<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

          For the quarterly period ended September 30, 2006

                                       OR

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

      For the transition period from _________________ to _________________

      Commission file number: 0-51077

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

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

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

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

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

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

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

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

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] NO [X]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of November 7, 2006,
15,288,210 shares of the Registrant's common stock were outstanding.

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

                                                                            PAGE
                                                                            ----
PART I - FINANANCIAL INFORMATION

   ITEM 1. CONDENSED FINANCIAL STATEMENTS

      Unaudited Consolidated Statements of Financial Condition as of
      September 30, 2006 and December 31, 2005                                1

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

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

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

      Notes to Unaudited Consolidated Financial Statements                    5

   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS                                         24

   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK        39

   ITEM 4. CONTROLS AND PROCEDURES                                           42

PART II - OTHER INFORMATION

   ITEM 1. Legal Proceedings                                                 43

   ITEM 1A. Risk Factors                                                     43

   ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds       43

   ITEM 3. Defaults upon Senior Securities                                   43

   ITEM 4. Submission of Matters to a Vote of Security Holders               44

   ITEM 5. Other Information                                                 44

   ITEM 6. Exhibits                                                          44

   SIGNATURES                                                                45

   CERTIFICATIONS

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,   DECEMBER 31,
                                                                          2006           2005
                                                                     -------------   ------------
<S>                                                                   <C>            <C>
ASSETS
Cash and due from banks                                               $ 12,757,692   $ 19,460,237
Interest-bearing bank balances                                          15,500,133      8,254,004
                                                                      ------------   ------------
   Total cash and cash equivalents                                      28,257,825     27,714,241
Investment securities held to maturity (estimated fair
   value--2006, $20,624,239; 2005, $20,316,775)                         20,393,971     20,395,593
Investment securities available for sale (amortized cost--
   2006, $80,995,632; 2005, $80,775,605)                                79,536,089     78,828,696
Mortgage-backed securities held to maturity (estimated fair
   value--2006, $56,673,005; 2005, $65,505,255)                         58,905,688     67,410,735
Mortgage-backed securities available for sale (amortized cost--
   2006, $81,579,068; 2005, $82,212,270)                                79,372,301     79,943,379
Loans receivable, net of allowance for loan losses
   (2006, $1,555,278; 2005, $1,454,510)                                594,759,328    529,487,209
Accrued interest receivable                                              4,618,869      3,475,350
Federal Home Loan Bank stock--at cost                                   11,888,500     11,061,200
Cash surrender value - bank owned life insurance                        16,003,814     15,498,958
Property and equipment, net                                              8,352,523      6,510,144
Deferred tax asset                                                       2,620,173      2,648,200
Prepaid expenses and other assets                                          969,316      1,098,106
                                                                      ------------   ------------
TOTAL ASSETS                                                          $905,678,397   $844,071,811
                                                                      ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
   Deposits:
      Noninterest-bearing                                             $ 37,653,586   $ 43,333,286
      Interest-bearing                                                 517,362,004    457,849,738
                                                                      ------------   ------------
         Total deposits                                                555,015,590    501,183,024
   Advances from Federal Home Loan Bank                                204,396,450    201,444,952
   Other borrowed money                                                 21,995,785     16,113,949
   Accrued interest payable                                              6,325,273      1,909,234
   Advances from borrowers for taxes and insurance                         547,000      2,384,314
   Accounts payable and accrued expenses                                 4,238,533      3,805,571
                                                                      ------------   ------------
            Total liabilities                                          792,518,631    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, outstanding:
      15,288,210 in 2006 and 15,870,000 in 2005                            158,700        158,700
   Additional paid-in capital                                           69,540,776     69,234,964
   Treasury stock--at cost, 581,790 shares                              (8,316,768)             -
   Unallocated common stock held by:
      Employee Stock Ownership Plan (ESOP)                              (6,511,650)    (6,880,236)
      Recognition & Retention Plan Trust (RRP)                          (2,791,047)    (3,339,413)
      Deferred compensation plans trust                                 (1,059,876)    (1,050,000)
   Retained earnings                                                    64,559,396     61,889,180
   Accumulated other comprehensive loss                                 (2,419,765)    (2,782,428)
                                                                      ------------   ------------
            Total stockholders' equity                                 113,159,766    117,230,767
                                                                      ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $905,678,397   $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 SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                 --------------------------------   -------------------------------
                                                         2006          2005                2006          2005
                                                     -----------   -----------         ------------   -----------
<S>                                                  <C>           <C>                 <C>            <C>
INTEREST INCOME:
   Interest on loans                                 $10,146,533   $ 7,683,975         $ 28,321,461   $20,860,816
   Interest and dividends on investment and
      mortgage-backed securities:
      Taxable                                          2,715,257     2,500,970            7,599,627     7,639,385
      Tax-exempt                                         212,727       214,482              639,935       471,876
                                                     -----------   -----------         ------------   -----------
         Total interest income                        13,074,517    10,399,427           36,561,023    28,972,077
INTEREST EXPENSE:
   Interest on deposits                                4,629,897     2,668,445           11,776,374     6,826,392
   Interest on Federal Home Loan Bank advances         2,535,445     2,259,801            7,207,782     6,290,844
   Interest on other borrowed money                      268,440       122,642              620,257       318,307
                                                     -----------   -----------         ------------   -----------
         Total interest expense                        7,433,782     5,050,888           19,604,413    13,435,543
                                                     -----------   -----------         ------------   -----------
NET INTEREST INCOME                                    5,640,735     5,348,539           16,956,610    15,536,534
PROVISION FOR LOAN LOSSES                                120,000        20,000              128,000        20,000
                                                     -----------   -----------         ------------   -----------
NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES                           5,520,735     5,328,539           16,828,610    15,516,534
                                                     -----------   -----------         ------------   -----------
NON-INTEREST INCOME
   Service charges                                       435,978       436,938            1,282,401     1,320,289
   Rental income                                          10,348        10,048               25,520        33,998
   Gain on derivative instruments, net                         -        37,380                    -        80,050
   Income on bank owned life insurance                   171,605       166,113              504,856       330,453
   Loss on sale of investment securities                       -             -                 (601)            -
   Other income                                           97,910       119,890              349,289       347,120
                                                     -----------   -----------         ------------   -----------
         Total non-interest income                       715,841       770,369            2,161,465     2,111,910
                                                     -----------   -----------         ------------   -----------
NON-INTEREST EXPENSES
   Salaries and employee benefits                      2,158,377     2,115,019            6,402,075     5,793,082
   Occupancy                                             365,762       429,222            1,140,453     1,219,505
   Depreciation                                          173,723       133,302              490,874       378,222
   Professional services                                 128,871       221,192              514,731       669,903
   Data processing                                       322,957       309,527              957,032       908,914
   ATM expense                                            82,734        82,174              246,772       250,204
   Deposit insurance premium                              35,345        31,620              104,623        91,265
   Advertising and promotions                            158,786       132,524              390,191       334,510
   Other                                                 437,795       446,121            1,419,965     1,295,198
                                                     -----------   -----------         ------------   -----------
         Total non-interest expenses                   3,864,350     3,900,701           11,666,716    10,940,803
                                                     -----------   -----------         ------------   -----------
INCOME BEFORE INCOME TAXES                             2,372,226     2,198,207            7,323,359     6,687,641
PROVISION FOR INCOME TAXES                               665,667       603,819            2,099,227     1,946,193
                                                     -----------   -----------         ------------   -----------
NET INCOME                                           $ 1,706,559   $ 1,594,388         $  5,224,132   $ 4,741,448
                                                     ===========   ===========         ============   ===========
BASIC EARNINGS PER COMMON SHARE                      $      0.12   $      0.10         $       0.35   $      0.31
DILUTED EARNINGS PER COMMON SHARE                    $      0.12   $      0.10         $       0.35   $      0.31
BASIC AVERAGE COMMON SHARES OUTSTANDING:              14,554,073    15,244,232           14,802,227    15,366,869
DILUTED AVERAGE COMMON SHARES OUTSTANDING:            14,799,709    15,485,363           15,040,647    15,448,129
</TABLE>

See notes to unaudited consolidated financial statements.


                                        2

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

<TABLE>
<CAPTION>
                                                                          COMMON STOCK                 ACCUMULATED
                            COMMON               ADDITIONAL                ACQUIRED BY                    OTHER          TOTAL
                             STOCK     COMMON     PAID-IN      TREASURY      BENEFIT      RETAINED    COMPREHENSIVE  STOCKHOLDERS'
                            SHARES     STOCK      CAPITAL       STOCK         PLANS       EARNINGS        LOSS           EQUITY
                          ----------  --------  -----------  -----------  ------------  ------------  -------------  -------------
<S>                       <C>         <C>       <C>           <C>         <C>            <C>           <C>            <C>
BALANCE--JANUARY 1, 2006  15,870,000  $158,700  $69,234,964  $         -  $(11,269,649)  $61,889,180  $(2,782,428)   $117,230,767
   Comprehensive income:
      Net income                   -         -            -            -             -     5,224,132            -       5,224,132
      Net realized
         holding gain on
         available for
         sale securities
         arising during
         the period, net
         of tax expense
         of $186,827               -         -            -            -             -             -      362,663         362,663
                                                                                                                     ------------
   Comprehensive income                                                                                                 5,586,795
                                                                                                                     ------------
   Treasury stock
      purchased                    -         -            -   (8,316,768)            -             -            -      (8,316,768)
   Cash dividends
      declared, ($.17
      per share)                   -         -            -            -             -    (2,553,916)           -      (2,553,916)
   Stock options expense           -         -      275,500            -             -             -            -         275,500
   Dividends reinvested
      in deferred
      compensation plans
      trust                        -         -            -            -        (9,876)            -            -          (9,876)
   Excess tax benefit on
      stock-based
      compensation                 -         -       36,134            -             -             -            -          36,134
   Amortization of RRP
      shares                       -         -      (39,202)           -       548,366             -            -         509,164
   ESOP shares committed
      to be released               -         -       33,380            -       368,586             -            -         401,966
                          ----------  --------  -----------  -----------  ------------   -----------  -----------    ------------
BALANCE--
   SEPTEMBER 30, 2006     15,870,000  $158,700  $69,540,776  $(8,316,768) $(10,362,573)  $64,559,396  $(2,419,765)   $113,159,766
                          ==========  ========  ===========  ===========  ============   ===========  ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                          COMMON STOCK                 ACCUMULATED
                            COMMON               ADDITIONAL                ACQUIRED BY                    OTHER          TOTAL
                             STOCK     COMMON     PAID-IN      TREASURY      BENEFIT      RETAINED    COMPREHENSIVE  STOCKHOLDERS'
                            SHARES     STOCK      CAPITAL       STOCK         PLANS       EARNINGS        LOSS           EQUITY
                          ----------  --------  -----------  -----------  ------------  ------------  -------------  -------------
<S>                       <C>         <C>       <C>           <C>         <C>           <C>            <C>            <C>
BALANCE--JANUARY 1, 2005  15,870,000  $158,700  $69,096,936      $ -      $ (3,120,337)  $57,881,651   $  (962,249)  $123,054,701
   Comprehensive income:
      Net income                   -         -            -        -                 -     4,741,448             -      4,741,448
      Net realized
         holding loss on
         available for
         sale securities
         arising during
         the period, net
         of tax benefit
         of $719,219               -         -            -        -                 -             -    (1,396,132)    (1,396,132)
                                                                                                                     ------------
   Comprehensive income                                                                                                 3,345,316
                                                                                                                     ------------
   Cash dividends
      declared, ($.10
      per share)                   -         -            -        -                 -    (1,529,868)            -     (1,529,868)
   Shares released from
      deferred
      compensation plans
      trust                        -         -            -        -            24,200             -             -         24,200
   Common stock acquired
      by RRP                       -         -            -        -        (3,698,568)            -             -     (3,698,568)
   Common stock acquired
      by ESOP                      -         -            -        -        (5,325,546)            -             -     (5,325,546)
   Amortization of RRP
      shares                       -         -      (12,815)       -           176,975             -             -        164,160
   ESOP shares committed
      to be released              --         -      (13,597)       -           368,585             -             -        354,988
                          ----------  --------  -----------      ---      ------------   -----------   -----------   ------------
BALANCE--
      SEPTEMBER 30, 2005  15,870,000  $158,700  $69,070,524      $ -      $(11,574,691)  $61,093,231   $(2,358,381)  $116,389,383
                          ==========  ========  ===========      ===      ============   ===========   ===========   ============
</TABLE>

See notes to unaudited consolidated financial statements.


