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 March 31, 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                (I.R.S. Employer Identification No.)
of Incorporation or Organization)

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

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

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

         Indicate by check mark whether the registrant is 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 May 8, 2006,
15,658,160 shares of the Registrant's common stock were outstanding.

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                                  PAGE

PART I - FINANANCIAL INFORMATION

   ITEM 1. CONDENSED FINANCIAL STATEMENTS

<S>                                                                                                               <C>
     Unaudited Consolidated Statements of Financial Condition as of March 31, 2006
     and December 31, 2005                                                                                         1

     Unaudited Consolidated Statements of Income for the Three Months Ended March 31,
     2006 and 2005                                                                                                 2

     Unaudited Consolidated Statements of Stockholders' Equity and Comprehensive Income
     for the Three Months Ended March 31, 2006 and 2005                                                            3

     Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31,
     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                                              34

   ITEM 4. CONTROLS AND PROCEDURES                                                                                 37


PART II - OTHER INFORMATION

   ITEM 1. Legal Proceedings                                                                                       38

   ITEM 1A. Risk Factors                                                                                           38

   ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds                                             38

   ITEM 3. Defaults upon Senior Securities                                                                         38

   ITEM 4. Submission of Matters to a Vote of Security Holders                                                     38

   ITEM 5. Other Information                                                                                       39

   ITEM 6. Exhibits                                                                                                39

   SIGNATURES                                                                                                      40

   CERTIFICATIONS
</TABLE>

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

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

Cash and due from banks                                             $  17,043,295    $  19,460,237
Interest-bearing bank balances                                         23,535,635        8,254,004
                                                                    -------------    -------------
      Total cash and cash equivalents                                  40,578,930       27,714,241
Investment securities held to maturity (estimated fair
  value--2006, $20,132,286; 2005, $20,316,775)                         20,395,052       20,395,593
Investment securities available for sale (amortized cost--
  2006, $79,805,450; 2005, $80,775,605)                                77,613,288       78,828,696
Mortgage-backed securities held to maturity (estimated fair
  value--2006, $61,517,693; 2005, $65,505,255)                         64,357,068       67,410,735
Mortgage-backed securities available for sale (amortized cost--
  2006, $83,299,938; 2005, $82,212,270)                                80,428,750       79,943,379
Loans receivable, net of allowance for loan losses
   (2006, $1,442,611; 2005, $1,454,510)                               530,054,836      529,487,209
Accrued interest receivable                                             3,701,117        3,475,350
Federal Home Loan Bank stock--at cost                                  11,109,300       11,061,200
Cash surrender value - bank owned life insurance                       15,665,645       15,498,958
Property and equipment, net                                             7,899,762        6,510,144
Deferred tax asset                                                      2,948,855        2,648,200
Prepaid expenses and other assets                                         688,687        1,098,106
                                                                    -------------    -------------

TOTAL ASSETS                                                        $ 855,441,290    $ 844,071,811
                                                                    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits:
    Noninterest-bearing                                             $  41,812,643    $  43,333,286
    Interest-bearing                                                  471,196,904      457,849,738
                                                                    -------------    -------------
      Total deposits                                                  513,009,547      501,183,024
  Advances from Federal Home Loan Bank                                200,294,422      201,444,952
  Other borrowed money                                                 16,462,753       16,113,949
  Accrued interest payable                                              3,393,000        1,909,234
  Advances from borrowers for taxes and insurance                       2,597,536        2,384,314
  Accounts payable and accrued expenses                                 4,308,432        3,805,571
                                                                    -------------    -------------

           Total liabilities                                          740,065,690      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:
    15,670,653 in 2006 and 15,870,000 in 2005                             158,700          158,700
  Additional paid-in capital                                           69,316,815       69,234,964
  Treasury stock--at cost, 199,347 shares                              (2,662,507)            --
  Unallocated common stock held by:
    Employee Stock Ownership Plan (ESOP)                               (6,757,374)      (6,880,236)
    Recognition & Retention Plan Trust (RRP)                           (3,158,313)      (3,339,413)
    Deferred compensation plans trust                                  (1,054,480)      (1,050,000)
  Retained earnings                                                    62,874,570       61,889,180
  Accumulated other comprehensive loss                                 (3,341,811)      (2,782,428)
                                                                    -------------    -------------

           Total stockholders' equity                                 115,375,600      117,230,767
                                                                    -------------    -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 855,441,290    $ 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 MARCH 31,
                                                    ----------------------------
                                                         2006            2005
                                                    ------------    ------------
<S>                                                 <C>             <C>
INTEREST INCOME:
  Interest and fees on loans                        $  8,717,783    $  6,278,624
  Interest and dividends on investment and
    mortgage-backed securities
      Taxable                                          2,345,812       2,516,589
      Tax-exempt                                         214,482         111,345
                                                    ------------    ------------

           Total interest income                      11,278,077       8,906,558

INTEREST EXPENSE:
  Interest on deposits                                 3,298,660       1,969,324
  Interest on Federal Home Loan Bank advances          2,289,428       1,904,501
  Interest on other borrowed money                       144,127          77,995
                                                    ------------    ------------

           Total interest expense                      5,732,215       3,951,820
                                                    ------------    ------------

NET INTEREST INCOME                                    5,545,862       4,954,738

PROVISION FOR LOAN LOSSES                                   --              --
                                                    ------------    ------------

NET INTEREST INCOME AFTER
  PROVISION FOR LOAN LOSSES                            5,545,862       4,954,738
                                                    ------------    ------------

NON-INTEREST INCOME:
  Service charges                                        408,635         436,035
  Rental income                                            7,636          15,451
  Gain on derivative instruments, net                       --            14,175
  Income on bank owned life insurance                    166,687           2,465
  Loss on sale of investment securities                     (601)           --
  Other income                                           112,631         111,363
                                                    ------------    ------------

           Total non-interest income                     694,988         579,489
                                                    ------------    ------------

NON-INTEREST EXPENSES:
  Salaries and employee benefits                       2,121,408       1,805,039
  Occupancy                                              387,745         405,745
  Depreciation                                           148,919         123,269
  Professional services                                  160,631         189,984
  Data processing                                        324,348         353,216
  ATM expense                                             82,493          85,837
  Deposit insurance premium                               34,476          29,096
  Advertising and promotions                              92,981          92,084
  Other                                                  438,870         401,133
                                                    ------------    ------------

           Total non-interest expenses                 3,791,871       3,485,403
                                                    ------------    ------------

INCOME BEFORE INCOME TAXES                             2,448,979       2,048,824

PROVISION FOR INCOME TAXES                               702,468         637,940
                                                    ------------    ------------

NET INCOME                                          $  1,746,511    $  1,410,884
                                                    ============    ============

BASIC EARNINGS PER COMMON SHARE                     $       0.12    $       0.09
DILUTED EARNINGS PER COMMON SHARE                   $       0.11    $       0.09

BASIC AVERAGE COMMON SHARES OUTSTANDING:              15,026,117      15,504,360
DILUTED AVERAGE COMMON SHARES OUTSTANDING:            15,278,905      15,504,360
</TABLE>

See notes to unaudited consolidated financial statements.


