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 SECURITIESEXCHANGE ACT OF
    1934For the quarterly period ended
      June 30, 2008
 OR
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
    1934For the transition period
      from
              toCommission file number:0-52705
 Abington Bancorp,
      Inc.(Exact Name of
      Registrant as Specified in Its
Charter)
  Pennsylvania
                
                20-8613037(State
      or Other Jurisdiction of Incorporation or
    Organization)
                
                (I.R.S.
      Employer Identification No.)180
      Old York RoadJenkintown,
      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.
 YesxNo
o
 
 Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company.  See definition of “accelerated
filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
 
 Large accelerated filer o
              
              Accelerated filer x
 
 Non-accelerated filer o
              
              Smaller reporting company o
 (Do not check if a smaller
      reporting company)
 
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes oNo x
 
 Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date:  As of August 1, 2008, 24,435,436 shares of the
Registrant’s common stock were outstanding.
 
 
  ABINGTON BANCORP,
INC.
  TABLE OF
    CONTENTS
 Page
 PART I – FINANCIAL
      INFORMATIONITEM 1. FINANCIAL
      STATEMENTS
 Unaudited Consolidated Statements
      of Financial Condition as of June 30, 2008 andDecember
      31, 2007
              1Unaudited Consolidated Statements
      of Income for the Three and Six Months Ended June 30,2008 and
    2007
              2Unaudited Consolidated Statements
      of Stockholders’ Equity for the Six Months EndedJune 30, 2008 and
      2007
              3Unaudited Consolidated Statements
      of Cash Flows for the Six Months Ended June
    30,2008 and
    2007
              4Notes to Unaudited Consolidated
      Financial Statements
              5
  ITEM 2. MANAGEMENT’S DISCUSSION
      AND ANALYSIS OF FINANCIAL
CONDITION
 AND RESULTS OF OPERATIONS
              27ITEM 3. QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              43ITEM 4. CONTROLS AND
      PROCEDURES
              47
 PART II – OTHER
      INFORMATION
  ITEM 1. Legal
      Proceedings
              47ITEM 1A. Risk
      Factors
              47ITEM 2. Unregistered Sales of
      Equity Securities and Use of Proceeds
              47ITEM 3. Defaults upon Senior
      Securities
              48ITEM 4. Submission of Matters to a
      Vote of Security Holders
              48ITEM
      5. Other Information
              48ITEM 6.
      Exhibits
              49
 SIGNATURES
              50CERTIFICATIONS
   
  ABINGTON BANCORP,
      INC.UNAUDITED CONSOLIDATED STATEMENTS
      OF FINANCIAL CONDITIONJune 30,
    2008
                  
                  
                  December 31,
      2007ASSETSCash and due from
      banks
                  
                  $
                  24,172,775
                  
                  
                  $
                  22,342,499Interest-bearing deposits in other
      banks
                  
                  
                  29,787,157
                  
                  
                  
                  45,712,962Total
      cash and cash equivalents
                  
                  
                  53,959,932
                  
                  
                  
                  68,055,461Investment securities held to
      maturity (estimated fairvalue—2008,
      $20,260,865; 2007, $20,656,427)
                  
                  
                  20,390,187
                  
                  
                  
                  20,391,268Investment securities available
      for sale (amortized cost—2008, $79,364,259;
      2007, $98,202,711)
                  
                  
                  79,663,334
                  
                  
                  
                  98,780,774Mortgage-backed securities held to
      maturity (estimated fairvalue—2008,
      $65,080,014; 2007, $45,627,107)
                  
                  
                  67,455,370
                  
                  
                  
                  46,891,843Mortgage-backed securities
      available for sale (amortized cost—2008, $119,972,188;
      2007, $94,400,607)
                  
                  
                  119,962,212
                  
                  
                  
                  94,124,123Loans receivable, net of allowance
      for loan losses(2008,
      $2,518,498; 2007, $1,811,121)
                  
                  
                  694,212,100
                  
                  
                  
                  682,038,113Accrued interest
      receivable
                  
                  
                  4,641,449
                  
                  
                  
                  4,977,909Federal Home Loan Bank stock—at
      cost
                  
                  
                  11,552,200
                  
                  
                  
                  10,958,700Cash surrender value - bank owned
      life insurance
                  
                  
                  38,258,101
                  
                  
                  
                  37,298,126Property and equipment,
      net
                  
                  
                  11,114,149
                  
                  
                  
                  10,759,799Real estate
      owned
                  
                  
                  2,888,270
                  
                  
                  
                  1,558,000Deferred tax
      asset
                  
                  
                  2,606,408
                  
                  
                  
                  1,892,051Prepaid expenses and other
      assets
                  
                  
                  623,625
                  
                  
                  
                  1,942,454TOTAL
ASSETS
                  
                  $
                  1,107,327,337
                  
                  
                  $
                  1,079,668,621LIABILITIES AND STOCKHOLDERS'
      EQUITYLIABILITIES:Deposits:Noninterest-bearing
                  
                  $
                  47,113,899
                  
                  
                  $
                  37,027,767Interest-bearing
                  
                  
                  594,079,110
                  
                  
                  
                  572,584,934Total
      deposits
                  
                  
                  641,193,009
                  
                  
                  
                  609,612,701Advances from Federal
      Home Loan Bank
                  
                  
                  181,752,730
                  
                  
                  
                  189,557,572Other borrowed
      money
                  
                  
                  21,125,872
                  
                  
                  
                  17,453,060Accrued interest
      payable
                  
                  
                  4,378,830
                  
                  
                  
                  3,498,235Advances from
      borrowers for taxes and insurance
                  
                  
                  5,256,114
                  
                  
                  
                  2,978,650Accounts payable and
      accrued expenses
                  
                  
                  6,049,819
                  
                  
                  
                  6,653,343Total
      liabilities
                  
                  
                  859,756,374
                  
                  
                  
                  829,753,561COMMITMENTS AND
      CONTINGENCIESSTOCKHOLDERS'
      EQUITYPreferred stock, $0.01
      par value, 20,000,000 shares authorized,none
      issued
                  
                  
                  -
                  
                  
                  
                  -Common stock, $0.01
      par value, 80,000,000 shares authorized,issued:
      24,460,240 shares, outstanding: 24,449,526 shares
                  
                  
                  244,602
                  
                  
                  
                  244,602Additional paid-in
      capital
                  
                  
                  201,034,255
                  
                  
                  
                  200,634,467Treasury stock—at
      cost, 10,714 shares
                  
                  
                  (104,997
                  )
                  
                  
                  (104,997
                  )Unallocated common
      stock held by:Employee
      Stock Ownership Plan (ESOP)
                  
                  
                  (15,557,938
                  )
                  
                  
                  (15,977,458
                  )Recognition
      & Retention Plan Trust (RRP)
                  
                  
                  (6,435,071
                  )
                  
                  
                  (1,867,065
                  )Deferred
      compensation plans trust
                  
                  
                  (1,171,029
                  )
                  
                  
                  (1,149,610
                  )Retained
      earnings
                  
                  
                  69,754,541
                  
                  
                  
                  68,360,520Accumulated other
      comprehensive loss
                  
                  
                  (193,400
                  )
                  
                  
                  (225,399
                  )Total
      stockholders' equity
                  
                  
                  247,570,963
                  
                  
                  
                  249,915,060TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY
                  
                  $
                  1,107,327,337
                  
                  
                  $
                  1,079,668,621See notes to unaudited
      consolidated financial statements.
  1
  ABINGTON BANCORP,
      INC.UNAUDITED CONSOLIDATED STATEMENTS
      OF INCOMEThree Months Ended June
      30,
                
                
                Six Months Ended June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007INTEREST
      INCOME:Interest on
      loans
                
                $
                10,604,448
                
                
                $
                10,661,233
                
                
                $
                21,315,854
                
                
                $
                21,029,712Interest and dividends
      on investment andmortgage-backed
      securities:Taxable
                
                
                2,783,160
                
                
                
                2,309,782
                
                
                
                5,441,466
                
                
                
                4,619,131Tax-exempt
                
                
                338,623
                
                
                
                212,726
                
                
                
                635,398
                
                
                
                425,453Interest and dividends
      on other interest-earning assets
                
                
                293,523
                
                
                
                485,208
                
                
                
                824,406
                
                
                
                814,656Total
      interest income
                
                
                14,019,754
                
                
                
                13,668,949
                
                
                
                28,217,124
                
                
                
                26,888,952INTEREST
      EXPENSE:Interest on
      deposits
                
                
                4,250,930
                
                
                
                5,450,068
                
                
                
                9,173,039
                
                
                
                10,628,645Interest on Federal
      Home Loan Bank advances
                
                
                2,165,580
                
                
                
                2,120,703
                
                
                
                4,413,018
                
                
                
                4,475,680Interest on other
      borrowed money
                
                
                94,271
                
                
                
                234,572
                
                
                
                229,573
                
                
                
                419,132Total
      interest expense
                
                
                6,510,781
                
                
                
                7,805,343
                
                
                
                13,815,630
                
                
                
                15,523,457NET INTEREST
      INCOME
                
                
                7,508,973
                
                
                
                5,863,606
                
                
                
                14,401,494
                
                
                
                11,365,495PROVISION FOR LOAN
      LOSSES
                
                
                676,848
                
                
                
                105,938
                
                
                
                725,988
                
                
                
                109,545NET INTEREST INCOME
      AFTERPROVISION FOR LOAN
      LOSSES
                
                
                6,832,125
                
                
                
                5,757,668
                
                
                
                13,675,506
                
                
                
                11,255,950NON-INTEREST
      INCOMEService
      charges
                
                
                424,541
                
                
                
                405,926
                
                
                
                806,450
                
                
                
                803,642Income on bank owned
      life insurance
                
                
                483,923
                
                
                
                180,915
                
                
                
                959,975
                
                
                
                359,382Gain on sale of
      securities
                
                
                158,133
                
                
                
                -
                
                
                
                146,375
                
                
                
                -Impairment charge on
      investment securities
                
                
                (330,527
                )
                
                
                -
                
                
                
                (330,527
                )
                
                
                -Other
      income
                
                
                109,743
                
                
                
                123,019
                
                
                
                216,824
                
                
                
                234,286Total
      non-interest income
                
                
                845,813
                
                
                
                709,860
                
                
                
                1,799,097
                
                
                
                1,397,310NON-INTEREST
      EXPENSESSalaries and employee
      benefits
                
                
                2,953,724
                
                
                
                2,406,354
                
                
                
                5,818,910
                
                
                
                4,733,898Occupancy
                
                
                507,897
                
                
                
                436,968
                
                
                
                1,041,838
                
                
                
                873,778Depreciation
                
                
                201,348
                
                
                
                199,543
                
                
                
                398,341
                
                
                
                383,725Professional
      services
                
                
                310,200
                
                
                
                296,667
                
                
                
                586,148
                
                
                
                458,281Data
      processing
                
                
                379,032
                
                
                
                357,302
                
                
                
                761,622
                
                
                
                707,978Advertising and
      promotions
                
                
                116,019
                
                
                
                139,199
                
                
                
                218,471
                
                
                
                234,961Other
                
                
                892,901
                
                
                
                707,042
                
                
                
                1,722,011
                
                
                
                1,347,276Total
      non-interest expenses
                
                
                5,361,121
                
                
                
                4,543,075
                
                
                
                10,547,341
                
                
                
                8,739,897INCOME BEFORE INCOME
      TAXES
                
                
                2,316,817
                
                
                
                1,924,453
                
                
                
                4,927,262
                
                
                
                3,913,363PROVISION FOR INCOME
      TAXES
                
                
                569,942
                
                
                
                515,542
                
                
                
                1,262,218
                
                
                
                1,042,020NET INCOME
                
                $
                1,746,875
                
                
                $
                1,408,911
                
                
                $
                3,665,044
                
                
                $
                2,871,343BASIC EARNINGS PER COMMON
      SHARE
                
                $
                0.08
                
                
                $
                0.06
                
                
                $
                0.16
                
                
                $
                0.12DILUTED EARNINGS PER COMMON
      SHARE
                
                $
                0.08
                
                
                $
                0.06
                
                
                $
                0.16
                
                
                $
                0.12BASIC AVERAGE COMMON SHARES
      OUTSTANDING:
                
                
                22,131,813
                
                
                
                23,364,752
                
                
                
                22,241,837
                
                
                
                23,362,893DILUTED AVERAGE COMMON SHARES
      OUTSTANDING:
                
                
                22,942,871
                
                
                
                23,907,231
                
                
                
                22,908,601
                
                
                
                23,931,605See notes to unaudited
      consolidated financial statements.
  2
  ABINGTON BANCORP,
      INC.UNAUDITED CONSOLIDATED STATEMENTS
      OF STOCKHOLDERS' EQUITYCommonStock
                
                
                
                
                
                AccumulatedCommon
                
                
                
                
                
                Additional
                
                
                
                
                
                Acquired by
                
                
                
                
                
                Other
                
                
                TotalStock
                
                
                Common
                
                
                Paid-in
                
                
                Treasury
                
                
                Benefit
                
                
                Retained
                
                
                Comprehensive
                
                
                Stockholders'Shares
                
                
                Stock
                
                
                Capital
                
                
                Stock
                
                
                Plans
                
                
                Earnings
                
                
                Loss
                
                
                EquityBALANCE—JANUARY 1,
      2008
                
                
                24,460,240
                
                
                $
                244,602
                
                
                $
                200,634,467
                
                
                $
                (104,997
                )
                
                $
                (18,994,133
                )
                
                $
                68,360,520
                
                
                $
                (225,399
                )
                
                $
                249,915,060Comprehensive
      income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,665,044
                
                
                
                -
                
                
                
                3,665,044Net
      unrealized holding loss onavailable
      for sale securitiesarising
      during the period, netof
      tax benefit of $4,244
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (8,236
                )
                
                
                (8,236
                )Amortization
      of unrecognizedprior
      service costs on definedbenefit
      pension plan, netof
      tax expense of $20,727
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                40,235
                
                
                
                40,235Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,697,043Cash dividends
      declared,($0.10
      per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,271,023
                )
                
                
                -
                
                
                
                (2,271,023
                )Stock options
      expense
                
                
                -
                
                
                
                -
                
                
                
                417,669
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                417,669Common stock released
      frombenefit
      plans
                
                
                -
                
                
                
                -
                
                
                
                (17,881
                )
                
                
                -
                
                
                
                1,213,302
                
                
                
                -
                
                
                
                -
                
                
                
                1,195,421Common stock acquired
      bybenefit
      plans
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (5,383,207
                )
                
                
                -
                
                
                
                -
                
                
                
                (5,383,207
                )BALANCE—JUNE 30,
      2008
                
                
                24,460,240
                
                
                $
                244,602
                
                
                $
                201,034,255
                
                
                $
                (104,997
                )
                
                $
                (23,164,038
                )
                
                $
                69,754,541
                
                
                $
                (193,400
                )
                
                $
                247,570,963CommonStock
                
                
                
                
                
                
                AccumulatedCommon
                
                
                
                
                
                
                Additional
                
                
                
                
                
                
                Acquired by
                
                
                
                
                
                
                Other
                
                
                TotalStock
                
                
                Common
                
                
                Paid-in
                
                
                Treasury
                
                
                Benefit
                
                
                Retained
                
                
                Comprehensive
                
                
                Stockholders'Shares
                
                
                Stock
                
                
                Capital
                
                
                Stock
                
                
                Plans
                
                
                Earnings
                
                
                Loss
                
                
                EquityBALANCE—JANUARY 1,
      2007
                
                
                15,870,000
                
                
                $
                158,700
                
                
                $
                69,674,243
                
                
                $
                (8,317,848
                )
                
                $
                (10,054,685
                )
                
                $
                65,252,214
                
                
                $
                (2,610,400
                )
                
                $
                114,102,224Comprehensive
      income:Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,871,343
                
                
                
                -
                
                
                
