   ----------   ------------   -----------
      <S>                                <C>               <C>      <C>            <C>
      Debt securities:
         Agency bonds                    $74,991,492       $ --     $(2,307,462)   $72,684,030
         Corporate bonds and
            commercial paper                 499,521         --          (2,746)       496,775
         Certificates of deposit           1,183,000         --              --      1,183,000
                                         -----------       ----     -----------    -----------
            Total debt securities         76,674,013         --      (2,310,208)    74,363,805
                                         -----------       ----     -----------    -----------
      Equity securities:
         Common stock                             10        375              --            385
         Mutual funds                      2,984,343         --         (87,051)     2,897,292
                                         -----------       ----     -----------    -----------
            Total equity securities        2,984,353        375         (87,051)     2,897,677
                                         -----------       ----     -----------    -----------
      Total                              $79,658,366       $375     $(2,397,259)   $77,261,482
                                         ===========       ====     ===========    ===========
</TABLE>


                                        9

<PAGE>

<TABLE>
<CAPTION>
                                                           HELD TO MATURITY
                                                          DECEMBER 31, 2005
                                         ---------------------------------------------------
                                                          GROSS        GROSS      ESTIMATED
                                          AMORTIZED    UNREALIZED   UNREALIZED       FAIR
                                             COST         GAINS       LOSSES        VALUE
                                         -----------   ----------   ----------   -----------
      <S>                                <C>            <C>         <C>          <C>
      Debt securities:
         Municipal bonds                 $20,395,593     $57,765    $(136,583)   $20,316,775
                                         -----------     -------    ---------    -----------
             Total debt securities       $20,395,593     $57,765    $(136,583)   $20,316,775
                                         ===========     =======    =========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                           AVAILABLE FOR SALE
                                                           DECEMBER 31, 2005
                                         -----------------------------------------------------
                                                          GROSS         GROSS       ESTIMATED
                                          AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                             COST         GAINS        LOSSES         VALUE
                                         -----------   ----------   ------------   -----------
      <S>                                <C>            <C>         <C>            <C>
      Debt securities:
         Agency bonds                    $74,990,878     $17,500    $(1,888,453)   $73,119,925
         Corporate bonds                     999,457          --         (1,412)       998,045
         Municipal bonds                     180,000         275             --        180,275
         Certificates of deposit           1,183,000          --             --      1,183,000
                                         -----------     -------    -----------    -----------
             Total debt securities        77,353,335      17,775     (1,889,865)    75,481,245
                                         -----------     -------    -----------    -----------
      Equity securities:
         Common stock                             10         380             --            390
         Mutual funds                      3,422,260          --        (75,199)     3,347,061
                                         -----------     -------    -----------    -----------
             Total equity securities       3,422,270         380        (75,199)     3,347,451
                                         -----------     -------    -----------    -----------
      Total                              $80,775,605     $18,155    $(1,965,064)   $78,828,696
                                         ===========     =======    ===========    ===========
</TABLE>


                                       10

<PAGE>

     The amortized cost and estimated fair value of debt securities by
     contractual maturity are shown below. Expected maturities will differ from
     contractual maturities because borrowers may have the right to call or
     prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                             JUNE 30, 2006
                                         -----------------------------------------------------
                                            AVAILABLE FOR SALE            HELD TO MATURITY
                                         -------------------------   -------------------------
                                                        ESTIMATED                   ESTIMATED
                                          AMORTIZED        FAIR       AMORTIZED        FAIR
                                             COST         VALUE          COST         VALUE
                                         -----------   -----------   -----------   -----------
      <S>                                <C>           <C>           <C>           <C>
      Due in one year or less            $23,696,000   $23,388,850   $        --   $        --
      Due after one year through five
         years                            40,986,521    39,886,155            --            --
      Due after five years through ten
         years                             9,991,492     9,106,300            --            --
      Due after ten years                  2,000,000     1,982,500    20,394,511    19,914,744
                                         -----------   -----------   -----------   -----------
      Total                              $76,674,013   $74,363,805   $20,394,511   $19,914,744
                                         ===========   ===========   ===========   ===========
</TABLE>

     The table below sets forth investment securities which have an unrealized
     loss position as of June 30, 2006:

<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                 $(420,728)   $18,260,622   $   (59,039)  $ 1,654,120
                                         ---------    -----------   -----------   -----------
            Total securities held
               to maturity                (420,728)    18,260,622       (59,039)    1,654,120
                                         ---------    -----------   -----------   -----------
      Securities available for sale:
         Government agency securities    $(105,980)   $10,894,020   $(2,201,482)  $61,790,010
         Other securities                       --             --       (89,797)    3,394,067
                                         ---------    -----------   -----------   -----------
            Total securities
               available for sale         (105,980)    10,894,020    (2,291,279)   65,184,077
                                         ---------    -----------   -----------   -----------
      Total                              $(526,708)   $29,154,642   $(2,350,318)  $66,838,197
                                         =========    ===========   ===========   ===========
</TABLE>


                                       11

<PAGE>

     The table below sets forth investment securities which have an unrealized
     loss position as of December 31, 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                          $(136,583)   $11,922,095   $        --   $        --
                                                  ---------    -----------   -----------   -----------
            Total securities held to maturity      (136,583)    11,922,095            --            --
                                                  ---------    -----------   -----------   -----------
      Securities available for sale:
         Government agency securities             $(195,180)   $13,304,820   $(1,693,273)  $57,797,605
         Other securities                            (1,136)       498,925       (75,475)    3,345,896
                                                  ---------    -----------   -----------   -----------
            Total securities available for sale    (196,316)    13,803,745    (1,768,748)   61,143,501
                                                  ---------    -----------   -----------   -----------
      Total                                       $(332,899)   $25,725,840   $(1,768,748)  $61,143,501
                                                  =========    ===========   ===========   ===========
</TABLE>

     On a quarterly basis, management of the Company formally reviews the
     securities in its investment portfolio to identify any securities that
     might have an other-than-temporary impairment. At June 30, 2006, securities
     in a gross unrealized loss position for twelve months or longer consist of
     34 securities having an aggregate depreciation of 3.4% from the Company's
     amortized cost basis. Securities in a gross unrealized loss position for
     less than twelve months at June 30, 2006, consist of 48 securities having
     an aggregate depreciation of 1.8% from the Company's amortized cost basis.
     Management has concluded that the unrealized losses above are temporary in
     nature. They are not related to the underlying credit quality of the
     issuers, and (with the exception of equity securities) they are on
     securities that have contractual maturity dates. The principal and interest
     payments on our debt securities have been made as scheduled, and there is
     no evidence that any issuer will not continue to do so. The future
     principal payments will be sufficient to recover the current amortized cost
     of the securities. The unrealized losses above are primarily related to
     market interest rates. The current declines in market value are not
     significant, and management of the Company believes that these values will
     recover should market interest rates fall. The Company has the intent and
     ability to hold these investments for the time necessary to recover its
     cost.


                                       12

<PAGE>

3.   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, 2006
                               ----------------------------------------------------
                                                GROSS        GROSS       ESTIMATED
                                AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                   COST         GAINS        LOSSES        VALUE
                               -----------   ----------   -----------   -----------
<S>                            <C>             <C>        <C>           <C>
      FNMA pass-through
         certificates          $26,134,041     $    --    $(1,568,752)  $24,565,289
      FHLMC pass-through
         certificates           18,727,227          --     (1,261,611)   17,465,616
      Real estate mortgage
         investment conduits    16,790,981      13,720       (542,327)   16,262,374
                               -----------     -------    -----------   -----------
            Total              $61,652,249     $13,720    $(3,372,690)  $58,293,279
                               ===========     =======    ===========   ===========

</TABLE>

<TABLE>
<CAPTION>
                                                AVAILABLE FOR SALE
                                                   JUNE 30, 2006
                               ----------------------------------------------------
                                               GROSS         GROSS       ESTIMATED
                                AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                   COST        GAINS         LOSSES        VALUE
                               -----------   ----------   -----------   -----------
<S>                            <C>             <C>        <C>           <C>
      GNMA pass-through
         certificates          $   494,677     $ 9,758    $      (922)  $   503,513
      FNMA pass-through
         certificates            9,696,718       8,708       (333,799)    9,371,627
      FHLMC pass-through
         certificates           69,409,617      15,227     (3,064,203)   66,360,641
      Real estate mortgage
         investment conduits     5,475,492       2,521       (242,835)    5,235,178
                               -----------     -------    -----------   -----------
            Total              $85,076,504     $36,214    $(3,641,759)  $81,470,959
                               ===========     =======    ===========   ===========
</TABLE>