                                       2
<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
--------------------------------------------------------------------------------

                                                                                                             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 $288,167                --               --              --               --               --


  Comprehensive income


  Treasury stock purchased                  (199,347)            --              --         (2,662,507)            --
  Cash dividends declared,
     ($0.05 per share)                          --               --              --               --               --
  Stock options expense                         --               --            90,826             --               --
  Dividends reinvested in deferred
      compensation plans trust                  --               --              --               --             (4,480)
  Amortization of RRP shares                    --               --           (12,946)            --            181,100
  ESOP shares committed to
      be released                               --               --             3,971             --            122,862
                                       -------------    -------------   -------------    -------------    -------------
BALANCE--MARCH 31, 2006                   15,670,653    $     158,700   $  69,316,815    $  (2,662,507)   $ (10,970,167)
                                                        =============   =============    =============    =============

<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                             1,746,511             --          1,746,511
    Net realized holding loss on
     available for sale securities
      arising during the period, net
      of tax benefit of $288,167                --           (559,383)        (559,383)
                                                                         -------------

  Comprehensive income                                                       1,187,128
                                                                         -------------

  Treasury stock purchased                      --               --         (2,662,507)
  Cash dividends declared,
     ($0.05 per share)                      (761,121)            --           (761,121)
  Stock options expense                         --               --             90,826
  Dividends reinvested in deferred
      compensation plans trust                  --               --             (4,480)
  Amortization of RRP shares                    --               --            168,154
  ESOP shares committed to
      be released                               --               --            126,833
                                       -------------    -------------    -------------
BALANCE--MARCH 31, 2006                $  62,874,570    $  (3,341,811)   $ 115,375,600
                                       =============    =============    =============
</TABLE>





<TABLE>
<CAPTION>
                                                                                                 COMMON
                                                                                                 STOCK
                                                                                                ACQUIRED
                                           COMMON                        ADDITIONAL               BY
                                            STOCK         COMMON          PAID-IN    TREASURY   BENEFIT           RETAINED
                                           SHARES         STOCK           CAPITAL     STOCK      PLANS            EARNINGS
                                       -------------   -------------   -------------  -----   -------------    -------------
<S>                                       <C>          <C>             <C>              <C>   <C>              <C>
BALANCE--JANUARY 1, 2005                  15,870,000   $     158,700   $  69,096,936    $--   $  (3,120,337)   $  57,881,651

  Comprehensive income:
    Net income                                  --              --              --       --            --          1,410,884
    Net realized holding loss on
     available for sale securities
      arising during the period, net
      of tax benefit of $698,677                --              --              --       --            --               --


  Comprehensive income


  Common stock acquired by ESOP                 --              --              --       --      (4,169,547)            --
  ESOP shares committed to
      be released                               --              --               (70)    --         126,385             --
                                       -------------   -------------   -------------    ---   -------------    -------------

BALANCE--MARCH 31, 2005                   15,870,000   $     158,700   $  69,096,866    $--   $  (7,163,499)   $  59,292,535
                                                       =============   =============    ===   =============    =============

<CAPTION>


                                        ACCUMULATED
                                          OTHER           TOTAL
                                       COMPREHENSIVE   STOCKHOLDERS'
                                           LOSS           EQUITY
                                       -------------    -------------
<S>                                    <C>              <C>
BALANCE--JANUARY 1, 2005               $    (962,249)   $ 123,054,701

  Comprehensive income:
    Net income                                  --          1,410,884
    Net realized holding loss on
     available for sale securities
      arising during the period, net
      of tax benefit of $698,677          (1,356,259)      (1,356,259)
                                                        -------------

  Comprehensive income                                         54,625
                                                        -------------

  Common stock acquired by ESOP                 --         (4,169,547)
  ESOP shares committed to
      be released                               --            126,315
                                       -------------    -------------

BALANCE--MARCH 31, 2005                $  (2,318,508)   $ 119,066,094
                                       =============    =============
</TABLE>

See notes to unaudited consolidated financial statements.

                                       3
<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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


<TABLE>
<CAPTION>
                                                                      Three Months Ended March 31,
                                                                    ------------------------------
                                                                         2006             2005
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
OPERATING ACTIVITIES:
  Net income                                                        $   1,746,511    $   1,410,884
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation                                                          148,919          123,269
    Share-based compensation expense                                      385,813          126,315
    Unrealized gain on derivative instruments                                --            (68,000)
    Loss on sale of investment securities                                     601             --
    Deferred income tax benefit                                           (12,488)         (76,643)
    Amortization of:
      Deferred loan fees                                                 (203,177)        (291,085)
      Premiums and discounts, net                                          39,526           69,303
    Income from bank owned life insurance                                (166,687)          (2,465)
    Changes in assets and liabilities which (used) provided cash:
      Accrued interest receivable                                        (225,767)        (296,390)
      Prepaid expenses and other assets                                   409,419         (791,803)
      Accrued interest payable                                          1,483,766          849,209
      Accounts payable and accrued expenses                               498,381          848,869
                                                                    -------------    -------------

           Net cash provided by operating activities                    4,104,817        1,901,463
                                                                    -------------    -------------

INVESTING ACTIVITIES:
  Principal collected on loans                                         48,853,972       48,824,880
  Disbursements for loans                                             (49,218,422)     (51,220,333)
  Purchases of:
    Mortgage-backed securities held to maturity                              --         (7,597,217)
    Mortgage-backed securities available for sale                      (4,588,086)     (15,585,382)
    Investments available for sale                                     (2,029,827)      (4,020,282)
    Federal Home Loan Bank stock                                         (651,391)        (695,900)
    Property and equipment                                             (1,538,537)         (48,170)
    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              2,999,688          500,000
    Principal repayments of mortgage-backed securities
      held to maturity                                                  3,019,079        5,317,221
    Principal repayments of mortgage-backed securities
      available for sale                                                3,495,714        3,818,140
    Redemption of Federal Home Loan Bank stock                            603,291        1,055,700
                                                                    -------------    -------------

           Net cash used in investing activities                          945,481      (33,439,821)
                                                                    -------------    -------------

FINANCING ACTIVITIES:
  Net decrease in demand deposits and savings accounts                 (7,418,285)      (4,046,100)
  Net increase in certificate accounts                                 19,244,808       20,743,738
  Net increase in other borrowed money                                    348,804        5,898,037
  Advances from Federal Home Loan Bank                                147,200,000       73,995,000
  Repayments of advances from Federal Home Loan Bank                 (148,350,530)     (64,293,894)
  Net increase in advances from borrowers
    for taxes and insurance                                               213,222          213,493
  Acquisition of stock for ESOP and RRP                                      --         (4,169,547)
  Purchase of treasury stock                                           (2,662,507)            --
  Payment of cash dividend                                               (761,121)            --
                                                                    -------------    -------------

             Net cash provided by financing activities                  7,814,391       28,340,727
                                                                    -------------    -------------

NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                                     12,864,689       (3,197,631)

CASH AND CASH EQUIVALENTS--Beginning of period                         27,714,241       33,295,832
                                                                    -------------    -------------

CASH AND CASH EQUIVALENTS--End of period                            $  40,578,930    $  30,098,201
                                                                    =============    =============

SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:

  Cash paid during the year for:

    Interest on deposits and other borrowings                       $   4,248,449    $   3,102,611
                                                                    =============    =============
    Income taxes                                                    $        --      $     750,000
                                                                    =============    =============
</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 56% 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 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 three months ended March 31, 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 does not hold any derivative financial
      instruments for trading purposes. We were not party to any derivative
      financial instrument agreements at March 31, 2006 or at any time during
      the three months ended March 31, 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