                2,871,343Net
      unrealized holding loss onavailable
      for sale securitiesarising
      during the period, netof
      tax benefit of $9,918
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (19,254
                )
                
                
                (19,254
                )Amortization
      of unrecognizedprior
      service costs on definedbenefit
      pension plan, netof
      tax expense of $20,728
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                40,234
                
                
                
                40,234Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,892,323Cash dividends
      declared,($0.08
      per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,923,092
                )
                
                
                -
                
                
                
                (1,923,092
                )Cancellation of common
      stock
                
                
                (15,870,000
                )
                
                
                (158,700
                )
                
                
                158,700
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Issuance of common stock,
      net
                
                
                24,460,240
                
                
                
                244,602
                
                
                
                134,642,301
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                134,886,903Dissolution of Abington
      MutualHolding
      Company
                
                
                -
                
                
                
                -
                
                
                
                4,123,098
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,123,098Cancellation of treasury
      stock
                
                
                -
                
                
                
                -
                
                
                
                (8,317,848
                )
                
                
                8,317,848
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Stock options
      expense
                
                
                -
                
                
                
                -
                
                
                
                195,480
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                195,480Common stock released
      frombenefit
      plans
                
                
                -
                
                
                
                -
                
                
                
                88,247
                
                
                
                -
                
                
                
                620,782
                
                
                
                -
                
                
                
                -
                
                
                
                709,029Common stock acquired
      bybenefit
      plans
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (10,515,104
                )
                
                
                -
                
                
                
                -
                
                
                
                (10,515,104
                )BALANCE—JUNE 30,
      2007
                
                
                24,460,240
                
                
                $
                244,602
                
                
                $
                200,564,221
                
                
                $
                -
                
                
                $
                (19,949,007
                )
                
                $
                66,200,465
                
                
                $
                (2,589,420
                )
                
                $
                244,470,861See notes to unaudited
      consolidated financial statements.
  3
  ABINGTON BANCORP,
      INC.UNAUDITED CONSOLIDATED STATEMENTS
      OF CASH FLOWSSix Months Ended June
      30,2008
                
                
                2007OPERATING
      ACTIVITIES:Net
      income
                
                $
                3,665,044
                
                
                $
                2,871,343Adjustments to
      reconcile net income to net cashprovided
      by operating activities:Provision
      for loan losses
                
                
                725,988
                
                
                
                109,545Depreciation
                
                
                398,341
                
                
                
                383,725Share-based
      compensation expense
                
                
                1,607,890
                
                
                
                899,309Gain on
      sale of mortgage-backed securities
                
                
                (146,375
                )
                
                
                -Impairment
      charge on investment securities
                
                
                330,527
                
                
                
                -Deferred
      income tax benefit
                
                
                (730,840
                )
                
                
                (244,306
                )Amortization
      of:Deferred
      loan fees
                
                
                (431,386
                )
                
                
                (410,043
                )Premiums
      and discounts, net
                
                
                (3,509
                )
                
                
                31,529Income
      from bank owned life insurance
                
                
                (959,975
                )
                
                
                (359,382
                )Changes in
      assets and liabilities which (used) provided cash:Accrued
      interest receivable
                
                
                336,460
                
                
                
                (308,260
                )Prepaid
      expenses and other assets
                
                
                1,318,829
                
                
                
                (1,965,729
                )Accrued
      interest payable
                
                
                880,595
                
                
                
                3,722,777Accounts
      payable and accrued expenses
                
                
                (563,981
                )
                
                
                446,439Net
      cash provided by operating activities
                
                
                6,427,608
                
                
                
                5,176,947INVESTING
      ACTIVITIES:Principal collected on
      loans
                
                
                115,724,530
                
                
                
                75,645,956Disbursements for
      loans
                
                
                (129,170,505
                )
                
                
                (109,358,264
                )Purchases
      of:Mortgage-backed
      securities held to maturity
                
                
                (24,779,806
                )
                
                
                -Mortgage-backed
      securities available for sale
                
                
                (44,782,543
                )
                
                
                -Investments
      available for sale
                
                
                (23,183,691
                )
                
                
                (19,077,531
                )Federal
      Home Loan Bank stock
                
                
                (1,492,900
                )
                
                
                (381,400
                )Property
      and equipment
                
                
                (752,691
                )
                
                
                (1,380,213
                )Proceeds
      from:Sales and
      maturities of mortgage-backed securities available for
      sale
                
                
                7,354,286
                
                
                
                -Sales and
      maturities of investments available for sale
                
                
                41,697,000
                
                
                
                14,600,000Principal
      repayments of mortgage-backed securities held to
      maturity
                
                
                4,181,878
                
                
                
                4,566,363Principal
      repayments of mortgage-backed securities available for
      sale
                
                
                12,036,658
                
                
                
                6,478,786Redemption
      of Federal Home Loan Bank stock
                
                
                899,400
                
                
                
                1,227,700Additions
      to real estate owned
                
                
                (352,884
                )
                
                
                -Net
      cash used in investing activities
                
                
                (42,621,268
                )
                
                
                (27,678,603
                )FINANCING
      ACTIVITIES:Net increase in demand
      deposits and savings accounts
                
                
                35,829,752
                
                
                
                2,386,976Net (decrease)
      increase in certificate accounts
                
                
                (4,249,444
                )
                
                
                18,986,225Net increase in other
      borrowed money
                
                
                3,672,812
                
                
                
                4,755,386Advances from Federal
      Home Loan Bank
                
                
                50,610,000
                
                
                
                372,610,000Repayments of advances
      from Federal Home Loan Bank
                
                
                (58,414,842
                )
                
                
                (410,538,816
                )Net increase in
      advances from borrowers for taxes and insurance
                
                
                2,277,464
                
                
                
                2,128,884Acquisition of stock
      for benefit plans
                
                
                (5,356,588
                )
                
                
                (10,427,710
                )Proceeds from stock
      issuance, net
                
                
                -
                
                
                
                134,886,903Dissolution of
      Abington Mutual Holding Company
                
                
                -
                
                
                
                4,123,098Payment of cash
      dividends
                
                
                (2,271,023
                )
                
                
                (1,923,092
                )Net
      cash provided by financing activities
                
                
                22,098,131
                
                
                
                116,987,854NET  (DECREASE) INCREASE
      IN CASH AND CASH EQUIVALENTS
                
                
                (14,095,529
                )
                
                
                94,486,198CASH AND CASH
      EQUIVALENTS—Beginning of period
                
                
                68,055,461
                
                
                
                44,565,252CASH AND CASH EQUIVALENTS—End of
      period
                
                $
                53,959,932
                
                
                $
                139,051,450SUPPLEMENTAL DISCLOSURES OF CASH
      FLOW INFORMATION:Cash paid during the
      year for:Interest
      on deposits and other borrowings
                
                $
                12,935,035
                
                
                $
                11,800,680Income
      taxes
                
                $
                1,705,000
                
                
                $
                1,300,000Cancellation of
      treasury stock
                
                $
                -
                
                
                $
                8,317,848Non-cash transfer of
      loans to real estate owned
                
                $
                977,386
                
                
                $
                -See notes to unaudited
      consolidated financial statements.
  4
  ABINGTON BANCORP,
INC.
  NOTES TO UNAUDITED CONSOLIDATED
      FINANCIAL STATEMENTS
 1.
              FINANCIAL STATEMENT PRESENTATION
      AND SIGNIFICANT ACCOUNTING
POLICIES
  Basis
of Financial Statement Presentation—Abington Bancorp, Inc. (the “Company”)
is a Pennsylvania corporation which was organized to be the stock holding
company for Abington Savings Bank in connection with our second-step conversion
and reorganization completed on June 27, 2007, which is discussed further below.
Abington Savings Bank isa
Pennsylvania-chartered, FDIC-insured savings bank,which conducts business under the name
“Abington Bank” (the “Bank” or “Abington Bank”). As a result of the Bank’s
election pursuant to Section 10(l) of the Home Owners’ Loan Act, the Company is
a savings and loan holding company regulated by the Office of Thrift Supervision
(the “OTS”). 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 subsidiary, ASB Investment Co. 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 eleven other branches and six 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 currently inactive
subsidiaries.
  Abington Community Bancorp, Inc., a
Pennsylvania corporation, was the former mid-tier holding company for the Bank.
Abington Community Bancorp 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, was the mutual holding company parent of Abington Community
Bancorp, Inc. and originally owned 55% of Abington Community Bancorp’s
outstanding stock. As a result of treasury stock purchases, this stake increased
to approximately 57% of Abington Community Bancorp’s outstanding stock at the
time of the Bank’s second-step conversion.
  On June 27, 2007, a second-step
conversion was completed after which Abington Mutual Holding Company and
Abington Community Bancorp, Inc. ceased to exist and Abington Bancorp, Inc. was
organized as the new stock-form holding company for the Bank and successor to
Abington Community Bancorp. A total of 13,965,600 new shares of the Company were
sold at $10 per share in the subscription, community and syndicated community
offerings through which the Company received proceeds of approximately $134.7
million, net of offering costs of approximately $5.0 million. As part of the
conversion, each outstanding public share of Abington Community Bancorp, Inc.
(that is, shares owned by stockholders other than Abington Mutual Holding
Company) was exchanged for 1.6 shares of Company Common Stock. The exchange
resulted in an additional 10,494,640 outstanding shares of common stock of the
Company for a total of 24,460,240 outstanding shares as of the closing of the
second-step conversion. Treasury stock held was cancelled.
  5
  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 condition, 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 Abington Bancorp, Inc. and
the accompanying notes thereto for the year ended December 31, 2007, which are
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2007. The results for the six months ended June 30, 2008 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2008, 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, the assessment of other-than-temporary impairment of investment
and mortgage-backed securities and deferred income taxes.
  Other-Than-Temporary
Impairment of Securities—Securities are evaluated on at least a
quarterly basis, and more frequently when market conditions warrant such an
evaluation, to determine whether a decline in their value is
other-than-temporary. To determine whether a loss in value is
other-than-temporary, management utilizes criteria such as the reasons
underlying the decline, the magnitude and duration of the decline and the intent
and ability of the Company to retain its investment in the security for a period
of time sufficient to allow for an anticipated recovery in the fair value. The
term “other-than-temporary” is not intended to indicate that the decline is
permanent, but indicates that the prospects for a near-term recovery of value is
not necessarily favorable, or that there is a lack of evidence to support a
realizable value equal to or greater than the carrying value of the investment.
Once a decline in value is determined to be other-than-temporary, the value of
the security is reduced and a corresponding charge to earnings is recognized. An
impairment charge on certain investment securities of approximately $331,000 was
recognized during the three and six months ended June 30, 2008. No impairment
charge was recognized during the three or six months ended June 30
2007.
  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.
  6
  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 onclassified
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
allowanceon 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.
  Comprehensive
Income—The Company presents
as a component of comprehensive income the amounts from transactions and other
events which currently are excluded from the consolidated statements of income
and are recorded directly to stockholders’ equity. These amounts consist of
unrealized holding gains or losses on available for sale securities and
amortization of unrecognized deferred costs of the Company’s defined benefit
pension plan.
  The components of other
comprehensive (loss) income are as follows:
  Three Months
      Ended
                
                
                Six Months
      EndedJune 30,
                
                
                June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net unrealized (loss) gain on
      securitiesarising during the
      period
                
                $
                (1,704,435
                )
                
                $
                (475,661
                )
                
                $
                (129,776
                )
                
                $
                (19,254
                )Plus: reclassification adjustment
      for netlosses included in net
      income, net of tax
                
                
                113,780
                
                
                
                -
                
                
                
                121,540
                
                
                
                -Net unrealized loss on
      securities
                
                $
                (1,590,655
                )
                
                $
                (475,661
                )
                
                $
                (8,236
                )
                
                $
                (19,254
                )Amortization of unrecognized prior
      servicecost on defined
      benefit pension plan,net of
      tax
                
                
                20,118
                
                
                
                20,117
                
                
                
                40,235
                
                
                
                40,234Total other comprehensive (loss)
      income
                
                $
                (1,570,537
                )
                
                $
                (455,544
                )
                
                $
                31,999
                
                
                $
                20,980
   The components of accumulated other
comprehensive loss are as follows:
  June 30,
                
                
                December
31,2008
                
                
                2007Net unrealized gain on
      securities
                
                $
                190,805
                
                
                $
                199,041Unrecognized deferred costs of
      defined benefit pension plan
                
                
                (384,205
                )
                
                
                (424,440
                )Total accumulated other
      comprehensive loss
                
                $
                (193,400
                )
                
                $
                (225,399
                )
  Share-Based
Compensation—The Company
accounts for its share-based compensation awards in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 123R (revised 2004),Share-Based
Payment. This statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measures 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.
  7
  At June 30, 2008, the Company has four
share-based compensation plans, the2005 and the 2007 Recognition and
Retention Plansand the2005 and 2007 Stock Option
Plans.Share awards were
first issued under the 2005 plans in July 2005. Share awards were issued under
the 2007 plans in January 2008. 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
held 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 three and six months ended June 30, 2008, there were 1,252,240 and
1,300,240 antidilutive CSEs, respectively. For the three and six months ended
June 30, 2007, there were no antidilutive CSEs. Earnings per share were
calculated as follows:
  Three Months Ended June
      30,2008
                
                
                2007Basic
                
                
                Diluted
                
                
                Basic
                
                
                DilutedNet income
                
                $
                1,746,875
                
                
                $
                1,746,875
                
                
                $
                1,408,911
                
                
                $
                1,408,911Weighted average shares
      outstanding
                
                
                22,131,813
                
                
                
                22,131,813
                
                
                
                23,364,693
                
                
                
                23,364,693Effect of common stock
      equivalents
                
                
                -
                
                
                
                811,058
                
                
                
                -
                
                
                
                542,480Adjusted weighted average shares
      usedin earnings per share
      computation
                
                
                22,131,813
                
                
                
                22,942,871
                
                
                
                23,364,693
                
                
                
                23,907,173Earnings per
      share
                
                $
                0.08
                
                
                $
                0.08
                
                
                $
                0.06
                
                
                $
                0.06
  Three Months Ended June
      30,2008
                
                
                2007Basic
                
                
                Diluted
                
                
                Basic
                
                
                DilutedNet income
                
                $
                3,665,044
                
                
                $
                3,665,044
                
                
                $
                2,871,343
                
                
                $
                2,871,343Weighted average shares
      outstanding
                
                
                22,241,837
                
                
                
                22,131,813
                
                
                
                23,362,864
                
                
                
                23,362,864Effect of common stock
      equivalents
                
                
                -
                
                
                
                666,764
                
                
                
                -
                
                
                
                568,741Adjusted weighted average shares
      usedin earnings per share
      computation
                
                
                22,241,837
                
                
                
                22,908,601
                
                
                
                23,362,864
                
                
                
                23,931,605Earnings per
      share
                
                $
                0.16
                
                
                $
                0.16
                
                
                $
                0.12
                
                
                $
                0.12
  8
  Recent
Accounting Pronouncements—In March 2008, the FASB issued SFAS No.
161,Disclosures About
Derivative Instruments and Hedging Activities – an amendment of FASB Statements
No. 133. This statement
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial positions, financial performance, and cash flows.
This statement is effective for financial statements issued for periods
beginning after November 15, 2008. The Company is continuing to evaluate the
impact of this statement, but does not expect that the guidance will have any
effect onour consolidated
financial position or results of operations.
  In May 2008, the FASB issued SFAS No.
162,The Hierarchy of
Generally Accepted Accounting Principles. This statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles
(“GAAP”) in the United States (the “GAAP hierarchy”). This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411,The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company
does not expect this statement tohave any effect onour consolidated financial position or
results of operations.
  Reclassifications—Certain items in the 2007 consolidated
financial statements have been reclassified to conform to the presentation in
the 2008 consolidated financial statements. Such reclassifications did not have
a material impact on the presentation of the overall financial
statements.
  2.        INVESTMENT
SECURITIES
  The amortized cost and estimated fair
value of investment securities are summarized as follows:
  Held to
      MaturityJune 30,
    2008Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueDebt
      securities:Municipal
      bonds
                