                                        3

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

<TABLE>
<CAPTION>
                                                                    NINE MONTHS ENDED SEPTEMBER 30,
                                                                    -------------------------------
                                                                          2006            2005
                                                                     -------------   -------------
<S>                                                                  <C>             <C>
OPERATING ACTIVITIES:
   Net income                                                        $   5,224,132   $   4,741,448
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Provision for loan losses                                            128,000          20,000
      Depreciation                                                         490,874         378,222
      Share-based compensation expense                                   1,186,630         519,148
      Unrealized gain on derivative instruments                                  -        (121,000)
      Impairment charge on investment securities                                 -           2,500
      Loss on sale of investment securities                                    601               -
      Deferred income tax benefit                                         (158,800)       (311,344)
      Amortization of:
         Deferred loan fees                                               (666,341)       (952,360)
         Premiums and discounts, net                                        77,438         191,451
      Income from bank owned life insurance                               (504,856)       (330,453)
      Changes in assets and liabilities which (used) provided
         cash:
         Accrued interest receivable                                    (1,143,519)       (894,458)
         Prepaid expenses and other assets                                 128,790        (103,559)
         Accrued interest payable                                        4,416,039       3,002,393
         Accounts payable and accrued expenses                             423,086         925,493
                                                                     -------------   -------------
            Net cash provided by operating activities                    9,602,074       7,067,481
                                                                     -------------   -------------
INVESTING ACTIVITIES:
   Principal collected on loans                                        110,061,097     104,026,521
   Disbursements for loans                                            (174,794,875)   (196,227,607)
   Purchases of:
      Mortgage-backed securities held to maturity                                -      (8,774,897)
      Mortgage-backed securities available for sale                    (11,075,891)    (20,553,403)
      Investments held to maturity                                               -     (10,178,366)
      Investments available for sale                                   (18,098,266)     (4,069,474)
      Federal Home Loan Bank stock                                      (2,936,091)     (4,307,100)
      Property and equipment                                            (2,333,253)       (878,435)
      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            17,878,688         500,000
      Principal repayments of mortgage-backed securities held to
         maturity                                                        8,412,832      16,775,938
      Principal repayments of mortgage-backed securities
         available for sale                                             11,724,442      15,582,154
      Redemption of Federal Home Loan Bank stock                         2,108,791       3,151,800
                                                                     -------------   -------------
            Net cash used in investing activities                      (59,052,526)   (118,741,347)
                                                                     -------------   -------------
FINANCING ACTIVITIES:
   Net decrease in demand deposits and savings accounts                (34,370,436)    (13,834,306)
   Net increase in certificate accounts                                 88,203,002      83,131,359
   Net increase in other borrowed money                                  5,881,836       3,873,232
   Advances from Federal Home Loan Bank                                765,100,000     383,559,008
   Repayments of advances from Federal Home Loan Bank                 (762,148,502)   (341,645,278)
   Net decrease in advances from borrowers for taxes and                (1,837,314)     (1,540,796)
      insurance
   Excess tax benefit from stock-based compensation                         36,134               -
   Acquisition of stock for ESOP and RRP                                         -      (9,024,114)
   Purchase of treasury stock                                           (8,316,768)              -
   Payment of cash dividend                                             (2,553,916)     (1,529,868)
                                                                     -------------   -------------
            Net cash provided by financing activities                   49,994,036     102,989,237
                                                                     -------------   -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       543,584      (8,684,629)
CASH AND CASH EQUIVALENTS--Beginning of period                          27,714,241      33,295,832
                                                                     -------------   -------------
CASH AND CASH EQUIVALENTS--End of period                             $  28,257,825   $  24,611,203
                                                                     =============   =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
      Interest on deposits and other borrowings                      $  15,188,374   $  10,433,150
                                                                     =============   =============
      Income taxes                                                   $   2,375,000   $   2,250,000
                                                                     =============   =============
   Release of stock from deferred compensation plans trust           $           -   $      24,200
                                                                     =============   =============
</TABLE>

See notes to unaudited consolidated financial statements.


                                        4

<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

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

1.   FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF FINANCIAL STATEMENT PRESENTATION-- Abington Community Bancorp,
     Inc. (the "Company") is a Pennsylvania corporation, which was organized to
     be a mid-tier holding company for Abington Savings Bank. Abington Savings
     Bank is a Pennsylvania-chartered, FDIC-insured savings bank, which conducts
     business under the name "Abington Bank" (the "Bank" or "Abington Bank").
     The Company was organized in conjunction with the Bank's reorganization
     from the mutual savings bank to the mutual holding company structure in
     December 2004. Abington Mutual Holding Company, a Pennsylvania corporation,
     is the mutual holding company parent of the Company. Abington Mutual
     Holding Company owns approximately 57% of the Company's outstanding common
     stock and must continue to own at least a majority of the voting stock of
     the Company. The Bank is a wholly owned subsidiary of the Company. The
     Company's results of operations are primarily dependent on the results of
     the Bank and the Bank's wholly owned subsidiaries, ASB Investment Co.,
     Keswick Services II and its wholly owned subsidiaries, and Abington Corp.
     The consolidated financial statements include the accounts of the Company
     and its wholly owned subsidiaries. All significant intercompany balances
     and transactions have been eliminated.

     The Bank's executive offices are in Jenkintown, Pennsylvania, with eight
     other branches and five limited service facilities located in Montgomery,
     Bucks and Delaware Counties, Pennsylvania. The Bank is principally engaged
     in the business of accepting customer deposits and investing these funds in
     loans that include residential mortgage, commercial, consumer and
     construction loans. The principal business of ASB Investment Co. is to hold
     certain investment securities for the Bank. Keswick Services II and its
     wholly owned subsidiaries and Abington Corp. are dormant subsidiaries.

     The accompanying unaudited consolidated financial statements were prepared
     in accordance with the instructions to Form 10-Q, and therefore, do not
     include all the information or footnotes necessary for a complete
     presentation of financial position, results of operations, changes in
     equity and comprehensive income and cash flows in conformity with
     accounting principles generally accepted in the United States of America.
     However, all normal recurring adjustments that, in the opinion of
     management, are necessary for a fair presentation of the consolidated
     financial statements have been included. These financial statements should
     be read in conjunction with the audited consolidated financial statements
     of the Company and the accompanying notes thereto included in the Company's
     Annual Report on Form 10-K for the period ended December 31, 2005. The
     results for the nine months ended September 30, 2006 are not necessarily
     indicative of the results that may be expected for the fiscal year ending
     December 31, 2006, or any other period.

     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The
     preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of income and expenses during the reporting period. Actual results
     could differ from those estimates. The Company's most significant estimates
     are the allowance for loan losses and deferred income taxes.


                                       5

<PAGE>

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

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

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

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

     The Company previously entered into interest rate cap and swap agreements
     in order to manage its exposure to fluctuations in interest rates on a
     portion of its fixed rate loans and variable rate deposits. The agreements
     did not qualify for hedge accounting under Statement of Financial
     Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE
     INSTRUMENTS AND HEDGING ACTIVITIES. Gains and losses in the fair value of
     the cap and swap agreements, as well as amounts paid or received under the
     agreements, were recognized in a separate line item, gain (loss) on
     derivative instruments, net, included in non-interest income in the
     Company's consolidated statements of income during the period in which they
     accrued. The Company did not hold any derivative financial instruments for
     trading purposes. We were not party to any derivative financial instrument
     agreements at September 30, 2006 or at any time during the nine months
     ended September 30, 2006.

     SHARE-BASED COMPENSATION-- In December 2004, the Financial Accounting
     Standards Board ("FASB") issued SFAS No. 123R (revised 2004), SHARE-BASED
     PAYMENT, which revises SFAS No. 123, ACCOUNTING FOR STOCK-BASED
     COMPENSATION, and supersedes Accounting Principles Board ("APB") Opinion
     No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. This Statement requires
     an entity to recognize the cost of employee services received in
     share-based payment transactions and measure the cost on the grant-date
     fair value of the award. That cost will be recognized over the


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

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

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED SEPTEMBER 30,
                                             -----------------------------------------------------
                                                       2006                        2005
                                             -------------------------   -------------------------
                                                BASIC        DILUTED        BASIC        DILUTED
                                             -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>
     Net income                              $ 1,706,559   $ 1,706,559   $ 1,594,388   $ 1,594,388
                                             ===========   ===========   ===========   ===========
     Weighted average shares outstanding      14,554,073    14,554,073    15,244,232    15,244,232
     Effect of common share equivalents                -       245,636             -       241,131
                                             -----------   -----------   -----------   -----------
     Adjusted weighted average shares used
     in earnings per share computation        14,554,073    14,799,709    15,244,232    15,485,363
                                             ===========   ===========   ===========   ===========
     Earnings per share                      $      0.12   $      0.12   $      0.10   $      0.10
                                             ===========   ===========   ===========   ===========
</TABLE>


                                       7

<PAGE>

<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                             -----------------------------------------------------
                                                       2006                        2005
                                             -------------------------   -------------------------
                                                BASIC         DILUTED       BASIC        DILUTED
                                             -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>
     Net income                              $ 5,224,132   $ 5,224,132   $ 4,741,448   $ 4,741,448
                                             ===========   ===========   ===========   ===========
     Weighted average shares outstanding      14,802,227    14,802,227    15,366,869    15,366,869
     Effect of common share equivalents                -       238,420             -        81,260
                                             -----------   -----------   -----------   -----------
     Adjusted weighted average shares used
     in earnings per share computation        14,802,227    15,040,647    15,366,869    15,448,129
                                             ===========   ===========   ===========   ===========
     Earnings per share                      $      0.35   $      0.35   $      0.31   $      0.31
                                             ===========   ===========   ===========   ===========
</TABLE>

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

     In September 2006, the FASB ratified the consensus reached by the Emerging
     Issues Task Force ("EITF") in Issue 06-4, ACCOUNTING FOR DEFERRED
     COMPENSATION AND POSTRETIREMENT BENEFIT ASPECTS OF ENDORSEMENT SPLIT-DOLLAR
     LIFE INSURANCE ARRANGEMENTS. EITF 06-4 applies to life insurance
     arrangements that provide an employee with a specified benefit that is not
     limited to the employee's active service period, including certain
     bank-owned life insurance ("BOLI") policies. EITF 06-4 requires an employer
     to recognize a liability and related compensation costs for future benefits
     that extend to postretirement periods. EITF 06-4 is effective for fiscal
     years beginning after December 15, 2007, with earlier application
     permitted. The Company is continuing to evaluate the impact of this
     consensus, which will require the Company to recognize an additional
     liability and compensation expense related to its BOLI policies.