                                       13

<PAGE>

<TABLE>
<CAPTION>
                                                 HELD TO MATURITY
                                                 DECEMBER 31, 2005
                               ----------------------------------------------------
                                                GROSS        GROSS       ESTIMATED
                                AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                   COST         GAINS        LOSSES        VALUE
                               -----------   ----------   -----------   -----------
<S>                            <C>             <C>        <C>           <C>
      FNMA pass-through
         certificates          $28,447,912     $    --    $  (918,204)  $27,529,708
      FHLMC pass-through
         certificates           20,209,129          --       (743,308)   19,465,821
      Real estate mortgage
         investment conduits    18,753,694      39,195       (283,163)   18,509,726
                               -----------     -------    -----------   -----------
            Total              $67,410,735     $39,195    $(1,944,675)  $65,505,255
                               ===========     =======    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                AVAILABLE FOR SALE
                                                 DECEMBER 31, 2005
                               ----------------------------------------------------
                                                GROSS        GROSS       ESTIMATED
                                AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                   COST         GAINS        LOSSES        VALUE
                               -----------   ----------   -----------   -----------
<S>                            <C>            <C>         <C>           <C>
      GNMA pass-through
         certificates          $   583,131    $ 17,217    $    (1,226)  $   599,122
      FNMA pass-through
         certificates           10,626,026      59,644       (151,016)   10,534,654
      FHLMC pass-through
         certificates           64,913,936      76,092     (2,099,759)   62,890,269
      Real estate mortgage
         investment conduits     6,089,177       3,544       (173,387)    5,919,334
                               -----------    --------    -----------   -----------
            Total              $82,212,270    $156,497    $(2,425,388)  $79,943,379
                               ===========    ========    ===========   ===========
</TABLE>


                                       14

<PAGE>

     The table below sets forth mortgage-backed securities which have an
     unrealized loss position as of June 30, 2006:

<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                          $  (332,637)  $ 8,225,527   $(1,236,114)  $16,339,767
         FHLMC pass-through
            certificates                             (610,101)    8,856,887      (651,510)    8,608,729
         Real estate mortgage
            investment conduits                      (172,818)    4,453,406      (369,510)   10,488,537
                                                  -----------   -----------   -----------   -----------
            Total securities held to maturity      (1,115,556)   21,535,820    (2,257,134)   35,437,033
                                                  -----------   -----------   -----------   -----------
      Securities available for sale:
         GNMA pass-through
            certificates                          $      (922)  $   144,403   $        --   $        --
         FNMA pass-through
            certificates                             (168,987)    5,014,595      (164,812)    3,129,482
         FHLMC pass-through
            certificates                             (404,133)   16,754,296    (2,660,070)   47,590,810
         Real estate mortgage
            investment conduits                            --            --      (242,835)    5,142,173
                                                  -----------   -----------   -----------   -----------
            Total securities available for sale      (574,042)   21,913,294    (3,067,717)   55,862,465
                                                  -----------   -----------   -----------   -----------
      Total                                       $(1,689,598)  $43,449,114   $(5,324,851)  $91,299,498
                                                  ===========   ===========   ===========   ===========
</TABLE>


                                       15

<PAGE>

     The table below sets forth mortgage-backed securities which have an
     unrealized loss position as of December 31, 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                          $  (124,140)  $ 9,309,491   $  (794,064)  $18,220,217
         FHLMC pass-through
            certificates                             (325,995)    9,889,436      (417,313)    9,576,385
         Real estate mortgage
            investment conduits                      (283,163)   11,509,933            --            --
                                                  -----------   -----------   -----------   -----------
            Total securities held to maturity        (733,298)   30,708,860    (1,211,377)   27,796,602
                                                  -----------   -----------   -----------   -----------
     Securities available for sale:
         GNMA pass-through
            certificates                          $    (1,226)  $   126,544   $        --   $        --
         FNMA pass-through
            certificates                              (29,704)    4,311,626      (121,312)    3,527,004
         FHLMC pass-through
            certificates                             (539,147)   26,123,727    (1,560,612)   33,299,429
         Real estate mortgage
            investment conduits                      (130,316)    4,144,716       (43,071)    1,669,510
                                                  -----------   -----------   -----------   -----------
            Total securities available for sale      (700,393)   34,706,613    (1,724,995)   38,495,943
                                                  -----------   -----------   -----------   -----------
      Total                                       $(1,433,691)  $65,415,473   $(2,936,372)  $66,292,545
                                                  ===========   ===========   ===========   ===========
</TABLE>

     On a quarterly basis, management of the Company formally reviews the
     securities in its mortgage-backed securities portfolio to identify any
     securities that might have an other-than-temporary impairment. At June 30,
     2006, securities in a gross unrealized loss position for twelve months or
     longer consist of 41 securities having an aggregate depreciation of 5.5%
     from the Company's amortized cost basis. Securities in a gross unrealized
     loss position for less than twelve months at June 30, 2006, consist of 29
     securities having an aggregate depreciation of 3.7% from the Company's
     amortized cost basis. Management has concluded that the unrealized losses
     above are temporary in nature. They are not related to the underlying
     credit quality of the issuers, and they are on securities that have
     contractual maturity dates. The principal and interest payments on our
     mortgage-backed securities have been made as scheduled, and there is no
     evidence that any issuer will not continue to do so. The future principal
     payments will be sufficient to recover the current amortized cost of the
     securities. The unrealized losses above are primarily related to market
     interest rates. The current declines in market value are not significant,
     and management of the Company believes that these values will recover
     should market interest rates fall. The Company has the intent and ability
     to hold these investments for the time necessary to recover its cost.


                                       16

<PAGE>

4.   LOANS RECEIVABLE - NET

     Loans receivable consist of the following:

                                               JUNE 30, 2006   DECEMBER 31, 2005
                                               -------------   -----------------
     One-to four-family residential            $ 357,404,160      $323,709,542
     Multi-family residential and commercial      85,057,823        76,646,911
     Construction                                147,921,195       132,789,343
     Home equity lines of credit                  37,625,283        41,063,321
     Commercial business loans                     8,773,204        10,974,955
     Consumer non-real estate loans                4,384,724         4,711,519
                                               -------------      ------------
        Total loans                              641,166,389       589,895,591
     Less:
        Construction loans in process            (58,231,660)      (57,690,327)
        Deferred loan fees                        (1,162,577)       (1,263,545)
        Allowance for loan losses                 (1,445,726)       (1,454,510)
                                               -------------      ------------
     Loans receivable--net                     $ 580,326,426      $529,487,209
                                               =============      ============

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

                                            SIX MONTHS ENDED      YEAR ENDED
                                             JUNE 30, 2006    DECEMBER 31, 2005
                                           ----------------   -----------------
     Balance--beginning of year               $1,454,510          $1,412,697
        Provision for loan losses                  8,000              25,000
        Charge-offs                              (25,255)            (69,774)
        Recoveries                                 8,471              86,587
                                              ----------          ----------
           (Charge-offs)/recoveries--net         (16,784)             16,813
                                              ----------          ----------
     Balance--end of period                   $1,445,726          $1,454,510
                                              ==========          ==========

     The provision for loan losses charged to expense is based upon past loan
     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.


                                       17

<PAGE>

     As of June 30, 2006 and December 31, 2005, the recorded investment in loans
     that are considered to be impaired is as follows.

                                                      JUNE 30,    DECEMBER 31,
                                                        2006          2005
                                                     ----------   ------------
      Impaired collateral-dependent loans            $       --    $2,885,364

      Average impaired loan balance                  $1,392,141    $   94,861

      Interest income recognized on impaired loans   $   65,955    $       --

     As a result of the Company's measurement of impaired loans, no allowance
     for loan losses was established for impaired loans at June 30, 2006. An
     allowance for loan losses of approximately $116,000 was established for
     $2.9 million of total impaired loans at December 31, 2005. At December 31,
     2005, the impaired loan balance consisted of one construction loan. In
     April 2006, the remaining balance of the loan was paid in full, including
     all past due interest and costs.