                                       6
<PAGE>

      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 March 31, 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 March 31, 2006, there were 640,900 antidilutive CSEs,
      representing 100% of the outstanding options. Earnings per share were
      calculated as follows:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED MARCH 31,
                                        -----------------------------------------------------
                                                  2006                         2005
                                        -------------------------   -------------------------
                                          BASIC         DILUTED        BASIC        DILUTED
                                        -----------   -----------   -----------   -----------
<S>                                     <C>           <C>           <C>           <C>
Net income                              $ 1,746,511   $ 1,746,511   $ 1,410,884   $ 1,410,884
                                        ===========   ===========   ===========   ===========
Weighted average shares outstanding      15,026,117    15,026,117    15,504,360    15,504,360
Effect of common share equivalents             --         252,788          --            --
                                        -----------   -----------   -----------   -----------
Adjusted weighted average shares used
  in earnings per share computation      15,026,117    15,278,905    15,504,360    15,504,360
                                        ===========   ===========   ===========   ===========

Earnings per share                      $      0.12   $      0.11   $      0.09   $      0.09
                                        ===========   ===========   ===========   ===========
</TABLE>

      RECENT ACCOUNTING PRONOUNCEMENTS-- In May 2005, the FASB issued SFAS No.
      154, ACCOUNTING CHANGES AND ERROR CORRECTIONS- A REPLACEMENT OF APB
      OPINION NO. 20 AND FASB STATEMENT NO. 3. SFAS No. 154 replaces APB Opinion
      No. 20, ACCOUNTING CHANGES, and FASB Statement No. 3, REPORTING ACCOUNTING
      CHANGES IN INTERIM FINANCIAL STATEMENTS, and changes the accounting and
      reporting requirements for a change in accounting principle. SFAS No. 154
      applies to all voluntary changes in an accounting principle, as well as to
      changes required by a new accounting pronouncement in the unusual instance
      that the pronouncement does not include specific transition provisions.
      SFAS No. 154 is effective for accounting changes and error corrections
      made in fiscal

                                       7
<PAGE>

      years beginning after December 15, 2005 and requires retrospective
      application to prior periods' financial statements for most voluntary
      changes in an accounting principle, unless it is impracticable to do so.
      The Company adopted this guidance on January 1, 2006. The adoption did not
      have a material effect on the Company's financial position or results of
      operations.

      On November 3, 2005, the FASB issued FASB Staff Position ("FSP") Nos. FAS
      115-1 and FAS 124-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND
      ITS APPLICATION TO CERTAIN INVESTMENTS. This FSP addresses the
      determination as to when an investment is considered impaired, whether
      that impairment is other than temporary, and the measurement of an
      impairment loss. This FSP also includes accounting considerations
      subsequent to the recognition of an other-than-temporary impairment and
      requires certain disclosures about unrealized losses that have not been
      recognized as other-than-temporary impairments. This FSP nullifies certain
      requirements of EITF Issue 03-1, THE MEANING OF OTHER-THAN-TEMPORARY
      IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS, and supersedes EITF
      Topic No. D-44, RECOGNITION OF OTHER-THAN-TEMPORARY IMPAIRMENT UPON THE
      PLANNED SALE OF A SECURITY WHOSE COST EXCEEDS FAIR VALUE. The guidance in
      this FSP amends FASB Statement No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
      IN DEBT AND EQUITY SECURITIES. The FSP is effective for reporting periods
      beginning after December 15, 2005. The Company adopted this guidance on
      January 1, 2006. The adoption did not have a material effect on the
      Company's financial position or results of operations.

      On December 19, 2005, the FASB issued FSP 94-6-1, TERMS OF LOAN PRODUCTS
      THAT MAY GIVE RISE TO A CONCENTRATION OF CREDIT RISK. FSP 94-6-1 addresses
      whether, under existing guidance, nontraditional loan products represent a
      concentration of credit risk and what disclosures are required for
      entities that originate, hold, guarantee, service, or invest in loan
      products whose terms may give rise to a concentration of credit risk.
      Nontraditional loan products expose the originator, holder, investor,
      guarantor, or servicer to higher credit risk than traditional loan
      products. Typical features of nontraditional loan products may include
      high loan-to-value ratios and interest or principal repayments that are
      less than the repayments for fully amortizing loans of an equivalent term.
      FSP 94-6-1 was effective upon its issuance and it did not have any impact
      on the Company's financial position or disclosures.

      In February 2006, the FASB issued SFAS No. 155, ACCOUNTING FOR CERTAIN
      HYBRID FINANCIAL INSTRUMENTS. This statement amends FASB Statements No.
      133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and No.
      140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
      EXTINGUISHMENTS OF LIABILITIES. This statement resolves issues addressed
      in Statement 133 Implementation Issue No. D1, APPLICATION OF STATEMENT 133
      TO BENEFICIAL INTEREST IN SECURITIZED FINANCIAL ASSETS. This Statement is
      effective for all financial instruments acquired or issued after the
      beginning of an entity's first fiscal year that begins after September 15,
      2006. The Company is continuing to evaluate the impact of this
      pronouncement and does not expect that the guidance will have a material
      effect on the Company's financial position or results of operations.

      In March 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF
      FINANCIAL ASSET- AN AMENDMENT OF FASB STATEMENT NO. 140. This statement
      amends SFAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
      ASSETS AND EXTINGUISHMENT OF LIABILITIES, with respect to the accounting
      for separately recognized servicing assets and servicing liabilities. This
      statement requires that all separately recognized servicing assets and
      servicing liabilities be initially measured at fair value, if practicable.
      It also permits, but does not require, the subsequent measurement of
      servicing assets and servicing liabilities at fair value. This Company
      plans to adopt this statement effective January 1, 2007. The Company is
      continuing to evaluate the impact of this pronouncement and does not
      expect that the guidance will have a material effect on the Company's
      financial position or results of operations.

                                       8
<PAGE>

      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.

2.    INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                          HELD TO MATURITY
                                                           MARCH 31, 2006
                                         ------------------------------------------------------
                                                          GROSS         GROSS        ESTIMATED
                                          AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                            COST          GAINS         LOSSES         VALUE
                                         -----------   -----------   -----------    -----------
<S>                                      <C>           <C>           <C>            <C>
      Debt securities:
        Municipal bonds                  $20,395,052   $     2,907   $  (265,673)   $20,132,286
                                         -----------   -----------   -----------    -----------
                 Total debt securities   $20,395,052   $     2,907   $  (265,673)   $20,132,286
                                         ===========   ===========   ===========    ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                  AVAILABLE FOR SALE
                                                                    MARCH 31, 2006
                                           -----------------------------------------------------------
                                                             GROSS           GROSS         ESTIMATED
                                             AMORTIZED    UNREALIZED      UNREALIZED         FAIR
                                               COST          GAINS           LOSSES         VALUE
                                           ------------   ------------    ------------    ------------
<S>                                        <C>            <C>             <C>             <C>
      Debt securities:
        Agency bonds                       $ 74,991,183   $       --      $ (2,108,438)   $ 72,882,745
        Corporate bonds and
          commercial paper                      499,458           --            (3,033)        496,425
        Municipal bonds                         180,000           --              --           180,000
        Certificates of deposit               1,183,000           --              --         1,183,000
                                           ------------   ------------    ------------    ------------
                 Total debt securities       76,853,641                     (2,111,471)     74,742,170
                                           ------------   ------------    ------------    ------------
      Equity securities:
        Common stock                                 10            401            --               411
        Mutual funds                          2,951,799           --           (81,092)      2,870,707
                                           ------------   ------------    ------------    ------------
                 Total equity securities      2,951,809            401         (81,092)      2,871,118
                                           ------------   ------------    ------------    ------------
      Total                                $ 79,805,450   $        401    $ (2,192,563)   $ 77,613,288
                                           ============   ============    ============    ============
</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>
                                                                     MARCH 31, 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                   $25,375,000    $25,119,090    $      --      $      --
      Due after one year through five years      39,487,456     38,364,860           --             --
      Due after five years through ten years      9,991,185      9,262,600           --             --
      Due after ten years                         2,000,000    $ 1,995,620    $20,395,052    $20,132,286
                                                -----------    -----------    -----------    -----------
      Total                                     $76,853,641    $74,742,170    $20,395,052    $20,132,286
                                                ===========    ===========    ===========    ===========
</TABLE>