                $
                20,390,187
                
                
                $
                37,814
                
                
                $
                (167,136
                )
                
                $
                20,260,865Total
      debt securities
                
                $
                20,390,187
                
                
                $
                37,814
                
                
                $
                (167,136
                )
                
                $
                20,260,865
  9
   Available for
      SaleJune 30,
    2008Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueDebt
      securities:Agency
      bonds
                
                $
                55,460,548
                
                
                $
                516,805
                
                
                $
                (68,735
                )
                
                $
                55,908,618Corporate bonds
      andcommercial
      paper
                
                
                3,464,732
                
                
                
                13,685
                
                
                
                (38,377
                )
                
                
                3,440,040Municipal
      bonds
                
                
                17,196,319
                
                
                
                63,481
                
                
                
                (187,930
                )
                
                
                17,071,870Certificates of
      deposit
                
                
                288,000
                
                
                
                -
                
                
                
                -
                
                
                
                288,000Total
      debt securities
                
                
                76,409,599
                
                
                
                593,971
                
                
                
                (295,042
                )
                
                
                76,708,528Equity
      securities:Common
      stock
                
                
                10
                
                
                
                146
                
                
                
                -
                
                
                
                156Mutual
      funds
                
                
                2,954,650
                
                
                
                -
                
                
                
                -
                
                
                
                2,954,650Total
      equity securities
                
                
                2,954,660
                
                
                
                146
                
                
                
                
                
                
                
                2,954,806Total
                
                $
                79,364,259
                
                
                $
                594,117
                
                
                $
                (295,042
                )
                
                $
                79,663,334
 
 Held to
      MaturityDecember 31,
      2007Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueDebt
      securities:Municipal
      bonds
                
                $
                20,391,268
                
                
                $
                265,159
                
                
                $
                -
                
                
                $
                20,656,427Total
      debt securities
                
                $
                20,391,268
                
                
                $
                265,159
                
                
                $
                -
                
                
                $
                20,656,427
  10
  Available for
      SaleDecember 31,
      2007Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueDebt
      securities:Agency
      bonds
                
                $
                84,882,467
                
                
                $
                675,585
                
                
                $
                (70,210
                )
                
                $
                85,487,842Corporate bonds
      andcommercial
      paper
                
                
                3,483,768
                
                
                
                6,446
                
                
                
                (11,449
                )
                
                
                3,478,765Municipal
      bonds
                
                
                6,035,410
                
                
                
                71,374
                
                
                
                (280
                )
                
                
                6,106,504Certificates of
      deposit
                
                
                585,000
                
                
                
                -
                
                
                
                -
                
                
                
                585,000Total
      debt securities
                
                
                94,986,645
                
                
                
                753,405
                
                
                
                (81,939
                )
                
                
                95,658,111Equity
      securities:Common
      stock
                
                
                10
                
                
                
                310
                
                
                
                -
                
                
                
                320Mutual
      funds
                
                
                3,216,056
                
                
                
                -
                
                
                
                (93,713
                )
                
                
                3,122,343Total
      equity securities
                
                
                3,216,066
                
                
                
                310
                
                
                
                (93,713
                )
                
                
                3,122,663Total
                
                $
                98,202,711
                
                
                $
                753,715
                
                
                $
                (175,652
                )
                
                $
                98,780,774
  During the three months ended June 30,
2008, a gross gain of approximately $74,000 was recognized on the sale of
certain agency bonds. Proceeds from these sales were approximately $4.1 million.
There were no other sales of debt or equity securities during the six months
ended June 30, 2008. There were no sales of debt or equity securities during the
three or six months ended June 30, 2007.
  An impairment charge of approximately
$331,000 was recognized during the three and six months ended June 30, 2008.The impairment charge was
taken to write-down the book value of our investment in a mortgage-backed
security based mutual fund to its fair value of $3.0 million at June 30, 2008,
based on our determination that the investment was other-than-temporarily
impaired. The net asset value of the fund has continued to decline since June
30, 2008, and it is possible that additional impairment charges will be recorded
in subsequent quarters.No
impairment charge was recognized on investment securities during the three or
six months ended June 30, 2007.
  Included in debt securities are
structured notes with federal agencies. These structured notes consist of
step-up bonds which provide the agency with the right, but not the obligation,
to redeem the bonds on the step-up date.
  11
  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.
   June 30,
    2008Available for
      Sale
                
                
                Held to
      MaturityEstimated
                
                
                
                
                
                EstimatedAmortized
                
                
                Fair
                
                
                Amortized
                
                
                FairCost
                
                
                Value
                
                
                Cost
                
                
                ValueDue in one year or
      less
                
                $
                1,784,167
                
                
                $
                1,762,760
                
                
                $
                -
                
                
                $
                -Due after one year through five
      years
                
                
                60,434,326
                
                
                
                60,844,069
                
                
                
                -
                
                
                
                -Due after five years through ten
      years
                
                
                13,932,224
                
                
                
                13,844,580
                
                
                
                -
                
                
                
                -Due after ten
      years
                
                
                258,882
                
                
                
                257,119
                
                
                
                20,390,187
                
                
                
                20,260,865Total
                
                $
                76,409,599
                
                
                $
                76,708,528
                
                
                $
                20,390,187
                
                
                $
                20,260,865
   The table below sets forth investment
securities which had an unrealized loss position as of June 30,
2008:
  Less than 12
      months
                
                
                More than 12
      monthsGross
                
                
                Estimated
                
                
                Gross
                
                
                EstimatedUnrealized
                
                
                Fair
                
                
                Unrealized
                
                
                FairLosses
                
                
                Value
                
                
                Losses
                
                
                ValueSecurities held to
      maturity:Municipal
      bonds
                
                $
                (167,136
                )
                
                $
                14,687,486
                
                
                $
                -
                
                
                $
                -Total
      securities held to maturity
                
                
                (167,136
                )
                
                
                14,687,486
                
                
                
                -
                
                
                
                -Securities available for
      sale:Agency
      bonds
                
                $
                (68,735
                )
                
                $
                11,923,780
                
                
                $
                -
                
                
                $
                -Municipal
      bonds
                
                
                (187,930
                )
                
                
                10,657,478
                
                
                
                -
                
                
                
                -Other
      securities
                
                
                (21,562
                )
                
                
                976,290
                
                
                
                (16,815
                )
                
                
                978,890Total
      securities available for sale
                
                
                (278,227
                )
                
                
                23,557,548
                
                
                
                (16,815
                )
                
                
                978,890Total
                
                $
                (445,363
                )
                
                $
                38,245,034
                
                
                $
                (16,815
                )
                
                $
                978,890
  12
  The table below
sets forth investment securities which had an unrealized loss position as of
December 31, 2007:
  Less than 12
      months
                
                
                More than 12
      monthsGross
                
                
                Estimated
                
                
                Gross
                
                
                EstimatedUnrealized
                
                
                Fair
                
                
                Unrealized
                
                
                FairLosses
                
                
                Value
                
                
                Losses
                
                
                ValueSecurities available for
      sale:Agency
      bonds
                
                $
                -
                
                
                $
                -
                
                
                $
                (70,210
                )
                
                $
                14,429,790Municipal
      bonds
                
                
                (280
                )
                
                
                254,535
                
                
                
                -
                
                
                
                -Other
      securities
                
                
                (7,218
                )
                
                
                987,130
                
                
                
                (97,944
                )
                
                
                3,618,008Total
      securities available for sale
                
                $
                (7,498
                )
                
                $
                1,241,665
                
                
                $
                (168,154
                )
                
                $
                18,047,798
  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 June 30, 2008,
investment securities in a gross unrealized loss position for twelve months or
longer consisted of one security having an aggregate depreciation of 1.7% from
the Company’s amortized cost basis. Investment securities in a gross unrealized
loss position for less than twelve months at June 30, 2008, consisted of 35
securities having an aggregate depreciation of 0.9% 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 debt securities have been made as
scheduled, and there is no evidence that the issuer will not continue to do so.
The future principal payments will be sufficient to recover the current
amortized cost of the securities. The unrealized losses above are primarily
related to market interest rates. The current declines in market value are not
significant, and management of the Company believes that these values will
recover as market interest rates move. The Company has the intent and ability to
hold each of these investments for the time necessary to recover its
cost.
  13
  3.       MORTGAGE-BACKED
SECURITIES
  The amortized cost and estimated fair
value of mortgage-backed securities are summarized as
follows:
   Held to
      MaturityJune 30,
    2008Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueFNMA
      pass-throughcertificates
                
                $
                38,062,370
                
                
                $
                -
                
                
                $
                (856,047
                )
                
                $
                37,206,323FHLMC
      pass-throughcertificates
                
                
                17,859,864
                
                
                
                -
                
                
                
                (701,440
                )
                
                
                17,158,424Collateralized
      mortgageobligations
                
                
                11,533,136
                
                
                
                -
                
                
                
                (817,869
                )
                
                
                10,715,267Total
                
                $
                67,455,370
                
                
                $
                -
                
                
                $
                (2,375,356
                )
                
                $
                65,080,014
   Available for
      saleJune 30,
    2008Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueGNMA
      pass-throughcertificates
                
                $
                3,176
                
                
                $
                402
                
                
                $
                -
                
                
                $
                3,578FNMA
      pass-throughcertificates
                
                
                43,893,084
                
                
                
                296,461
                
                
                
                (404,057
                )
                
                
                43,785,488FHLMC
      pass-throughcertificates
                
                
                67,052,344
                
                
                
                475,485
                
                
                
                (420,284
                )
                
                
                67,107,545Collateralized
      mortgageobligations
                
                
                9,023,584
                
                
                
                94,208
                
                
                
                (52,191
                )
                
                
                9,065,601Total
                
                $
                119,972,188
                
                
                $
                866,556
                
                
                $
                (876,532
                )
                
                $
                119,962,212
  14
  Held to
      MaturityDecember 31,
      2007Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueFNMA
      pass-throughcertificates
                
                $
                20,236,408
                
                
                $
                -
                
                
                $
                (479,332
                )
                
                $
                19,757,076FHLMC
      pass-throughcertificates
                
                
                14,284,056
                
                
                
                -
                
                
                
                (431,116
                )
                
                
                13,852,940Collateralized
      mortgageobligations
                
                
                12,371,379
                
                
                
                19,205
                
                
                
                (373,493
                )
                
                
                12,017,091Total
                
                $
                46,891,843
                
                
                $
                19,205
                
                
                $
                (1,283,941
                )
                
                $
                45,627,107
    Available for
      saleDecember 31,
      2007Gross
                
                
                Gross
                
                
                EstimatedAmortized
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairCost
                
                
                Gains
                
                
                Losses
                
                
                ValueGNMA
      pass-throughcertificates
                
                $
                318,366
                
                
                $
                12,954
                
                
                $
                (239
                )
                
                $
                331,081FNMA
      pass-throughcertificates
                
                
                21,441,471
                
                
                
                155,943
                
                
                
                (105,997
                )
                
                
                21,491,417FHLMC
      pass-throughcertificates
                
                
                60,765,390
                
                
                
                239,573
                
                
                
                (637,497
                )
                
                
                60,367,466Collateralized
      mortgageobligations
                
                
                11,875,380
                
                
                
                112,742
                
                
                
                (53,963
                )
                
                
                11,934,159Total
                
                $
                94,400,607
                
                
                $
                521,212
                
                
                $
                (797,696
                )
                
                $
                94,124,123
  During the three months ended June 30,
2008, a gross gain of approximately $84,000 was recognized on the sale of
certain mortgage-backed securities. Proceeds from these sales were approximately
$4.3 million. During the six months ended June 30, 2008, a gross gain of
approximately $100,000 and a gross loss of approximately $28,000 were recognized
on the sale of certain mortgage-backed securities. Proceeds from these sales
were approximately $5.1 million. There were no sales of mortgage-backed
securities during the three or six months ended June 30,
2007.
  No impairment charges were recognized on
mortgage-backed securities during the six months ended June 30, 2008 and
2007.
  15
  The table below sets forth
      mortgage-backed securities which had an unrealized loss position as of
      June 30, 2008:
   Less than 12
      months
                
                
                More than 12
      monthsGross
                
                
                Estimated
                
                
                Gross
                
                
                EstimatedUnrealized
                
                
                Fair
                
                
                Unrealized
                
                
                FairLosses
                
                
                Value
                
                
                Losses
                
                
                ValueSecurities held to
      maturity:FNMA
      pass-throughcertificates
                
                $
                (283,275
                )
                
                $
                25,441,988
                
                
                $
                (572,772
                )
                
                $
                11,764,330FHLMC
      pass-throughcertificates
                
                
                (27,223
                )
                
                
                962,152
                
                
                
                (674,217
                )
                
                
                16,196,271Collateralized
      mortgageobligations
                
                
                (207,083
                )
                
                
                730,738
                
                
                
                (610,786
                )
                
                
                9,984,529Total
      securities held to maturity
                
                
                (517,581
                )
                
                
                27,134,878
                
                
                
                (1,857,775
                )
                
                
                37,945,130Securities available for
      sale:FNMA
      pass-throughcertificates
                
                $
                (401,172
                )
                
                $
                19,997,132
                
                
                $
                (2,885
                )
                
                $
                89,326FHLMC
      pass-throughcertificates
                
                
                (133,391
                )
                
                
                23,368,713
                
                
                
                (286,893
                )
                
                
                8,463,522Collateralized
      mortgageobligations
                
                
                (44,853
                )
                
                
                2,953,496
                
                
                
                (7,338
                )
                
                
                472,916Total
      securities available for sale
                
                
                (579,416
                )
                
                
                46,319,341
                
                
                
                (297,116
                )
                
                
                9,025,764Total
                
                $
                (1,096,997
                )
                
                $
                73,454,219
                
                
                $
                (2,154,891
                )
                
                $
                46,970,894
  16
  The table below sets forth
mortgage-backed securities which had an unrealized loss position as of December
31, 2007:
  Less than 12
      months
                
                
                More than 12
      monthsGross
                
                
                Estimated
                
                
                Gross
                
                
                EstimatedUnrealized
                
                
                Fair
                
                
                Unrealized
                
                
                FairLosses
                
                
                Value
                
                
                Losses
                
                
                ValueSecurities held to
      maturity:FNMA
      pass-throughcertificates
                
                $
                -
                
                
                $
                -
                
                
                $
                (479,332
                )
                
                $
                19,757,076FHLMC
      pass-throughcertificates
                
                
                -
                
                
                
                -
                
                
                
                (431,116
                )
                
                
                13,852,940Collateralized
      mortgageobligations
                
                
                -
                
                
                
                -
                
                
                
                (373,493
                )
                
                
                11,060,065Total
      securities held to maturity
                
                
                -
                
                
                
                -
                
                
                
                (1,283,941
                )
                
                
                44,670,081Securities available for
      sale:GNMA
      pass-throughcertificates
                
                
                (239
                )
                
                
                48,119
                
                
                
                -
                
                
                
                -FNMA
      pass-throughcertificates
                
                
                (71,928
                )
                
                
                7,898,284
                
                
                
                (34,069
                )
                
                
                5,342,063FHLMC
      pass-throughcertificates
                
                
                (9,753
                )
                
                
                5,321,623
                
                
                
                (627,744
                )
                
                
                37,492,936Collateralized
      mortgageobligations
                
                
                -
                
                
                
                -
                
                
                
                (53,963
                )
                
                
                4,140,352Total
      securities available for sale
                
                
                (81,920
                )
                
                
                13,268,026
                
                
                
                (715,776
                )
                
                
                46,975,351Total
                
                $
                (81,920
                )
                
                $
                13,268,026
                
                
                $
                (1,999,717
                )
                