     In September 2006, the FASB ratified the consensus reached by the EITF in
     Issue 06-5, ACCOUNTING FOR PURCHASES OF LIFE INSURANCE - DETERMINING THE
     AMOUNT THAT COULD BE REALIZED IN ACCORDANCE WITH FASB TECHNICAL BULLETIN
     NO. 85-4, ACCOUNTING FOR PURCHASES OF LIFE INSURANCE. Technical Bulletin
     No. 85-4 states that an entity should report as an asset in the statement
     of financial position the amount that could be realized under the insurance
     contract. EITF 06-5 clarifies certain factors that should be considered in
     the determination of the amount that could be realized. EITF 06-5 is
     effective for fiscal years beginning after December 15, 2006, with earlier
     application permitted under certain circumstances. The Company is
     continuing to evaluate the impact of this consensus and does not expect
     that the guidance will have a material effect on the Company's consolidated
     financial position or results of operations.

     In September 2006, the FASB issued FASB Statement No. 157, FAIR VALUE
     MEASUREMENTS, which defines fair value, establishes a framework for
     measuring fair value under GAAP, and expands disclosures about fair value
     measurements. FASB Statement No. 157 applies to other accounting
     pronouncements that require or permit fair value measurements. The new
     guidance is effective for


                                       8

<PAGE>

     financial statements issued for fiscal years beginning after November 15,
     2007, and for interim periods within those fiscal years. We are currently
     evaluating the potential impact, if any, of the adoption of FASB Statement
     No. 157 on our consolidated financial position or results of operations.

     In September 2006, the FASB issued SFAS No. 158, EMPLOYERS' ACCOUNTING FOR
     DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF
     FASB STATEMENTS NO. 87, 88, 106, AND 132(R). This statement which amends
     SFAS No. 87 and SFAS No. 106 to require recognition of the overfunded or
     underfunded status of pension and other postretirement benefit plans on the
     balance sheet. Under SFAS No. 158, gains and losses, prior service costs
     and credits, and any remaining transition amounts under SFAS No. 87 and
     SFAS No. 106 that have not yet been recognized through net periodic benefit
     cost will be recognized in accumulated other comprehensive income, net of
     tax effects, until they are amortized as a component of net periodic cost.
     The measurement date -- the date at which the benefit obligation and plan
     assets are measured -- is required to be the company's fiscal year end.
     SFAS No. 158 is effective for publicly-held companies for fiscal years
     ending after December 15, 2006, except for the measurement date provisions,
     which are effective for fiscal years ending after December 15, 2008. The
     Company maintains a nonqualified, unfunded, defined benefit pension plan
     for the Board of Directors and certain officers that is more fully
     described in Note 6. We are currently evaluating the potential impact of
     the adoption of FASB Statement No. 158 in relation to this plan, however,
     we do not expect its implementation to have a significant impact on our
     consolidated financial position, stockholders' equity or results of
     operations.

     In September 2006, the SEC issued SAB No. 108, CONSIDERING THE EFFECTS OF
     PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR
     FINANCIAL STATEMENTS. SAB No. 108 provides interpretive guidance on how the
     effects of the carryover or reversal of prior year misstatements should be
     considered in quantifying a potential current year misstatement. Prior to
     SAB No. 108, companies might evaluate the materiality of
     financial-statement misstatements using either the income statement or
     balance sheet approach, with the income statement approach focusing on new
     misstatements added in the current year, and the balance sheet approach
     focusing on the cumulative amount of misstatement present in a company's
     balance sheet. Misstatements that would be material under one approach
     could be viewed as immaterial under another approach, and not be corrected.
     SAB No. 108 now requires that companies view financial statement
     misstatements as material if they are material according to either the
     income statement or balance sheet approach. The Company has analyzed SAB
     No. 108 and determined that upon adoption it will have no impact on the
     reported financial position or results of operations.

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


                                       9

<PAGE>

2.   INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                      HELD TO MATURITY
                                                     SEPTEMBER 30, 2006
                                     ---------------------------------------------------
                                                      GROSS        GROSS      ESTIMATED
                                      AMORTIZED    UNREALIZED   UNREALIZED      FAIR
                                        COST          GAINS        LOSSES       VALUE
                                     -----------   ----------   ----------   -----------
<S>                                  <C>            <C>            <C>       <C>
     Debt securities:
        Municipal bonds              $20,393,971    $230,372       $(104)    $20,624,239
                                     -----------    --------       -----     -----------
           Total debt securities     $20,393,971    $230,372       $(104)    $20,624,239
                                     ===========    ========       =====     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                     AVAILABLE FOR SALE
                                                     SEPTEMBER 30, 2006
                                     ---------------------------------------------------
                                                      GROSS        GROSS       ESTIMATED
                                      AMORTIZED    UNREALIZED    UNREALIZED       FAIR
                                         COST         GAINS        LOSSES        VALUE
                                     -----------   ----------   -----------   -----------
<S>                                  <C>             <C>        <C>           <C>
     Debt securities:
        Agency bonds                 $76,491,800     $42,320    $(1,418,195)  $75,115,925
        Corporate bonds and
           commercial paper              499,583           -         (9,113)      490,470
        Certificates of deposit          984,000           -              -       984,000
                                     -----------     -------    -----------   -----------
           Total debt securities      77,975,383      42,320     (1,427,308)   76,590,395
                                     -----------     -------    -----------   -----------
     Equity securities:
        Common stock                          10         437              -           447
        Mutual funds                   3,020,239           -        (74,992)    2,945,247
                                     -----------     -------    -----------   -----------
           Total equity securities     3,020,249         437        (74,992)    2,945,694
                                     -----------     -------    -----------   -----------

     Total                           $80,995,632     $42,757    $(1,502,300)  $79,536,089
                                     ===========     =======    ===========   ===========
</TABLE>


                                       10

<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>


                                       11

<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>
                                                                SEPTEMBER 30, 2006
                                              -----------------------------------------------------
                                                  AVAILABLE FOR SALE           HELD TO MATURITY
                                              -------------------------   -------------------------
                                               AMORTIZED     ESTIMATED     AMORTIZED     ESTIMATED
                                                  COST       FAIR VALUE       COST       FAIR VALUE
                                              -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>           <C>
     Due in one year or less                  $20,998,000   $20,764,490   $         -   $         -
     Due after one year through five years     44,985,583    44,403,985             -             -
     Due after five years through ten years     9,991,800     9,418,800             -             -
     Due after ten years                        2,000,000     2,003,120    20,393,971    20,624,239
                                              -----------   -----------   -----------   -----------
     Total                                    $77,975,383   $76,590,395   $20,393,971   $20,624,239
                                              ===========   ===========   ===========   ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                      LESS THAN 12 MONTHS        MORE THAN 12 MONTHS
                                                    -----------------------   -------------------------
                                                       GROSS                     GROSS
                                                    UNREALIZED    ESTIMATED    UNREALIZED    ESTIMATED
                                                      LOSSES     FAIR VALUE      LOSSES      FAIR VALUE
                                                    ----------   ----------   -----------   -----------
<S>                                                  <C>         <C>          <C>           <C>
     Securities held to maturity:
        Municipal bonds                              $     -     $        -   $      (104)  $   505,460
                                                     -------     ----------   -----------   -----------
           Total securities held to maturity               -              -          (104)      505,460
                                                     -------     ----------   -----------   -----------
     Securities available for sale:
        Government agency securities                 $(3,750)    $2,996,250   $(1,414,445)  $56,077,355
        Other securities                                   -              -       (84,105)    3,435,716
                                                     -------     ----------   -----------   -----------
           Total securities available for sale        (3,750)     2,996,250    (1,498,550)   59,513,071
                                                     -------     ----------   -----------   -----------
     Total                                           $(3,750)    $2,996,250   $(1,498,654)  $60,018,531
                                                     =======     ==========   ===========   ===========
</TABLE>


                                       12

<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                     GROSS
                                                    UNREALIZED    ESTIMATED    UNREALIZED    ESTIMATED
                                                      LOSSES     FAIR VALUE      LOSSES      FAIR 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 reviews the securities in
     its investment portfolio to identify any securities that might have an
     other-than-temporary impairment. At September 30, 2006, securities in a
     gross unrealized loss position for twelve months or longer consist of 28
     securities having an aggregate depreciation of 2.4% from the Company's
     amortized cost basis. Securities in a gross unrealized loss position for
     less than twelve months at September 30, 2006, consist of 2 securities
     having an aggregate depreciation of 0.1% from the Company's amortized cost
     basis. Management has concluded that the unrealized losses above are
     temporary in nature. They are not related to the underlying credit quality
     of the issuers, and (with the exception of equity securities) they are on
     securities that have contractual maturity dates. The principal and interest
     payments on our debt securities have been made as scheduled, and there is
     no evidence that any issuer will not continue to do so. The future
     principal payments will be sufficient to recover the current amortized cost
     of the securities. The unrealized losses above are primarily related to
     market interest rates. The current declines in market value are not
     significant, and management of the Company believes that these values will
     recover should market interest rates fall. The Company has the intent and
     ability to hold these investments for the time necessary to recover its
     cost.