     The Company had no nonaccrual loans at June 30, 2006. Nonaccrual loans at
     December 31, 2005, amounted to approximately $2.9 million. Commercial 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 at 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. Non-performing loans, which consist of
     non-accruing loans plus accruing loans 90 days or more past due, at June
     30, 2006 and December 31, 2005, amounted to approximately $305,000 and $2.9
     million, 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, 2006, $66,000 in cash basis interest income
     was recognized. No cash basis interest income was recognized for the six
     months ended June 30, 2005. No interest income was foregone on nonaccrual
     loans for the six-month periods ended June 30, 2006 and 2005.


                                       18

<PAGE>

5.   DEFERRED INCOME TAXES

     Items that gave rise to significant portions of the deferred tax accounts
     are as follows:
<TABLE>
<CAPTION>
                                                    JUNE 30, 2006   DECEMBER 31, 2005
                                                    -------------   -----------------
<S>                                                   <C>              <C>
      Deferred tax assets:
         Allowance for loan losses                    $  491,547       $  494,533
         Deferred compensation                         1,262,039        1,136,056
         Write-down of impaired investments                   --           23,800
         Unrealized loss on securities available-
            for-sale                                   2,040,825        1,433,372
                                                      ----------       ----------
               Total deferred tax assets               3,794,411        3,087,761
                                                      ----------       ----------
      Deferred tax liabilities:
         Property and equipment                          (88,687)        (105,635)
         Deferred loan fees                             (314,937)        (313,175)
         Other                                           (19,841)         (20,751)
                                                      ----------       ----------
               Total deferred tax liabilities           (423,465)        (439,561)
                                                      ----------       ----------
      Net deferred tax asset                          $3,370,946       $2,648,200
                                                      ==========       ==========
</TABLE>

6.   PENSION AND PROFIT SHARING PLANS

     In addition to the plans disclosed below, the Company also maintains an
     executive deferred compensation plan for selected executive officers, which
     was frozen retroactive to January 1, 2005, a board of directors deferred
     compensation plan for directors, and a 401(k) retirement plan for
     substantially all of its employees. Further detail of these plans can be
     obtained from the Company's Annual Report on Form 10-K for the period ended
     December 31, 2005.


                                       19

<PAGE>

     SUPPLEMENTAL RETIREMENT PLAN
     ----------------------------
     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,
                                                            -------------------------
                                                                 2006       2005
                                                               --------   --------
<S>                                                            <C>        <C>
      Components of net periodic benefit cost:
      Service cost                                             $ 53,728   $ 49,310
      Interest cost                                              65,479     57,995
      Expected return on assets                                      --         --
      Amortization of prior service cost                         60,793     60,695
                                                               --------   --------
      Net periodic pension cost                                $180,000   $168,000
                                                               ========   ========
      Weighted average assumptions:
      Discount rate                                                5.55%      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>

     EMPLOYEE STOCK OWNERSHIP PLAN
     -----------------------------
     In 2004, the Company established an employee stock ownership plan ("ESOP")
     for substantially all of its full-time employees. Certain senior officers
     of the Bank have been designated as Trustees of the ESOP. Shares of the
     Company's common stock purchased by the ESOP are held in a suspense account
     until released for allocation to participants. Shares are expected to be
     released over a 15-year period. 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 committed to be released and
     allocated among participants, the Company recognizes compensation expense
     equal to the average market price of the shares. The ESOP Trust (the
     "Trust") purchased 571,320 shares of the Company's common stock for
     approximately $7.4 million, an average price of $12.90 per share. No
     additional purchases are expected by the Trust under this plan. As of June
     30, 2006, 38,088 shares had been allocated to participants, and the fair
     value of the remaining 533,232 unallocated shares was approximately $8.0
     million. During the three- and six-month periods ended June 30, 2006,
     approximately 9,500 and 19,000 shares, respectively, were committed to be
     released to participants, resulting in recognition of approximately
     $135,000 and $261,000 in compensation expense, respectively.

     RECOGNITION AND RETENTION PLAN
     ------------------------------
     In June 2005, the shareholders of the Company approved the adoption of the
     2005 Recognition and Retention Plan (the "RRP"). Certain senior officers of
     the Bank have been designated as Trustees of 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
     Recognition Plan Trust (the "Trust") purchased 285,660 shares of the
     Company's common stock in the open market for approximately $3.7 million,
     an average price of $12.95 per share. The Company made sufficient
     contributions to the Trust to fund these purchases. No additional purchases
     are expected to be made by the Trust under this plan. Pursuant to the terms
     of the plan, all 285,660 shares acquired by the Trust were granted to
     certain officers, employees and directors of the Company in July 2005.
     Approximately 2,000 shares were forfeited during the six months ended June
     30, 2006, which have not been reallocated and are available for future
     issuance. RRP shares will generally vest at the rate of 20% per year over
     five years.


                                       20

<PAGE>

     A summary of the status of the shares under the RRP as of June 30, 2006 and
     changes during the six months ended June 30, 2006 are presented below.
     Subsequent to June 30, 2006, approximately 56,000 shares with a weighted
     average grant date fair value of $12.01 became vested on July 5, 2006:

<TABLE>
<CAPTION>
                                                   SIX MONTHS ENDED JUNE 30, 2006
                                              ----------------------------------------
                                                                   WEIGHTED AVERAGE
                                              NUMBER OF SHARES   GRANT DATE FAIR VALUE
                                              ----------------   ---------------------
<S>                                                  <C>                   <C>
        Nonvested at the beginning of the year       285,660               $12.02
        Granted                                           --                   --
        Vested                                            --                   --
        Forfeited                                     (2,000)               12.01
                                                     -------               ------
        Nonvested at the end of the period           283,660               $12.02
                                                     =======               ======
</TABLE>

     Compensation expense on RRP shares granted is recognized ratably over the
     five year vesting period in an amount which totals the market price of the
     Company's stock at the date of grant. During the three- and six-month
     periods ended June 30, 2006, approximately 14,000 and 28,000 shares,
     respectively, were amortized to expense, based on the proportional vesting
     of the awarded shares, resulting in recognition of approximately $171,000
     and $339,000 in compensation expense, respectively. No tax benefit was
     recognized from the plan during these periods. No shares were amortized and
     no expense was recognized during the six months ended June 30, 2005. As of
     June 30, 2006, approximately $2.7 million in additional compensation
     expense will be recognized over the remaining lives of the RRP awards. At
     June 30, 2006, the weighted average remaining lives of the RRP awards was
     approximately 4.0 years.

     STOCK OPTIONS
     -------------
     In June 2005, the shareholders of the Company also approved the adoption of
     the 2005 Stock Option Plan (the "Option Plan"). The Option Plan authorizes
     the grant of 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 and are generally exercisable for a period of ten years after
     the grant date. A total of 714,150 shares of common stock have been
     reserved for future issuance pursuant to the Option Plan. Approximately
     2,400 stock options were forfeited during the six months ended June 30,
     2006, and 73,250 stock options are available for future grant.


                                       21

<PAGE>

     A summary of the status of the Company's stock options under the Option
     Plan as of June 30, 2006 and changes during the six months ended June 30,
     2006 are presented below:

<TABLE>
<CAPTION>

                                                    SIX MONTHS ENDED JUNE 30, 2006
                                                 -----------------------------------
                                                                    WEIGHTED AVERAGE
                                                 NUMBER OF SHARES    EXERCISE PRICE
                                                 ----------------   ----------------
<S>                                                   <C>                 <C>
      Outstanding at the beginning of the year        643,250             $12.02
      Granted                                              --                 --
      Exercised                                            --                 --
      Forfeited                                        (2,350)             12.01
                                                      -------             ------
      Outstanding at the end of the period            640,900             $12.02
                                                      =======             ======
      Exercisable at the end of the period                 --             $   --
                                                      =======             ======
</TABLE>

     Subsequent to June 30, 2006, approximately 127,000 options with a weighted
     average exercise price of $12.01 became vested and exercisable on July 5,
     2006.