                $
                91,645,432
  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 June 30, 2008,
mortgage-backed securities in a gross unrealized loss position for twelve months
or longer consisted of 22 securities having an aggregate depreciation of 4.4%
from the Company’s amortized cost basis. Mortgage-backed securities in a gross
unrealized loss position for less than twelve months at June 30, 2008, consisted
of 26 securities having an aggregate depreciation of 1.5% from the Company’s
amortized cost basis. Management has concluded that the unrealized losses above
are temporary in nature. There is no exposure to subprime loans in our
mortgage-backed securities portfolio. The losses 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 the 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 and the
current market environment. The current declines in market value are not
significant, and management of the Company believes that these values will
recover as market interest rates move and the market environment improves. The
Company has the intent and ability to hold each of these investments for the
time necessary to recover its cost.
  17
  4.      LOANS RECEIVABLE -
NET
  Loans receivable consist of the
following:
  June 30,
    2008
                
                
                December 31,
      2007One-to four-family
      residential
                
                $
                443,792,514
                
                
                $
                424,141,281Multi-family residential and
      commercial
                
                
                75,316,188
                
                
                
                77,137,944Construction
                
                
                196,582,444
                
                
                
                168,711,266Home equity lines of
      credit
                
                
                22,014,329
                
                
                
                33,091,306Commercial business
      loans
                
                
                17,044,402
                
                
                
                29,373,909Consumer non-real estate
      loans
                
                
                2,333,740
                
                
                
                7,913,758Total
      loans
                
                
                757,083,617
                
                
                
                740,369,464Less:Construction loans in
      process
                
                
                (59,825,590
                )
                
                
                (55,798,973
                )Deferred loan fees,
      net
                
                
                (527,429
                )
                
                
                (721,257
                )Allowance for loan
      losses
                
                
                (2,518,498
                )
                
                
                (1,811,121
                )Loans
      receivable—net
                
                $
                694,212,100
                
                
                $
                682,038,113
   Following is a summary of changes in the
allowance for loan losses:
  Six Months
      Ended
                
                
                Year EndedJune 30,
    2008
                
                
                December 31,
      2007Balance—beginning of
      year
                
                $
                1,811,121
                
                
                $
                1,602,613Provision for loan
      losses
                
                
                725,988
                
                
                
                457,192Charge-offs
                
                
                (29,622
                )
                
                
                (275,321
                )Recoveries
                
                
                11,011
                
                
                
                26,637(Charge-offs)/recoveries—net
                
                
                (18,611
                )
                
                
                (248,684
                )Balance—end of
      period
                
                $
                2,518,498
                
                
                $
                1,811,121
  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. Loans
collectively evaluated for impairment include smaller balance commercial real
estate loans, residential real estate loans and consumer
loans.
  18
 
 As of June 30, 2008 and December 31,
2007, the recorded investment in loans that were considered to be impaired was
as follows.
  June 30,
                
                
                December
31,2008
                
                
                2007Impaired collateral-dependent
      loans
                
                $
                17,740,154
                
                
                $
                1,445,255Average balance of impaired
      loans
                
                $
                1,470,203
                
                
                $
                3,996,347Interest income recognized
      onimpaired
      loans
                
                $
                -
                
                
                $
                175,950
  The majority of the balance of impaired
loans at June 30, 2008 relates to two loans to one borrower. The larger of these
two loans is a $16.7 million loan for the construction of a 40 unit high rise
residential condominium project in Center City, Philadelphia. This is the Bank’s
largest construction loan. Although the building securing this loan is nearing
completion, construction for this project is behind schedule. Furthermore, the
Bank recently approved an additional loan for $1.5 million in July 2008 to cover
certain cost overruns and permit completion of the project after also approving
an additional loan of $1.5 million in April 2008. Based on our review of the
status of this project and consideration of the estimated cost to complete this
project (including the $1.5 million approved in July 2008), as well as
consideration of an updated appraisal of the collateral and consideration of the
additional collateral underlying the loan, a reserve of approximately $821,000
was established at June 30, 2008. Also at June 30, 2008, a reserve of
approximately $43,000 was established on a second loan to this borrower with a
balance of $3.6 million. No allowance for loan losses was established for any
other impaired loans at June 30, 2008. No allowance for loan losses was
established for any impaired loans at December 31, 2007. No reserve was
considered necessary on these loans based on the appraised values of the
properties collateralizing the loans, as well as the value of additional
collateral available.
  Non-accrual loans at June 30, 2008 and
December 31, 2007, amounted to approximately $468,000 and $1.4 million,
respectively. Commercial loans and commercial real estate loans are placed on
non-accrual 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 non-accrual only when the loan is 120 days delinquent and not well
secured and in the process of collection. Other consumer loans are typically
charged off when they become 90 days delinquent. In all cases, loans must be
placed on non-accrual or charged off at an earlier date if collection of
principal or interest is considered doubtful. Non-performing loans, which
consist of non-accruing loans plus accruing loans 90 days or more past due, at
June 30, 2008 and December 31, 2007, amounted to approximately $532,000 and $1.6
million, respectively. The Bank’s two largest impaired loans discussed above
were not included in non-performing loans at June 30, 2008, as they were neither
90 days past due nor on non-accrual status at that date. Real estate owned at
June 30, 2008 and December 31, 2007 amounted to approximately $2.9 million and
$1.6 million, respectively. During the first quarter of 2008, the collateral
property underlying three commercial real estate loans to one borrower was
acquired as real estate owned (“REO”) at a value of approximately $977,000.
These loans had previously been classified as non-accrual. No loss was
recognized in conjunction with these acquisitions. In July 2008, we entered into
an agreement of sale with respect to the REO properties acquired in the first
quarter. The closing of this sale is expected to occur before the end of the
year and will result in a nominal gain on sale.
  Interest payments on impaired loans and
non-accrual loans are typically applied to principal unless the ability to
collect the principal amount is fully assured, in which case interest is
recognized on the cash basis. For the six months ended June 30, 2008 and 2007,
no cash basis interest income was recognized. Interest income of approximately
$256,000 and $543,000, respectively, was recognized on our two largest impaired
loans for the three and six months ended June 30, 2008, however, this income was
recognized prior to the classification of these loans as impaired at June 30,
2008. Interest income foregone on non-accrual loans for the six months ended
June 30, 2008 and 2007 was approximately $31,000 and $196,000,
respectively.
 
 19
  5.       DEFERRED INCOME
TAXES
  Items that gave rise to significant
portions of the deferred tax balances are as follows:
 June 30,
    2008
                
                
                December 31,
      2007Deferred tax
      assets:Allowance for loan
      losses
                
                $
                856,289
                
                
                $
                615,781Deferred
      compensation
                
                
                1,957,172
                
                
                
                1,624,419Write-down of impaired
      investments
                
                
                112,379
                
                
                
                -Property and
      equipment
                
                
                113,381
                
                
                
                90,375Total
      deferred tax assets
                
                
                3,039,221
                
                
                
                2,330,575Deferred tax
      liabilities:Unrealized gain on
      securities available-for-sale
                
                
                (98,294
                )
                
                
                (102,538
                )Deferred loan fees,
      net
                
                
                (318,200
                )
                
                
                (319,199
                )Other
                
                
                (16,319
                )
                
                
                (16,787
                )Total
      deferred tax liabilities
                
                
                (432,813
                )
                
                
                (438,524
                )Net deferred tax
      asset
                
                $
                2,606,408
                
                
                $
                1,892,051
  6.       PENSION, PROFIT SHARING AND STOCK
COMPENSATION 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, a defined benefit
pension plan for directors and selected executive officers 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 year
ended December 31, 2007.
  Employee
Stock Ownership Plan
  In 2004, the Bank 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
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. Under this plan, during 2004
and 2005 the ESOP acquired 914,112 shares (as adjusted for the exchange ratio as
part of the June 2007 second-step conversion) of common stock for approximately
$7.4 million, an average price of $8.06 per share (as adjusted). These shares
are expected to be released over a 15-year period. In June 2007, the ESOP
acquired an additional 1,042,771 shares of the Company’s common stock for
approximately $10.4 million, an average price of $10.00 per share. These shares
are expected to be released over a 30-year period. No additional purchases are
expected to be made by the ESOP. At June 30, 2008, the ESOP held approximately
1.8 million unallocated shares of Company common stock with a fair value of
$15.9 million and approximately 218,000 allocated shares with a fair value of
$2.0 million. During the three-month periods ended June 30, 2008 and 2007,
approximately 24,000 and 15,000 shares, respectively, were committed to be
released to participants, resulting in recognition of approximately $245,000 and
$175,000 in compensation expense, respectively. During the six-month periods
ended June 30, 2008 and 2007, approximately 48,000 and 31,000 shares,
respectively, were committed to be released to participants, resulting in
recognition of approximately $477,000 and $360,000 in compensation expense,
respectively.
  20
  Recognition
and Retention Plan
  In June 2005, the shareholders of
Abington Community Bancorp approved the adoption of the 2005 Recognition and
Retention Plan (the “2005 RRP”). As a result of the second-step conversion, the
2005 RRP became a stock benefit plan of the Company and the shares of Abington
Community Bancorp held by the 2005 RRP were converted to shares of Company
common stock.Certain
senior officers of the Bank have been designated as Trustees of the 2005
RRP.The 2005 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 2005 RRP, the 2005
Recognition Plan Trust (the “2005 RRP Trust”) acquired 457,056 shares (adjusted
for the second-step conversion exchange ratio) of common stock in the open
market for approximately $3.7 million, an average price of $8.09 per share (as
adjusted). The Company made sufficient contributions to the 2005 RRP Trust to
fund the purchase of these shares. No additional purchases are expected to be
made by the 2005 RRP Trust under this plan. Pursuant to the terms of the plan,
all 457,056 shares acquired by the 2005 RRP Trust have been granted to certain
officers, employees and directors of the Company. 2005RRP shares generally vest at the rate of
20% per year over five years.
  In January 2008, the shareholders of the
Company approved the adoption of the 2007 Recognition and Retention Plan (the
“2007 RRP”). In order to fund the 2007 RRP, the 2007 Recognition Plan Trust (the
“2007 RRP Trust”) acquired 520,916 shares of the Company’s common stock in the
open market for approximately $5.4 million, an average price of $10.28 per
share. Pursuant to the terms of the plan, 517,200 shares acquired by the 2007
RRP Trust were granted to certain officers, employees and directors of the
Company in January 2008, with 3,716 shares remaining available for future grant.
2007RRP shares generally
vest at the rate of 20% per year over five years.
  A summary of the status of the shares
under the 2005 and 2007 RRP as of June 30, 2008 and 2007, and changes during the
six months ended June 30, 2008 and 2007 are presented below. The number of
shares and weighted average grant date fair value for the prior period have been
adjusted for the exchange ratio as a result of our second-step
conversion:
  21
  Six Months Ended June
      30,2008
                
                
                2007Number
      ofshares
                
                
                Weighted
                  average grant
                  date fair
    value
                
                
                Number of
                  shares
                
                
                Weighted
                  average grant
                  date fair
    valueNonvested at the beginning of the
      year
                
                
                274,874
                
                
                $
                7.54
                
                
                
                366,285
                
                
                $
                7.54Granted
                
                
                517,200
                
                
                
                9.11
                
                
                
                -
                
                
                
                -Vested
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Nonvested at the end of the
      period
                
                
                792,074
                
                
                $
                8.57
                
                
                
                366,285
                
                
                $
                7.54
  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 common stock at the date of grant. During
the three- and six-month periods ended June 30, 2008, approximately 47,000 and
94,000 shares, respectively, were amortized to expense, based on the
proportional vesting of the awarded shares, resulting in recognition of
approximately $384,000 and $713,000 in compensation expense, respectively. A tax
benefit of approximately $130,000 and $242,000, respectively, was recognized
during these periods. During the three- and six-month periods ended June 30,
2007, approximately 23,000 and 46,000 shares, respectively, were amortized to
expense, based on the proportional vesting of the awarded shares, resulting in
recognition of approximately $172,000 and $344,000 in compensation expense,
respectively. A tax benefit of approximately $59,000 and $117,000, respectively,
was recognized during these periods. As of June 30, 2008, approximately $5.5
million in additional compensation expense will be recognized over the remaining
lives of the RRP awards. At June 30, 2008, the weighted average remaining lives
of the RRP awards was approximately 3.9 years.
  Stock
Options
  In June 2005, the shareholders of
Abington Community Bancorp also approved the adoption of the 2005 Stock Option
Plan (the “2005 Option Plan”). As a result of the second-step conversion, the
2005 Option Plan became a stock benefit plan of the Company. Unexercised options
which were previously granted under the 2005 Option Plan were adjusted by the
1.6 exchange ratio as a result of the second-step conversion and have been
converted into options to acquire Company common stock. The 2005 Option Plan
authorizes the grant of stock options to officers, employees and directors of
the Company to acquire shares of common stock with an exercise price equal to
the fair market value of the common stock on the grant date. Options will
generally become vested and exercisable at the rate of 20% per year over five
years and are generally exercisable for a period of ten years after the grant
date. As of June 30, 2008, a total of 1,142,640 shares of common stock have been
reserved for future issuance pursuant to the 2005 Option Plan of which 7,460
shares remain available for grant.
  In January 2008, the shareholders of the
Company also approved the adoption of the 2007 Stock Option Plan (the “2007
Option Plan”). 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. As of June 30, 2008, a total of 1,302,990 shares
of common stock have been reserved for future issuance pursuant to the 2007
Option Plan of which 1,247,500 shares were granted in January 2008 and of which
55,490 shares remain available for future grant.
  22
  A summary of the status of the Company’s
stock options under the 2005 and 2007 Option Plans as of June 30, 2008 and 2007,
and changes during the six months ended June 30, 2008 and 2007 are presented
below. The number of options and weighted average exercise price for the prior
period have been adjusted for the exchange ratio as a result of our second-step
conversion:
  Six Months Ended June
      30,2008
                
                
                2007Number of
                  shares
                
                
                Weighted average
                  exercise
    price
                
                
                Number of
                  shares
                
                
                Weighted
                  average
                  exercise
    priceOutstanding at the beginning of
      the year
                
                
                1,135,180
                
                
                $
                7.74
                
                
                
                1,065,680
                
                
                $
                7.62Granted
                
                
                1,247,500
                
                
                
                9.11
                
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding at the end of the
      period
                
                
                2,382,680
                
                
                $
                8.46
                
                
                
                1,065,680
                
                
                $
                7.62Exercisable at the end of the
      period
                
                
                418,224
                
                
                $
                7.57
                
                
                
                205,088
                
                
                $
                7.52
 
  The following table summarizes all stock
options outstanding (as adjusted for the exchange ratio) under the Option Plan
as of June 30, 2008:
  Options
      Outstanding
                
                
                Options
      ExercisableExercise
    Price
                
                
                Number of
                  Shares
                
                
                Weighted
                  Average
                  Exercise
    Price
                
                
                Weighted
      Average
                  Remaining
                  Contractual
      Life
                
                
                Number of
                  Shares
                
                
                Weighted
                  Average
                  Exercise
    Price(in years)$
                7.51
                
                
                
                1,018,240
                
                
                $
                7.51
                
                
                
                7.0
                
                
                
                407,296
                
                
                $
                7.518.35
                
                
                
                7,200
                
                
                
                8.35
                
                
                
                7.4
                
                
                
                2,880
                
                
                
                8.359.11
                
                
                
                1,247,500
                
                
                
                9.11
                
                
                
                9.6
                
                
                
                -
                
                
                
                -9.63
                
                
                
                69,500
                
                
                
                9.63
                
                
                
                9.2
                
                
                
                -
                
                
                
                -10.18
                
                
                
                40,240
                
                
                
                10.18
                
                
                
                8.4
                
                
                
                8,048
                
                
                
                10.18Total
                
                
                
                2,382,680
                
                
                $
                8.46
                
                
                
                8.4
                
                
                
                418,224
                
                
                $
                7.57Intrinsic
    value
                
                
                $
                1,657,385
                
                
                
                
                
                
                
                
                