                                       13

<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 SEPTEMBER 30, 2006
                              ----------------------------------------------------
                                               GROSS        GROSS
                               AMORTIZED    UNREALIZED    UNREALIZED    ESTIMATED
                                  COST        GAINS         LOSSES      FAIR VALUE
                              -----------   ----------   -----------   -----------
<S>                           <C>             <C>        <C>           <C>
     FNMA pass-through
        certificates          $25,213,826     $     -    $  (998,234)  $24,215,592
     FHLMC pass-through
        certificates           17,874,615           -       (854,498)   17,020,117
     Real estate mortgage
        investment conduits    15,817,247      26,866       (406,817)   15,437,296
                              -----------     -------    -----------   -----------
           Total              $58,905,688     $26,866    $(2,259,549)  $56,673,005
                              ===========     =======    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                      AVAILABLE FOR SALE SEPTEMBER 30, 2006
                              ----------------------------------------------------
                                               GROSS        GROSS
                               AMORTIZED    UNREALIZED    UNREALIZED    ESTIMATED
                                  COST        GAINS         LOSSES      FAIR VALUE
                              -----------   ----------   -----------   -----------
<S>                           <C>           <C>        <C>            <C>
     GNMA pass-through
        certificates          $   460,656   $ 10,423     $      (706)  $   470,373
     FNMA pass-through
        certificates           10,107,831     33,216        (185,473)    9,955,574
     FHLMC pass-through
        certificates           65,794,267    100,037      (1,993,471)   63,900,833
     Real estate mortgage
        investment conduits     5,216,314      4,118        (174,911)    5,045,521
                              -----------   --------     -----------   -----------
           Total              $81,579,068   $147,794     $(2,354,561)  $79,372,301
                              ===========   ========     ===========   ===========
</TABLE>


                                       14

<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>


                                       15

<PAGE>

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

<TABLE>
<CAPTION>
                                          LESS THAN 12 MONTHS         MORE THAN 12 MONTHS
                                        ------------------------   --------------------------
                                           GROSS      ESTIMATED       GROSS       ESTIMATED
                                        UNREALIZED      FAIR        UNREALIZED      FAIR
                                          LOSSES        VALUE         LOSSES        VALUE
                                        ----------   -----------   -----------   ------------
<S>                                      <C>          <C>          <C>           <C>
     Securities held to maturity:
        FNMA pass-through
           certificates                  $       -   $         -   $  (998,234)  $ 24,215,593
        FHLMC pass-through
           certificates                          -             -      (854,498)    17,020,118
        Real estate mortgage
           investment conduits            (160,775)    4,119,781      (246,042)     9,983,939
                                         ---------   -----------   -----------   ------------
           Total securities held to
              maturity                    (160,775)    4,119,781    (2,098,774)    51,219,650
                                         ---------   -----------   -----------   ------------

     Securities available for sale:
        GNMA pass-through
           certificates                  $       -   $         -   $      (706)  $     94,413
       FNMA pass-through
           certificates                    (81,519)    3,716,400      (103,954)     2,992,654
       FHLMC pass-through
           certificates                    (32,403)    3,613,831    (1,961,069)    51,452,347
       Real estate mortgage
           investment conduits                   -             -      (174,910)     4,955,344
                                         ---------   -----------   -----------   ------------
           Total securities available
              for sale                    (113,922)    7,330,231    (2,240,639)    59,494,758
                                         ---------   -----------   -----------   ------------
     Total                               $(274,697)  $11,450,012   $(4,339,413)  $110,714,408
                                         =========   ===========   ===========   ============
</TABLE>


                                       16

<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 reviews the securities in
     its mortgage-backed securities portfolio to identify any securities that
     might have an other-than-temporary impairment. At September 30, 2006,
     securities in a gross unrealized loss position for twelve months or longer
     consist of 45 securities having an aggregate depreciation of 3.8% from the
     Company's amortized cost basis. Securities in a gross unrealized loss
     position for less than twelve months at September 30, 2006, consist of 9
     securities having an aggregate depreciation of 2.3% from the Company's
     amortized cost basis. Management has concluded that the unrealized losses
     above are temporary in nature. They are not related to the underlying
     credit quality of the issuers, and they are on securities that have
     contractual maturity dates. The principal and interest payments on our
     mortgage-backed securities have been made as scheduled, and there is no
     evidence that any issuer will not continue to do so. The future principal
     payments will be sufficient to recover the current amortized cost of the
     securities. The unrealized losses above are primarily related to market
     interest rates. The current declines in market value are not significant,
     and management of the Company believes that these values will recover
     should market interest rates fall. The Company has the intent and ability
     to hold these investments for the time necessary to recover its cost.


                                       17

<PAGE>

4.   LOANS RECEIVABLE - NET

     Loans receivable consist of the following:

<TABLE>
<CAPTION>
                                               SEPTEMBER 30, 2006   DECEMBER 31, 2005
                                               ------------------   -----------------
<S>                                               <C>                 <C>
     One-to four-family residential               $369,308,673        $323,709,542
     Multi-family residential and commercial        87,571,143          76,646,911
     Construction                                  146,044,794         132,789,343
     Home equity lines of credit                    31,338,170          41,063,321
     Commercial business loans                       9,124,251          10,974,955
     Consumer non-real estate loans                  4,218,128           4,711,519
                                                  ------------        ------------
          Total loans                              647,605,159         589,895,591
     Less:
        Construction loans in process              (50,236,727)        (57,690,327)
        Deferred loan fees                          (1,053,826)         (1,263,545)
        Allowance for loan losses                   (1,555,278)         (1,454,510)
                                                  ------------        ------------
     Loans receivable--net                        $594,759,328        $529,487,209
                                                  ============        ============
</TABLE>

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

<TABLE>
<CAPTION>
                                            NINE MONTHS ENDED       YEAR ENDED
                                           SEPTEMBER 30, 2006   DECEMBER 31, 2005
                                           ------------------   ------------------
<S>                                            <C>                  <C>
     Balance--beginning of year                $1,454,510           $1,412,697
        Provision for loan losses                 128,000               25,000
        Charge-offs                               (40,943)             (69,774)
        Recoveries                                 13,711               86,587
                                               ----------           ----------
           (Charge-offs)/recoveries--net          (27,232)              16,813
                                               ----------           ----------
     Balance--end of period                    $1,555,278           $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.


                                       18

<PAGE>

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

<TABLE>
<CAPTION>
                                           SEPTEMBER 30,   DECEMBER 31,
                                                2006           2005
                                           -------------   ------------
<S>                                           <C>           <C>
     Impaired collateral-dependent loans      $      -      $2,885,364
     Average impaired loan balance            $922,994      $   94,861
     Interest income recognized on
        impaired loans                        $ 65,955      $        -
</TABLE>

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

     The Company had no nonaccrual loans at September 30, 2006. Nonaccrual loans
     at December 31, 2005, amounted to approximately $2.9 million. Commercial
     loans and commercial real estate loans are placed on nonaccrual at the time
     the loan is 90 days delinquent unless the credit is well secured and in the
     process of collection. Commercial loans are charged off when the loan is
     deemed uncollectible. Residential real estate loans are typically placed on
     nonaccrual only when the loan is 90 days delinquent and not well secured
     and in the process of collection. Other consumer loans are typically
     charged off at 90 days delinquent. In all cases, loans must be placed on
     nonaccrual or charged off at an earlier date if collection of principal or
     interest is considered doubtful. Non-performing loans, which consist of
     non-accruing loans plus accruing loans 90 days or more past due, at
     September 30, 2006 and December 31, 2005, amounted to approximately
     $241,000 and $2.9 million, respectively.

     Interest payments on impaired loans and nonaccrual loans are typically
     applied to principal unless the ability to collect the principal amount is
     fully assured, in which case interest is recognized on the cash basis. For
     the nine months ended September 30, 2006, $66,000 in cash basis interest
     income was recognized. No cash basis interest income was recognized for the
     nine months ended September 30, 2005. No interest income was foregone on
     nonaccrual loans for the nine-month periods ended September 30, 2006 and
     2005.


                                       19

<PAGE>

5.   DEFERRED INCOME TAXES

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

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30, 2006   DECEMBER 31, 2005
                                                           ------------------   -----------------
<S>                                                            <C>                 <C>
     Deferred tax assets:
        Allowance for loan losses                              $  528,795          $  494,533
        Deferred compensation                                   1,181,365           1,136,056
        Write-down of impaired investments                              -              23,800
        Unrealized loss on securities available-for-sale        1,246,545           1,433,372
                                                               ----------          ----------
          Total deferred tax assets                             2,956,705           3,087,761
                                                               ----------          ----------
     Deferred tax liabilities:
       Property and equipment                                      (1,237)           (105,635)
       Deferred loan fees                                        (316,384)           (313,175)
       Other                                                      (18,911)            (20,751)
                                                               ----------          ----------
          Total deferred tax liabilities                         (336,532)           (439,561)
                                                               ----------          ----------
     Net deferred tax asset                                    $2,620,173          $2,648,200
                                                               ==========          ==========
</TABLE>

6.   PENSION AND PROFIT SHARING PLANS

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


                                       20

<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:

                                                            NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                           -------------------
                                                             2006       2005
                                                           --------   --------
     Components of net periodic benefit cost:
        Service cost                                       $ 80,592   $ 49,310
        Interest cost                                        98,219     57,995
        Expected return on assets                                --         --
        Amortization of prior service cost                   91,189     60,695
                                                           --------   --------
     Net periodic pension cost                             $270,000   $168,000
                                                           ========   ========
     Weighted average assumptions:
     Discount rate                                             5.55%      6.50%
     Rate of return on assets                                   n/a        n/a
     Rate of increase in future board fees/salary levels       4.00%      4.00%

     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
     September 30, 2006, 38,088 shares had been allocated to participants, and
     the fair value of the remaining 533,232 unallocated shares was
     approximately $8.0 million. During the three- and nine-month periods ended
     September 30, 2006, approximately 9,500 and 28,500 shares, respectively,
     were committed to be released to participants, resulting in recognition of
     approximately $141,000 and $402,000 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 "RRP 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 RRP Trust to fund these purchases. No additional
     purchases are expected to be made by the RRP Trust under this plan. All
     285,660 shares acquired by the RRP Trust were granted to certain officers,
     employees and directors of the Company in July 2005. Approximately 2,000
     shares were forfeited during the nine months ended September 30, 2006,
     which have not been reallocated and are available for future issuance. RRP
     shares will generally vest at the rate of 20% per year over five years.


                                       21

<PAGE>

     A summary of the status of the shares under the RRP as of September 30,
     2006 and changes during the nine months ended September 30, 2006 are
     presented below:

                                                       NINE MONTHS ENDED
                                                      SEPTEMBER 30, 2006
                                              ----------------------------------
                                              NUMBER OF   WEIGHTED AVERAGE GRANT
                                                SHARES        DATE FAIR VALUE
                                              ---------   ----------------------
     Nonvested at the beginning of the year    285,660            $12.02
     Granted                                         -                 -
     Vested                                    (56,232)            12.01
     Forfeited                                  (2,000)            12.01
                                               -------            ------
     Nonvested at the end of the period        227,428            $12.02
                                               =======            ======

     Compensation expense on RRP shares granted is recognized ratably over the
     five year vesting period in an amount which totals the market price of the
     Company's stock at the date of grant. During the three- and nine-month
     periods ended September 30, 2006, approximately 14,000 and 42,500 shares,
     respectively, were amortized to expense, based on the proportional vesting
     of the awarded shares, resulting in recognition of approximately $171,000
     and $509,000 in compensation expense, respectively. A tax benefit of
     $58,000 and $209,000, respectively, was recognized during these periods.
     During the three- and nine-month periods ended September 30, 2005,
     approximately 14,000 shares were amortized to expense resulting in
     recognition of approximately $164,000 in compensation expense. A tax
     benefit of $59,000 was recognized during these periods. As of September 30,
     2006, approximately $2.6 million in additional compensation expense will be
     recognized over the remaining lives of the RRP awards. At September 30,
     2006, the weighted average remaining lives of the RRP awards was
     approximately 3.8 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 no less
     than the fair market value of the common stock on the grant date. Options
     will generally become vested and exercisable at the rate of 20% per year
     over five years and are generally exercisable for a period of ten years
     after the grant date. A total of 714,150 shares of common stock have been
     reserved for future issuance pursuant to the Option Plan. Approximately
     2,400 stock options were forfeited during the nine months ended September
     30, 2006, and 73,250 stock options are available for future grant.


