<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-K
(Mark One)
|X|     Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934
        For the fiscal year ended December 31, 2005.
                                  -----------------
                                       OR
|_|     Transition Report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934
        For the transition period from ____________ to ____________.

                        COMMISSION FILE NUMBER 000-51077
                        --------------------------------

                        ABINGTON COMMUNITY BANCORP, INC.
       -----------------------------------------------------------------
             (Exact Name of Registrant as specified in its charter)

          PENNSYLVANIA                                   02-0724068
------------------------------------      --------------------------------------
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
  incorporation or organization)

 180 OLD YORK ROAD, JENKINTOWN, PENNSYLVANIA                      19046
--------------------------------------------------------------------------------
  (Address of principal executive offices)                      (Zip Code)

        Registrant's telephone number, including area code: 215-886-8280

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

   Securities registered pursuant to Section 12 (b) of the Exchange Act: None
      Securities registered pursuant to Section 12 (g) of the Exchange Act:

                          Common Stock, $0.01 Par Value
                          -----------------------------
                                (Title of Class)

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

        Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

                                 Yes |_| No |X|

        Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                                 Yes |_| No |X|

        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
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

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

Large accelerated filer |_|    Accelerated filer |_|   Non-accelerated filer |X|

        Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|

        The aggregate market value of the shares of common stock of the
Registrant issued and outstanding on March 21, 2006, which excludes 10,119,681
shares held by all directors, officers and affiliates of the Registrant as a
group (including 8,728,500 shares held by Abington Mutual Holding Company), was
approximately $69.5 million. This figure is based on the closing price of $12.38
per share of the Registrant's common stock on June 30, 2005, the last business
day of the Registrant's second fiscal quarter.

        The number of shares of the Issuer's common stock, par value $0.01 per
share, outstanding as of March 21, 2006 was 15,731,979.

                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive proxy statement for the 2006
Annual Meeting of Shareholders are incorporated by reference into Part III,
Items 10-14 of this Form 10-K.

================================================================================

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

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



                                                                                               PAGE

PART I
   ITEM 1.   Business                                                                             1
   ITEM 1A.  Risk Factors                                                                        32
   ITEM 1B.  Unresolved Staff Comments                                                           34
   ITEM 2.   Properties                                                                          34
   ITEM 3.   Legal Proceedings                                                                   35
   ITEM 4.   Submission of Matters to a Vote of Security Holders                                 35

PART II
   ITEM 5.   Market for Registrant's Common Stock, Related Stockholder Matters and
             Issuer Purchases of Equity Securities                                               36
   ITEM 6.   Selected Financial Data                                                             37
   ITEM 7.   Management's Discussion and Analysis of Financial Condition and Results
             of Operations                                                                       39
   ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk                          56
   ITEM 8.   Financial Statements and Supplementary Data                                         62
   ITEM 9.   Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure                                                                         101
   ITEM 9A.  Controls and Procedures                                                            101
   ITEM 9B.  Other Information                                                                  101

PART III
   ITEM 10.  Directors and Executive Officers of the Registrant                                 101
   ITEM 11.  Executive Compensation                                                             101
   ITEM 12.  Security Ownership of Certain Beneficial Owners and Management and
             Related Stockholder Matters                                                        102
   ITEM 13.  Certain Relationships and Related Transactions                                     102
   ITEM 14.  Principal Accounting Fees and Services                                             102

PART IV
   ITEM 15.  Exhibits, Financial Statement Schedules                                            102

SIGNATURES                                                                                      105
</TABLE>


<PAGE>

                                     PART I

ITEM 1. BUSINESS

GENERAL

Abington Community Bancorp, Inc. (the "Company") is a Pennsylvania corporation
which was organized to be a mid-tier holding company for Abington Savings Bank.
Abington Savings Bank is a Pennsylvania-chartered, FDIC-insured savings bank
which conducts business under the name "Abington Bank" (the "Bank" or "Abington
Bank"). The Bank is a wholly owned subsidiary of the Company. The Company's
results of operations are primarily dependent on the results of the Bank and the
Bank's wholly owned subsidiaries, ASB Investment Co., Keswick Services II and
its wholly owned subsidiaries, and Abington Corp. As of December 31, 2005, the
Company, on a consolidated basis, had total assets of $844.1 million, total
deposits of $501.2 million, and total stockholders' equity of $117.2 million.