     The following table summarizes all stock options outstanding under the
     Option Plan as of June 30, 2006:

<TABLE>
<CAPTION>
                                    OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                       ---------------------------------------------   --------------------------
                                      WEIGHTED      WEIGHTED AVERAGE                  WEIGHTED
                       NUMBER OF       AVERAGE         REMAINING       NUMBER OF       AVERAGE
      EXERCISE PRICE     SHARES    EXERCISE PRICE   CONTRACTUAL LIFE     SHARES    EXERCISE PRICE
      --------------   ---------   --------------   ----------------   ---------   --------------
                                                       (in years)
      <S>               <C>            <C>                 <C>             <C>           <C>
          $12.01        636,400        $12.01              9.0             --            $--
           13.35          4,500         13.35              9.4             --             --
                        -------        ------              ---            ---            ---
           Total        640,900        $12.02              9.0             --            $--
                        =======        ======              ===            ===            ===
</TABLE>

     The estimated fair value of options granted during 2005 was $2.88 per
     share. No stock options have been granted in 2006. The fair value was
     estimated on the date of grant in accordance with SFAS No. 123R using the
     Black-Scholes Single Option Pricing Model with the following weighted
     average assumptions used:

                                     SIX MONTHS ENDED
                                       JUNE 30, 2006
                                     ----------------
          Dividend yield                      1.67%
          Expected volatility                23.62%
          Risk-free interest rate      3.74 - 4.34%
          Expected life of options     3 - 7 years

     During the three and six months ended June 30, 2006, approximately $92,000
     and $183,000, respectively, was recognized in compensation expense for the
     Option Plan. No tax benefit was recognized from the plan during this
     period. At June 30, 2006, approximately $1.5 million in additional
     compensation expense for awarded options remained unrecognized. The
     weighted average period over which this expense will be recognized is
     approximately 4.0 years.


                                       22

<PAGE>

7.   COMMITMENTS AND CONTINGENCIES

     The Bank had approximately $10.0 million in outstanding mortgage loan
     commitments at June 30, 2006. The commitments are expected to be funded
     within 90 days with approximately $9.6 million in fixed rate loans ranging
     from 5.75% to 7.00%. The Bank had approximately $3.6 million in outstanding
     mortgage loan commitments at December 31, 2005. These loans were not
     originated for resale. Also outstanding at June 30, 2006 and December 31,
     2005, were unused lines of credit totaling approximately $65.9 million and
     $64.0 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 financings 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 of the Bank's letters of credit expire
     within one year. At June 30, 2006 and December 31, 2005, the Bank had
     letters of credit outstanding of approximately $16.5 million and $14.1
     million, respectively, of which $15.0 million and $12.5 million,
     respectively, were standby letters of credit. At June 30, 2006 and December
     31, 2005, the uncollateralized portion of the letters of credit extended by
     the Bank was approximately $97,000 and $169,000, respectively. At both June
     30, 2006 and December 31, 2005, $97,000 of the uncollateralized letters of
     credit was for standby letters of credit.

     The Company is subject to various pending claims and contingent liabilities
     arising in the normal course of business which are not reflected in the
     accompanying 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 sales of whole loans and
     participation interests. At June 30, 2006, 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.

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


                                       23

<PAGE>

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.

We earned net income of $1.8 million for the quarter ended June 30, 2006,
representing an increase of 2.0% over the comparable 2005 period. Diluted
earnings per share increased to $0.12 for the quarter compared to $0.11 for the
second quarter of 2005. We earned net income of $3.5 million for the first six
months of 2006, representing an increase of 11.8% over the comparable 2005
period. Diluted earnings per share increased to $0.23 for the first six months
of 2006 from $0.20 for the first six months of 2005. Net interest income was
$5.8 million and $11.3 million for the three months and six months ended June
30, 2006, respectively, representing increases of 10.3% and 11.1%, respectively,
over the comparable 2005 periods. Interest income for the three months ended
June 30, 2006 increased $2.5 million or 26.3% over the comparable 2005 period.
Interest income for the six months ended June 30, 2006 increased $4.9 million or
26.5% over the comparable 2005 period. For both the three-month and six-month
periods, the increase in interest income was primarily a result of growth in the
average balance of our loan portfolio combined with an increase in the average
yield on those assets. Our increase in interest income for both the three-month
and six-month periods, was partially offset by an increase in our interest
expense. Interest expense for the three months ended June 30, 2006 increased
$2.0 million or 45.2% over the comparable 2005 period. Interest expense for the
six months ended June 30, 2006 increased $3.8 million or 45.2% over the
comparable 2005 period. For both the three- and six-month periods, the majority
of the increase in interest expense was due to the increase in interest expense
on deposits. During the three months ended June 30, 2006 compared to the three
months ended June 30, 2005, our average deposit balance grew by $83.9 million or
21.1%, primarily due to growth in higher-rate certificates of deposit. During
the six months ended June 30, 2006 compared to the six months ended June 30,
2005, our average deposit balance grew by $82.1 million or 21.1%, again,
primarily due to growth in higher-rate certificates of deposit.

The Company's total assets increased $50.2 million, or 5.9%, to $894.3 million
at June 30, 2006 compared to $844.1 million at December 31, 2005. The primary
reason for the increase in total assets during the first six months of 2006 was
a $50.8 million or 9.6% increase in net loans receivable. The largest loan
growth occurred in one- to four-family residential loans, which increased $33.7
million or 10.4% and construction loans, which increased $15.1 million or 11.4%.
Additionally, multi-family residential and commercial loans increased $8.4
million or 11.0%. Also contributing to the overall increase in assets during the
first six months of 2006 was an increase in property and equipment, net, of $1.6
million or 25.1%, primarily as a result of increased investment in our new
branches. The first of these branches opened in April 2006 in Warrington,
Pennsylvania, with four additional branches expected to open later this year and
early next year. Our stockholders' equity decreased $6.8 million to $110.4
million at June 30, 2006 compared to $117.2 million at December 31, 2005. The
decrease was primarily due to the purchase of approximately 577,000 shares of
the Company's common stock for an aggregate of $8.2 million as part of the
Company's stock repurchase program announced in January 2006, which offset the
net income retained of $1.8 million.

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


                                       24

<PAGE>

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 increased by charges
to income through the provision for loan losses and decreased by charge-offs
(net of recoveries). The allowance is maintained at a level that management
considers adequate to provide for losses based upon evaluation of the known and
inherent risks in the loan portfolio. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
the volume and composition of lending conducted by the Company, adverse
situations that may affect a borrower's ability to repay, the estimated value of
any underlying collateral, current economic conditions and other factors
affecting the known and inherent risk in the portfolio. This evaluation is
inherently subjective as it requires material estimates including, among others,
the amount and timing of expected future cash flows on impacted loans, exposure
at default, value of collateral, and estimated losses on our commercial and
residential loan portfolios. All of these estimates may be susceptible to
significant change.

The allowance consists of specific allowances for impaired loans, a general
allowance on all classified loans which are not impaired and a general allowance
on the remainder of the portfolio. Although we determine the amount of each
element of the allowance separately, the entire allowance for loan losses is
available for the entire portfolio.

We establish an allowance on certain impaired loans for the amount by which the
discounted cash flows, observable market price or fair value of collateral if
the loan is collateral dependent is lower than the carrying value of the loan. 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.

We establish a general valuation allowance on classified loans which are not
impaired. We segregate these loans by category and assign allowance percentages
to each category based on inherent losses associated with each type of lending
and consideration that these loans, in the aggregate, represent an above-average
credit risk and that more of these loans will prove to be uncollectible compared
to loans in the general portfolio. The categories used by the Company include
"Doubtful," "Substandard" and "Special Mention." Classification of a loan within
such categories is based on identified weaknesses that increase the credit risk
of the loan.

We establish a general allowance on non-classified loans to recognize the
inherent losses associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem loans. This general
valuation allowance is determined by segregating the loans by loan category and
assigning allowance percentages based on our historical loss experience,
delinquency trends, and management's evaluation of the collectibility of the
loan portfolio.

The allowance is adjusted for significant factors that, in management's
judgment, affect the collectibility of the portfolio as of the evaluation date.
These significant factors may include changes in lending policies and
procedures, changes in existing general economic and business conditions
affecting our


                                       25

<PAGE>

primary lending areas, credit quality trends, collateral value,
loan volumes and concentrations, seasoning of the loan portfolio, loss
experience in particular segments of the portfolio, duration of the current
business cycle, and bank regulatory examination results. The applied loss
factors are reevaluated each reporting period to ensure their relevance in the
current economic environment.