                                       22

<PAGE>

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

                                                      NINE MONTHS ENDED
                                                     SEPTEMBER 30, 2006
                                                ----------------------------
                                                NUMBER OF   WEIGHTED AVERAGE
                                                 SHARES      EXERCISE PRICE
                                                ---------   ----------------
     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        127,280         $12.01
                                                 =======         ======

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

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                ------------------------------------------------   ----------------------------
                                                    WEIGHTED
     EXERCISE   NUMBER OF   WEIGHTED AVERAGE   AVERAGE REMAINING   NUMBER OF   WEIGHTED AVERAGE
       PRICE      SHARES     EXERCISE PRICE     CONTRACTUAL LIFE     SHARES     EXERCISE PRICE
     --------   ---------   ----------------   -----------------   ---------   ---------------
                                                    (in years)
<S>              <C>             <C>                  <C>           <C>             <C>
      $12.01     636,400         $12.01               9.0           127,280         $12.01
       13.35       4,500          13.35               9.4                 -              -
                 -------         ------               ---           -------         ------
       Total     640,900         $12.02               9.0           127,280         $12.01
                 =======         ======               ===           =======         ======
</TABLE>

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

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

     During the three and nine months ended September 30, 2006, approximately
     $92,000 and $276,000, respectively, was recognized in compensation expense
     for the Option Plan. A tax benefit of $9,000 and $27,000, respectively, was
     recognized during these periods. During the three and nine months ended
     September 30, 2005, approximately $89,000 was recognized in compensation
     expense for the Option Plan. A tax benefit of $10,000 was recognized during
     these periods. At September 30, 2006, approximately $1.4 million in
     additional compensation expense for awarded options remained unrecognized.
     The weighted average period over which this expense will be recognized is
     approximately 3.8 years.


                                       23

<PAGE>

7.   COMMITMENTS AND CONTINGENCIES

     The Bank had approximately $6.0 million in outstanding mortgage loan
     commitments at September 30, 2006. The commitments are expected to be
     funded within 90 days with approximately $5.7 million in fixed rate loans
     ranging from 5.875% to 7.125%. The Bank had approximately $3.6 million in
     outstanding mortgage loan commitments at December 31, 2005. These loans
     were not originated for resale. Also outstanding at September 30, 2006 and
     December 31, 2005, were unused lines of credit totaling approximately $72.0
     million and $64.0 million, respectively.

     Letters of credit are conditional commitments issued by the Bank
     guaranteeing payments of drafts in accordance with the terms of the letter
     of credit agreements. Commercial letters of credit are used primarily to
     facilitate trade or commerce and are also issued to support public and
     private borrowing arrangements, bond financings and similar transactions.
     Standby letters of credit are conditional commitments issued by the Bank to
     guarantee the performance of a customer to a third party. Collateral may be
     required to support letters of credit based upon management's evaluation of
     the creditworthiness of each customer. The credit risk involved in issuing
     letters of credit is substantially the same as that involved in extending
     loan facilities to customers. Most of the Bank's letters of credit expire
     within one year. At September 30, 2006 and December 31, 2005, the Bank had
     letters of credit outstanding of approximately $16.3 million and $14.1
     million, respectively, of which $14.7 million and $12.5 million,
     respectively, were standby letters of credit. At September 30, 2006 and
     December 31, 2005, the uncollateralized portion of the letters of credit
     extended by the Bank was approximately $97,000 and $169,000, respectively.
     At both September 30, 2006 and December 31, 2005, $97,000 of the
     uncollateralized letters of credit was for standby letters of credit.

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

     Among the Company's contingent liabilities, are exposures to limited
     recourse arrangements with respect to the sales of whole loans and
     participation interests. At September 30, 2006, the exposure, which
     represents a portion of credit risk associated with the sold interests,
     amounted to $185,000. The exposure is for the life of the related loans and
     payable, on our proportional share, as losses are incurred.

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

OVERVIEW--The Company was formed by the Bank in connection with the Bank's
reorganization into the mutual holding company form of organization 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


                                       24

<PAGE>

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 eight other branches and five limited service facilities located in
Montgomery, Bucks and Delaware Counties, Pennsylvania. The Bank is principally
engaged in the business of accepting customer deposits and investing these funds
in loans, primarily residential mortgages.

We earned net income of $1.7 million for the quarter ended September 30, 2006,
representing an increase of 7.0% over the comparable 2005 period. Diluted
earnings per share increased to $0.12 for the quarter compared to $0.10 for the
third quarter of 2005. We earned net income of $5.2 million for the nine months
ended September 30, 2006, representing an increase of 10.2% over the comparable
2005 period. Diluted earnings per share increased to $0.35 for the first nine
months of 2006 compared to $0.31 for the first nine months of 2005. Net interest
income was $5.6 million and $17.0 million for the three months and nine months
ended September 30, 2006, respectively, representing increases of 5.5% and 9.1%,
respectively, over the comparable 2005 periods. For both the three-month and
nine-month periods, an increase in our interest income was partially offset by
an increase in our interest expense. For both the three-month and nine-month
periods, the increase in interest income was primarily a result of growth in the
average balance of our loan portfolio combined with an increase in the average
yield on those assets. For both the three- and nine-month periods, the increase
in interest expense was primarily the result of increases in the average balance
of and average rate paid on deposits, primarily due to growth in higher-rate
certificates of deposit. Our average interest rate spread and net interest
margin for the third quarter of 2006 decreased to 2.05% and 2.62%, respectively,
from 2.26% and 2.76%, respectively, for the third quarter of 2005. Our average
interest rate spread and net interest margin for the first nine months of 2006
decreased to 2.17% and 2.71%, respectively, from 2.29% and 2.79%, respectively,
for the first nine months of 2005. We made a $120,000 provision to the allowance
for loan losses during the third quarter of 2006, and our provision for loan
losses amounted to $128,000 for the first nine months of 2006. During the third
quarter of 2005, we made a provision of $20,000 to the allowance for loan losses
with no provision taken earlier in 2005. The provision taken during the third
quarter of 2006 was based upon management's review of the allowance for loan
losses, although the overall credit quality of the loan portfolio remains
strong. A portion of the provision related to an aggregate of $2.9 million of
loans to one borrower, consisting of four construction loans and one commercial
real estate loan that we classified as substandard during the quarter. Based on
the value of the construction properties, as well as the additional collateral
available, we do not expect to incur any additional losses on the loans to this
borrower. Since the loans have continued to perform they remain on accrual
status.

The Company's total assets increased $61.6 million, or 7.3%, to $905.7 million
at September 30, 2006 compared to $844.1 million at December 31, 2005. The
primary reason for the increase in total assets during the first nine months of
2006 was a $65.3 million or 12.3% increase in net loans receivable. The largest
loan growth occurred in one- to four-family residential loans, which increased
$45.6 million or 14.1% and construction loans, which increased $13.3 million or
10.0%. Additionally, multi-family residential and commercial loans increased
$10.9 million or 14.3%. Also contributing to the overall increase in assets
during the first nine months of 2006 was an increase in property and equipment,
net, of $1.8 million or 28.3%, primarily as a result of increased investment in
our new branches. The first of these branches opened in April 2006 in
Warrington, Pennsylvania, and was followed by the opening of another branch in
Concordville, Pennsylvania in October 2006. Additional branches are also
expected to open later this year (Lansdale, Pennsylvania) and early next year
(Springhouse and Chalfont, Pennsylvania). Our total deposits increased $53.8
million or 10.7% to $555.0 million at September 30, 2006 compared to $501.2
million at December 31, 2005. The increase was due primarily to an increase in
certificate accounts of $88.2 million that was partially offset by a decrease in
savings and money market accounts of $23.4 million and a decrease in checking
accounts of $11.0 million. Our stockholders' equity decreased $4.1 million to
$113.2 million at September 30, 2006 compared to $117.2 million at December


                                       25

<PAGE>

31, 2005. The decrease was primarily due to the purchase of approximately
582,000 shares of the Company's common stock for an aggregate of $8.3 million as
part of the Company's stock repurchase program announced in January 2006, which
offset the net income retained of $2.7 million.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES--In reviewing and
understanding financial information for Abington Community Bancorp, Inc., you
are encouraged to read and understand the significant accounting policies used
in preparing our consolidated financial statements. These policies are described
in Note 1 of the notes to our unaudited 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 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.


                                       26

<PAGE>

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 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.


                                       27

<PAGE>

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

The Company's total assets increased $61.6 million, or 7.3%, to $905.7 million
at September 30, 2006 compared to $844.1 million at December 31, 2005. The
primary reason for the increase in total assets during the first nine months of
2006 was a $65.3 million or 12.3% increase in net loans receivable. The largest
loan growth occurred in one- to four-family residential loans, which increased
$45.6 million or 14.1% and construction loans, which increased $13.3 million or
10.0%. Additionally, multi-family residential and commercial loans increased
$10.9 million or 14.3%. Also contributing to the overall increase in assets
during the first nine months of 2006 was an increase in property and equipment,
net, of $1.8 million or 28.3%, primarily as a result of increased investment in
our new branches. The first of these branches opened in April 2006 in
Warrington, Pennsylvania, and was followed by the opening of another branch in
Concordville, Pennsylvania in October 2006. Additional branches are also
expected to open later this year (Lansdale, Pennsylvania) and early next year
(Springhouse and Chalfont, Pennsylvania). These increases were somewhat offset
by a decrease in investment and mortgage-backed securities of $8.4 million in
the aggregate, which occurred as a portion of our maturities and repayments were
reinvested into new loans.

Our total deposits increased $53.8 million or 10.7% to $555.0 million at
September 30, 2006 compared to $501.2 million at December 31, 2005. The increase
was due primarily to an increase in certificate accounts of $88.2 million that
was partially offset by a decrease in savings and money market accounts of $23.4
million and a decrease in checking accounts of $11.0 million. The shift towards
higher-rate certificates of deposit was a result of the increased rates
available on those products relative to other deposit products or other
investments in the current interest rate environment. The Company continues to
remain focused on maintaining and growing its base of core deposits over the
long term.

Our stockholders' equity decreased $4.1 million to $113.2 million at September
30, 2006 compared to $117.2 million at December 31, 2005. The decrease was
primarily due to the purchase of approximately 582,000 shares of the Company's
common stock for an aggregate of $8.3 million as part of the Company's stock
repurchase program announced in January 2006. The payment of the Company's
quarterly cash dividends of $0.05 per share in March and $0.06 per share in June
and September reduced retained earnings by $2.6 million, but this was offset by
our $5.2 million of net income for the first nine months of 2006, resulting in a
net increase to retained earnings of $2.7 million.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are from deposits, amortization of loans, loan
prepayments and pay-offs, mortgage-backed securities and other investments, and
other funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities are relatively predictable sources of funds, deposit flows and loan
prepayments can be greatly influenced by general interest rates, economic
conditions and competition. We also maintain excess funds in short-term,
interest-bearing assets that provide additional liquidity. At September 30,
2006, our cash and cash equivalents amounted to $28.3 million. In addition, at
such date we had $21.0 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 $158.9 million at September 30, 2006.