The Company was formed when the Bank reorganized from a mutual savings bank to a
mutual holding company structure in December 2004. Abington Mutual Holding
Company, a Pennsylvania corporation, is the mutual holding company parent of the
Company. Abington Mutual Holding Company owns 55% of the Company's outstanding
common stock and must continue to own at least a majority of the outstanding
voting stock of the Company.

Abington Bank is a community-oriented savings bank, which was originally
organized in 1867 and is headquartered in Jenkintown, Pennsylvania,
approximately eight miles north of center city Philadelphia. Our banking office
network currently consists of our headquarters and main office, seven other
full-service branch offices and four limited service branch offices. In
addition, we maintain a loan processing office in Jenkintown, Pennsylvania. Ten
of our banking offices are located in Montgomery County, Pennsylvania and two
are in neighboring Bucks County, Pennsylvania. Moreover, the Bank plans to open
three additional branch offices in 2006 - one in Montgomery County and two in
Bucks County. One of the Bucks County branch offices is expected to open in the
second quarter of 2006 with the other new Bucks County branch office and the
Montgomery County branch office following in the second half of 2006. Our
limited service offices have limited hours of operation and/or are limited to
serving customers who live or work in the community in which the limited service
office is located. Three of our limited service offices are located in
retirement or age restricted communities. We maintain ATMs at all of our banking
offices and we also have two off-site ATMs, located at a local grocery store and
a local college. We also provide on-line banking and telephone banking services.

We are primarily engaged in attracting deposits from the general public and
using those funds to invest in loans and securities. Our principal sources of
funds are deposits, repayments of loans and mortgage-backed securities,
maturities of investments and interest-bearing deposits, funds provided from
operations and funds borrowed from outside sources such as the Federal Home Loan
Bank of Pittsburgh. These funds are primarily used for the origination of
various loan types including single-family residential mortgage loans,
construction loans, non-residential or commercial real estate mortgage loans,
home equity loans, commercial business loans and consumer loans. We are an
active originator of residential home mortgage loans and home construction loans
in our market area. In addition to offering loans and deposits, we also offer
securities and annuities to our customers through an affiliation with a
third-party broker-dealer.

<PAGE>

The Company's website address is WWW.ABINGTONBANK.COM. The Company's annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and other documents filed by the Company with the Securities and Exchange
Commission ("SEC") are available free of charge on the Company's website under
the Investor Relations menu. Such documents are available on the Company's
website as soon as reasonably practicable after they have been filed
electronically with the SEC.

FORWARD LOOKING STATEMENTS

This document contains forward-looking statements, which can be identified by
reference to a future period or periods or by the use of words such as "would
be," "will," "estimate," "project," "believe," "intend," "anticipate," "plan,"
"seek," "expect" and similar expressions or the negative thereof. These
forward-looking statements include:

        o       statements of goals, intentions and expectations;

        o       statements regarding prospects and business strategy;

        o       statements regarding asset quality and market risk; and

        o       estimates of future costs, benefits and results.

These forward-looking statements are subject to significant risks, assumptions
and uncertainties, including, among other things, the following: (1) general
economic conditions, (2) competitive pressure among financial services
companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand,
(6) changes in legislation or regulation, (7) changes in accounting principles,
policies and guidelines, (8) litigation liabilities, including costs, expenses,
settlements and judgments and (9) other economic, competitive, governmental,
regulatory and technological factors affecting the Company's 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.

MARKET AREA AND COMPETITION

Our market area is located in Montgomery County and Bucks County, Pennsylvania,
which are suburbs of Philadelphia. In addition, particularly with respect to
commercial and construction lending, we also make loans in Philadelphia, Chester
and Delaware Counties, Pennsylvania and contiguous counties in New Jersey and
Delaware. This area is referred to as the Delaware Valley region.

We face significant competition in originating loans and attracting deposits.
This competition stems primarily from commercial banks, other savings banks and
savings associations and mortgage-banking companies. Within our market area,
more than 50 other banks, savings institutions and credit unions are operating.
Many of the financial service providers operating in our market area are
significantly larger and have greater financial resources than us. We face
additional competition for deposits from short-term money market funds and other
corporate and government securities funds, mutual funds and from other
non-depository financial institutions such as brokerage firms and insurance
companies.