      The table below sets forth investment securities which have an unrealized
      loss position as of March 31, 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                                $  (265,673)    $ 9,175,953    $      --       $      --
                                                        -----------     -----------    -----------     -----------
                 Total securities held to maturity         (265,673)      9,175,953           --              --
                                                        -----------     -----------    -----------     -----------
      Securities available for sale:
         Government agency securities                   $   (46,570)    $ 2,953,430    $(2,061,869)    $69,929,315
         Other securities                                      --              --          (84,124)        496,425
                                                        -----------     -----------    -----------     -----------
                 Total securities available for sale        (46,570)      2,953,430     (2,145,993)     70,425,740
                                                        -----------     -----------    -----------     -----------
      Total                                             $  (312,243)    $12,129,383    $(2,145,993)    $70,425,740
                                                        ===========     ===========    ===========     ===========
</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 March 31, 2006,
      securities in a gross unrealized loss position for twelve months or longer
      consist of 34 securities having an aggregate depreciation of 3.0% from the
      Company's amortized cost basis. Securities in a gross unrealized loss
      position for less than twelve months at March 31, 2006, consist of 45
      securities having an aggregate depreciation of 1.4% 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 as market interest rates move. 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
                                                   MARCH 31, 2006
                               ---------------------------    ---------------------------
                                                GROSS           GROSS          ESTIMATED
                                AMORTIZED     UNREALIZED      UNREALIZED         FAIR
                                  COST          GAINS           LOSSES           VALUE
                               -----------    ------------    -----------     -----------
<S>                            <C>            <C>             <C>             <C>
      FNMA pass-through
        certificates           $27,139,326    $       --      $(1,309,178)    $25,830,148
      FHLMC pass-through
        certificates            19,441,247            --       (1,112,593)     18,328,654
      Real estate mortgage
        investment conduits     17,776,495          34,016       (451,620)     17,358,891
                               -----------    ------------    -----------     -----------
                 Total         $64,357,068    $     34,016    $(2,873,391)    $61,517,693
                               ===========    ============    ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                               AVAILABLE FOR SALE
                                                 MARCH 31, 2006
                               --------------------------    ---------------------------
                                                GROSS          GROSS          ESTIMATED
                                AMORTIZED     UNREALIZED     UNREALIZED         FAIR
                                  COST          GAINS          LOSSES           VALUE
                               -----------    -----------    -----------     -----------
<S>                            <C>            <C>            <C>             <C>
      GNMA pass-through
        certificates           $   533,207    $    13,313    $    (1,093)    $   545,427
      FNMA pass-through
        certificates            10,213,852         34,674       (262,569)      9,985,957
      FHLMC pass-through
        certificates            66,758,554         52,064     (2,486,018)     64,324,600
      Real estate mortgage
        investment conduits      5,794,325          2,726       (224,285)      5,572,766
                               -----------    -----------    -----------     -----------
                 Total         $83,299,938    $   102,777    $(2,973,965)    $80,428,750
                               ===========    ===========    ===========     ===========
</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 March 31, 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                                  $  (242,733)    $ 8,802,160    $(1,066,446)    $17,027,987
        FHLMC pass-through
          certificates                                     (539,064)      9,259,583       (573,528)      9,069,072
        Real estate mortgage
          investment conduits                                    (2)      5,022,455       (451,618)     10,889,957
                                                        -----------     -----------    -----------     -----------
                 Total securities held to maturity         (781,799)     23,084,198     (2,091,592)     36,987,016
                                                        -----------     -----------    -----------     -----------

      Securities available for sale:
        GNMA pass-through
          certificates                                  $    (1,093)    $   112,780    $      --       $      --
        FNMA pass-through
          certificates                                     (126,755)      4,550,006       (135,814)      3,338,369
        FHLMC pass-through
          certificates                                     (370,512)     15,927,104     (2,115,506)     44,435,108
        Real estate mortgage
          investment conduits                                  --              --         (224,285)      5,473,697
                                                        -----------     -----------    -----------     -----------
                 Total securities available for sale       (498,360)     20,589,890     (2,475,605)     53,247,174
                                                        -----------     -----------    -----------     -----------
      Total                                             $(1,280,159)    $43,674,088    $(4,567,197)    $90,234,190
                                                        ===========     ===========    ===========     ===========
</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 investment portfolio to identify any securities that
      might have an other-than-temporary impairment. At March 31, 2006,
      securities in a gross unrealized loss position for twelve months or longer
      consist of 38 securities having an aggregate depreciation of 4.8% from the
      Company's amortized cost basis. Securities in a gross unrealized loss
      position for less than twelve months at March 31, 2006, consist of 23
      securities having an aggregate depreciation of 2.8% 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 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 as
      market interest rates move. 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:

<TABLE>
<CAPTION>
                                                 MARCH 31, 2006    DECEMBER 31, 2005
                                                 --------------    -----------------
<S>                                              <C>                  <C>
      One-to four-family residential             $ 328,251,994        $ 323,709,542
      Multi-family residential and commercial       76,647,155           76,646,911
      Construction                                 128,118,166          132,789,343
      Home equity lines of credit                   41,309,122           41,063,321
      Commercial business loans                      9,409,893           10,974,955
      Consumer non-real estate loans                 4,527,717            4,711,519
                                                 -------------        -------------
                 Total loans                       588,264,047          589,895,591

      Less:
        Construction loans in process              (55,622,937)         (57,690,327)
        Deferred loan fees                          (1,143,663)          (1,263,545)
        Allowance for loan losses                   (1,442,611)          (1,454,510)
                                                 -------------        -------------

      Loans receivable--net                      $ 530,054,836        $ 529,487,209
                                                 =============        =============
</TABLE>

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED      YEAR ENDED
                                             MARCH 31, 2006     DECEMBER 31, 2005
                                             --------------     -----------------
<S>                                           <C>                   <C>
      Balance--beginning of year              $ 1,454,510           $ 1,412,697
        Provision for loan losses                    --                  25,000
        Charge-offs                               (16,581)              (69,774)
        Recoveries                                  4,682                86,587
                                              -----------           -----------
          (Charge-offs)/recoveries--net           (11,899)               16,813
                                              -----------           -----------
      Balance--end of period                  $ 1,442,611           $ 1,454,510
                                              ===========           ===========
</TABLE>

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

                                                   MARCH 31,    DECEMBER 31,
                                                    2006          2005
                                                  ----------    ----------
      Impaired collateral-dependent loans         $  182,798    $2,885,364

      Average impaired loan balance               $2,744,471    $   94,861
      Interest income recognized on
        impaired loans                            $     --      $     --

      As a result of the Company's measurement of impaired loans, an allowance
      for loan losses of approximately $2,000 and $116,000 was established for
      the $183,000 and $2.9 million of total impaired loans at March 31, 2006
      and December 31, 2005, respectively. At both March 31, 2006 and December
      31, 2005, the impaired loan balance consisted of one construction loan. In
      the first quarter of 2006, we agreed to allow the sale of a portion of the
      underlying collateral of the loan, with the proceeds paid to the Bank.
      Approximately $1.7 million in net proceeds was received, and $1.0 million
      in additional payments were made, reducing the outstanding balance of the
      loan to approximately $183,000 at March 31, 2006. In April 2006, the
      remaining balance of the loan was paid in full, including all past due
      interest and costs.