                
                $
                657,964
  The estimated fair value of options
granted in January 2008 was $2.13 per share. The fair value was estimated on the
date of grant in accordance with SFAS No. 123R using the Black-Scholes Single
Option Pricing Model with the following weighted average assumptions
used:
  Dividend
    yield
                
                1.88%Expected
      volatility
                
                23.25%Risk-free interest
      rate
                
                3.13 -
3.49%Expected life of
      options
                
                4 - 7 years
  The dividend yield was calculated based
on the dividend amount and stock price existing at the grant date taking into
consideration expected increases in the dividend and stock price over the lives
of the options. The actual dividend yield may differ from this assumption. The
risk-free interest rate used was based on the rates of treasury securities with
maturities equal to the expected lives of the options.
  23
  As the Company has a limited history of
granting option awards, management made certain assumptions regarding the
exercise behavior of recipients without the use of any prior exercise behavior
as a basis.  Assumptions of exercise behavior were made on an
individual basis for directors and executive officers and general assumptions
were made for the remainder of employees. In making these assumptions,
management considered the age and financial status of recipients in addition to
other qualitative factors.
  The expected volatility was based on and
calculated from the historical volatility of our stock, as it was determined
that this would be the most reliable estimate of future stock volatility. The
actual future volatility may differ from our historical
volatility.
  During the three and six months ended
June 30, 2008, approximately $220,000 and $418,000, respectively, was recognized
in compensation expense for the Option Plans. A tax benefit of approximately
$22,000 and $40,000, respectively, was recognized during each of these periods.
During the three and six months ended June 30, 2007, approximately $98,000 and
$195,000, respectively, was recognized in compensation expense for the Option
Plans. A tax benefit of approximately $9,000 and $19,000, respectively, was
recognized during each of these periods. At June 30, 2008, approximately $3.4
million in additional compensation expense for awarded options remained
unrecognized. The weighted average period over which this expense will be
recognized is approximately 3.4 years.
  7.       COMMITMENTS AND
CONTINGENCIES
  The Bank had approximately $8.1 million
in outstanding mortgage loan commitments at June 30, 2008. The commitments are
expected to be funded within 90 days with all $8.1 million in fixed rate loans
with interest rates ranging from 5.75% to 6.375%. The Bank had approximately
$5.0 million in outstanding mortgage loan commitments at December 31, 2007.
These loans were not originated for resale. Also outstanding at June 30, 2008
and December 31, 2007, were unused lines of credit totaling approximately $90.0
million and $65.2 million, respectively.
  Letters of credit are conditional
commitments issued by the Bank guaranteeing payments of drafts in accordance
with the terms of the letter of credit agreements.  Commercial letters
of credit are used primarily to facilitate trade or commerce and are also issued
to support public and private borrowing arrangements, bond financings and
similar transactions.  Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer.  The
credit risk involved in issuing letters of credit is substantially the same as
that involved in extending loan facilities to customers.  Most of the
Bank’s letters of credit expire within one year. At June 30, 2008 and December
31, 2007, the Bank had letters of credit outstanding of approximately $14.9
million and $17.2 million, respectively, of which $13.5 million and $15.8
million, respectively, were standby letters of credit.  At June 30,
2008 and December 31, 2007, the uncollateralized portion of the letters of
credit extended by the Bank was approximately $12,000 and $97,000, respectively.
At June 30, 2008 and December 31, 2007, all of the uncollateralized letters of
credit were 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.
  24
  Among the Company’s contingent
liabilities, are exposures to limited recourse arrangements with respect to the
Bank’s sales of whole loans and participation interests. At June 30, 2008, 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.
  8.       FAIR VALUE
MEASUREMENTS
  The Company uses fair value measurements
to record fair value adjustments to certain assets to determine fair value
disclosures. Investment and mortgage-backed securities available for sale are
recorded at fair value on a recurring basis. Additionally, from time to time,
the Company may be required to record at fair value other assets on a
nonrecurring basis, such as impaired loans, real estate owned and certain other
assets. These nonrecurring fair value adjustments typically involve application
of lower-of-cost-or-market accounting or write-downs of individual
assets.
  Under SFAS No. 157,Fair Value
Measurements, the Company
groups its assets at fair value in three levels, based on the markets in which
the assets are traded and the reliability of the assumptions used to determine
fair value. These levels are:
  ·
              Level 1 – Valuation is based upon
      quoted prices for identical instruments traded in active
      markets.
  ·
              Level 2 – Valuation is based upon
      quoted prices for similar instruments in active markets, quoted prices for
      identical or similar instruments in markets that are not active, and
      model-based valuation techniques for which all significant assumptions are
      observable in the market.
  ·
              Level 3 – Valuation is generated
      from model-based techniques that use significant assumptions not
      observable in the market. These unobservable assumptions reflect the
      Company’s own estimates of assumptions that market participants would use
      in pricing the asset.
  Under SFAS No. 157, the Company bases
its fair values on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. It is our policy to maximize the use of observable inputs
and minimize the use of unobservable inputs when developing fair value
measurements, in accordance with the fair value hierarchy in SFAS No.
157.
  Fair value measurements for assets where
there exists limited or no observable market data and, therefore, are based
primarily upon the Company’s or other third-party’s estimates, are often
calculated based on the characteristics of the asset, the economic and
competitive environment and other such factors. Therefore, the results cannot be
determined with precision and may not be realized in an actual sale or immediate
settlement of the asset. Additionally, there may be inherent weaknesses in any
calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, that could significantly
affect the results of current or future valuations. At June 30, 2008, the
Company did not have any assets that were measured at fair value on a recurring
basis that use Level 3 measurements.
  25
  Following is a description of valuation
methodologies used for assets recorded at fair value.
  Investment
and Mortgage-backed Securities Available for Sale—Investment and mortgage-backed
securities available for sale are recorded at fair value on a recurring basis.
Fair value measurements for these securities are typically obtained from
independent pricing services that we have engaged for this purpose. When
available, we, or our independent pricing service, use quoted market prices to
measure fair value. If market prices are not available, fair value measurement
is based upon models that incorporate available trade, bid and other market
information and for structured securities, cash flow and, when available, loan
performance data. Because many fixed income securities do not trade on a daily
basis, our independent pricing service’s applications apply available
information as applicable through processes such as benchmark curves,
benchmarking of like securities, sector groupings and matrix pricing to prepare
evaluations. For each asset class, pricing applications and models are based on
information from market sources and integrate relevant credit information. All
of our securities available for sale are valued using either of the foregoing
methodologies to determine fair value adjustments recorded to our financial
statements. Level 1 securities include equity securities such as common stock
and mutual funds traded on active exchanges. Level 2 securities include
corporate bonds, agency bonds, municipal bonds, certificates of deposit,
mortgage-backed securities, and collateralized mortgage
obligations.
  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. 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. Fair value is generally based upon independent market prices
or appraised value of the collateral. Our appraisals are typically performed by
independent third party appraisers. For appraisals of commercial and
construction properties, comparable properties within the area may not be
available. In such circumstances, our appraisers will rely on certain judgments
in determining how a specific property compares in value to other properties
that are not identical in design or in geographic area. Our impaired loans at
June 30, 2008, are comprised of such properties and, accordingly, we classify
impaired loans as Level 3. The valuation allowances recognized during the
quarter are discussed in Note 4.
  Real
Estate Owned—Real estate
owned includes foreclosed properties securing commercial and construction loans.
Real estate properties acquired through foreclosure are initially recorded at
the fair value of the property at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of cost or fair value less estimated costs to sell. As is
the case for collateral of impaired loans, fair value is generally based upon
independent market prices or appraised value of the collateral. Our appraisal
process for real estate owned is identical to our appraisal process for the
collateral of impaired loans. Our current portfolio of real estate owned is
comprised of commercial and construction properties for which comparable
properties within the area are not available. Our appraisers have relied on
certain judgments in determining how our specific properties compare in value to
other properties that are not identical in design or in geographic area and,
accordingly, we classify real estate owned as Level 3. Our increase in real
estate owned during the quarter was due solely to additions to that category of
asset. No valuation allowances or changes in value were recognized during the
quarter.
  26
  The table below presents the balances of
asset measured at fair value on a recurring basis:
  June 30,
    2008Total
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3Investments
      securitiesavailable for
      sale
                
                $
                79,663,334
                
                
                $
                2,954,806
                
                
                $
                76,708,528
                
                
                $
                -Mortgage-backed
      securitiesavailable for
      sale
                
                
                119,962,212
                
                
                
                -
                
                
                
                119,962,212
                
                
                
                -Total
                
                $
                199,625,546
                
                
                $
                2,954,806
                
                
                $
                196,670,740
                
                
                $
                -
  For assets measured at fair value on a
nonrecurring basis in 2008 that were still held at the end of the period, the
following table provides the level of valuation assumptions used to determine
each adjustment an the carrying value of the related individual assets or
portfolios at June 30, 2008:
  June 30,
    2008TotalGainsTotal
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                (Losses)Impaired
    loans
                
                $
                17,740,154
                
                
                $
                -
                
                
                $
                -
                
                
                $
                17,740,154
                
                
                $
                -Real estate
      owned
                
                
                2,888,270
                
                
                
                -
                
                
                
                -
                
                
                
                2,888,270
                
                
                
                -Total
                
                $
                20,628,424
                
                
                $
                -
                
                
                $
                -
                
                
                $
                20,628,424
                
                
                $
                -
  ITEM 2.  – MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  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) costs related to the
expansion of our branch network,  (9) changes in the amount or
character of our non-performing assets, and  (10)
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.
 
 27
  Overview—The Company was formed by the Bank in
connection with the Bank’s second-step conversion and reorganization, completed
on June 27, 2007. Previously, Abington Community Bancorp was the mid-tier
holding company for the Bank, and Abington Mutual Holding Company owned
approximately 57% of Abington Community Bancorp’s outstanding stock. Upon
completion of the second-step reorganization, Abington Community Bancorp, Inc.
and Abington Mutual Holding Company ceased to exist and the Company became the
holding company for the Bank. The Bank is now a wholly owned subsidiary of the
Company.
  The Company’s results of operations are
primarily dependent on the results of the Bank. 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, 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, professional services expense, data processing expense,
advertising and promotions and other expense. Our results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable laws, regulations or
government policies may materially impact our financial condition and results of
operations. The Bank is subject to regulation by the Federal Deposit Insurance
Corporation (“FDIC”) and the Pennsylvania Department of Banking. The Bank’s
executive offices and loan processing office are in Jenkintown, Pennsylvania,
with eleven other full service branches and six 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 June 30, 2008, representing an increase of $338,000 or 24.0%
over the comparable 2007 period. Basic and diluted earnings per share each
increased to $0.08 for the quarter compared to $0.06 for each for the second
quarter of 2007. Additionally, we earned net income of $3.7 million for the six
months ended June 30, 2008, representing an increase of $794,000 or 27.6% over
the comparable 2007 period. Basic and diluted earnings per share each increased
to $0.16 for the first six months of 2008 compared to $0.12 for each for the
first six months of 2007.
  The increase reported in net income for
the three-month and six-month periods was primarily driven by an increase in our
net interest income. The increase in net interest income was partially offset by
an impairment charge of approximately $331,000 taken at June 30, 2008 on our
investment in a mortgage-backed securities based mutual fund and increases in
our provisions for loan losses to $677,000 and $726,000, respectively, for the
three and six months ended June 30, 2008
  Net interest income was $7.5 million and
$14.4 million for the three months and six months ended June 30, 2008,
respectively, representing increases of 28.1% and 26.7%, respectively, over the
comparable 2007 periods. The increases in our net interest income arose as
increases in our interest income were augmented by decreases in our interest
expense. Our average interest rate spread and net interest margin for the second
quarter of 2008 increased to 2.22% and 2.92%, respectively, from 1.85% and
2.55%, respectively, for the second quarter of 2007. Our average interest rate
spread and net interest margin for first six months of 2008 increased to 2.06%
and 2.82%, respectively, from 1.87% and 2.52%, respectively, for the first six
months of 2007.
  28
 The Company’s total assets increased
$27.7 million, or 2.6%, to $1.11 billion at June 30, 2008 compared to $1.08
billion at December 31, 2007, due primarily to increases in the aggregate
balance of mortgage-backed securities and loans receivable, partially offset by
a decrease in the balance of investment securities. Our total deposits increased
$31.6 million or 5.2% to $641.2 million at June 30, 2008 compared to $609.6
million at December 31, 2007 due to growth in core deposits. Our total
stockholders’ equity decreased to $247.6 million at June 30, 2008 from $249.9
million at December 31, 2007 due primarily to the purchase of shares of the
Company’s common stock by the 2007 Recognition and Retention Plan Trust (the
“2007 RRP trust”).
  Critical
Accounting Policies, Judgments and Estimates—In reviewing and understanding financial
information for Abington 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 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 onclassified
loans which are not impaired. We segregate these loans by category andassign 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 categoriesis based on identified weaknesses that
increase the credit risk of the loan.
  29
  We establish a general allowanceon 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 losses 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.
  Fair
Value Measurements—We use
fair value measurements to record fair value adjustments to certain assets and
to determine fair value disclosures. Investment and mortgage-backed securities
available for sale are recorded at fair value on a recurring basis.
Additionally, from time to time, we may be required to record at fair value
other assets on a nonrecurring basis, such as impaired loans, real estate owned
and certain other assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-market accounting or write-downs of
individual assets.
  Under SFAS No. 157,Fair Value
Measurements, we group our
assets at fair value in three levels, based on the markets in which the assets
are traded and the reliability of the assumptions used to determine fair value.
These levels are:
  ·
              Level 1 – Valuation is based upon
      quoted prices for identical instruments traded in active
      markets.
  ·
              Level 2 – Valuation is based upon
      quoted prices for similar instruments in active markets, quoted prices for
      identical or similar instruments in markets that are not active, and
      model-based valuation techniques for which all significant assumptions are
      observable in the market.
  30
  ·
              Level 3 – Valuation is generated
      from model-based techniques that use significant assumptions not
      observable in the market. These unobservable assumptions reflect the
      Company’s own estimates of assumptions that market participants would use
      in pricing the asset.
  Under SFAS No. 157, we base our fair
values on the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date. It is our policy to maximize the use of observable inputs and
minimize the use of unobservable inputs when developing fair value measurements,
in accordance with the fair value hierarchy in SFAS No. 157. Fair value
measurements for most of our assets are obtained from independent pricing
services that we have engaged for this purpose. When available, we, or our
independent pricing service, use quoted market prices to measure fair value. If
market prices are not available, fair value measurement is based upon models
that incorporate available trade, bid and other market information.
Substantially all of our financial instruments use either of the foregoing
methodologies to determine fair value adjustments recorded to our financial
statements. In certain cases, however, when market observable inputs for
model-based valuation techniques may not be readily available, we are required
to make judgments about assumptions market participants would use in estimating
the fair value of financial instruments.
  The degree of management judgment
involved in determining the fair value of a financial instrument is dependent
upon the availability of quoted market prices or observable market parameters.
For financial instruments that trade actively and have quoted market prices or
observable market parameters, there is minimal subjectivity involved in
measuring fair value. When observable market prices and parameters are not fully
available, management judgment is necessary to estimate fair value. In addition,
changes in the market conditions may reduce the availability of quoted prices or
observable data. When market data is not available, we use valuation techniques
requiring more management judgment to estimate the appropriate fair value
measurement. Therefore, the results cannot be determined with precision and may
not be realized in an actual sale or immediate settlement of the asset.
Additionally, there may be inherent weaknesses in any calculation technique, and
changes in the underlying assumptions used, including discount rates and
estimates of future cash flows, that could significantly affect the results of
current or future valuations. At June 30, 2008, we did not have any assets that
were measured at fair value on a recurring basis that use Level 3
measurements.
  Other-Than-Temporary
Impairment of Securities—Securities are evaluated on at least a
quarterly basis, and more frequently when market conditions warrant such an
evaluation, to determine whether a decline in their value is
other-than-temporary. To determine whether a loss in value is
other-than-temporary, management utilizes criteria such as the reasons
underlying the decline, the magnitude and duration of the decline and the intent
and ability of the Company to retain its investment in the security for a period
of time sufficient to allow for an anticipated recovery in the fair value. The
term “other-than-temporary” is not intended to indicate that the decline is
permanent, but indicates that the prospects for a near-term recovery of value is
not necessarily favorable, or that there is a lack of evidence to support a
realizable value equal to or greater than the carrying value of the investment.
Once a decline in value is determined to be other-than-temporary, the value of
the security is reduced and a corresponding charge to earnings is
recognized.
  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.
  31
  In evaluating our ability to recover
deferred tax assets, management considers all available positive and negative
evidence, including our past operating results and our forecast of future
taxable income. In determining future taxable income, management makes
assumptions for the amount of taxable income, the reversal of temporary
differences and the implementation of feasible and prudent tax planning
strategies. These assumptions require us to make judgments about our future
taxable income and are consistent with the plans and estimates we use to manage
our business. Any reduction in estimated future taxable income may require us to
record a valuation allowance against our deferred tax assets. An increase in the
valuation allowance would result in additional income tax expense in the period
and could have a significant impact on our future earnings.
  COMPARISON OF FINANCIAL CONDITION AT
JUNE 30, 2008 AND DECEMBER 31, 2007
  The Company’s total assets increased
$27.7 million, or 2.6%, to $1.11 billion at June 30, 2008 compared to $1.08
billion at December 31, 2007. Our total cash and cash equivalents decreased
$14.1 million or 20.7% during the first half of 2008 as we redeployed certain of
our interest-bearing deposits in other banks to purchase additional securities.
Our mortgage-backed securities increased $46.4 million as purchases of $69.6
million outpaced repayments, maturities and sales aggregating $23.6 million. Our
investment securities decreased $19.1 million in the aggregate due primarily to
$40.4 million in calls, maturities and sales of agency bonds partially offset by
$11.0 million in purchases of additional agency bonds and $11.1 million of
municipal bonds. Net loans receivable increased $12.2 million or 1.8% during the
first half of 2008. The largest loan growth occurred in one- to four-family
residential loans, which increased $19.7 million, and construction loans, which
increased $27.9 million. These increases were partially offset by decreases in
all other categories of loans. Real estate owned (“REO”) increased $1.3 million
or 85.4% to $2.9 million at June 30, 2008 compared to $1.6 million at December
31, 2007. The majority of this increase occurred during the first quarter of
2008, when, as previously disclosed, we foreclosed on the collateral properties
underlying three commercial real estate loans to one borrower with an aggregate
balance of $977,000. The remainder of the increase in real estate owned was due
to improvements made to existing REO properties. In July 2008, we entered into
an agreement of sale with respect to the REO properties acquired in the first
quarter. The closing of this sale is expected to occur before the end of the
year and will result in a nominal gain on sale.
 