                                       2
<PAGE>

LENDING ACTIVITIES

GENERAL. At December 31, 2005, our net loan portfolio totaled $529.5 million or
62.7% of total assets. Historically, our principal lending activity has been the
origination of loans collateralized by one- to four-family, also known as
"single-family," residential real estate loans located in our market area. In
addition, while we have been making construction loans to homebuilders and
others for more than 30 years, we have increased our construction lending
activities in recent years. We also have increased our emphasis on originating
commercial real estate and multi-family (over four units) residential mortgage
loans. We also originate home equity lines of credit, commercial business loans
and consumer loans.

The types of loans that we may originate are subject to federal and state law
and regulations. Interest rates charged by us on loans are affected principally
by the demand for such loans and the supply of money available for lending
purposes and the rates offered by our competitors. These factors are, in turn,
affected by general and economic conditions, the monetary policy of the federal
government, including the Federal Reserve Board, legislative tax policies and
governmental budgetary matters.






                                       3
<PAGE>

LOAN PORTFOLIO COMPOSITION. The following table shows the composition of our
loan portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                 December 31,
                                   ------------------------------------------------------------------------
                                            2005                     2004                     2003
                                   ----------------------   ----------------------   ----------------------
                                     Amount        %          Amount        %          Amount        %
                                   ----------  ----------   ----------  ----------   ----------  ----------
                                                            (Dollars in Thousands)
<S>                                <C>         <C>          <C>         <C>          <C>         <C>
Real estate loans:
  One- to four-family residential    $323,710      54.88%     $243,705      54.69%     $223,963      55.95%
  Commercial real estate and
    multi-family residential           76,647      12.99        74,642      16.75        64,029      16.00
  Construction                        132,789      22.51        83,253      18.68        66,875      16.71
  Home equity lines of credit          41,063       6.96        32,049       7.19        31,185       7.79
                                   ----------  ----------   ----------  ----------   ----------  ----------
      Total real estate loans         574,209      97.34       433,649      97.31       386,052      96.45
                                   ----------  ----------   ----------  ----------   ----------  ----------
Commercial business loans              10,975       1.86         8,540       1.92        10,403       2.60
Consumer non-real estate loans          4,712       0.80         3,433       0.77         3,792       0.95
                                   ----------  ----------   ----------  ----------   ----------  ----------
      Total non-real estate loans      15,687       2.69        11,973       2.69        14,195       3.55
                                   ----------  ----------   ----------  ----------   ----------  ----------
      Total loans                     589,896     100.00%      445,622     100.00%      400,247     100.00%
                                   ==========  ==========   ==========  ==========   ==========  ==========
Less:
  Undisbursed portion of
    construction loans in process      57,690                   30,131                   32,699
  Deferred loan fees                    1,264                    1,423                    1,472
  Allowance for loan losses             1,455                    1,413                    1,456
                                   ----------               ----------               ----------
      Net loans                      $529,487                 $412,655                 $364,620
                                   ==========               ==========               ==========

(Continued)

                                                    December 31,
                                   -----------------------------------------------
                                            2002                     2001
                                   ----------------------   ----------------------
                                     Amount        %          Amount        %
                                   ----------  ----------   ----------  ----------
                                                (Dollars in Thousands)
Real estate loans:
  One- to four-family residential    $247,159      61.70%     $267,044      74.41%
  Commercial real estate and
    multi-family residential           61,247      15.29        46,998      13.10
  Construction                         50,401      12.58        14,715       4.10
  Home equity lines of credit          25,571       6.38        19,021       5.30
                                   ----------  ----------   ----------  ----------
      Total real estate loans         384,378      95.95       347,778      96.91
                                   ----------  ----------   ----------  ----------
Commercial business loans              11,353       2.83         8,092       2.25
Consumer non-real estate loans          4,877       1.22         3,013       0.84
                                   ----------  ----------   ----------  ----------
      Total non-real estate loans      16,230       4.05        11,105       3.09
                                   ----------  ----------   ----------  ----------
      Total loans                     400,608     100.00%      358,883     100.00%