We use our liquidity to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses. At September 30,
2006, we had certificates of deposit maturing within the next 12 months


                                       28

<PAGE>

amounting to $224.8 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us. For the nine months ended September 30, 2006, and the year
ended December 31, 2005, the average balance of our outstanding FHLB advances
was $202.6 million and $192.2 million, respectively. At September 30, 2006, we
had $204.4 million in outstanding FHLB advances and we had $340.4 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 $113.2 million at September 30, 2006.
Throughout 2005, as part of our long-term strategic plan to leverage our capital
through retail deposit and loan growth, we made a deliberate effort to redeploy
our capital into loans that yield an attractive rate of return. We have
continued to do this throughout the first nine months of 2006, originating over
$167.0 million in new loans. In April 2006, we opened a new Bank branch in
Warrington, Pennsylvania, and in October we opened a new Bank branch in
Concordville, Pennsylvania. We are continuing to progress towards the opening of
a new branch in Lansdale, Pennsylvania by the end of 2006 and in Springhouse and
Chalfont, Pennsylvania by mid 2007. We believe that these new branches will
provide additional opportunities to grow our core deposits and establish new
lending relationships. During the third quarter, we continued to pay our
quarterly cash dividend of $0.06 per share, which was increased from $0.05 per
share earlier in the year. The increase reflects our expectations for continued
success. Additionally, during the first nine months of 2006, we purchased
approximately 582,000 shares of the Company's common stock for an aggregate of
$8.3 million as part of the Company's stock repurchase plan announced this year.
We believe that the repurchase program will benefit our shareholders by
improving the Company's return on equity and earnings per share and, at the same
time, aid us in managing our strong capital position.

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

<TABLE>
<CAPTION>
                                        Actual Ratios At
                                  ----------------------------
                                  September 30,   December 31,   Regulatory    To Be Well
                                      2006            2005         Minimum    Capitalized
                                  -------------   ------------   ----------   -----------
<S>                                   <C>            <C>            <C>          <C>
CAPITAL RATIOS:
Tier 1 leverage ratio
   The Company                        13.17%         14.28%         4.00%          N/A
   The Bank                           10.40          10.46          4.00          5.00%
Tier 1 risk-based capital ratio
   The Company                        20.12          23.19          4.00           N/A
   The Bank                           16.37          16.93          4.00          6.00
Total risk-based capital ratio
   The Company                        20.39          23.47          8.00           N/A
   The Bank                           16.64          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


                                       29

<PAGE>

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

During the three- and nine-month periods ended September 30, 2006, we recognized
approximately $171,000 and $509,000, respectively, in compensation expense
related to the amortization of RRP shares. During the three- and nine-month
periods ended September 30, 2005, we recognized approximately $164,000 in
compensation expense related to the amortization of RRP shares. As of September
30, 2006, approximately $2.6 million in additional compensation expense will be
recognized over the remaining lives of the RRP awards. At September 30, 2006,
the weighted average remaining lives of the RRP awards is approximately 3.8
years.

During the three- and nine-month periods ended September 30, 2006, approximately
$92,000 and $276,000, respectively, were recognized in compensation expense for
the Option Plan. During the three- and nine-month periods ended September 30,
2005, approximately $89,000 was recognized in compensation expense for the
Option Plan. At September 30, 2006, approximately $1.4 million in additional
compensation expense for awarded options remained unrecognized. The weighted
average period over which this expense will be recognized is approximately 3.8
years.

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


                                       30

<PAGE>

ended September 30, 2006, we recognized approximately $141,000 and $402,000,
respectively, in compensation expense due to the ESOP.

COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit and the unused
portions of lines of credit. These instruments involve, to varying degrees,
elements 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 September 30, 2006 and December 31, 2005, we had no
commitments to originate loans for sale.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan documents.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. The amount and type of collateral required
varies, but may include accounts receivable, inventory, equipment, real estate
and income-producing commercial properties. At September 30, 2006 and December
31, 2005, commitments to originate loans and commitments under unused lines of
credit, including undisbursed portions of construction loans in process, for
which the Bank is obligated, amounted to approximately $128.3 million and $125.2
million, respectively.

Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, bond financings and similar transactions. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Collateral may be required to
support letters of credit based upon management's evaluation of the
creditworthiness of each customer. The credit risk involved in issuing letters
of credit is substantially the same as that involved in extending loan
facilities to customers. Most of the Bank's letters of credit expire within one
year. At September 30, 2006 and December 31, 2005, the Bank had letters of
credit outstanding of approximately $16.3 million and $14.1 million,
respectively, of which $14.7 million and $12.5 million, respectively, were
standby letters of credit. At September 30, 2006 and December 31, 2005, the
uncollateralized portion of the letters of credit extended by the Bank was
approximately $97,000 and $169,000, respectively. At both September 30, 2006 and
December 31, 2005, $97,000 of the uncollateralized letters of credit was for
standby letters of credit.

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

Among the Company's contingent liabilities are exposures to limited recourse
arrangements with respect to the Bank's sales of whole loans and participation
interests. At September 30, 2006, the exposure, which represents a portion of
credit risk associated with the sold interests, amounted to $185,000. The
exposure is for the life of the related loans and payable, on our proportional
share, as losses are incurred.


                                       31

<PAGE>

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 September 30, 2006.

<TABLE>
<CAPTION>
                                                   Amount of Commitment Expiration - Per Period
                                                   --------------------------------------------
                                   Total Amounts           To       1-3      4-5    After 5
                                     Committed           1 Year    Years    Years    Years
                                   -------------        -------   -------   -----   -------
                                                               (In Thousands)
<S>                                   <C>               <C>       <C>       <C>     <C>
Letters of credit                     $ 16,268          $15,159   $ 1,104   $ -     $     5
Recourse obligations on loans
   sold                                    185                -         -     -         185
Commitments to originate loans           6,043            6,043         -     -           -
Unused portion of home equity
   lines of credit                      22,671                -         -     -      22,671
Unused portion of commercial
   lines of credit                      49,344           49,344         -     -           -
Undisbursed portion of
   construction loans in process        50,237           23,729    26,508     -           -
                                      --------          -------   -------   ---     -------
   Total commitments                  $144,748          $94,275   $27,612   $ -     $22,681
                                      ========          =======   =======   ===     =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                       Payments Due By Period
                                              ----------------------------------------
                                                 To         1-3        4-5     After 5
                                     Total     1 Year      Years      Years     Years
                                   --------   --------   --------   --------   -------
                                                         (In Thousands)
<S>                                <C>        <C>        <C>        <C>        <C>
Certificates of deposit            $374,324   $224,778   $122,822   $ 11,980   $14,744
                                   --------   --------   --------   --------   -------
FHLB advances                       204,396     37,229     52,794     88,929    25,444
Repurchase agreements                21,996     21,996          -          -         -
                                   --------   --------   --------   --------   -------
   Total debt                       226,392     59,225     52,794     88,929    25,444
                                   --------   --------   --------   --------   -------
Operating lease obligations           7,117        692      1,279      1,163     3,983
                                   --------   --------   --------   --------   -------
   Total contractual obligations   $607,833   $284,695   $176,895   $102,072   $44,171
                                   ========   ========   ========   ========   =======
</TABLE>

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

GENERAL. We had net income of $1.7 million for the quarter ended September 30,
2006, representing an increase of 7.0% over the comparable 2005 period. Diluted
earnings per share increased to $0.12 for the quarter compared to $0.10 for the
third quarter of 2005. As has been the case throughout 2006, our results for the
third quarter of 2006 reflect, in part, an increase in our average loans
receivable combined with an increase in the average yield earned on such assets.
The accompanying increase in interest income was partially offset by an increase
in interest expense that resulted from an increase in our average total
interest-bearing liabilities, primarily deposits, and the average rate paid on
those liabilities. Our average interest rate spread decreased to 2.05% for the
quarter ended September 30, 2006 from 2.26% for the quarter ended September 30,
2005, as our net interest margin also decreased to 2.62% from 2.76% over


                                       32

<PAGE>

the same periods. Our provision for loan losses of $120,000 for the third
quarter of 2006 was an increase of $100,000 over the $20,000 provision taken
during the third quarter of 2005. The provision taken during the third quarter
of 2006 was based upon management's review of the allowance for loan losses,
although the overall credit quality of the loan portfolio remains strong. A
portion of the provision was due to the classification of a certain group of
loans. Our non-interest income for the third quarter of 2006 decreased $55,000
compared to the third quarter of 2005 and our non-interest expense for the third
quarter of 2006 decreased $36,000 over the comparable 2005 period.

INTEREST INCOME. Our total interest income was $13.1 million for the quarter
ended September 30, 2006 compared to $10.4 million for the quarter ended
September 30, 2005, a $2.7 million or 25.7% 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 $97.3 million or 19.8% to $558.4
million for the quarter ended September 30, 2006 from $491.1 million for the
quarter ended September 30, 2005. The average yield on our loan portfolio
increased 64 basis points to 6.90% from 6.26% over the same period. An increase
in interest income on investment securities of $202,000 for the third quarter of
2006 compared to the third quarter of 2005 was almost entirely offset by a
$195,000 decrease in interest income on mortgage-backed securities for the same
periods. The increase in interest income on investment securities was due
primarily to a 78 basis point increase in the average yield on those securities,
while the decrease in interest income on mortgage-backed securities was
primarily due to a $21.3 million decrease in the average balance of those
securities.

INTEREST EXPENSE. Our total interest expense was $7.4 million for the quarter
ended September 30, 2006 compared to $5.1 million for the quarter ended
September 30, 2005, an increase of $2.4 million or 47.2%. The increase in
interest expense was primarily the result of increases in the average balance of
and average rate paid on deposits. During the three months ended September 30,
2006 compared to the three months ended September 30, 2005, our average deposit
balance grew by $80.7 million or 18.7%, primarily due to growth in higher-rate
certificates of deposit. The average balance of our certificate of deposit
accounts increased $108.3 million or 42.8% to $361.5 million for the third
quarter of 2006 compared to $253.3 million for the third 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 114 basis points to 3.62% for the
third quarter of 2006 from 2.48% for the third quarter of 2005. Interest expense
on FHLB advances increased $276,000 for the third quarter of 2006 compared to
the third quarter of 2005 primarily as a result of a 55 basis point increase in
the average rate paid on the advances. Interest expense on other borrowed money
increased $146,000 for the third quarter of 2006 compared to the third quarter
of 2005 primarily due to a $4.9 million or 26.2% increase in the average balance
of those funds. Our other borrowed money represents securities repurchase
agreements entered into with certain commercial checking account customers.