 Our total deposits increased $31.6
million or 5.2% to $641.2 million at June 30, 2008 compared to $609.6 million at
December 31, 2007. The increase during the first half of 2008 was due to growth
in core deposits. During this period, our savings and money market accounts grew
$23.6 million, or 24.7%, and our checking accounts grew $12.3 million, or 12.3%,
resulting in an increase to core deposits of $35.8 million, or 18.4%. Our
certificate accounts decreased $4.2 million or 1.0%. Advances from the Federal
Home Loan Bank decreased $7.8 million to $181.8 million at June 30, 2008. Our
other borrowed money, which is comprised of securities repurchase agreements
entered into with certain commercial checking account customers, increased $3.7
million during the first half of 2008 to $21.1 million at June 30,
2008.
 
 Our total stockholders’ equity decreased
to $247.6 million at June 30, 2008 from $249.9 million at December 31, 2007. The
decrease was due primarily to the purchase of approximately 521,000 shares of
the Company’s common stock by the 2007 RRP trust for approximately $5.4 million
in the aggregate, as part of the Company’s previously announced plans to fund
the 2007 Recognition and Retention Plan (the “2007 RRP”).  Partially
offsetting this decrease was a $1.4 million increase in retained earnings during
the first half of 2008 as our net income of $3.7 million was partially offset by
a reduction of $2.3 million resulting from the payment of our first and second
quarter dividends.
 
 32
  LIQUIDITY AND CAPITAL
RESOURCES
 
 Our primary sources of funds are from
deposits, amortization of loans, loan prepayments and pay-offs, mortgage-backed
securities and other investments, and other funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-backed
securities and maturing investment securities are relatively predictable sources
of funds, deposit flows and loan prepayments can be greatly influenced by
general interest rates, economic conditions and competition.  We also
maintain excess funds in short-term, interest-bearing assets that provide
additional liquidity.  At June 30, 2008, our cash and cash equivalents
amounted to $54.0 million.  In addition, at such date we had $1.8
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 $199.6 million at June 30,
2008.
 
 We use our liquidity to fund existing
and future loan commitments, to fund maturing certificates of deposit and demand
deposit withdrawals, to invest in other interest-earning assets, and to meet
operating expenses.  At June 30, 2008, we had certificates of deposit
maturing within the next 12 months amounting to $322.9 million. Based upon
historical experience, we anticipate that a significant portion of the maturing
certificates of deposit will be redeposited with us.  For the six
months ended June 30, 2008, and the year ended December 31, 2007, the average
balance of our outstanding FHLB advances was $187.3 million and $183.4 million,
respectively.  At June 30, 2008, we had $181.8 million in outstanding
FHLB advances and we had $417.0 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
$247.6 million at June
30, 2008, compared to
stockholders’ equity of $249.9 million at December 31, 2007. During 2007, we raised $134.7 million
in net proceeds received from our second-step conversion and stock offering.
Half of these net proceeds, approximately $67.3 million, were invested in
Abington Bank.
 
 The net proceeds received by the Bank
have further strengthened its capital position, which already exceeded all
regulatory requirements (see table below). While these proceeds were initially
invested in short-term, liquid investments to earn a market rate of return, our
long-term plan continues to be to leverage our capital through retail deposit
and loan growth. Specifically, we plan to use the net proceeds received by the
Bank to fund new loans, to invest in mortgage-backed securities, to finance the
expansion of our business activities, including developing new branch locations
and for general corporate purposes. Towards this goal, we have plans to open a
new branch in Hatboro, Pennsylvania in the third quarter of 2008 after opening
four new branches in 2007. Although these branches will require a period of time
to generate sufficient revenues to offset their costs, our ongoing branch
expansion is a key component of our long-term business
strategy.
 
 The net proceeds held by the Company are
on deposit with the Bank. These proceeds have been used, in part, to pay
quarterly dividends to our shareholders. The Company’s quarterly dividend was
increased to $0.045 per share in September 2007 and then to $0.05 per share in
March 2008. In July 2008, we announced plans to utilize a portion of our capital
to repurchase up to 5% of the outstanding shares of the Company, or 1,221,772
shares. The repurchase plan will benefit our shareholders by improving the
Company’s return on equity and earnings per share as well as aid us in managing
our strong capital position. In the long term, these proceeds may also be used
to invest in securities and to finance the possible acquisition of financial
institutions or branch offices or other businesses that are related to banking.
Although we currently have no plans, understandings or agreements with respect
to any specific acquisitions, we are constantly considering potential
opportunities to increase long-term shareholder value.
 
 33
  The following table summarizes
regulatory capital ratios for the Bank as of the dates indicated and compares
them to current regulatory requirements. As a savings and loan holding company,
the Company is not subject to any regulatory capital
requirements.
  Actual Ratios
      AtJune 30,
                    2008
                
                
                December 31,
                    2007
                
                
                Regulatory
                    Minimum
                
                
                To Be Well
                    CapitalizedCapital
      Ratios:Tier 1 leverage
      ratio
                
                
                14.98
                %
                
                
                15.45
                %
                
                
                4.00
                %
                
                
                5.00
                %Tier 1 risk-based capital
      ratio
                
                
                23.44
                
                
                
                24.22
                
                
                
                4.00
                
                
                
                6.00Total risk-based capital
      ratio
                
                
                23.79
                
                
                
                24.49
                
                
                
                8.00
                
                
                
                10.00
  SHARE-BASED
COMPENSATION
 
 The Company accounts for its share-based
compensation awards in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 123R (revised 2004),Share-Based
Payment. This statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measures 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.
  At June 30, 2008, the Company has four
share-based compensation plans, the2005 and the 2007 Recognition and
Retention Plans(the “2005
RRP” and “2007 RRP”) and the2005 and 2007 Stock Option Plans (the
“2005 Option Plan” and “2007 Option Plan”).Share awards were first issued under the
2005 plans in July 2005. Share awards were issued under the 2007 plans in
January 2008. See Note 6 in the Notes to the Unaudited Consolidated Financial
Statements herein for a further description of these plans.
  Compensation expense onRecognition and Retention
Planshares granted is
recognized ratably over the five year vesting period in an amount which totals
the market price of the common stock at the date of grant. During the three- and
six-month periods ended June 30, 2008, approximately 47,000 and 94,000 shares,
respectively, were amortized to expense, based on the proportional vesting of
the awarded shares, resulting in recognition of approximately $384,000 and
$713,000 in compensation expense, respectively. A tax benefit of approximately
$130,000 and $242,000, respectively, was recognized during these periods. During
the three- and six-month periods ended June 30, 2007, approximately 23,000 and
46,000 shares, respectively, were amortized to expense, based on the
proportional vesting of the awarded shares, resulting in recognition of
approximately $172,000 and $344,000 in compensation expense, respectively. A tax
benefit of approximately $59,000 and $117,000, respectively, was recognized
during these periods. As of June 30, 2008, approximately $5.5 million in
additional compensation expense will be recognized over the remaining lives of
the RRP awards. At June 30, 2008, the weighted average remaining lives of the
RRP awards was approximately 3.9 years.
 
 During the three and six months ended
June 30, 2008, approximately $220,000 and $418,000, respectively, was recognized
in compensation expense for the Option Plans. A tax benefit of approximately
$22,000 and $40,000, respectively, was recognized during each of these periods.
During the three and six months ended June 30, 2007, approximately $98,000 and
$195,000, respectively, was recognized in compensation expense for the Option
Plans. A tax benefit of approximately $9,000 and $19,000, respectively, was
recognized during each of these periods. At June 30, 2008, approximately $3.4
million in additional compensation expense for awarded options remained
unrecognized. The weighted average period over which this expense will be
recognized is approximately 3.4 years.
 
 34
  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-month periods ended June 30, 2008 and 2007 approximately 24,000
and 15,000 shares, respectively, were committed to be released to participants,
resulting in recognition of approximately $245,000 and $175,000 in compensation
expense, respectively. During the six-month periods ended June 30, 2008 and 2007
approximately 48,000 and 31,000 shares, respectively, were committed to be
released to participants, resulting in recognition of approximately $477,000 and
$360,000 in compensation expense, respectively.
 
 COMMITMENTS AND OFF-BALANCE SHEET
ARRANGEMENTS
 
 We are a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of our customers. These financial instruments include
commitments to extend credit and the unused portions of lines of credit. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statements of
financial condition.  Commitments to extend credit and lines of credit
are not recorded as an asset or liability by us until the instrument is
exercised. At June 30, 2008 and December 31, 2007, we had no commitments to
originate loans for sale.
 
 Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the loan documents. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future
cash   requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer.  The amount and type of collateral
required varies, but may include accounts receivable, inventory, equipment, real
estate and income-producing commercial properties. At June 30, 2008 and December
31, 2007, 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 $157.9 million and $126.0
million, respectively.
 
 Letters of credit are conditional
commitments issued by the Bank guaranteeing payments of drafts in accordance
with the terms of the letter of credit agreements.  Commercial letters
of credit are used primarily to facilitate trade or commerce and are also issued
to support public and private borrowing arrangements, bond financings and
similar transactions.  Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer.  The
credit risk involved in issuing letters of credit is substantially the same as
that involved in extending loan facilities to customers.  Most of the
Bank’s letters of credit expire within one year. At June 30, 2008 and December
31, 2007, the Bank had letters of credit outstanding of approximately $14.9
million and $17.2 million, respectively, of which $13.5 million and $15.8
million, respectively, were standby letters of credit.  At June 30,
2008 and December 31, 2007, the uncollateralized portion of the letters of
credit extended by the Bank was approximately $12,000 and $97,000, respectively.
At June 30, 2008 and December 31, 2007, all of the uncollateralized letters of
credit were for standby letters of credit.
 
 35
  The Company is also subject to various
pending claims and contingent liabilities arising in the normal course of
business, which are not reflected in the unaudited consolidated financial
statements. Management considers that the aggregate liability, if any, resulting
from such matters will not be material.
  Among the Company’s contingent
liabilities are exposures to limited recourse arrangements with respect to the
Bank’s sales of whole loans and participation interests. At June 30, 2008, the
exposure, which represents a portion of credit risk associated with the sold
interests, amounted to $185,000. The exposure is for the life of the related
loans and payable, on our proportional share, as losses are
incurred.
  We anticipate that we will continue to
have sufficient funds and alternative funding sources to meet our current
commitments.
 
 The following table summarizes our
outstanding commitments to originate loans and to advance additional amounts
pursuant to outstanding letters of credit, lines of credit and under our
construction loans at June 30, 2008.
 
 Amount of Commitment Expiration -
      Per PeriodTotal Amounts
                  Committed
              
              
              To
                1 Year
              
              
              Over 1 to
                3 Years
              
              
              Over 4 to
                  5
    Years
              
              
              After 5
                Years(In
    Thousands)Letters of
      credit
              
              $
              14,913
              
              
              $
              14,492
              
              
              $
              416
              
              
              $
              --
              
              
              $
              5Recourse obligations on
      loans    sold
              
              
              185
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              185Commitments to originate
      loans
              
              
              8,065
              
              
              
              8,065
              
              
              
              --
              
              
              
              --
              
              
              
              --Unused portion of home
      equity
                lines of
      credit
              
              
              24,047
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              24,047Unused portion of
      commercial
                lines of
      credit
              
              
              65,951
              
              
              
              65,951
              
              
              
              --
              
              
              
              --
              
              
              
              --Undisbursed portion
      of
                construction
      loans in process
              
              
              59,826
              
              
              
              20,415
              
              
              
              39,411
              
              
              
              --
              
              
              
              --Total
      commitments
              
              $
              172,987
              
              
              $
              108,923
              
              
              $
              39,827
              
              
              $
              --
              
              
              $
              24,237
 
 The following table summarizes our
contractual cash obligations at June 30, 2008.
 