Less:
  Undisbursed portion of
    construction loans in process      25,880                    6,510
  Deferred loan fees                    1,891                    1,871
  Allowance for loan losses             1,813                    1,590
                                   ----------               ----------
      Net loans                      $371,024                 $348,912
                                   ==========               ==========
</TABLE>


                                       4
<PAGE>

CONTRACTUAL TERMS TO FINAL MATURITIES. The following table shows the scheduled
contractual maturities of our loans as of December 31, 2005, before giving
effect to net items. Demand loans, loans having no stated schedule of repayments
and no stated maturity, and overdrafts are reported as due in one year or less.
The amounts shown below do not take into account loan prepayments.

<TABLE>
<CAPTION>
                                                   Commercial
                                                  Real Estate
                                      One- to         and                    Home Equity    Commercial
                                    Four-Family   Multi-Family                 Lines of      Business
                                    Residential    Residential Construction     Credit         Loans        Consumer       Total
                                   ------------- ------------- ------------- ------------- ------------- ------------- -------------
                                                                        (In Thousands)
<S>                                   <C>           <C>          <C>            <C>          <C>           <C>           <C>
Amounts due after December 31,
  2005 in:
  One year or less                     $ 3,535      $ 21,686     $ 47,872       $ 40,641     $  7,564       $   336      $121,634
  After one year through two years      11,713         1,414       71,750            422          511           466        86,276
  After two years through three
    years                                3,153            67        8,800             --          512           518        13,050
  After three years through five
    years                                8,952         1,103        4,035             --        1,805         3,117        19,012
  After five years through ten
    years                               25,692         3,071          332             --          411           205        29,711
  After ten years through fifteen
    years                               96,699        10,707           --             --          172            70       107,648
  After fifteen years                  173,966        38,599           --             --           --            --       212,565
                                      --------      --------     --------       --------     --------      --------      --------
    Total                             $323,710      $ 76,647     $132,789       $ 41,063     $ 10,975      $  4,712      $589,896
                                      ========      ========     ========       ========     ========      ========      ========
</TABLE>

The following table shows the amount of our loans at December 31, 2005, which
are due after December 31, 2006, and indicates whether they have fixed-rates of
interest or rates which are floating or adjustable.

<TABLE>
<CAPTION>
                                                           Floating or        Total at
                                          Fixed-Rate     Adjustable-Rate  December 31, 2005
                                      ----------------- ----------------- -----------------
                                                          (In Thousands)
<S>                                        <C>               <C>               <C>
One- to four-family residential            $247,837          $ 72,338          $320,175
Commercial real estate and
  multi-family residential                   36,975            17,986            54,961
Construction                                     --            84,917            84,917
Home equity lines of credit                   2,418               993             3,411
Commercial business loans                        --               422               422
Consumer non-real estate                      3,609               767             4,376
                                           --------          --------          --------
  Total                                    $290,839          $177,423          $468,262
                                           ========          ========          ========
</TABLE>

LOAN ORIGINATIONS. Our lending activities are subject to underwriting standards
and loan origination procedures established by our board of directors and
management. Loan originations are obtained through a variety of sources,
primarily existing customers as well as new customers obtained from referrals
and local advertising and promotional efforts. In addition, our commercial and
construction loan officers actively solicit new loans throughout our market
area. Single-family residential mortgage loan applications and consumer loan
applications are taken at any of Abington Bank's banking offices. Beginning in
November 2005, we also began taking single-family residential mortgage loan
applications and consumer loan applications on-line. Applications for other
loans typically are taken personally by our commercial or construction lending
officers, although they may be received by a branch office initially and then
referred to a construction or commercial lender. All loan applications are
processed and underwritten centrally at our loan processing office and main
office in Jenkintown, Pennsylvania.

Our single-family residential mortgage loans are written on standardized
documents used by the Federal Home Loan Mortgage Corporation ("FHLMC" or
"Freddie Mac") and Federal National Mortgage Association ("FNMA" or "Fannie
Mae"). We also utilize automated loan processing and underwriting software
systems developed by Freddie Mac for our new single-family residential mortgage
loans. Property valuations of loans secured by real estate are undertaken by our
in-house appraiser or by an independent third-party appraiser approved by our
board of directors.