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 or 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 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 a valuation allowance against our deferred tax assets. An
increase in the valuation allowance would result in additional income tax
expense in the period and could have a significant impact on our future
earnings.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2006 AND DECEMBER 31, 2005

The Company's total assets increased $50.2 million, or 5.9%, to $894.3 million
at June 30, 2006 compared to $844.1 million at December 31, 2005. The primary
reason for the increase in total assets during the first six months of 2006 was
a $50.8 million or 9.6% increase in net loans receivable. The largest loan
growth occurred in one- to four-family residential loans, which increased $33.7
million or 10.4% and construction loans, which increased $15.1 million or 11.4%.
Additionally, multi-family residential and commercial loans increased $8.4
million or 11.0%. Also contributing to the overall increase in assets during the
first six months of 2006 was an increase in property and equipment, net, of $1.6
million or 25.1%, primarily as a result of increased investment in our new
branches. The first of these branches opened in April 2006 in Warrington,
Pennsylvania, with two additional branches expected to open later this year and
two early next year. These increases were somewhat offset by a decrease in


                                       26

<PAGE>

investment and mortgage-backed securities of $5.8 million in the aggregate,
which occurred as a portion of our maturities and repayments were reinvested
into new loans.

Our total deposits increased $40.8 million or 8.1% to $542.0 million at June 30,
2006 compared to $501.2 million at December 31, 2006. The increase was due
primarily to an increase in certificate accounts of $56.6 million that was
partially offset by a decrease in savings and money market accounts of $14.7
million. The shift towards higher-rate certificates of deposit is a result of
the increased rates available on those products relative to other deposit
products or other investments in the current interest rate environment. The
Company continues to remain focused on maintaining and growing its base of core
deposits over the long term. Our other borrowed money increased $6.9 million to
$23.0 million at June 30, 2006 compared to $16.1 million at December 31, 2006.
This increase reflects an increase in the amount of securities repurchase
agreements entered into with certain commercial checking account customers.

Our stockholders' equity decreased $6.8 million to $110.4 million at June 30,
2006 compared to $117.2 million at December 31, 2005. The decrease was primarily
due to the purchase of approximately 577,000 shares of the Company's common
stock for an aggregate of $8.2 million as part of the Company's stock repurchase
program announced in January 2006. The payment of the Company's quarterly cash
dividends of $0.05 and $0.06 per share in March and June 2006, respectively,
reduced retained earnings by $1.7 million, however the addition of our net
income for the first six months of 2006, resulted in a net increase to retained
earnings of $1.8 million. Stockholders' equity was also increased by
approximately $783,000 in the aggregate as a result of the proportional
commitment to release unallocated ESOP shares, amortization of unvested RRP
shares, and recognition of Option Plan expense to additional paid-in capital.
Our accumulated other comprehensive loss increased $1.2 million.

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, 2006, our
cash and cash equivalents amounted to $29.9 million. In addition, at such date
we had $23.7 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 $158.7 million at June 30, 2006.

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 expenses. At June 30, 2006,
we had certificates of deposit maturing within the next 12 months amounting to
$202.3 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, 2006, and the year ended December 31,
2005, the average balance of our outstanding FHLB advances was $203.6 million
and $192.2 million, respectively. At June 30, 2006, we had $203.6 million in
outstanding FHLB advances and we had $317.6 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


                                       27

<PAGE>

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 $110.4 million at June 30, 2006. Throughout
2005, as part of our long-term strategic plan to leverage our capital through
retail deposit and loan growth, we made a deliberate effort to redeploy our
capital into loans that yield an attractive rate of return. We have continued to
do this throughout the first six months of 2006, originating over $125 million
in new loans. In April 2006, we opened a new Bank branch in Warrington,
Pennsylvania, and we are continuing to progress towards the opening of
additional branches in Concordville and Lansdale, Pennsylvania in the fall of
2006 and in Springhouse and Chalfont, Pennsylvania in the beginning of 2007. We
believe that these new branches will provide additional opportunities to grow
our core deposits and establish new lending relationships. During the second
quarter, we increased our quarterly cash dividend to $0.06 from $0.05,
reflecting our expectations for continued success. Additionally, during the
first six months of 2006, we purchased approximately 577,000 shares of the
Company's common stock for an aggregate of $8.2 million as part of the Company's
stock repurchase plan announced this year. We believe that the repurchase
program will benefit our shareholders by improving the Company's return on
equity and earnings per share and, at the same time, aid us in managing our
strong capital position.

The following table summarizes regulatory capital ratios for the Company and the
Bank 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
                                         2006        2005        MINIMUM   CAPITALIZED
                                       --------  ------------  ----------  -----------
<S>                                      <C>         <C>          <C>         <C>
      CAPITAL RATIOS:
      Tier 1 leverage ratio
         The Company                     13.05%      14.28%       4.00%         N/A
         The Bank                        10.48       10.46        4.00         5.00%
      Tier 1 risk-based capital ratio
         The Company                     20.40       23.19        4.00          N/A
         The Bank                        16.39       16.93        4.00         6.00
      Total risk-based capital ratio
         The Company                     20.66       23.47        8.00          N/A
         The Bank                        16.65       17.21        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. We were
not party to any derivative financial instrument agreements at June 30, 2006 or
at any time during the six months ended June 30, 2006.


                                       28

<PAGE>

SHARE-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R (revised 2004),
SHARE-BASED PAYMENT, which revises SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, and supersedes Accounting Principles Board ("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 the 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 were adopted by the Company as of July 1, 2005.

In March 2005, the Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin ("SAB") No. 107 which expressed the views of the SEC
regarding the interaction between SFAS No. 123R and certain SEC rules and
regulations. SAB No. 107 provides guidance related to the valuation of
share-based payment arrangements for public companies, including assumptions
such as expected volatility and expected term.

At June 30, 2006, the Company has two stock-based compensation plans, the 2005
Recognition and Retention Plan ("RRP") and the 2005 Stock Option Plan (the
"Option Plan"). Share awards were first issued under these plans in July 2005.
See Note 6 in the Notes to the Unaudited Consolidated Financial Statements
herein for a further description of these plans.

During the three- and six-month periods ended June 30, 2006, we recognized
approximately $171,000 and $339,000, respectively, in compensation expense
related to the amortization of RRP shares. No expense was recognized during the
six months ended June 30, 2005. As of June 30, 2006, approximately $2.7 million
in additional compensation expense will be recognized over the remaining lives
of the RRP awards. At June 30, 2006, the weighted average remaining lives of the
RRP awards is approximately 4.0 years.

During the three- and six-month periods ended June 30, 2006, approximately
$92,000 and $183,000, respectively, were recognized in compensation expense for
the Option Plan. No expense was recognized during the six months ended June 30,
2005. At June 30, 2006, approximately $1.5 million in additional compensation
expense for awarded options remained unrecognized. The weighted average period
over which this expense will be recognized is approximately 4.0 years.

The Company also has an employee stock ownership plan ("ESOP"). See Note 6 in
the Notes to the Unaudited Consolidated Financial Statements herein for a
further description of this plan. Shares awarded under the ESOP are accounted
for in accordance with AICPA Statement of Position ("SOP") 93-6, EMPLOYERS'
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. As ESOP shares are committed to
be released and allocated among participants, the Company recognizes
compensation expense equal to the average market price of the shares over the
period earned. During the three- and six-month periods ended June 30, 2006, we
recognized approximately $135,000 and $261,000, respectively, in compensation
expense due to the ESOP.

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


                                       29

<PAGE>

of credit and interest rate risk in excess of the amount recognized in the
consolidated statements of 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, 2006 and December 31, 2005, 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 loan documents.
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, 2006 and December 31,
2005, 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 $134.1 million and $125.2
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 financings 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 of the Bank's letters of credit expire within one
year. At June 30, 2006 and December 31, 2005, the Bank had letters of credit
outstanding of approximately $16.5 million and $14.1 million, respectively, of
which $15.0 million and $12.5 million, respectively, were standby letters of
credit. At June 30, 2006 and December 31, 2005, the uncollateralized portion of
the letters of credit extended by the Bank was approximately $97,000 and
$169,000, respectively. At both June 30, 2006 and December 31, 2005, $97,000 of
the uncollateralized letters of credit 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, 2006, 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.