                                       33

<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 September 30,
                                           -------------------------------------------------------------------
                                                          2006                                2005
                                           --------------------------------   --------------------------------
                                            Average               Average      Average                Average
                                            Balance   Interest   Yield/Rate    Balance   Interest   Yield/Rate
                                           --------   --------   ----------   --------   ---------  ----------
                                                                   (Dollars in Thousands)
<S>                                        <C>         <C>         <C>        <C>         <C>          <C>
Interest-earning assets:
      Investment securities(1)             $101,746    $ 1,069     4.20%      $101,306    $   867      3.42%
      Mortgage-backed securities            143,545      1,518     4.23        164,879      1,713      4.16
      Loans receivable(2)                   588,385     10,147     6.90        491,095      7,684      6.26
      Other interest-earning assets          26,237        341     5.20         18,832        135      2.87
                                           --------    -------     ----       --------    -------      ----
         Total interest-earning assets      859,913     13,075     6.08%       776,112     10,399      5.36%
                                                       -------     ----                   -------      ----
      Cash and non-interest bearing
         balances                            18,341                             21,323
      Other non-interest-earning assets      25,448                             23,609
                                           --------                           --------
         Total assets                      $903,702                           $821,044
                                           ========                           ========
Interest-bearing liabilities:
   Deposits:
      Savings and money market accounts    $ 97,169        272     1.12%      $125,055        372      1.19%
      Checking accounts                      52,696          2     0.02         52,347          6      0.05
      Certificate accounts                  361,544      4,356     4.82        253,259      2,290      3.62
                                           --------    -------                --------    -------
         Total deposits                     511,409      4,630     3.62        430,661      2,668      2.48
   FHLB advances                            202,371      2,536     5.01        202,687      2,260      4.46
   Other borrowings                          23,649        268     4.53         18,743        122      2.60
                                           --------    -------                --------    -------
      Total interest-bearing liabilities    737,429    $ 7,434     4.03%       652,091    $ 5,050      3.10%
                                                       -------     ----                   -------      ----
Non-interest-bearing liabilities:
      Non-interest-bearing demand
         accounts                            41,965                             40,936
      Real estate tax escrow accounts         2,380                              1,610
      Other liabilities                      10,291                              7,438
                                           --------                           --------
         Total liabilities                  792,065                            702,075
      Stockholders' equity                  111,637                            118,969
                                           --------                           --------
         Total liabilities and
            stockholders' equity           $903,702                           $821,044
                                           ========                           ========
      Net interest-earning assets          $122,484                           $124,201
                                           ========                           ========
      Net interest income; average
         Interest rate spread                          $ 5,641     2.05%                  $ 5,349      2.26%
                                                       =======     ====                   =======      ====
      Net interest margin(3)                                       2.62%                               2.76%
                                                                   ====                                ====
</TABLE>

----------
(1)  Investment securities for the 2006 period include 46 non-taxable municipal
     bonds with an aggregate average balance of $20.4 million and an average
     yield of 4.2%. Investment securities for the 2005 period include 47
     non-taxable municipal bonds with an aggregate average balance of $13.4
     million and an average yield of 4.2%. The tax-exempt income from such
     securities has not been presented on a tax equivalent basis.

(2)  Includes nonaccrual loans during the respective periods. Calculated net of
     deferred fees and discounts and loans in process.

(3)  Equals net interest income divided by average interest-earning assets.


                                       34

<PAGE>

PROVISION FOR LOAN LOSSES. We made a $120,000 provision to the allowance for
loan losses during the third quarter of 2006 compared to a $20,000 provision
during the third quarter of 2005. The provision for loan losses is charged to
expense as necessary to bring our allowance for loan losses to a sufficient
level to cover known and inherent losses in the loan portfolio. The provision
taken during the third quarter of 2006 was based upon management's review of the
allowance for loan losses, although the overall credit quality of the loan
portfolio remains strong. A portion of the provision related to an aggregate of
$2.9 million of loans to one borrower, consisting of four construction loans and
one commercial real estate loan that we classified as substandard during the
quarter. Although the borrower has made payments on all of these loans on a
timely basis, we determined that on two of the construction loans, the Bank had
disbursed a greater amount of the loan proceeds than was warranted given the
progress of construction at the time of disbursement. The Company subsequently
made a physical inspection of every project securing the construction loans in
its portfolio and determined that this was an isolated incident. All other
construction properties were sufficiently complete for the funds advanced.

For the specific construction loans to one borrower referenced above, we
obtained confessed judgment against the borrower, which provides us with
additional collateral securing the loans. We also obtained current appraisals of
the underlying collateral properties, which support the full value of the loans.
Based on the value of the construction properties, as well as the additional
collateral available, we do not expect to incur any additional losses on the
loans to this borrower. Because the loans have continued to perform they remain
on accrual status. At September 30, 2006, non-performing loans amounted to 0.04%
of loans receivable and our allowance for loan losses amounted to 645.23% of
non-performing loans.

NON-INTEREST INCOME. Our total non-interest income amounted to $716,000 for the
third quarter of 2006 compared to $770,000 for the third quarter of 2005. The
decrease was due primarily to a $37,000 decrease in gain on derivative
instruments, net, as our final swap agreement expired in December 2005, combined
with a $22,000 decrease in other non-interest income, primarily due to a
decrease in appraisal income.

NON-INTEREST EXPENSES. Our total non-interest expense for the third quarter of
2006 amounted to $3.9 million, representing a decrease of $36,000 from the third
quarter of 2005. Decreases in occupancy expense and professional services
expense were partially offset by increases in salaries and employee benefits
expense, depreciation expense and advertising and promotions expense. The
decrease in professional services expense of $92,000 for the third quarter of
2006 compared to the third quarter of 2005 was primarily the result of our
change in independent auditors. The $43,000 increase in salaries and employee
benefits expense was due primarily to growth in the total number of employees,
normal merit increases in salaries, and higher health and insurance benefit
costs. Also contributing to the increase in salaries and employee benefits
expense was an increase in the expense for our Employee Stock Ownership Plan
("ESOP"), which is based on the average price of our common stock for the
period. The increase in depreciation expense of $40,000 was a result of our
additional facilities, primarily the Bank's new branch in Warrington,
Pennsylvania, which opened in April 2006. The increase in advertising expense of
$26,000 was a result of increased advertising to promote our deposit products.

INCOME TAX EXPENSE. Income tax expense for the third quarter of 2006 amounted to
$666,000 compared to $604,000 for the third quarter of 2005. Our effective tax
rate increased to 28.1% for the quarter ended September 30, 2006, from 27.5% for
quarter ended September 30, 2005.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
2005

GENERAL. We had net income of $5.2 million for the nine months ended September
30, 2006, representing an increase of 10.2% over the comparable 2005 period.
Diluted earnings per share increased


                                       35

<PAGE>

to $0.35 for the first nine months of 2006 compared to $0.31 for the first nine
months of 2005. Our results for the first nine months of 2006 largely reflect an
increase in our average loans receivable combined with an increase in the
average yield earned on such assets that was partially offset by an increase in
interest expense. The increase in interest expense was primarily driven by an
increase in the average balance of and average rate paid on our deposits. Our
average interest rate spread decreased to 2.17% for the nine months ended
September 30, 2006 from 2.29% for the nine months ended September 30, 2005, as
our net interest margin also decreased to 2.71% from 2.79% over the same
periods. Our provision for loan losses of $128,000 for the first nine months of
2006 was an increase of $108,000 over the $20,000 provision taken during the
first nine months of 2005. Our non-interest income for the first nine months of
2006 increased $50,000 compared to the first nine months of 2005 and our
non-interest expense for the first nine months of 2006 increased $726,000 over
the comparable 2005 period.

INTEREST INCOME. Our total interest income was $36.6 million for the nine months
ended September 30, 2006 compared to $29.0 million for the nine months ended
September 30, 2005, a $7.6 million or 26.2% 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 $109.5 million or 24.2% to
$561.6 million for the nine months ended September 30, 2006 from $452.2 million
for the nine months ended September 30, 2005. The average yield on our loan
portfolio increased 57 basis points to 6.72% from 6.15% over the same nine-month
period. An increase in interest income on investment securities of $528,000 for
the first nine months of 2006 compared to the first nine months of 2005 was
offset by a $705,000 decrease in interest income on mortgage-backed securities
for the same periods. The increase in interest income on investment securities
was due to both a $5.2 million increase in the average balance of the securities
as well as a 53 basis point increase in the average yield on those securities.
The decrease in interest income on mortgage-backed securities was primarily due
to a $25.1 million decrease in the average balance of those securities.

INTEREST EXPENSE. Our total interest expense was $19.6 million for the nine
months ended September 30, 2006 compared to $13.4 million for the nine months
ended September 30, 2005, an increase of $6.2 million or 45.9%. 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. The majority of the increase in interest
expense over these periods, however, was due to a $5.0 million increase in
interest expense on deposits. During the nine months ended September 30, 2006
compared to the nine months ended September 30, 2005, our average deposit
balance grew by $81.9 million or 20.3%, primarily due to growth in higher-rate
certificates of deposit. The average balance of our certificate of deposit
accounts grew $104.1 million or 46.5% to $328.1 million for the first nine
months of 2006 compared to $223.9 million for the first nine months 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 98 basis points to 3.23% for the
first nine months of 2006 from 2.25% for the first nine months of 2005. The
average balance of our FHLB advances increased $14.0 million to $202.6 million
for the first nine months of 2006, and the average rate we paid on such advances
increased 29 basis points to 4.74%. The average rate we paid on other borrowed
money increased 196 basis points to 3.99% for first nine months of 2006 compared
to 2.03% for the first nine months of 2005. Our other borrowed money represents
securities repurchase agreements entered into with certain commercial checking
account customers.