                                       5
<PAGE>

Specified loan officers of Abington Bank have limited authority to approve
automobile loans and other consumer loans up to $15,000. Home equity loans and
lines of credit may be approved jointly by two authorized Vice Presidents. Our
loan policy generally requires that all other loans up to $1.0 million must be
approved by either the Consumer Loan Committee (which is comprised of the Bank's
President, Senior Vice President - Lending and five other officers) or
Commercial Loan Committee (comprised of the Bank's President, Senior Vice
President - Lending and five other officers). All of such loans are reported to
our board of directors on a monthly basis. Loans exceeding $1.0 million must be
approved by the full board of directors.

In addition to originating loans, we occasionally purchase participation
interests in larger balance loans, typically commercial real estate and
multi-family residential mortgage loans and construction loans, from other
financial institutions in our market area. Such participations are reviewed for
compliance with our underwriting criteria before they are purchased. Generally,
we have purchased such loans without any recourse to the seller. However, we
actively monitor the performance of such loans through the receipt of regular
reports from the lead lender regarding the loan's performance, physically
inspecting the loan security property on a periodic basis, discussing the loan
with the lead lender on a regular basis and receiving copies of updated
financial statements from the borrower.

During the year ended December 31, 2003 we sold $2.6 million of newly originated
single-family residential mortgage loans with servicing retained. There were no
sales during 2005 or 2004, and we have discontinued such loans sales, but,
depending on market conditions, may again consider such sales in the future. In
addition, we have sold participation interests in loans originated by us to
other institutions. When we have sold participation interests or whole loans, it
generally has been done on the basis of very limited recourse. As of December
31, 2005, our total exposure to recourse arrangements with respect to our sales
of whole loans and participation interests in loans was $185,000. We generally
have sold participation interests in loans only when a loan would exceed our
loans-to-one borrower limits. The Bank's loans-to-one borrower limit, with
certain exceptions, generally is 15% of our unimpaired capital and surplus, or
$12.7 million at December 31, 2005.


                                       6
<PAGE>

The following table shows our total loans originated, purchased, sold and repaid
during the periods indicated.

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                           ------------------------------------------
                                               2005            2004         2003
                                           -------------  ------------- -------------
                                                        (In Thousands)
<S>                                          <C>            <C>           <C>
      Loan originations:
        One- to four-family residential      $ 100,321      $  64,593     $  92,143
        Commercial real estate and
           multi-family residential             30,734         23,996        14,301
        Construction                            94,857         51,159        47,737
        Home equity lines of credit             12,836         13,196        14,843
        Commercial business                     14,729         11,607         5,700
        Consumer non-real estate                   561          1,389         1,081
                                             ---------      ---------     ---------
      Total loan originations                  254,038        165,940       175,805
                                             ---------      ---------     ---------
      Loans purchased:
        Whole loans                             11,508             --            --
        Participation interests                 18,100         15,300         4,940
                                             ---------      ---------     ---------
           Total loans purchased                29,608         15,300         4,940
                                             ---------      ---------     ---------
      Loans sold:
        Whole loans                                 --             --       (2,280)
        Participation interests                (8,281)             --       (5,361)
                                             ---------      ---------     ---------
           Total loans sold                    (8,281)             --       (7,641)
                                             ---------      ---------     ---------
         Loan principal repayments           (131,091)      (135,866)     (181,746)
                                             ---------      ---------     ---------
      Total loans sold and principal
        repayments                           (139,372)      (135,866)     (189,387)
      Increase or (decrease) due to other
        items, net (1)                        (27,442)          2,661         2,238
                                             ---------      ---------     ---------
      Net increase (decrease) in loan
        portfolio                            $ 116,832      $  48,035     $ (6,404)
                                             =========      =========     =========
</TABLE>
--------------------
(1)     Other items consist of loans in process, deferred fees and the allowance
        for loan losses.

ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. One of our primary lending
activities continues to be the origination of loans secured by first mortgages
on one- to four-family residences in our market area. At December 31, 2005,
$323.7 million of our total loan portfolio consisted of single-family
residential mortgage loans. Due primarily to increased mortgage loan prepayments
due to refinance activity as a result of the low interest rate environment, as
well as our increased emphasis on commercial real estate, construction and
commercial business loans, the percentage of single-family residential mortgage
loans in our portfolio has decreased from 74.4% at December 31, 2001 to 54.9% at
December 31, 2005.

Our single-family residential mortgage loans generally are underwritten on terms
and documentation conforming with guidelines issued by Freddie Mac and Fannie
Mae. We utilize proprietary software developed by Freddie Mac in processing and
underwriting our single-family residential mortgage loans. Applications for one-
to four-family residential mortgage loans are accepted at any of our banking
offices and are then referred to the Residential Lending Department at our main
office and our Loan Processing Center in order to process the loan, which
consists primarily of obtaining all documents required by Freddie Mac and Fannie
Mae underwriting standards, and complete the underwriting, which includes making
a determination whether the loan meets our underwriting standards such that the
bank can extend a loan commitment to the customer. We generally have retained
for our portfolio a substantial portion of the single-family residential
mortgage loans that we originate. We service all loans that we have originated
through our in-house loan servicing department. We currently originate
fixed-rate, fully amortizing mortgage loans with maturities of 15, 20 or 30
years. We also currently offer adjustable rate mortgage ("ARM") loans. Due to
local market conditions, we had not offered single-family ARM loans for more
than 10 years through the end of 2004. However, we again began offering ARM
loans in 2005. At December 31, 2005, only $2.5 million, or 0.8%, of our one- to
four-family residential loan portfolio consisted of ARM loans.

                                       7
<PAGE>

We underwrite one- to four-family residential mortgage loans with loan-to-value
ratios of up to 95%, provided that the borrower obtains private mortgage
insurance on loans that exceed 80% of the appraised value or sales price,
whichever is less, of the secured property. We also require that title
insurance, hazard insurance and, if appropriate, flood insurance be maintained
on all properties securing real estate loans. Our in-house appraiser or another
licensed appraiser appraises all properties securing one- to four-family first
mortgage loans. Our mortgage loans generally include due-on-sale clauses which
provide us with the contractual right to deem the loan immediately due and
payable in the event the borrower transfers ownership of the property.
Due-on-sale clauses are an important means of adjusting the yields of fixed-rate
mortgage loans in our portfolio, and we generally exercise our rights under
these clauses.

Our single-family residential mortgage loans also include home equity loans,
which amounted to $27.6 million at December 31, 2005. We offer fixed-rate home
equity loans in amounts up to $200,000. Our home equity loans are fully
amortizing and have terms to maturity of up to 15 years. While home equity loans
also are secured by the borrower's residence, we generally obtain a second
mortgage position on these loans. Our lending policy provides that our home
equity loans have loan-to-value ratios, when combined with any first mortgage,
of 90% or less, although the preponderance of our home equity loans have
combined loan-to-value ratios of 80% or less. Our single-family residential
mortgage loans also include some loans to local businessmen for a commercial
purpose, but which are secured by liens on the borrower's residence.

COMMERCIAL REAL ESTATE AND MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. At
December 31, 2005, our commercial real estate and multi-family residential loans
amounted to $76.6 million or 13.0% of our total loan portfolio. In recent years,
we have increased our portfolio of commercial real estate and multi-family
residential loans.

Our commercial real estate and residential multi-family real estate loan
portfolio consists primarily of loans secured by office buildings, retail and
industrial use buildings, strip shopping centers, residential properties with
five or more units and other properties used for commercial and multi-family
purposes located in our market area. Our commercial and multi-family real estate
loans tend to be originated in an amount less than $3.0 million but will
occasionally exceed that amount. We currently employ five commercial lenders who
actively solicit commercial real estate and multi-family residential mortgage
loans in our market area.

Although terms for commercial real estate and multi-family loans vary, our
underwriting standards generally allow for terms up to 30 years with monthly
amortization over the life of the loan and loan-to-value ratios of not more than
80%. Interest rates are either fixed or adjustable, based upon designated market
indices such as the 5-year Treasury CMT plus a margin, and fees of up to 2.0%
are charged to the borrower at the origination of the loan. Generally, we obtain
personal guarantees of the principals as additional collateral for commercial
real estate and multi-family real estate loans.