                                       30

<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, 2006.

<TABLE>
<CAPTION>
                                                      Amount of Commitment Expiration -
                                                                  Per Period
                                                     -----------------------------------
                                     Total Amounts      To       1-3      4-5    After 5
                                       Committed      1 Year    Years    Years    Years
                                     -------------   -------   -------   -----   -------
                                                        (In Thousands)
<S>                                     <C>          <C>       <C>        <C>    <C>
Letters of credit                       $ 16,507     $15,878   $   624    $--    $     5
Recourse obligations on loans sold           185          --        --     --        185
Commitments to originate loans             9,956       9,956        --     --         --
Unused portion of home equity
   lines of credit                        22,542          --        --     --     22,542
Unused portion of commercial
   lines of credit                        43,327      43,327        --     --         --
Undisbursed portion of
   construction loans in process          58,232      23,154    35,078     --         --
                                        --------     -------   -------    ---    -------
      Total commitments                 $150,749     $92,315   $35,702    $--    $22,732
                                        ========     =======   =======    ===    =======
</TABLE>

The following table summarizes our contractual cash obligations at June 30,
2006.

<TABLE>
<CAPTION>
                                                      Payments Due By Period
                                             ----------------------------------------
                                                To         1-3        4-5     After 5
                                    Total     1 Year      Years      Years     Years
                                  --------   --------   --------   --------   -------
                                                     (In Thousands)
<S>                               <C>        <C>        <C>        <C>        <C>
Certificates of deposit           $342,716   $202,349   $111,083   $ 13,791   $15,493
                                  --------   --------   --------   --------   -------
FHLB advances                      203,620     43,992     66,495     67,677    25,456
Repurchase agreements               22,999     22,999         --         --        --
                                  --------   --------   --------   --------   -------
   Total debt                      226,619     66,991     66,495     67,677    25,456
                                  --------   --------   --------   --------   -------
Operating lease obligations          4,551        571      1,037        861     2,082
                                  --------   --------   --------   --------   -------
   Total contractual obligations  $573,886   $269,911   $178,615   $ 82,329   $43,031
                                  ========   ========   ========   ========   =======
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND
2005

GENERAL. We had net income of $1.8 million for the quarter ended June 30, 2006,
representing an increase of 2.0% over the comparable 2005 period. Diluted
earnings per share increased to $0.12 for the quarter compared to $0.11 for the
second quarter of 2005. Our results for the second quarter of 2006 reflect, in
part, an increase in our average loans receivable combined with an increase in
the average yield earned on such assets. The accompanying increase in interest
income was partially offset by an increase in interest expense that resulted
from an increase in our average total interest-bearing liabilities and the
average rate paid on those liabilities. Our average interest spread decreased to
2.23% for the quarter ended June 30, 2006 from 2.33% for the quarter ended June
30, 2005, as our net interest margin also decreased to 2.78% from 2.84% over the
same periods. Our non-interest expense for the second quarter of 2006 increased
12.8% over the comparable 2005 period, as a result of increases in all expense
categories with the exception of professional services and ATM expense.


                                       31

<PAGE>

INTEREST INCOME. Our total interest income was $12.2 million for the quarter
ended June 30, 2006 compared to $9.7 million for the quarter ended June 30,
2006, a $2.5 million or 26.3% increase. The increase in interest income was
primarily a result of growth in the average balance of our loan portfolio
combined with an increase in the average yield on our loans. The average balance
of our loan portfolio increased $112.9 million or 25.4% to $558.5 million for
the quarter ended June 30, 2006 from $445.5 million for the quarter ended June
30, 2005. The average yield on our loan portfolio increased 58 basis points to
6.77% from 6.19% over the same period. Also contributing to the increase in
interest income was a $4.7 million increase in the average balance of our
investment securities to $100.1 million for the second quarter of 2006 combined
with a 59 basis point increase in the average rate on those securities.
Partially offsetting these increases was a $27.7 million decrease in the average
balance of our mortgage-backed securities to $146.7 million for the second
quarter of 2006 compared to $174.5 million for the second quarter of 2005.

INTEREST EXPENSE. Our total interest expense was $6.4 million for the quarter
ended June 30, 2006 compared to $4.4 million for the quarter ended June 30,
2005, an increase of $2.0 million or 45.2%. The increase in interest expense was
the result of increases in the average balances of deposits and FHLB advances as
well as increases in the average rates paid on deposits, FHLB advances and other
borrowings. During the quarter ended June 30, 2006 compared to the quarter ended
June 30, 2005, our average deposit balance grew by $83.9 million or 21.1%,
primarily due to growth in higher-rate certificates of deposit. The average
balance of our certificate of deposit accounts increased $108.5 million or 50.8%
to $322.2 million for the second quarter of 2006 compared to $213.7 million for
the second quarter of 2005. As a result of this growth, as well as the rising
interest rate environment, the average rate we paid on our deposits increased 99
basis points to 3.20% for the second quarter of 2006 from 2.21% for the second
quarter of 2005. The average balance of our FHLB advances increased $14.7
million to $203.2 million for the second quarter of 2006, and the average rate
we paid on such advances increased 18 basis points to 4.69%. The average rate we
paid on other borrowed money increased 193 basis points to 3.95% for the second
quarter of 2006 compared to 2.02% for the second quarter of 2005. Our other
borrowed money represents securities repurchase agreements entered into with
certain commercial checking account customers.


                                       32

<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,
                                               -------------------------------------------------------------------
                                                             2006                                2005
                                               --------------------------------   --------------------------------
                                                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)                 $100,082    $   955      3.82%     $ 95,384    $  770       3.23%
      Mortgage-backed securities                146,745      1,537      4.19       174,467     1,773       4.06
      Loans receivable(2)                       558,452      9,457      6.77       445,507     6,898       6.19
      Other interest-earning assets              25,335        260      4.10        21,916       225       4.11
                                               --------    -------                --------    ------
         Total interest-earning assets          830,614     12,209      5.88%      737,274     9,666       5.24%
                                                           -------      ----                   -----       ----
      Cash and non-interest bearing
         balances                                20,834                             21,060
      Other non-interest-earning assets          24,605                             23,877
                                               --------                           --------
         Total assets                          $876,053                           $782,211
                                               ========                           ========
Interest-bearing liabilities:
   Deposits:
      Savings and money market accounts        $104,554        284      1.09%     $131,729       372        1.13%
      Checking accounts                          54,211          3      0.02        51,577         5        0.04
      Certificate accounts                      322,155      3,561      4.42       213,696     1,812        3.39
                                               --------    -------                --------    ------
         Total deposits                         480,920      3,848      3.20       397,002     2,189        2.21
   FHLB advances                                203,175      2,383      4.69       188,497     2,126        4.51
   Other borrowings                              21,070        208      3.95        23,387       118        2.02
                                               --------    -------                 -------    ------
      Total interest-bearing liabilities        705,165    $ 6,439      3.65%      608,886    $4,433        2.91%
                                                           -------      ----                  ------        ----
Non-interest-bearing liabilities:
      Non-interest-bearing demand
         accounts                                44,159                             41,150
      Real estate tax escrow accounts             3,291                              3,111
      Other liabilities                           8,833                              8,906
                                               --------                           --------
         Total liabilities                      761,448                            662,053
      Stockholders' equity                      114,605                            120,122
                                               --------                           --------
         Total liabilities and stockholders'
            equity                             $876,053                           $782,175
                                               ========                           ========
      Net interest-earning assets              $125,449                           $128,388
                                               ========                           ========
      Net interest income; average
         Interest rate spread                              $ 5,770      2.23%                 $5,233        2.33%
                                                           =======      ====                  ======        ====
      Net interest margin(3)                                            2.78%                               2.84%
                                                                        ====                                ====
</TABLE>

----------
(1)  Investment securities for the 2006 period include 46 non-taxable municipal
     bonds with an aggregate average balance of $20.4 million and an average
     yield of 4.2%. 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%. The tax-exempt income from such
     securities has not been presented 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.