      Nonaccrual loans at March 31, 2006 and December 31, 2005, amounted to
      approximately $183,000 and $2.9 million, respectively. 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 March 31, 2006 and December 31, 2005, amounted to approximately
      $390,000 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. At
      March 31, 2006 and December 31, 2005, no cash basis interest income has
      been recognized. Interest income foregone on nonaccrual loans was $56,000
      for the three-month period ended March 31, 2006. No interest income was
      foregone for the three-month period ended March 31, 2005.


                                       18
<PAGE>

5.    DEFERRED INCOME TAXES

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

<TABLE>
<CAPTION>
                                                          MARCH 31, 2006      DECEMBER 31, 2005
                                                          --------------      -----------------
<S>                                                         <C>                  <C>
      Deferred tax assets:
        Allowance for loan losses                           $   490,488          $   494,533
        Deferred compensation                                 1,163,470            1,136,056
        Unrealized loss on securities available-for-sale      1,721,540            1,457,172
                                                            -----------          -----------

                 Total deferred tax assets                    3,375,498            3,087,761
                                                            -----------          -----------

      Deferred tax liabilities:
        Property and equipment                                  (97,035)            (105,635)
        Deferred loan fees                                     (309,505)            (313,175)
        Other                                                   (20,103)             (20,751)
                                                            -----------          -----------

                 Total deferred tax liabilities                (426,643)            (439,561)
                                                            -----------          -----------

      Net deferred tax asset                                $ 2,948,855          $ 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, a
      board of directors deferred compensation for directors, and a 401(k) 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>
                                                           THREE MONTHS ENDED MARCH 31,
                                                           ----------------------------
                                                                2006        2005
                                                              -------     -------
<S>                                                           <C>         <C>
      Components of net periodic benefit cost:
      Service cost                                            $26,864     $24,655
      Interest cost                                            32,740      28,998

      Expected return on assets                                  --          --
      Amortization of prior service cost                       30,396      30,347
                                                              -------     -------

      Net periodic pension cost                               $90,000     $84,000
                                                              =======     =======

      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
      March 31, 2006, 38,088 shares had been allocated to participants, and the
      fair value of the remaining 533,232 unallocated shares was approximately
      $7.3 million. During each of the three-month periods ended March 31, 2006
      and 2005, approximately 9,500 shares were committed to be released to
      participants, resulting in recognition of approximately $127,000 and
      $126,000 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 2,500 forfeited shares were reallocated in
      December 2005. 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 March 31, 2006
      and changes during the three months ended March 31, 2006 are presented
      below:

<TABLE>
<CAPTION>
                                                         Three Months Ended March 31, 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 months ended March
      31, 2006, approximately 14,000 shares were amortized to expense, based on
      the proportional vesting of the awarded shares. During three months ended
      March 31, 2006, approximately $168,000 was recognized in compensation
      expense for the plan. No tax benefit was recognized from the plan during
      this period. As of March 31, 2006, approximately $2.9 million in
      additional compensation expense will be recognized over the remaining
      lives of the RRP awards. At March 31, 2006, the weighted average remaining
      lives of the RRP awards is approximately 4.3 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 of which
      70,900 shares remain unawarded.

      A summary of the status of the Company's stock options under the Option
      Plan as of March 31, 2006 and changes during the three months ended March
      31, 2006 are presented below:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED MARCH 31, 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>

                                       21
<PAGE>


         The following table summarizes all stock options outstanding under the
Option Plan as of March 31, 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                   9.3                       --            $  --
       13.35                 4,500              13.35                   9.7                       --               --
                           -------            -------                   ---                   ------            -----
       Total               640,900            $12.02                    9.3                       --            $  --
                           =======            ======                    ===                   ======            =====
</TABLE>

      The estimated fair value of options granted during 2005 was $2.88 per
      share. 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:

                                               THREE MONTHS ENDED MARCH 31, 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 months ended March 31, 2006, approximately $91,000 was
      recognized in compensation expense for the Option Plan. No tax benefit was
      recognized from the plan during this period. At March 31, 2006,
      approximately $1.6 million in additional compensation expense for awarded
      options remained unrecognized. The weighted average period over which this
      expense will be recognized is approximately 4.3 years.

7.    COMMITMENTS AND CONTINGENCIES

      The Bank had approximately $11.5 million in outstanding mortgage loan
      commitments at March 31, 2006. The commitments are expected to be funded
      within 90 days with approximately $11.4 million in fixed rate loans
      ranging from 5.63% to 6.25%. The Bank had approximately $3.6 million in
      outstanding mortgage loan commitments at December 31, 2005. These loans
      are not originated for resale. Also outstanding at March 31, 2006 and
      December 31, 2005, were unused lines of credit totaling approximately
      $64.8 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 letters of credit
      expire within one year. At March 31, 2006 and December 31, 2005, the Bank
      had letters of


                                       22
<PAGE>

      credit outstanding of approximately $13.5 million and $14.1 million,
      respectively, of which $11.9 million and $12.5 million, respectively, were
      standby letters of credit. At both March 31, 2006 and December 31, 2005,
      the uncollateralized portion of the letters of credit extended by the Bank
      was approximately $169,000 of which $97,000 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 December 31, 2005, the exposure, which
      represents a portion of credit risk associated with the sold interests,
      amounted to $185,000. The exposure is for the life of the related loans
      and payable, on our proportional share, as losses are incurred.


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

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

We had net income of $1.7 million for the quarter ended March 31, 2006,
representing an increase of 23.8% over the comparable 2005 period. Diluted
earnings per share were $0.11 for the quarter, compared to $0.09 per diluted
share for the first quarter of 2005. Our total interest income of $11.3 million
for the first quarter of 2006 represented a $2.4 million or 26.6% increase over
the first quarter of 2005. 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 $118.3 million or 28.4% to $534.3 million for the first
quarter of 2006 from $416.0 million for the first quarter of 2005. The average
yield on our loan portfolio increased 49 basis points to 6.53% from 6.04% over
the same period. Our increase in interest income was somewhat offset by an
increase in our interest expense. Our total interest expense was $5.7 million
for the quarter ended March 31, 2006 compared to $4.0 million for the quarter
ended March 31, 2005, an increase of $1.8 million or 45.1%. The majority of the
increase in interest expense relates to the increase in interest expense on
deposits. During

                                       23
<PAGE>

the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005,
our average deposit balance grew by $80.1 million or 21.0%, primarily due to
growth in higher-rate certificates of deposit. As a result of this growth, as
well as the rising interest rate environment, the average rate we paid on our
deposits increased 80 basis points to 2.86% for the first quarter of 2006 from
2.06% for the first quarter of 2005.

The Company's total assets increased $11.4 million, or 1.3%, to $855.4 million
at March 31, 2006 compared to $844.1 million at December 31, 2005. The primary
reason for the increase in total assets during the first quarter of 2006 was a
$12.9 million or 46.4% increase in cash and cash equivalents to $40.6 million.
The increase in cash and cash equivalents was primarily the result of an $11.8
million or 2.4% increase in total deposits and a $2.6 million decrease in
mortgage-backed securities, somewhat offset by other uses of cash. Also
contributing to the overall increase in assets during the first quarter of 2006
was an increase in property and equipment, net of $1.4 million or 21.3%,
primarily as a result of increased investment in our new branches. The first of
these branches opened in April 2006 in Warrington, Pennsylvania. Three
additional branches are expected to open later this year. Our stockholders'
equity decreased $1.9 million to $115.4 million at March 31, 2006 compared to
$117.2 million at December 31, 2005. The decrease was primarily due to the
purchase of approximately 199,000 shares of the Company's common stock for an
aggregate of $2.7 million as part of the Company's stock repurchase program
announced in January, which offset the net income retained of $985,000.