                                       36

<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>
                                                             Nine Months Ended September 30,
                                           -------------------------------------------------------------------
                                                         2006                               2005
                                           --------------------------------   --------------------------------
                                            Average                Average     Average                Average
                                            Balance   Interest   Yield/Rate    Balance   Interest   Yield/Rate
                                           --------   --------   ----------   --------   --------   ----------
                                                                  (Dollars in Thousands)
<S>                                        <C>         <C>          <C>       <C>         <C>         <C>
Interest-earning assets:
      Investment securities(1)             $100,985    $ 2,905      3.84%     $ 95,773    $ 2,377     3.31%
      Mortgage-backed securities            145,738      4,579      4.19       170,858      5,284     4.12
      Loans receivable(2)                   561,634     28,321      6.72       452,181     20,861     6.15
      Other interest-earning assets          24,870        756      4.05        23,190        450     2.59
                                           --------    -------                --------    -------
         Total interest-earning assets      833,227     36,561      5.85%      742,002     28,972     5.21%
                                                       -------      ----                  -------     ----
      Cash and non-interest bearing
         balances                            19,051                             20,718
      Other non-interest-earning assets      24,793                             20,834
                                           --------                           --------
         Total assets                      $877,071                           $783,554
                                           ========                           ========
Interest-bearing liabilities:
   Deposits:
      Savings and money market accounts    $104,341        860      1.10%     $128,472      1,063     1.10%
      Checking accounts                      53,677          9      0.02        51,803         21     0.05
      Certificate accounts                  328,053     10,907      4.43       223,936      5,742     3.42
                                           --------    -------      ----      --------    -------     ----
         Total deposits                     486,071     11,776      3.23       404,211      6,826     2.25
   FHLB advances                            202,637      7,208      4.74       188,588      6,291     4.45
   Other borrowings                          20,699        620      3.99        20,904        318     2.03
                                           --------    -------                --------    -------     ----
      Total interest-bearing liabilities    709,407    $19,604      3.68%      613,703    $13,435     2.92%
                                                       -------      ----                  -------     ----
Non-interest-bearing liabilities:
      Non-interest-bearing demand
         accounts                            41,786                             39,535
      Real estate tax escrow accounts         2,755                              2,505
      Other liabilities                       8,543                              7,439
                                           --------                           --------
         Total liabilities                  762,491                            663,182
      Stockholders' equity                  114,580                            120,372
                                           --------                           --------
         Total liabilities and
            stockholders' equity           $877,071                           $783,554
                                           ========                           ========
      Net interest-earning assets          $123,820                           $128,299
                                           ========                           ========
      Net interest income; average
         Interest rate spread                          $16,957      2.17%                 $15,537     2.29%
                                                       =======      ====                  =======     ====
     Net interest margin(3)                                         2.71%                             2.79%
                                                                    ====                              ====
</TABLE>

----------
(1)  Investment securities for the 2006 period include 47 non-taxable municipal
     bonds with an aggregate average balance of $20.4 million and an average
     yield of 4.2%. Investment securities for the 2005 period include 47
     non-taxable municipal bonds with an aggregate average balance of $14.8
     million and an average yield of 4.2%. The tax-exempt income from such
     securities has not been presented on a tax equivalent basis.

(2)  Includes nonaccrual loans during the respective periods. Calculated net of
     deferred fees and discounts and loans in process.

(3)  Equals net interest income divided by average interest-earning assets.


                                       37

<PAGE>

PROVISION FOR LOAN LOSSES. We made a $128,000 provision to the allowance for
loan losses during the first nine months of 2006 compared to $20,000 during the
first nine months of 2005. The provision for loan losses in the 2006 period was
due primarily to the provision of $120,000 made in the quarter ended September
30, 2006, previously discussed.

NON-INTEREST INCOME. Our total non-interest income amounted to $2.2 million for
the nine months ended September 30, 2006 compared to $2.1 million for the nine
months ended September 30, 2005. The increase of $50,000 was due primarily to a
$174,000 increase in income on bank owned life insurance ("BOLI") that was
partially offset by decreases in service charge income and in gain on derivative
instruments, net, of $38,000 and $80,000, respectively.

NON-INTEREST EXPENSES. Our total non-interest expense for the nine months ended
September 30, 2006 amounted to $11.7 million, representing an increase of
$726,000 or 6.6% from the nine months ended September 30, 2005. As was the case
for the quarter ended September 30, 2006, decreases in occupancy expense and
professional services expense were offset by increases in other expense
categories. The largest increases in expense for the first nine months of 2006
compared to the first nine months of 2005 were in salaries and employee benefits
expense, depreciation expense and other non-interest expense. The decrease in
professional services expense of $155,000 for the first nine months of 2006
compared to the first nine months of 2005 was primarily the result of our change
in independent auditors, as was the case for the third quarter of 2006. Salaries
and employee benefits expense increased $609,000 or 10.5% for the nine months
ended September 30, 2006 compared to the nine months ended September 30, 2005.
This increase was primarily due to additional expenses of $378,000 in the
aggregate relating to the Company's 2005 Stock Option Plan ("SOP") and 2005
Recognition and Retention Plan ("RRP"), both of which began in the third quarter
of 2005. The remainder of the increase, similar to the three-month period, was
due to growth in the total number of employees, normal merit increases in
salaries, and higher health and insurance benefit costs. Depreciation expense
for the first nine months of 2006 compared to the first nine months of 2005
increased $113,000 or 29.8%. As was the case for the three-month period, the
increase was primarily due to our new facilities. Additional expenses of
approximately $154,000 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 nine months of 2006
amounted to $2.1 million compared to $1.9 million for the first nine months of
2005. Our effective tax rate improved to 28.7% for the nine months ended
September 30, 2006 from 29.1% for the nine months ended September 30, 2005.

FORWARD LOOKING STATEMENTS

This document contains forward-looking statements, which can be identified by
the use of words such as "estimate," "project," "believe," "intend,"
"anticipate," "plan," "seek," "expect" and similar expressions. These
forward-looking statements include: statements of goals, intentions and
expectations, statements regarding prospects and business strategy, statements
regarding asset quality and market risk, and estimates of future costs, benefits
and results.

These forward-looking statements are subject to significant risks, assumptions
and uncertainties, including, among other things, the following: (1) general
economic conditions, (2) competitive pressure among financial services
companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand,
(6) changes in legislation or regulation, (7) changes in accounting principles,
policies and guidelines, (8) litigation liabilities, including costs, expenses,
settlements and judgments, (9) costs related to the expansion of our branch
network, (10) changes in the amount or character of our non-performing assets,


                                       38

<PAGE>

and (11) 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; and

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

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


                                       39

<PAGE>

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 13.33% at September 30, 2006, compared to a negative 4.09% at
December 31, 2005. We have increased our originations of commercial real estate
and multi-family residential real estate loans, construction loans, home equity
lines and commercial business loans. This has been done, in part, because such
loans generally have shorter terms to maturity than single-family residential
mortgage loans and are more likely to have floating or adjustable rates of
interest, thereby increasing the amount of our interest rate sensitive assets in
the one- to three-year time horizon. By increasing the amount of our interest
rate sensitive assets in the one-to three-year time horizon, we felt that we
better positioned ourselves to benefit from a rising interest rate environment
because the average interest rates on our loans would increase as general market
rates of interest were increasing.

The following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at September 30, 2006, which we expect,
based upon certain assumptions, to reprice or mature in each of the future time
periods shown (the "GAP Table"). Except as stated below, the amount of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at September
30, 2006, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate loans and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
Annual prepayment rates for adjustable-rate and fixed-rate single-family and
multi-family mortgage loans are assumed to range from 10% to 26%. The annual
prepayment rate for mortgage-backed securities is assumed to range from 9% to
63%. Money market deposit accounts, savings accounts and interest-bearing
checking accounts are assumed to have annual rates of withdrawal, or "decay
rates," of 16%, 12.5% and 0%, respectively.


                                       40

<PAGE>

<TABLE>
<CAPTION>
                                                                          More
                                               More than    More than    than 3      More
                                   6 Months     6 Months    1 Year to   Years to     than       Total
                                    or Less    to 1 Year     3 Years     5 Years    5 Years    Amount
                                   --------    ---------    ---------   --------   --------   -------
                                                          (Dollars in Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>        <C>
Interest-earning assets(1):
   Loans receivable                $246,729    $  47,141    $ 133,354   $ 73,569   $ 98,131   $598,924
   Mortgage-backed
      securities                     25,436       19,943       48,930     21,438     24,428    140,175
   Investment securities             13,332       10,700       25,986     19,000     32,410    101,428
   Other interest-earning assets     27,389            -            -          -          -     27,389
                                   --------    ---------    ---------   --------   --------   --------
      Total interest-earning
         assets                     312,886       77,784      208,270    114,007    154,969    867,916
                                   ========    =========    =========   ========   ========   ========
Interest-bearing liabilities:
   Savings and money market
      accounts                     $ 13,777    $  13,777    $  34,812   $ 16,019   $ 14,122   $ 92,507
   Checking accounts                      -            -            -          -     50,531     50,531
   Certificate accounts             230,244       99,261       18,095     11,980     14,744    374,324
   FHLB advances                    117,937       14,380       39,335     12,577     20,167    204,396
   Other borrowed money              21,996            -            -          -          -     21,996
                                   --------    ---------    ---------   --------   --------   --------
      Total interest-bearing
         liabilities                383,954      127,418       92,242     40,576     99,564    743,754
                                   ========    =========    =========   ========   ========   ========
Interest-earning assets less
   interest-bearing liabilities    $(71,068)   $ (49,634)   $ 116,028   $ 73,431   $ 55,405   $124,162
                                   ========    =========    =========   ========   ========   ========
Cumulative interest-rate
   sensitivity gap(2)              $(71,068)   $(120,702)   $  (4,674)  $ 68,757   $124,162
                                   ========    =========    =========   ========   ========
Cumulative interest-rate
   gap as a percentage of total
   assets at September 30, 2006       (7.85)%     (13.33)%       0.52%      7.59%     13.71%
                                   ========    =========    =========   ========   ========
Cumulative interest-earning
   assets as a percentage of
   cumulative interest-bearing
   liabilities at September 30,
   2006                               81.49%       76.40%       99.23%    110.67%    116.69%
                                   ========    =========    =========   ========   ========
</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


                                       41

<PAGE>

different degrees to changes in market interest rates. Also, the interest rates
on certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, have features which restrict changes in interest rates both on a
short-term basis and over the life of the asset. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally, the
ability of many borrowers to service their adjustable-rate loans may decrease in
the event of an interest rate increase.

ITEM 4. - CONTROLS AND PROCEDURES

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

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


                                       42

<PAGE>

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Not applicable.

ITEM 1A. RISK FACTORS

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

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

(a)  Not applicable.

(b)  Not applicable.

(c)  PURCHASES OF EQUITY SECURITIES

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

<TABLE>
<CAPTION>
                                                                      TOTAL NUMBER OF      MAXIMUM NUMBER OF
                                     TOTAL                          SHARES PURCHASED AS   SHARES THAT MAY YET
                                   NUMBER OF                          PART OF PUBLICLY     BE PURCHASED UNDER
                                     SHARES    AVERAGE PRICE PAID    ANNOUNCED PLANS OR       THE PLAN OR
             PERIOD                PURCHASED        PER SHARE             PROGRAMS            PROGRAMS(1)
--------------------------------   ---------   ------------------   -------------------   -------------------
<S>                                  <C>             <C>                    <C>                  <C>
July 1 - July 31, 2006               5,254            14.53                 5,254                132,360
August 1 - August 31, 2006               -                -                     -                132,360
September 1 - September 30, 2006         -                -                     -                132,360
                                     -----                                  -----
Total                                5,254           $14.53                 5,254                132,360
                                     =====           ======                 =====                =======
</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.


                                       43

<PAGE>

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

     Not applicable.

ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS

     No.    Description
     ----   -----------
     31.1   Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive
            Officer.
     31.2   Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial
            Officer.
     32.1   Section 1350 Certification.
     32.2   Section 1350 Certification.


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<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: November 14, 2006                 By: /s/ Robert W. White
                                            ------------------------------------
                                            Robert W. White
                                            Chairman, President and
                                            Chief Executive Officer


Date: November 14, 2006                 By: /s/ Jack J. Sandoski
                                            ------------------------------------
                                            Jack J. Sandoski
                                            Senior Vice President and
                                            Chief Financial Officer


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