                                       33

<PAGE>

PROVISION FOR LOAN LOSSES. We made an $8,000 provision to the allowance for loan
losses during the second quarter of 2006 with no such provision during the
second quarter of 2005. 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. The provision taken during the
2006 quarter was primarily the result of growth in the loan portfolio while the
overall credit quality of the loan portfolio remains strong. At June 30, 2006,
non-performing loans amounted to 0.05% of loans receivable and our allowance for
loan losses amounted to 473.5% of non-performing loans.

NON-INTEREST INCOME. Our total non-interest income amounted to $751,000 for the
second quarter of 2006 compared to $762,000 for the second quarter of 2005. The
slight decrease was due primarily to a $28,000 decrease in gain on derivative
instruments, net, as our final swap agreement expired in December 2005,
partially offset by a $23,000 increase in other non-interest income, primarily
due to an increase in appraisal income.

NON-INTEREST EXPENSES. Our total non-interest expense for the second quarter of
2006 amounted to $4.0 million, representing an increase of $456,000 or 12.8%
from the second quarter of 2005. The overall increase was due primarily to
increases in salaries and employee benefits, depreciation, data processing,
advertising and other non-interest expense, partially offset by a decrease in
professional services expense. Salaries and employee benefits expense increased
$249,000 or 13.3% for the quarter ended June 30, 2006 compared to the quarter
ended June 30, 2005. This increase was primarily due to additional expenses of
$186,000 in the aggregate relating to the Company's Option Plan and RRP. The
remainder of the increase in salaries and employee benefits expense was due to
growth in the total number of employees, normal merit increases in salaries, and
higher health and insurance benefit costs. The increase in depreciation expense
of $47,000 was a result of our increase in facilities, primarily due to the
Bank's new branch in Warrington, Pennsylvania which opened in April 2006. The
increase in data processing expense of $64,000 was due to an increase in the
volume of our deposit transactions, in part because of the new Warrington
branch. The increase in advertising expense of $29,000 was a result of increased
advertising to promote our deposit products. Additional expenses of
approximately $77,000 were recognized in other non-interest expense for Option
Plan and RRP awards to directors, but were somewhat offset by decreases in
various other categories of other non-interest expense. The decrease in
professional services expense of $33,000 was primarily the result of lower fees
charged by our current independent registered public accounting firm compared to
our prior firm.

INCOME TAX EXPENSE. Income tax expense for the second quarter of 2006 amounted
to $731,000 compared to $704,000 for the second quarter of 2005. Our effective
tax rate increased to 29.2% for the quarter ended June 30, 2006, from 28.9% for
quarter ended June 30, 2005. The increase in income tax expense was the result
of the increase in our pre-tax income combined with the fluctuation in our
effective tax rate.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

GENERAL. We had net income of $3.5 million for the six months ended June 30,
2006, representing an increase of 11.8% over the comparable 2005 period. Diluted
earnings per share increased to $0.23 for the first six months of 2006 compared
to $0.20 for the first six months of 2005. Our results for the first six months
of 2006 reflect, in part, an increase in our average loans receivable combined
with an increase in the average yield earned on such assets. The accompanying
increase in interest income was partially offset by an increase in interest
expense that resulted from an increase in our average total interest-bearing
liabilities and the average rate paid on those liabilities. Our average interest
spread decreased to 2.22% for the six months ended June 30, 2006 from 2.31% for
the six months ended June 30, 2005, as our net


                                       34

<PAGE>

interest margin also decreased to 2.76% from 2.82% over the same periods. Our
non-interest income for the first six months of 2006 increased 7.8% over the
comparable 2005 period, primarily as a result of an increase in income on bank
owned life insurance ("BOLI"). Our non-interest expense for the first six months
of 2006 increased 10.8% over the comparable 2005 period, as a result of
increases in all expense categories with the exception of occupancy,
professional services and ATM expense.

INTEREST INCOME. Our total interest income was $23.5 million for the six months
ended June 30, 2006 compared to $18.6 million for the six months ended June 30,
2006, a $4.9 million or 26.5% increase. The increase in interest income was
primarily a result of growth in the average balance of our loan portfolio
combined with an increase in the average yield on our loans. The average balance
of our loan portfolio increased $117.7 million or 27.3% to $548.5 million for
the six months ended June 30, 2006 from $430.8 million for the six months ended
June 30, 2005. The average yield on our loan portfolio increased 51 basis points
to 6.63% from 6.12% over the same period. Also contributing to the increase in
interest income was an $8.1 million increase in the average balance of our
investment securities to $100.4 million for the first six months of 2006
combined with a 39 basis point increase in the average rate on those securities.
Partially offsetting these increases was a $26.7 million decrease in the average
balance of our mortgage-backed securities to $147.0 million for the first six
months of 2006 compared to $173.7 million for the first six months of 2005.

INTEREST EXPENSE. Our total interest expense was $12.2 million for the six
months ended June 30, 2006 compared to $8.4 million for the six months ended
June 30, 2005, an increase of $3.8 million or 45.2%. The increase in interest
expense was the result of increases in the average balances of deposits and FHLB
advances as well as increases in the average rates paid on deposits, FHLB
advances and other borrowings. During the six months ended June 30, 2006
compared to the six months ended June 30, 2005, our average deposit balance grew
by $82.1 million or 21.1%, primarily due to growth in higher-rate certificates
of deposit. The average balance of our certificate of deposit accounts grew
$101.5 million or 48.9% to $309.2 million for the first half of 2006 compared to
$207.7 million for the first half of 2005. As a result of this growth, as well
as the rising interest rate environment, the average rate we paid on our
deposits increased 89 basis points to 3.03% for the first half of 2006 from
2.14% for the first half of 2005. The average balance of our FHLB advances
increased $22.4 million to $203.6 million for the first half of 2006, and the
average rate we paid on such advances increased 14 basis points to 4.59%. The
average rate we paid on other borrowed money increased 189 basis points to 3.65%
for first half of 2006 compared to 1.76% for the first half of 2005. Our other
borrowed money represents securities repurchase agreements entered into with
certain commercial checking account customers.


                                       35

<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,
                                               --------------------------------------------------------------------
                                                              2006                               2005
                                               ---------------------------------   -------------------------------
                                                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)                  $100,410    $ 1,836      3.66%     $ 92,298    $ 1,510      3.27%
      Mortgage-backed securities                 146,972      3,061      4.17       173,705      3,571      4.11
      Loans receivable(2)                        548,505     18,175      6.63       430,774     13,177      6.12
      Other interest-earning assets               23,334        415      3.56        25,911        315      2.43
                                                --------    -------                --------    -------
         Total interest-earning assets           819,221     23,487      5.73%      722,688     18,573      5.14%
                                                            -------      ----                  -------      ----
      Cash and non-interest bearing
         balances                                 20,413                             20,721
      Other non-interest-earning assets           24,378                             20,100
                                                --------                           --------
        Total assets                            $864,012                           $763,509
                                                ========                           ========
Interest-bearing liabilities:
   Deposits:
      Savings and money market accounts         $108,068        588      1.09%     $129,991        691      1.06%
      Checking accounts                           54,238          7      0.03        51,729         15      0.06
      Certificate accounts                       309,164      6,552      4.24       207,693      3,452      3.32
                                                --------    -------                --------    -------
         Total deposits                          471,470      7,147      3.03       389,413      4,158      2.14
   FHLB advances                                 203,629      4,672      4.59       181,237      4,031      4.45
   Other borrowings                               19,310        352      3.65        22,259        196      1.76
                                                --------    -------                --------    -------
      Total interest-bearing liabilities         694,409    $12,171      3.51%      592,909    $ 8,385      2.83%
                                                            -------      ----                  -------      ----
Non-interest-bearing liabilities:
      Non-interest-bearing demand
        accounts                                  42,848                             38,839
      Real estate tax escrow accounts              3,114                              2,855
      Other liabilities                            7,776                              7,740
                                                --------                           --------
         Total liabilities                       748,147                            642,343
      Stockholders' equity                       115,865                            121,166
                                                --------                           --------
         Total liabilities and stockholders'
            equity                              $864,012                           $763,509
                                                ========                           ========
      Net interest-earning assets               $124,812                           $129,779
                                                ========                           ========
      Net interest income; average
         Interest rate spread                               $11,316      2.22%                 $10,188      2.31%
                                                            =======      ====                  =======      ====
      Net interest margin(3)                                             2.76%                              2.82%
                                                                         ====                               ====
</TABLE>

----------
(1)  Investment securities for the 2006 period include 47 non-taxable municipal
     bonds with an aggregate average balance of $20.5 million and an average
     yield of 4.2%. 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%. The tax-exempt income from such
     securities has not been presented 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.