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

ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is 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

                                       24
<PAGE>

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 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

                                       25
<PAGE>

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 MARCH 31, 2006 AND DECEMBER 31, 2005

The Company's total assets increased $11.4 million, or 1.3%, to $855.4 million
at March 31, 2006 compared to $844.1 million at December 31, 2005. The primary
reason for the increase in total assets during the first quarter of 2006 was a
$12.9 million or 46.4% increase in cash and cash equivalents to $40.6 million.
The increase in cash and cash equivalents was primarily the result of an $11.8
million or 2.4% increase in total deposits and a $2.6 million decrease in
mortgage-backed securities, somewhat offset by other uses of cash. The increased
cash has become available due to a timing difference as additional funds
available from increased deposits, as well as from payments on mortgage-backed
securities, have yet to be invested in interest-earning assets. The Company's
management plans to invest these funds in interest-earning assets, primarily
loans, as the appropriate opportunities arise. Also contributing to the overall
increase in assets during the first quarter of 2006 was an increase in property
and equipment, net of $1.4 million or 21.3%, primarily as a result of increased
investment in our new branches. The first of these branches opened in April 2006
in Warrington, Pennsylvania, with three more branches expected to open later
this year.

Our total deposits increased $11.8 million or 2.4% to $513.0 million at March
31, 2006 from $501.2 million at December 31, 2005. The increase was the result
of a $19.2 million increase in certificate of deposit accounts that was
partially offset by decreases in savings and money market accounts and checking
accounts. The shift towards higher rate certificates of deposit is a result of
the increased interest rates now available on those products relative to other
deposit products in the current interest rate environment. The Company, however,
continues to remain focused on maintaining and growing its base of core deposits
over the long term. Our advances from the Federal Home Loan Bank ("FHLB")
decreased $1.2 million or 0.6% during the first quarter of 2006 to $200.3
million at March 31, 2006 compared to $201.4 million at December 31, 2005. This
decrease compares to a $9.7 million increase during the first quarter of 2005
and a $30.8 million increase for the year ended December 31, 2005. This decrease
is a reflection of the additional funds obtained though other sources, primarily
through our deposit growth.

Our stockholders' equity decreased $1.9 million to $115.4 million at March 31,
2006 compared to $117.2 million at December 31, 2005. The decrease was primarily
due to the purchase of approximately 199,000 shares of the Company's common
stock for an aggregate of $2.7 million as part of the Company's stock repurchase
program announced in January. The payment of the Company's quarterly cash
dividends of $0.05 per share in March reduced retained earnings by $761,000.
Additionally, our accumulated other comprehensive loss increased $559,000. These
decreases to stockholders' equity were partially offset by our net income for
the first quarter of 2006, resulting in a net increase to retained earnings of
$985,000.

                                       26
<PAGE>

Stockholders' equity was also increased by approximately $386,000 in the
aggregate as a result of this quarter's proportional commitment to release
unallocated ESOP shares, amortization of unvested RRP shares, and recognition of
SOP expense to additional paid-in capital.


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 March 31, 2006,
our cash and cash equivalents amounted to $40.6 million. In addition, at such
date we had $25.1 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 $158.0 million at March 31, 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 March 31,
2006, we had certificates of deposit maturing within the next 12 months
amounting to $160.5 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us. For the three months ended March 31, 2006, and the year
ended December 31, 2005, the average balance of our outstanding FHLB advances
was $203.2 million and $192.2 million, respectively. At March 31, 2006, we had
$200.3 million in outstanding FHLB advances and we had $317.4 million in
additional FHLB advances available to us.

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

Our stockholders' equity amounted to $115.4 million at March 31, 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. In April 2006,
we opened a new Bank branch in Warrington, Pennsylvania, and we are continuing
to progress towards the opening of two additional branches in Springhouse and
Chalfont, Pennsylvania, as well as a new limited service branch in a retirement
community in Concordville, Pennsylvania. We believe that these new branches will
provide additional opportunities to grow our core deposits and establish new
lending relationships. Additionally, we began our first stock repurchase program
during the first quarter of 2006, purchasing approximately 199,000 shares of the
Company's common stock for an aggregate of $2.7 million. 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. We also continued our payment of quarterly
cash dividends with another $0.05 dividend paid in March 2006.

                                       27
<PAGE>

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

<TABLE>
<CAPTION>
                                            ACTUAL RATIOS AT
                                           -----------------
                                        March 31,    December 31,  Regulatory   To Be Well
                                          2006          2005        Minimum    Capitalized
                                          ----          ----        -------    -----------
     Capital Ratios:
     Tier 1 leverage ratio
<S>                                       <C>          <C>           <C>        <C>
        The Company                       13.96%       14.28%        4.00%        N/A
        The Bank                          10.55        10.46         4.00        5.00%
     Tier 1 risk-based capital ratio
        The Company                       22.78        23.19         4.00         N/A
        The Bank                          17.21        16.93         4.00        6.00
     Total risk-based capital ratio
        The Company                       23.05        23.47         8.00         N/A
        The Bank                          17.49        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 March 31, 2006 or
at any time during the three months ended March 31, 2006.


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 March 31, 2006, the Company has two stock-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. See Note 6 in the Notes to the
Consolidated Financial Statements herein for a further description of these
plans.

                                       28
<PAGE>

During the three months ended March 31, 2006, we recognized $168,000 in
compensation expense related to the amortization of RRP shares. As of March 31,
2006, approximately $2.9 million in additional compensation expense will be
recognized over the remaining lives of the RRP awards. At March 31, 2006, the
weighted average remaining lives of the RRP awards is approximately 4.3 years.

During the three months ended March 31, 2006, approximately $91,000 was
recognized in compensation expense for the Option Plan. At March 31, 2006,
approximately $1.6 million in additional compensation expense for awarded
options remained unrecognized. The weighted average period over which this
expense will be recognized is approximately 4.3 years.

The Company also has an employee stock ownership plan ("ESOP"). See Note 6 in
the Notes to the 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. We
recognized $127,000 in compensation expense due to the ESOP for the three months
ended March 31, 2006 compared to $126,000 for the three months ended March 31,
2005.


COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit and the unused
portions of lines of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of 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 March 31, 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 March 31, 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 $132.2 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 letters of credit expire within one year. At March

                                       29
<PAGE>

31, 2006 and December 31, 2005, the Bank had letters of credit outstanding of
approximately $13.5 million and $14.1 million, respectively, of which $11.9
million and $12.5 million, respectively, were standby letters of credit. At both
March 31, 2006 and December 31, 2005, the uncollateralized portion of the
letters of credit extended by the Bank was approximately $169,000 of which
$97,000 was for standby letters of credit.

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

Among the Company's contingent liabilities are exposures to limited recourse
arrangements with respect to the Bank's sales of whole loans and participation
interests. At March 31, 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.