 Payments Due By
      PeriodTotal
              
              
              To
                1 Year
              
              
              Over 1 to
                3 Years
              
              
              Over 4 to 5
                  Years
              
              
              After 5
                Years(In
    Thousands)Certificates of
      deposit
              
              $
              410,393
              
              
              $
              322,895
              
              
              $
              59,604
              
              
              $
              13,254
              
              
              $
              14,640FHLB
    advances
              
              
              181,753
              
              
              
              37,138
              
              
              
              70,323
              
              
              
              39,358
              
              
              
              34,934Repurchase
      agreements
              
              
              21,126
              
              
              
              21,126
              
              
              
              --
              
              
              
              --
              
              
              
              --Total
      debt
              
              
              202,879
              
              
              
              58,264
              
              
              
              70,323
              
              
              
              39,358
              
              
              
              34,934Operating lease
      obligations
              
              
              7,490
              
              
              
              821
              
              
              
              1,706
              
              
              
              1,538
              
              
              
              3,425Total
      contractual obligations
              
              $
              620,762
              
              
              $
              381,980
              
              
              $
              131,633
              
              
              $
              54,150
              
              
              $
              52,999
 
 36
 
 COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, 2008 AND 2007
 
 General.We earned net income of $1.7 million for
the quarter ended June 30, 2008, representing an increase of $338,000 or 24.0%
over the comparable 2007 period. Basic and diluted earnings per share each
increased to $0.08 for the quarter compared to $0.06 for each for the second
quarter of 2007. Net interest income was $7.5 million for the three months ended
June 30, 2008, representing an increase of 28.1% over the comparable 2007
period. The increase in our net interest income arose as an increase in our
interest income was augmented by a decrease in our interest expense. Our average
interest rate spread and net interest margin for the second quarter of 2008
increased to 2.22% and 2.92%, respectively, from 1.85% and 2.55%, respectively,
for the second quarter of 2007.
  Interest
Income.Our total interest income for the three
months ended June 30, 2008 increased $351,000 or 2.6% over the comparable 2007
period to $14.0 million. The increase was primarily as a result of growth in the
average balance of our total interest-earning assets, partially offset by a
decrease in the average yield on our total interest-earning assets. Although the
largest growth in absolute dollars was in the average balance of loans
receivable, which increased $65.6 million quarter-over-quarter, the most
significant growth was in the average balance of our mortgage-backed securities,
which increased $44.5 million or 34.8% quarter-over-quarter. Other
interest-earning assets decreased $7.4 million or 12.8% quarter-over-quarter, as
interest-bearing deposits in other banks were invested in investment and
mortgage-backed securities. Despite an increase of 11 basis points in the
average yield on our mortgage-backed securities in the second quarter of 2008
compared to the second quarter of 2007, the average yield on our total
interest-earning assets decreased 49 basis points quarter-over-quarter, driven
by a 67 basis point decrease in the average yield on our loans receivable and a
101 basis point decrease in the average yield on our other interest-earning
assets. The decreases in yield were due primarily to changes in the interest
rate yield curve as the U.S. Federal Reserve decreased its target rate for the
federal funds rate from 5.25% at June 30, 2007 to 2.00% at June 30,
2008.
 
 Interest
Expense.Our
total interest expense for
the three months ended June 30, 2008 decreased $1.3 million or 16.6% from the
comparable 2007 period to $6.5 million. The decrease in our interest expense
occurred as a decrease in the average rate paid on our total interest-bearing
liabilities offset an increase in the average balance of those liabilities. The
average rate we paid on our total interest-bearing liabilities decreased 86
basis points to 3.24% for the second quarter of 2008 from 4.10% for the second
quarter of 2007. The average rate we paid on our total deposits decreased 101
basis points quarter-over-quarter, driven by a 142 basis point decrease in the
average rate paid on our certificates of deposit. As was the case with our
interest-earning assets, the decrease in rates on our interest-bearing
liabilities was due primarily to changes in the interest rate yield curve. The
average balance of our total interest-bearing liabilities increased $42.6
million to $804.0 million for the quarter ended June 30, 2008 from $761.4
million for the quarter ended June 30, 2007. Our average deposit balance grew by
$32.1 million over this same period, with over half of that growth occurring in
core deposits. The average balance of our advances from the Federal Home Loan
Bank (“FHLB”) increased $10.8 million to $186.1 million for the second quarter
of 2008 from $175.2 million for the second quarter of 2007. The average balance
of our other borrowings decreased $290,000 from the 2007 period to the 2008
period.
  37
  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.
 
 Three Months Ended June
      30,2008
              
              
              2007Average
                Balance
              
              
              Interest
              
              
              Average
                Yield/Rate
              
              
              Average
                Balance
              
              
              Interest
              
              
              Average
                Yield/Rate(Dollars in
      Thousands)Interest-earning
      assets:Investment
      securities(1)
              
              $
              106,036
              
              
              $
              1,198
              
              
              
              4.52
              %
              
              $
              100,211
              
              
              $
              1,130
              
              
              
              4.51
              %Mortgage-backed
      securities
              
              
              172,529
              
              
              
              1,924
              
              
              
              4.46
              
              
              
              128,026
              
              
              
              1,392
              
              
              
              4.35Loans
      receivable(2)
              
              
              698,678
              
              
              
              10,604
              
              
              
              6.07
              
              
              
              633,082
              
              
              
              10,662
              
              
              
              6.74Other interest-earning
      assets
              
              
              50,791
              
              
              
              294
              
              
              
              2.32
              
              
              
              58,231
              
              
              
              485
              
              
              
              3.33Total interest-earning
      assets
              
              
              1,028,034
              
              
              
              14,020
              
              
              
              5.46
              
              
              
              919,550
              
              
              
              13,669
              
              
              
              5.95Cash and non-interest
      bearing
                balances
              
              
              23,168
              
              
              
              
              
              
              
              
              
              
              
              19,147Other non-interest-earning
      assets
              
              
              59,664
              
              
              
              
              
              
              
              
              
              
              
              31,484Total
assets
              
              $
              1,110,866
              
              
              
              
              
              
              
              
              
              
              $
              970,181Interest-bearing
      liabilities:Deposits:Savings and money market
      accounts
              
              $
              109,582
              
              
              
              415
              
              
              
              1.51
              
              
              $
              95,500
              
              
              
              298
              
              
              
              1.25Checking
      accounts
              
              
              63,011
              
              
              
              4
              
              
              
              0.03
              
              
              
              60,040
              
              
              
              4
              
              
              
              0.03Certificate
      accounts
              
              
              424,466
              
              
              
              3,832
              
              
              
              3.61
              
              
              
              409,464
              
              
              
              5,148
              
              
              
              5.03Total
    deposits
              
              
              597,059
              
              
              
              4,251
              
              
              
              2.85
              
              
              
              565,004
              
              
              
              5,450
              
              
              
              3.86FHLB
    advances
              
              
              186,067
              
              
              
              2,166
              
              
              
              4.66
              
              
              
              175,223
              
              
              
              2,121
              
              
              
              4.84Other
      borrowings
              
              
              20,833
              
              
              
              94
              
              
              
              1.80
              
              
              
              21,123
              
              
              
              234
              
              
              
              4.45Total interest-bearing
      liabilities
              
              
              803,959
              
              
              
              6,511
              
              
              
              3.24
              
              
              
              761,350
              
              
              
              7,805
              
              
              
              4.10Non-interest-bearing
      liabilities:Non-interest-bearing
      demand
                accounts
              
              
              41,872
              
              
              
              
              
              
              
              
              
              
              
              45,773Real estate tax escrow
      accounts
              
              
              4,205
              
              
              
              
              
              
              
              
              
              
              
              3,727Other
      liabilities
              
              
              11,256
              
              
              
              
              
              
              
              
              
              
              
              11,055Total
      liabilities
              
              
              861,292
              
              
              
              
              
              
              
              
              
              
              
              821,905Stockholders’
      equity
              
              
              249,574
              
              
              
              
              
              
              
              
              
              
              
              148,276Total liabilities and
      stockholders’
                equity
              
              $
              1,110,866
              
              
              
              
              
              
              
              
              
              
              $
              970,181Net interest-earning
      assets
              
              $
              224,075
              
              
              
              
              
              
              
              
              
              
              $
              158,200Net interest income;
      average
                Interest rate
      spread
              
              
              
              
              
              $
              7,509
              
              
              
              2.22
              %
              
              
              
              
              
              $
              5,864
              
              
              
              1.85
              %Net interest
      margin(3)
              
              
              
              
              
              
              
              
              
              
              2.92
              %
              
              
              
              
              
              
              
              
              
              
              2.55
              %
 
 _____________________________
  (1)
              
              Investment securities for the 2008
      period include 116 tax-exempt municipal bonds with an aggregate average
      balance of $34.5 million and an average yield of 3.9%. Investment
      securities for the 2007 period include 46 tax-exempt municipal bonds with
      an aggregate average balance of $20.4 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 non-accrual 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.
  38
  Provision for Loan
Losses.We recorded a $677,000 provision for
loan losses during the second quarter of 2008 compared to a provision of
$106,000 during the second quarter of 2007. 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. Our
loan portfolio at June 30, 2008 included an aggregate of $532,000 of
non-performing loans compared to $1.6 million of non-performing loans at
December 31, 2007. Our non-performing loans at June 30, 2008 consist primarily
of one construction and one commercial real estate loan to one borrower with an
aggregate balance of $468,000. At June 30, 2008, our non-performing loans
amounted to 0.08% of loans receivable and our allowance for loan losses amounted
to 473.3% of non-performing loans. The provision for loan losses taken during
the second quarter of 2008, however, principally relates to two loans to another
borrower that were not included in non-performing loans at June 30, 2008, as
they were neither 90 days past due nor on non-accrual status at that date. These
loans, however, have been classified and determined to be impaired. Although not
non-performing at June 30, 2008, interest payments during the second quarter of
2008 were not received on time as required by the loan agreements. The larger of
these two loans is a $16.7 million loan for the construction of a 40 unit high
rise residential condominium project inCenterCity,Philadelphia. This is the Bank’s largest
construction loan. Although the building securing this loan is nearing
completion, construction for this project is behind schedule. Furthermore, the
Bank recently approved an additional loan for $1.5 million in July 2008 to cover
certain cost overruns and permit completion of the project after also approving
an additional loan of $1.5 million in April 2008. Based on our review of the
status of this project and consideration of the estimated cost to complete this
project (including the $1.5 million approved in July 2008), as well as
consideration of anupdated
appraisal of the collateral and consideration of the additional collateral
underlying the loan, the amount of our allowance for loan losses was increased
by approximately $821,000 at June 30, 2008. Also at June 30, 2008, the amount of
our allowance for loan losses was increased by approximately $43,000 as a result
of our analysis of a second loan to this borrower with a balance of $3.6
million. Management is continuing to monitor these loans. The increase to the
allowance for loan losses made with respect to these two loans was partially
offset by a decrease in the amount of the allowance for loan losses established
with respect to other loans, primarily commercial business loans, which
decreased $15.2 million during the second quarter of 2008.
 Non-interest
Income.Our total non-interest income for the
second quarter of 2008 amounted to $846,000, representing an increase of
$136,000 or 19.2% from the second quarter of 2007. The increase was due
primarily to an increase in income on bank owned life insurance (“BOLI”) of
$303,000 and a gain on the sale of securities of $158,000 compared to no such
gain in 2007. The increase in income on BOLI resulted mainly from the purchase
of $20.0 million of additional BOLI during the third quarter of 2007. Partially
offsetting these increases was an impairment charge of $331,000 taken during the
second quarter of 2008 with no such charge in 2007.  The impairment
charge was taken to write-down the carrying value of our investment in a
mortgage-backed securities based mutual fund to its fair value of $3.0 million
at June 30, 2008, based on our determination that the investment was
other-than-temporarily impaired. The fund, the AMF Ultra Short Mortgage Fund,
has had a continuing decline in net asset value and there have been recent
credit rating downgrades in certain of the private label mortgage-backed
securities held by the fund. While the fund returned a dividend of approximately
3.75% at June 30, 2008, the fair value has continued to decline. The net asset
value of the fund has continued to decline since June 30, 2008, and it is
possible that additional impairment charges will be recorded in subsequent
quarters.
 
 Non-interest
Expenses.Our total non-interest expenses for the
second quarter of 2008 amounted to $5.4 million, representing an increase of
$818,000 or 18.0% from the second quarter of 2007. The largest increases were in
salaries and employee benefits, occupancy, and other non-interest expense.
Salaries and employee benefits expense increased $547,000 quarter-over-quarter,
due largely to growth in the total number of employees, normal merit increases
in salaries, and higher health and insurance benefit costs. Salaries and
employee benefits expense also increased due to an additional expense of
$219,000 recognized during the second quarter of 2008 as the result of the
issuance of awards to officers and employees under the 2007 SOP and the 2007 RRP
which were approved by shareholders in January 2008. Occupancy expense increased
by $71,000, quarter-over-quarter, primarily as a result of our additional
branches opened in Chalfont and Spring House, Pennsylvania, during 2007 as well
as additional equipment and computer costs for all of our facilities. The
increase in other non-interest expense was due largely to an additional expense
of $106,000 for the issuance of awards to directors under the 2007 SOP and 2007
RRP.  Also contributing to the increase in other non-interest expense
was a $36,000 expense for real estate owned.
 
 39
  Income Tax
Expense.Income tax expense for the second
quarter of 2008 amounted to $570,000 compared to $515,000 for the second quarter
of 2007. Our effective tax rate improved to 24.6% for the quarter ended June 30,
2008, from 26.8% for quarter ended June 30, 2007. This occurred in part due to
purchases of additional tax-exempt investments, including municipal bonds and
BOLI, that allowed our tax-exempt income to increase as other sources of income
were increasing. The increase in our provision for income taxes was a result of
the increase in our pre-tax income.
 
 COMPARISON OF OPERATING RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 
 General.We earned net income of $3.7 million for
the six months ended June 30, 2008, representing an increase of $794,000 or
27.6% over the comparable 2007 period. Basic and diluted earnings per share each
increased to $0.16 for the first six months of 2008 compared to $0.12 for each
for the first six months of 2007. Net interest income was $14.4 million for the
six months ended June 30, 2008 representing an increase of 26.7% over the
comparable 2007 period. As was the case for the three-month period, the increase
in our net interest income for the six-month period arose as an increase in our
interest income was augmented by a decrease in our interest expense. Our average
interest rate spread and net interest margin for first six months of 2008
increased to 2.06% and 2.82%, respectively, from 1.87% and 2.52%, respectively,
for the first six months of 2007.
  Interest
Income.Our
total interestincome for
the six months ended June 30, 2008 increased $1.3 million or 4.9% over the
comparable 2007 period to $28.2 million. As was the case in the three-month
period, an increase in the average balance of our total interest-earning assets
was partially offset by a decrease in the average yield earned. Again, the
largest growth in absolute dollars in the average balances among our
interest-earning assets was in loans receivable, which increased $69.8 million
for the first half of 2008 compared to the first half of 2007, and the most
significant growth was in the average balance of our mortgage-backed securities,
which increased $30.1 million or 23.0% period-over-period. The average balances
of investment securities and other interest-earning assets increased $11.2
million and $8.9 million, respectively, for the first half of 2008 compared to
the first half of 2007. Similar to the three-month period, the average yield on
our total interest-earning assets decreased 44 basis points for the first half
of 2008 compared to the first half of 2007, as decreases in the average yields
of loans receivable and other interest-earning assets of 59 and 53 basis points,
respectively, period-over-period, outweighed increases in the average yields on
investment and mortgage-backed securities. As was the case for the three-month
period, the decrease in yields for the six-month period was due primarily to
changes in the interest rate yield curve.
 
 Interest
Expense.Our
totalexpense for the six
months ended June 30, 2008 decreased $1.7 million or 11.0% over the comparable
2007 period to $13.8 million. As was the case in the three-month period, the
decrease in our interest expense occurred as a decrease in the average rate paid
on our total interest-bearing liabilities offset an increase in the average
balance of those liabilities. The average rate we paid on our total
interest-bearing liabilities decreased 63 basis points to 3.47% for the first
half of 2008 from 4.10% for the first half of 2007. The average rate we paid on
our total deposits decreased 71 basis points period-over-period, driven by a 100
basis point decrease in the average rate paid on our certificates of deposit. As
was the case for the three-month period, the decrease in rates for the six-month
period was due primarily to changes in the interest rate yield curve. The
average balance of our total interest-bearing liabilities increased $37.9
million to $796.0 million for the six months ended June 30, 2008 from $758.1
million for the six months ended June 30, 2007.
  40
  Our average deposit balance grew by
$33.3 million over this same period, with approximately 40.0% of that growth
occurring in core deposits. The average balance of our advances from the FHLB
increased $3.5 million to $187.3 million for the first six months of 2008 from
$183.9 million for the first six months of 2007. The average balance of our
other borrowings increased $1.1 million or 5.9%
quarter-over-quarter.
  41
  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.
 