Commercial real estate and multi-family real estate lending involves different
risks than single-family residential lending. These risks include larger loans
to individual borrowers and loan payments that are dependent upon the successful
operation of the project or the borrower's business. These risks can be affected
by supply and demand conditions in the project's market area of rental housing
units, office and retail space, warehouses, and other commercial space. We
attempt to minimize these risks by limiting loans to proven businesses, only
considering properties with existing operating performance which can be
analyzed, using conservative debt coverage ratios in our underwriting, and
periodically monitoring the operation of the business or project and the
physical condition of the property. At December 31, 2005, 2004 and 2003, none of
our commercial real estate and multi-family residential mortgage loans were
either delinquent for more than 30 days or considered non-performing. No
commercial real estate and

                                       8
<PAGE>

multi-family residential real estate loans were charged-off in 2005. We
charged-off $99,000 and $671,000 in commercial real estate and multi-family
residential real estate loans in the years ended December 31, 2004 and 2003,
respectively.

Various aspects of a commercial and multi-family loan transactions are evaluated
in an effort to mitigate the additional risk in these types of loans. In our
underwriting procedures, consideration is given to the stability of the
property's cash flow history, future operating projections, current and
projected occupancy levels, location and physical condition. Generally, we
impose a debt service ratio (the ratio of net cash flows from operations before
the payment of debt service to debt service) of not less than 110% in the case
of multi-family residential real estate loans and 120% in the case of commercial
real estate loans. We also evaluate the credit and financial condition of the
borrower, and if applicable, the guarantor. Appraisal reports prepared by
independent appraisers or, in some cases, Abington Bank's staff appraiser are
obtained on each loan to substantiate the property's market value, and are
reviewed by us prior to the closing of the loan.

CONSTRUCTION LENDING. As part of our efforts to transition from a traditional
thrift to a community bank, we have been an active originator of construction
loans since the mid 1990s. We increased our construction loan efforts in 2002
when we hired a second construction loan officer. We targeted construction loans
as a growth area for the Bank because they have shorter terms to maturity and
they generally have floating or adjustable interest rates. We have focused our
construction lending on making loans to homebuilders in the Delaware Valley area
to acquire, develop and build single-family residences. Our construction loans
include, to a lesser extent, loans for the construction of commercial and
industrial use properties such as office buildings, retail shops and warehouses.
At December 31, 2005, our construction loans amounted to $132.8 million, or
22.5% of our total loan portfolio. This amount includes $57.7 million of
undisbursed loans in process. Our construction loan portfolio has grown
appreciably over the past four years. At December 31, 2001, our construction
loans amounted to $14.7 million, or 4.1% of our total loan portfolio.

A substantial amount of our construction loans are construction and development
loans to contractors and builders primarily to finance the construction of
single-family homes and subdivisions. Loans to finance the construction of
single-family homes and subdivisions are generally offered to experienced
builders in the Delaware Valley with whom we have an established relationship.
Residential construction and development loans are typically offered with terms
of up to 36 months. One or two six-month extensions may be provided for at our
option. The maximum loan-to-value limit applicable to these loans is 80% of the
appraised post construction value. We often establish interest reserves and
obtain personal and/or corporate guarantees as additional security on our
construction loans. Construction loan proceeds are disbursed periodically in
increments as construction progresses and as inspection by our approved
appraisers or loan inspectors warrants. Our construction loans are negotiated on
an individual basis but typically have floating rates of interest based upon THE
WALL STREET JOURNAL prime rate or, in some cases, LIBOR. Additional fees may be
charged as funds are disbursed. In addition to interest payments during the term
of the construction loan, we typically require that payments to principal be
made as units are completed and released. Generally such principal payments must
be equal to 110% of the amount attributable to acquisition and development of
the lot plus 100% of the amount attributable to construction of the individual
home. We permit a pre-determined number of model homes to be constructed on an
unsold or "speculative" basis. All other units must be pre-sold before we will
disburse funds for construction. Our construction loans also include loans to
acquire and hold unimproved land, loans to acquire land and develop the basic
infrastructure, such as roads and sewers, and construction loans for commercial
uses. The majority of our construction loans are secured by properties located
in Bucks and Montgomery Counties, Pennsylvania. However, we also make
construction loans in Philadelphia, Chester and Delaware Counties, Pennsylvania
as well as the New Jersey suburbs of Philadelphia.