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 March 31, 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                     $ 13,528      $ 12,687      $    836      $ --        $      5
Recourse obligations on loans sold         185          --            --          --             185
Commitments to originate loans          11,825        11,825          --          --            --
Unused portion of home equity
   lines of credit                      22,587          --            --          --          22,587
Unused portion of commercial
   lines of credit                      42,184        42,184          --          --            --
Undisbursed portion of
   construction loans in process        55,623        26,831        28,792        --            --
                                      --------      --------      --------      ------      --------
      Total commitments               $145,932      $ 93,527      $ 29,628      $ --        $ 22,777
                                      ========      ========      ========      ======      ========
</TABLE>

The following table summarizes our contractual cash obligations at March 31,
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                  $305,366      $160,453      $117,036      $ 14,341      $ 13,536
                                         --------      --------      --------      --------      --------
FHLB advances                             200,294        23,911        78,368        72,547        25,468
Repurchase agreements                      16,463        16,463          --            --            --
                                         --------      --------      --------      --------      --------
   Total debt                             216,757        40,374        78,368        72,547        25,468
                                         --------      --------      --------      --------      --------
Operating lease obligations                 4,692           567         1,075           868         2,182
                                         --------      --------      --------      --------      --------

   Total contractual obligations         $526,815      $201,394      $196,479      $ 87,756      $ 41,186
                                         ========      ========      ========      ========      ========
</TABLE>

                                       30
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND
2005

GENERAL. We had net income of $1.7 million for the quarter ended March 31, 2006,
representing an increase of 23.8% over the comparable 2005 period. Diluted
earnings per share were $0.11 for the quarter, compared to $0.09 per diluted
share for the first quarter of 2005. Our results for the first quarter of 2006
reflect, in part, an increase in our average total interest-earning assets
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-earning liabilities and the average rate paid on those liabilities. Our
average interest spread decreased to 2.23% for the quarter ended March 31, 2006
from 2.29% for the quarter ended March 31, 2005, as our net interest margin also
decreased to 2.75% from 2.80% over the same periods. Our non-interest income
increased by 19.9% for the first quarter of 2006 when compared to the first
quarter of 2005 due primarily to a $164,000 increase in income on bank owned
life insurance ("BOLI") purchased in March 2005. Our non-interest expense for
the first quarter of 2006 increased 8.8% over the comparable 2005 period,
primarily as a result of increases in salaries and employee benefits and other
non-interest expense.

INTEREST INCOME. Our total interest income was $11.3 million for the quarter
ended March 31, 2006 compared to $8.9 million for the quarter ended March 31,
2006, a $2.4 million or 26.6% 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 $118.3 million or 28.4% to $534.3 million for
the quarter ended March 31, 2006 from $416.0 million for the quarter ended March
31, 2005. The average yield on our loan portfolio increased 49 basis points to
6.53% from 6.04% over the same period. Also contributing to the increase in
interest income was an $11.4 million increase in the average balance of our
investment securities to $100.7 million for the first quarter of 2006 combined
with an 18 basis point increase in the average rate on those securities.
Additionally, the average rate on our other interest-earning assets increased
147 basis points to 2.57% for the first quarter of 2006 compared to 1.20% for
the first quarter of 2005. Partially offsetting these increases was a $25.6
million decrease in the average balance of our mortgage-backed securities to
$147.4 million for the first quarter of 2006 compared to $172.9 million for the
first quarter of 2005.

INTEREST EXPENSE. Our total interest expense was $5.7 million for the quarter
ended March 31, 2006 compared to $4.0 million for the quarter ended March 31,
2005, an increase of $1.8 million or 45.1%. 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 March 31, 2006 compared to the quarter
ended March 31, 2005, our average deposit balance grew by $80.1 million or
21.0%, primarily due to growth in higher-rate certificates of deposit. The
average balance of our certificate of deposit accounts grew $93.5 million or
46.4% to $295.2 million for the first quarter of 2006 compared to $201.7 million
for the first 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 80
basis points to 2.86% for the first quarter of 2006 from 2.06% for the first
quarter of 2005. The average balance of our FHLB advances increased $29.3
million to $203.2 million for the first quarter of 2006, and the average rate we
paid on such advances increased 12 basis points to 4.50%. The average rate we
paid on other borrowed money increased 194 basis points to 3.42% for the first
quarter of 2006 compared to 1.48% for the first quarter of 2005. Our other
borrowed money represents securities repurchase agreements entered into with
certain commercial checking account customers.

                                       31
<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 March 31,
                                                     ----------------------------------------------------------------------------
                                                                     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)                     $100,686       $    881       3.50%      $ 89,248       $    740      3.32%
       Mortgage-backed securities                    147,371          1,524       4.14        172,942          1,798      4.16
       Loans receivable(2)                           534,306          8,718       6.53        416,041          6,279      6.04
       Other interest-earning assets                  24,162            155       2.57         29,906             90      1.20
                                                    --------       --------                  --------       --------
           Total interest-earning assets             806,525         11,278       5.59%       708,137          8,907      5.03%
                                                                   --------       ----                      --------      ----
       Cash and non-interest bearing
           balances                                   19,150                                   20,381
       Other non-interest-earning assets              24,156                                   16,323
                                                    --------                                 --------
           Total assets                             $849,831                                 $744,841
                                                    ========                                 ========
Interest-bearing liabilities:
   Deposits:
       Savings and money market accounts            $111,819            304       1.09%      $128,252            319      0.99%
       Checking accounts                              54,908              4       0.03         51,881             10      0.08
       Certificate accounts                          295,224          2,991       4.05        201,690          1,640      3.25
                                                    --------       --------                  --------       --------
           Total deposits                            461,951          3,299       2.86        381,823          1,969      2.06
   FHLB advances                                     203,248          2,289       4.50        173,977          1,905      4.38
   Other borrowings                                   16,838            144       3.42         21,131             78      1.48
                                                    --------       --------                  --------       --------
       Total interest-bearing liabilities            682,037       $  5,732       3.36%       576,931       $  3,952      2.74%
                                                                   --------       ----                      --------      ----
Non-interest-bearing liabilities:
       Non-interest-bearing demand
           accounts                                   41,279                                   36,527
       Real estate tax escrow accounts                 2,809                                    2,600
       Other liabilities                               6,703                                    6,572
                                                    --------                                 --------
           Total liabilities                         732,828                                  622,630
       Stockholders' equity                          117,003                                  122,211
                                                    --------                                 --------
           Total liabilities and stockholders'
               equity                               $849,831                                 $744,841
                                                    ========                                 ========
       Net interest-earning assets                  $124,488                                 $131,206
                                                    ========                                 ========
       Net interest income; average
           Interest rate spread                                    $  5,546       2.23%                     $  4,955      2.29%
                                                                   ========       ====                      ========      ====
       Net interest margin(3)                                                     2.75%                                   2.80%
                                                                                  ====                                    ====
</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 26
      non-taxable municipal bonds with an aggregate average balance of $10.4
      million and an average yield of 4.3%. 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.


                                       32
<PAGE>

PROVISION FOR LOAN LOSSES. We made no provision to the allowance for loan losses
during either the first quarter of 2006 or 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. At
March 31, 2006, non-performing loans amounted to 0.07% of loans receivable and
our allowance for loan losses amounted to 370.0% of non-performing loans. Our
balance of non-performing loans decreased significantly during the first quarter
of 2006 to $390,000 at March 31, 2006 from $2.9 million at December 31, 2005.
The balance of non-performing loans at December 31, 2005 consisted primarily of
one loan, with a carrying value of $2.9 million, placed on non-accrual status in
the fourth quarter of 2005. In the first quarter of 2006, we agreed to allow the
sale of a portion of the underlying collateral of the loan, with the proceeds
paid to the Bank. Approximately $1.7 million in net proceeds was received, and
$1.0 million in additional payments were made, reducing the outstanding balance
of the loan to approximately $183,000 at March 31, 2006. In April 2006, the
remaining balance of the loan was paid in full, including all past due interest
and costs.