                                       36

<PAGE>

PROVISION FOR LOAN LOSSES. We made an $8,000 provision to the allowance for loan
losses during the first six months of 2006 with no such provision during the
first six months of 2005. 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. The provision taken in the
first half of 2006 was primarily the result of growth in the loan portfolio
while the overall credit quality of the loan portfolio remains strong. At June
30, 2006, non-performing loans amounted to 0.05% of loans receivable and our
allowance for loan losses amounted to 473.5% of non-performing loans.

NON-INTEREST INCOME. Our total non-interest income amounted to $1.4 million for
the six months ended June 30, 2006 compared to $1.3 million for the six months
ended June 30, 2005. The increase of $104,000 was due primarily to a $169,000
increase in BOLI income and a $24,000 increase in other non-interest income,
partially offset by decreases of $37,000 and $43,000 in service charge income
and in gain on derivative instruments, net, respectively.

NON-INTEREST EXPENSES. Our total non-interest expense for the six months ended
June 30, 2006 amounted to $7.8 million, representing an increase of $762,000 or
10.8% from the six months ended June 30, 2005. As was the case for the quarter
ended June 30, 2006, the overall increase for the six-month period was due
primarily to increases in salaries and employee benefits, depreciation, data
processing, advertising and other non-interest expense, partially offset by a
decrease in professional services expense. Salaries and employee benefits
expense increased $566,000 or 15.4% for the six months ended June 30, 2006
compared to the six months ended June 30, 2005. This increase was primarily due
to additional expenses of $368,000 in the aggregate relating to the Option Plan
and RRP, with the remainder of the increase due, again, to growth in the total
number of employees, normal merit increases in salaries, and higher health and
insurance benefit costs. The increase in depreciation expense of $72,000 was a
result of our increase in facilities, primarily due to the Bank's new branch in
Warrington, Pennsylvania which opened in April 2006. The increase in data
processing expense of $35,000 was due to an increase in the volume of our
deposit transactions, in part because of the new Warrington branch. The increase
in advertising expense of $29,000 was a result of increased advertising to
promote our deposit products. Additional expenses of approximately $154,000 were
recognized in other non-interest expense for Option Plan and RRP awards to
directors, but were somewhat offset by decreases in various other categories of
other non-interest expense. The decrease in professional services expense of
$63,000 was primarily the result of lower fees charged by our current
independent registered public accounting firm compared to our prior firm.

INCOME TAX EXPENSE. Income tax expense for the first half of 2006 amounted to
$1.4 million compared to $1.3 million for the first half of 2005. Our effective
tax rate decreased to 29.0% for the six months ended June 30, 2006, from 29.9%
for the six months ended June 30, 2005. The increase in income tax expense was
the result of the increase in our pre-tax income partially offset by the
fluctuation in our effective tax rate.

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: statements of goals, intentions and
expectations, statements regarding prospects and business strategy, statements
regarding asset quality and market risk, and 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,


                                       37

<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 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

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


                                       38

<PAGE>

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 11.78% at June 30, 2006,
compared to a negative 4.09% at December 31, 2005. 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
has been done, in part, because such 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, 2006, 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,
2006, 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.


                                       39

<PAGE>

<TABLE>
<CAPTION>
                                              More than    More than    More than
                                   6 Months    6 Months     1 Year       3 Years    More than     Total
                                    or Less   to 1 Year   to 3 Years   to 5 Years    5 Years     Amount
                                   --------   ---------   ----------   ----------   ---------   --------
                                                           (Dollars in Thousands)
<S>                                <C>        <C>           <C>         <C>          <C>        <C>
Interest-earning assets(1):
   Loans receivable                $240,424   $  45,778     $130,917    $ 72,688     $ 93,128   $582,935
   Mortgage-backed
      securities                     24,292      20,840       51,964      23,710       25,609    146,415
   Investment securities             15,981      10,699       27,987      13,000       32,395    100,062
   Other interest-earning assets     18,865          --           --          --           --     18,865
                                   --------   ---------     --------    --------     --------   --------
      Total interest-earning
         assets                     299,562      77,317      210,868     109,398      151,132    848,277
                                   ========   =========     ========    ========     ========   ========
Interest-bearing liabilities:
   Savings and money market
      accounts                     $ 15,140   $  15,140     $ 38,055    $ 17,509     $ 15,378   $101,222
   Checking accounts                     --          --           --          --       53,664     53,664
   Certificate accounts             218,811      61,277       33,345      13,791       15,492    342,716
   FHLB advances                    134,681      14,180       29,645       4,943       20,171    203,620
   Other borrowed money              22,999          --           --          --           --     22,999
                                   --------   ---------     --------    --------     --------   --------
      Total interest-bearing
      liabilities                   391,631      90,597      101,045      36,243      104,705    724,221
                                   ========   =========     ========    ========     ========   ========
Interest-earning assets less
   interest-bearing liabilities    $(92,069)  $ (13,280)    $109,823    $ 73,155     $ 46,427   $124,056
                                   --------   ---------                 --------     --------   --------
Cumulative interest-rate
   sensitivity gap(2)              $(92,069)  $(150,349)    $  4,474    $ 77,629     $124,056
                                   ========   =========     ========    ========     ========
Cumulative
   interest-rate
   gap as a percentage of total
   assets at June 30, 2006          -(10.56)%   -(11.78)%       0.50%       8.68%       13.87%
                                   ========   =========     ========    ========     ========
Cumulative interest-earning
   assets as a percentage of
   cumulative interest-bearing
   liabilities at June 30, 2006       76.49%      78.15%      100.77%     112.53%      117.13%
                                   ========   =========     ========    ========     ========
</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)  Interest-rate sensitivity gap represents the difference between net
     interest-earning assets and interest-bearing liabilities.

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


                                       40

<PAGE>

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.


                                       41

<PAGE>

PART II                        OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Not applicable.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)  Not applicable.

(b)  Not applicable.

(c)  PURCHASES OF EQUITY SECURITIES

The Company's repurchases of its common stock made during the quarter are set
forth in the following table.

<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, 2006      9,510         13.45               9,510               505,293
May 1 - May 31, 2006          5,556         13.77               5,556               499,737
June 1 - June 30, 2006      362,123         14.83             362,123               137,614
                            -------                           -------
Total                       377,189        $14.62             199,347               137,614
                            =======        ======             =======               =======
</TABLE>

(1)  On January 31, 2006, the Company announced a stock repurchase program to
     repurchase up to 10% of its outstanding shares held by persons other than
     Abington Mutual Holding Company, or 714,150 shares. The repurchase program
     is scheduled to terminate as of January 31, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.


                                       42

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On April 5, 2006, the Company held its Annual Meeting of Shareholders to
obtain approval for two proxy proposals submitted on behalf of the Company's
Board of Directors. Shareholders of record as of March 21, 2006, 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:

                                          For*     Withheld
                                       ----------  --------
Michael F. Czerwonka, III              14,742,937    60,509
Robert J. Pannepacker, Sr.             14,638,085   165,361

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

2. To ratify the appointment of Beard
Miller Company LLP as independent
registered public accounting firm for
the year ended December 31, 2006       14,713,166    83,439   6,841      n/a

----------
*    Includes 8,728,500 shares owned by Abington Mutual Holding Company (the
     "MHC") which were voted for these proposals.

ITEM 5. OTHER INFORMATION

        Not applicable.

ITEM 6. EXHIBITS
<TABLE>
<CAPTION>

        No.    Description
        ----   -----------
<S>     <C>
        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.

        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.
</TABLE>


                                       43

<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 11, 2006                By: /s/ Robert W. White
                                         ---------------------------------------
                                         Robert W. White
                                         Chairman, President and
                                         Chief Executive Officer


Date: August 11, 2006                By: /s/ Jack J. Sandoski
                                         ---------------------------------------
                                         Jack J. Sandoski
                                         Senior Vice President and
                                         Chief Financial Officer


                                       44