 Six Months Ended June
      30,2008
              
              
              2007Average
                Balance
              
              
              Interest
              
              
              Average
                Yield/Rate
              
              
              Average
                Balance
              
              
              Interest
              
              
              Average
                Yield/Rate(Dollars in
      Thousands)Interest-earning
      assets:Investment
      securities(1)
              
              $
              110,862
              
              
              $
              2,532
              
              
              
              4.57
              %
              
              $
              99,652
              
              
              $
              2,243
              
              
              
              4.50
              %Mortgage-backed
      securities
              
              
              160,716
              
              
              
              3,545
              
              
              
              4.41
              
              
              
              130,619
              
              
              
              2,801
              
              
              
              4.29Loans
      receivable(2)
              
              
              693,449
              
              
              
              21,316
              
              
              
              6.15
              
              
              
              623,624
              
              
              
              21,030
              
              
              
              6.74Other interest-earning
      assets
              
              
              55,325
              
              
              
              824
              
              
              
              2.98
              
              
              
              46,391
              
              
              
              815
              
              
              
              3.51Total interest-earning
      assets
              
              
              1,020,352
              
              
              
              28,217
              
              
              
              5.53
              
              
              
              900,286
              
              
              
              26,889
              
              
              
              5.97Cash and non-interest
      bearing
                balances
              
              
              22,777
              
              
              
              
              
              
              
              
              
              
              
              18,422Other non-interest-earning
      assets
              
              
              58,377
              
              
              
              
              
              
              
              
              
              
              
              30,626Total
assets
              
              $
              1,101,506
              
              
              
              
              
              
              
              
              
              
              $
              949,334Interest-bearing
      liabilities:Deposits:Savings and money market
      accounts
              
              $
              103,949
              
              
              
              760
              
              
              
              1.46
              
              
              $
              94,445
              
              
              
              579
              
              
              
              1.23Checking
      accounts
              
              
              61,482
              
              
              
              9
              
              
              
              0.03
              
              
              
              57,674
              
              
              
              8
              
              
              
              0.03Certificate
      accounts
              
              
              422,840
              
              
              
              8,404
              
              
              
              3.98
              
              
              
              402,892
              
              
              
              10,042
              
              
              
              4.98Total
    deposits
              
              
              588,271
              
              
              
              9,173
              
              
              
              3.12
              
              
              
              555,011
              
              
              
              10,629
              
              
              
              3.83FHLB
    advances
              
              
              187,336
              
              
              
              4,413
              
              
              
              4.71
              
              
              
              183,853
              
              
              
              4,476
              
              
              
              4.87Other
      borrowings
              
              
              20,401
              
              
              
              230
              
              
              
              2.25
              
              
              
              19,256
              
              
              
              419
              
              
              
              4.35Total interest-bearing
      liabilities
              
              
              796,008
              
              
              
              13,816
              
              
              
              3.47
              
              
              
              758,120
              
              
              
              15,524
              
              
              
              4.10Non-interest-bearing
      liabilities:Non-interest-bearing
      demand
                accounts
              
              
              40,840
              
              
              
              
              
              
              
              
              
              
              
              43,893Real estate tax escrow
      accounts
              
              
              3,954
              
              
              
              
              
              
              
              
              
              
              
              3,521Other
      liabilities
              
              
              10,867
              
              
              
              
              
              
              
              
              
              
              
              9,877Total
      liabilities
              
              
              851,669
              
              
              
              
              
              
              
              
              
              
              
              815,411Stockholders’
      equity
              
              
              249,837
              
              
              
              
              
              
              
              
              
              
              
              133,923Total liabilities and
      stockholders’
                equity
              
              $
              1,101,506
              
              
              
              
              
              
              
              
              
              
              $
              949,334Net interest-earning
      assets
              
              $
              224,344
              
              
              
              
              
              
              
              
              
              
              $
              142,166Net interest income;
      average
                Interest rate
      spread
              
              
              
              
              
              $
              14,401
              
              
              
              2.06
              %
              
              
              
              
              
              $
              11,365
              
              
              
              1.87
              %Net interest
      margin(3)
              
              
              
              
              
              
              
              
              
              
              2.82
              %
              
              
              
              
              
              
              
              
              
              
              2.52
              %
 
 ___________________________
 (4)
                
                Investment securities for the 2008
      period include 116 tax-exempt municipal bonds with an aggregate average
      balance of $32.0 million and an average yield of 4.0%. Investment
      securities for the 2007 period include 46 tax-exempt municipal bonds with
      an aggregate average balance of $20.4 million and an average yield of
      4.2%. The tax-exempt income from such securities has not been presented on
      a tax equivalent basis.(5)
                
                Includes non-accrual loans during
      the respective periods.  Calculated net of deferred fees and
      discounts and loans in process.(6)
                
                Equals net interest income divided
      by average interest-earning
assets.
  42
  Provision for Loan
Losses.We recorded a $726,000 provision for
loan losses during the first half of 2008 compared to a provision of $110,000
during the first half of 2007. The 2008 provision was taken primarily in
relation to two impaired loans to one borrower, as previously discussed for the
quarter ended June 30, 2008.
 
 Non-interest
Income.Our total non-interest income for the
first half of 2008 amounted to $1.8 million, representing an increase of
$402,000 or 28.8% from the first half of 2007. Similar to the three-month
period, the increase in total non-interest income for the six-month period was
primarily due to an increase in income on BOLI of $601,000 and a gain on sale of
investments of $146,000 that were partially offset by the securities impairment
charge of $331,000. The reasons for these fluctuations for the six-month period
mirror the reasons for the fluctuations for the three-month
period.
 
 Non-interest
Expenses.Our total non-interest expenses for the
first six months of 2008 amounted to $10.5 million, representing an increase of
$1.8 million or 20.7% from the first six months of 2007. As was the case with
the three-month period, the largest increases for the six-month period were in
salaries and employee benefits, occupancy and other non-interest expense.
Additionally, professional services expense increased $128,000
period-over-period. The causes for the increases in salaries and employee
benefits, occupancy and other non-interest expense over the six-month periods
mirrored the causes for the increases for the three-month periods. Salaries and
employee benefits expense increased $1.1 million period-over-period due largely
to growth in the total number of employees, normal merit increases in salaries,
and higher health and insurance benefit costs. Salaries and employee benefits
expense also increased due to an additional expense of $395,000 recognized
during the first half of 2008 as the result of the issuance of awards to
officers and employees under the 2007 SOP and the 2007 RRP. Occupancy expense
increased by $168,000, quarter-over-quarter, primarily as a result of our
additional branches opened in Chalfont and Spring House, Pennsylvania, during
2007 as well as additional equipment and computer costs for all of our
facilities. The increase in other non-interest expense was due largely to an
additional expense of $176,000 for the issuance of awards to directors under the
2007 SOP and 2007 RRP.  Also contributing to the increase in other
non-interest expense for the first half of 2008 compared to the first half of
2007 were increases in expenses for appraisal fees, office supplies, copying,
and deposit premiums as well as a $53,000 expense for real estate owned. The
increase in professional services expense was due to increases in both legal and
accounting fees. The increase in legal fees was due in part to expenses related
to the special meeting of shareholders held in January 2008 as well as expenses
incurred in connection with the resolution of certain non-performing
loans.
 
 Income Tax
Expense.Income tax expense for the first half of
2008 amounted to $1.3 million compared to $1.0 million for the first half of
2007. Our effective tax rate improved to 25.6% for the six months ended June 30,
2008, from 26.6% for the six months ended June 30, 2007. As was the case for the
quarter ended June 30, 2008, the improvement in our effective tax rate for the
six-month period occurred in part due to purchases of additional tax-exempt
investments, including municipal bonds and BOLI, that allowed our tax-exempt
income to increase as other sources of income were increasing. The increase in
our provision for income taxes was a result of the increase in our pre-tax
income.
 
 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.
 
 43
  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:
  ·
              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;
 
 ·
              we have attempted to match fund a
      portion of our securities portfolio with borrowings having similar
      expected lives;
 
 ·
              we have attempted, where possible,
      to extend the maturities of our deposits and borrowings;
      and
 
 ·
              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 the interest rate sensitivity “gap.”  An asset and
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period.  The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period.  A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities.  A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets.  During a period of rising interest rates, a negative gap
would tend to affect adversely net interest income while a positive gap would
tend to result in an increase in net interest income.  Conversely,
during a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to affect
adversely net interest income.  Our current asset/liability policy
provides that our one-year interest rate gap as a percentage of total assets
should not exceed positive or negative 20%.  This policy was adopted
by our management and Board based upon their judgment that it established an
appropriate benchmark for the level of interest-rate risk, expressed in terms of
the one-year gap, for the Bank.  In the event our one-year gap
position were to approach or exceed the 20% policy limit, we would review the
composition of our assets and liabilities in order to determine what steps might
appropriately be taken, such as selling certain securities or loans or repaying
certain borrowings, in order to maintain our one-year gap in accordance with the
policy.  Alternatively, depending on the then-current economic
scenario, we could determine to make an exception to our policy or we could
determine to revise our policy.  In recent periods, our one-year gap
position was well within our policy. Our one-year cumulative gap was a negative
7.39% at June 30, 2008, compared to a negative 9.04% at December 31, 2007. 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 in recent periods. 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.
 
 44
  The following table sets forth the
amounts of our interest-earning assets and interest-bearing liabilities
outstanding at June 30, 2008, which we expect, based upon certain assumptions,
to reprice or mature in each of the future time periods shown (the “GAP
Table”).  Except as stated below, the amount of assets and liabilities
shown which reprice or mature during a particular period were determined in
accordance with the earlier of term to repricing or the contractual maturity of
the asset or liability.  The table sets forth an approximation of the
projected repricing of assets and liabilities at June 30, 2008, 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.
  45
  6 Months
                or Less
              
              
              More than
                6 Months
                to 1 Year
              
              
              More than
                1 Year
                to 3 Years
              
              
              More than
                3 Years
                to 5 Years
              
              
              More than
                5 Years
              
              
              Total
                  Amount(Dollars in
      Thousands)Interest-earning
      assets(1):Loans
      receivable
              
              $
              268,013
              
              
              $
              57,243
              
              
              $
              159,492
              
              
              $
              88,206
              
              
              $
              123,309
              
              
              $
              696,263Mortgage-backedsecurities
              
              
              34,721
              
              
              
              23,895
              
              
              
              54,884
              
              
              
              29,661
              
              
              
              44,267
              
              
              
              187,428Investment
      securities
              
              
              4,555
              
              
              
              189
              
              
              
              17,755
              
              
              
              42,645
              
              
              
              34,610
              
              
              
              99,754Other interest-earningassets
              
              
              41,339
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              41,339Total
      interest-earning
                assets
              
              $
              348,628
              
              
              $
              81,327
              
              
              $
              232,131
              
              
              $
              160,512
              
              
              $
              202,186
              
              
              $
              1,024,784Interest-bearing
      liabilities:Savings and money market
      accounts
              
              $
              18,014
              
              
              $
              18,014
              
              
              $
              44,575
              
              
              $
              20,504
              
              
              $
              17,805
              
              
              $
              118,912Checking
      accounts
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              64,774
              
              
              
              64,774Certificate
      accounts
              
              
              295,567
              
              
              
              59,258
              
              
              
              27,674
              
              
              
              13,254
              
              
              
              14,640
              
              
              
              410,393FHLB
    advances
              
              
              72,736
              
              
              
              27,050
              
              
              
              45,069
              
              
              
              13,198
              
              
              
              23,700
              
              
              
              181,753Other borrowed
      money
              
              
              21,126
              
              
              
              --
              
              
              
              --
              
              
              
              -
              
              
              
              --
              
              
              
              21,126Total
      interest-bearing
                liabilities
              
              $
              407,443
              
              
              $
              104,322
              
              
              $
              117,318
              
              
              $
              46,956
              
              
              $
              120,919
              
              
              $
              796,958Interest-earning assets
      less
                interest-bearing
      liabilities
              
              $
              (58,815
              )
              
              $
              (22,995
              )
              
              $
              114,813
              
              
              $
              113,556
              
              
              $
              81,267
              
              
              $
              227,826Cumulative
      interest-rate
                sensitivity
      gap(2)
              
              $
              (58,815
              )
              
              $
              (81,810
              )
              
              $
              33,003
              
              
              $
              146,559
              
              
              $
              227,826Cumulative interest-rate gap as a
      percentage of
                total assets at June 30,
      2008
              
              
              (5.31
              )%
              
              
              (7.39
              )%
              
              
              2.98
              %
              
              
              13.24
              %
              
              
              20.57
              %Cumulative
      interest-earningassets as a
                percentage ofcumulative interest-bearing
                liabilities at June 30,
      2008
              
              
              85.56
              %
              
              
              84.01
              %
              
              
              105.25
              %
              
              
              121.68
              %
              
              
              128.59
              %
 _____________________
 (1)
              Interest-earning assets are
      included in the period in which the balances are expected to be redeployed
      and/or repriced as a result of anticipated prepayments, scheduled rate
      adjustments and contractual
maturities.
 
 (2)
              Interest-rate sensitivity gap
      represents the difference between net interest-earning assets and
      interest-bearing
liabilities.
 
 Certain shortcomings are inherent in the
method of analysis presented in the foregoing table.  For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates.  Also, the interest rates on certain types of assets and
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.
 
 46
  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.
  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,
2007.
  ITEM 2.
              UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS
 (a)           Not applicable.
 
 (b)           Not applicable.
 
 (c)           Purchases of Equity
Securities
 
 47
  The Company’s purchases of its common
stock made during the quarter consisted solely of purchases to fund the 2007
Recognition and Retention Plan and Trust, which is an affiliate of the Company,
and are set forth in the following table.
 
 Period
              
              Total
                  Number of
                  Shares
                  Purchased
              
              
              Average
                  Price Paid
                  per
    Share
              
              
              Total Number
of
                  Shares
      Purchased
                  as Part of
      Publicly
                  Announced
Plans
                  or
      Programs
              
              
              Maximum Number
                  of Shares that
      May
                  Yet be
      Purchased
                  Under the Plan
      or
                  Programs
      (1)April 1 – April 30,
      2008
              
              
              12,884
              
              
              
              10.00
              
              
              
              12,884
              
              
              
              203,631May 1 – May 31,
      2008
              
              
              203,631
              
              
              
              10.71
              
              
              
              203,631
              
              
              
              --June 1 – June 30,
      2008
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --Total
              
              
              216,515
              
              
              $
              10.67
              
              
              
              216,515
              
              
              
              --
 
 (1)  On January 30, 2008,
shareholders of the Company voted to approve the 2007 Recognition and Retention
Plan and Trust Agreement (“2007 RRP”) authorizing the purchase of up to 520,916
shares of the Company’s common stock.  No additional purchases are
expected to be made by the RRP under this plan.
   ITEM 3.
              DEFAULTS UPON SENIOR
      SECURITIES
  Not applicable.
 
 ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
 
 On May 13, 2008, Abington Bancorp, Inc. held its Annual Meeting of Shareholders
to obtain approval for two proxy proposals submitted on behalf of the Board of
Directors. Shareholders of record as of March 28, 2008, received proxy materials
and were considered eligible to vote on these proposals.  The
following is a brief summary of each proposal and the result of the
vote.
 
 1. The following directors
      were elected by the requisite plurality of the votes cast to serve on
      Abington Bancorp, Inc.’s Board of Directors:For
              
              
              WithheldDouglas S.
      Callantine
              
              20,783,046
              
              
              1,115,182Jane Margraff
      Kieser
              
              21,119,080
              
              
              779,148Robert W.
    White
              
              21,127,171
              
              
              771,057
  For
                
                Against
                
                Abstain
                
                Broker Non-Votes2.  To ratify the
      appointment of BeardMiller Company LLP as
      independentregistered public accounting firm
      forthe year ending December 31,
      2008
                
                21,795,426
                
                91,243
                
                11,559
                
                n/a
  ITEM 5.
              OTHER
    INFORMATION


Not applicable.





48




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.





49





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 BANCORP,
      INC.Date: August 8,
      2008
            By:
            /s/ Robert W.
      WhiteRobert W. WhiteChairman, President
      andChief Executive
      Officer




Date: August 8,
      2008
              By:
              /s/ Jack J.
      SandoskiJack J. SandoskiSenior Vice President
      andChief Financial
      Officer





50