NON-INTEREST INCOME. Our total non-interest income amounted to $695,000 for the
first quarter of 2006 compared to $579,000 for the first quarter of 2005. The
$115,000 increase was due primarily to a $164,000 increase in income from BOLI,
which was purchased in March 2005. This income was partially offset by a $14,000
decrease in gain on derivative instruments, net, as our final swap agreement
expired in December 2005, and by a $27,000 decrease in service charge income.

NON-INTEREST EXPENSES. Our total non-interest expense for the first quarter of
2006 amounted to $3.8 million, representing an increase of $306,000 or 8.8% from
the first quarter of 2005. The overall increase was due primarily to increases
in salaries and employee benefits expense, the largest component of non-interest
expense, and other non-interest expense. Salaries and employee benefits expense
increased $316,000 or 17.5% for the quarter ended March 31, 2006 compared to the
quarter ended March 31, 2005. This increase was primarily due to additional
expenses of $182,000 in the aggregate relating to the Company's 2005 Stock
Option Plan ("SOP") and 2005 Recognition and Retention Plan ("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. Additional expenses of approximately
$77,000 were recognized in other non-interest expense for SOP and RRP awards to
directors, but were somewhat offset by decreases in various other categories of
other non-interest expense.

INCOME TAX EXPENSE. Income tax expense for the first quarter of 2006 amounted to
$702,000 compared to $638,000 for the first quarter of 2005. The fluctuation in
income tax expense was the result of the increase in our pre-tax income combined
with an improvement in our effective tax rate. Our effective tax rate decreased
to 28.7% for the quarter ended March 31, 2006, from 31.1% for quarter ended
March 31, 2005. The improved tax rate was primarily a result of increased
investment in tax-exempt municipal securities and bank owned life insurance.


FORWARD LOOKING STATEMENTS

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


                                       33
<PAGE>

among financial services companies, (3) changes in interest rates, (4) deposit
flows, (5) loan demand, (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

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

                                       34
<PAGE>

GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
and liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to affect adversely
net interest income while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income while a
positive gap would tend to affect adversely net interest income. Our current
asset/liability policy provides that our one-year interest rate gap as a
percentage of total assets should not exceed positive or negative 20%. This
policy was adopted by our management and Board based upon their judgment that it
established an appropriate benchmark for the level of interest-rate risk,
expressed in terms of the one-year gap, for the Bank. In the event our one-year
gap position were to approach or exceed the 20% policy limit, we would review
the composition of our assets and liabilities in order to determine what steps
might appropriately be taken, such as selling certain securities or loans or
repaying certain borrowings, in order to maintain our one-year gap in accordance
with the policy. Alternatively, depending on the then-current economic scenario,
we could determine to make an exception to our policy or we could determine to
revise our policy. In recent periods, our one-year gap position was well within
our policy. Our one-year cumulative gap was a negative 5.92% at March 31, 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 March 31, 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 March 31,
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.

                                       35
<PAGE>

<TABLE>
<CAPTION>
                                                         More than       More than        More than
                                          6 Months       6 Months          1 Year           3 Years       More than
                                           or Less       to 1 Year       to 3 Years      to 5 Years        5 Years     Total Amount
                                          ---------      ---------        ---------       ---------       ---------    ------------
                                                                          (Dollars in Thousands)
<S>                                       <C>            <C>              <C>             <C>             <C>           <C>
Interest-earning assets(1):
   Loans receivable                       $ 209,585      $  42,129        $ 120,727       $  68,189       $  92,011     $ 532,641
    Mortgage-backed securities               23,985         19,849           52,139          24,969          26,212       147,154
   Investment securities                     18,064         10,298           31,988           7,500          32,360       100,210
    Other interest-earning assets            34,645           --               --              --              --          34,645
                                          ---------      ---------        ---------       ---------       ---------     ---------
      Total interest-earning
        assets                              286,279         72,276          204,854         100,658         150,583       814,650
                                          =========      =========        =========       =========       =========     =========
Interest-bearing liabilities:
   Savings and money market accounts      $  16,259      $  16,259        $  41,013       $  18,871       $  16,617     $ 109,019
   Checking accounts                           --             --               --              --            56,812        56,812
   Certificate accounts                     178,247         46,244           55,998          11,341          13,536       305,366
   FHLB advances                            122,901         12,864           39,156           5,176          20,197       200,294
   Other borrowed money                      16,463           --               --              --              --          16,463
                                          ---------      ---------        ---------       ---------       ---------     ---------
       Total interest-bearing
         liabilities                        333,870         75,367          136,167          35,388         107,162       687,954
                                          =========      =========        =========       =========       =========     =========

Interest-earning assets less
   interest-bearing liabilities           $ (47,591)     $  (3,091)       $  68,687       $  65,270       $  43,421     $ 126,696
                                          ---------      ---------        ---------       ---------       ---------     ---------

Cumulative interest-rate
   sensitivity gap(2)                     $ (47,591)     $ (50,682)       $  18,005       $  83,275       $ 126,696
                                          =========      =========        =========      ==========       =========

Cumulative interest-rate
    gap as a percentage of
    total assets at March 31, 2006            (5.56)%        (5.92)%           2.10%           9.73%          14.81%
                                          =========      =========        =========      ==========       =========

Cumulative interest-earning
   assets as a percentage of
   cumulative interest-bearing
   liabilities at March 31, 2006              85.75%         87.62%          103.30%         114.34%         118.42%
                                          =========      =========        =========      ==========       =========
</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 different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and


                                       36
<PAGE>

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.


                                       37
<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
                                       TOTAL                            SHARES PURCHASED        OF SHARES THAT MAY
                                      NUMBER OF                        AS PART OF PUBLICLY       YET BE PURCHASED
                                       SHARES         AVERAGE PRICE      ANNOUNCED PLANS         UNDER THE PLAN OR
            PERIOD                    PURCHASED      PAID PER SHARE        OR PROGRAMS              PROGRAMS(1)
-------------------------------       ---------      --------------        -----------              -----------
<S>                                     <C>              <C>                 <C>                      <C>
January 1 - January 31, 2006               --              --                   --                    714,150
February 1 - February 28, 2006           93,835           13.36               93,835                  620,315
March 1 - March 31, 2006                105,512           13.36              105,512                  514,803
                                        -------                              -------
Total                                   199,347          $13.36              199,347                  514,803
                                        =======          ======              =======                  =======
</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.

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

              Not applicable.


                                       38
<PAGE>

ITEM 5.       OTHER INFORMATION

              Not applicable.

ITEM 6.       EXHIBITS

              NO.       DESCRIPTION
              ---       -----------
              31.1      Certification of the Chief Executive Officer pursuant to
                        Rule 13a-14 and 15d-14 of the Securities Exchange Act of
                        1934, as amended, as adopted pursuant to Section 302 of
                        the Sarbanes-Oxley Act of 2002.

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

              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.


                                       39
<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: May 12, 2006                     By: /s/ Robert W. White
                                          ---------------------------------
                                           Robert W. White
                                           Chairman, President and
                                           Chief Executive Officer



Date: May 12, 2006                     By: /s/ Jack J. Sandoski
                                           --------------------------------
                                           Jack J. Sandoski
                                           Senior Vice President and
                                           Chief Financial Officer


                                       40