                                       9
<PAGE>

Construction financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan depends largely upon the accuracy of the
initial estimate of the property's value at completion of construction compared
to the estimated costs, including interest, of construction and other
assumptions. Additionally, if the estimate of value proves to be inaccurate, we
may be confronted with a project, when completed, having a value less than the
loan amount. We have attempted to minimize these risks by generally
concentrating on residential construction loans in our market area to
contractors with whom we have established relationships. At December 31, 2004
and 2003 we had no construction loans that were considered non-performing. At
December 31, 2005, we had one construction loan with a carrying value of $2.9
million that was considered non-performing. This one construction loan, which
was placed on non-accrual status in November 2005, was 60 days delinquent at
December 31, 2005 and was our only delinquent construction loan at such date.
This same loan was also 60 days delinquent at December 31, 2004. An allowance
was reserved on this loan at December 31, 2005 that management considers
adequate to provide for the estimated uncertainty in collection of the
outstanding balance. During the first quarter of 2006, we agreed to allow the
sale of a portion of the underlying collateral of the loan, with the proceeds
paid to the Bank. Approximately $1.7 million in net proceeds was received,
reducing the outstanding balance of the loan to $1.2 million. Based on the
specific circumstances of this loan, including the estimated value of the
remaining collateral, we do not expect to incur any significant loss on this
loan. We had no construction loans more than 30 days delinquent at December 31,
2003. We have not charged-off any construction loans in more than five years.

HOME EQUITY LINES. At December 31, 2005, the outstanding balance of our home
equity lines of credit amounted to $41.1 million or 7.0% of our net loan
portfolio. The unused portion of home equity lines was $22.3 million at such
date. We offer home equity lines in amounts up to $200,000 on a revolving line
of credit basis with interest tied to the prime rate. Generally, we have a
second mortgage on the borrower's residence as collateral on its home equity
lines. Generally, our home equity lines have loan-to-value ratios (combined with
any loan secured by a first mortgage) of 80% or less. Our customers may apply
for home equity lines as well as home equity loans at any banking office or
on-line through our website.

COMMERCIAL BUSINESS LOANS. Our commercial business loans amounted to $11.0
million or 1.9% of the total loan portfolio at December 31, 2005. The unused
portion of our commercial lines of credit at December 31, 2005, was $41.7
million.

Our commercial business loans typically are to small to mid-sized businesses in
our market area and may be for working capital, inventory financing or accounts
receivable financing. Small business loans may have adjustable or fixed rates of
interest and generally have terms of three years or less but may go up to 10
years. Our commercial business loans generally are secured by equipment,
machinery or other corporate assets. In addition, we generally obtain personal
guarantees from the principals of the borrower with respect to all commercial
business loans.

Our five commercial lenders actively solicit commercial business loans in our
market area. Given the on-going consolidation of financial institutions, we are
seeking to increase our commercial business loan portfolio. In particular, we
are targeting loans of $250,000 to $500,000 that generally are considered too
small by the regional and super-regional banks operating in our market.
Commercial business loans generally are deemed to involve a greater degree of
risk than single-family residential mortgage loans.

CONSUMER LENDING ACTIVITIES. In our efforts to provide a full range of financial
services to our customers, we offer various types of consumer loans such as
loans secured by deposit accounts, automobile loans and unsecured personal
loans. These loans are originated primarily through existing and walk-in
customers and direct advertising. At December 31, 2005, $4.7 million, or 0.8% of
the total loan portfolio consisted of these types of loans.

                                       10
<PAGE>

Consumer loans generally have higher interest rates and shorter terms than
residential loans, however, they have additional credit risk due to the type of
collateral securing the loan or in some cases the absence of collateral. In the
years ended December 31, 2005, 2004 and 2003 we charged-off $70,000, $32,000 and
$89,000 of consumer loans, respectively. The 2005 charge-offs include $60,000 of
charge-offs of overdrawn deposit balances, which are classified as loans for
reporting purposes.

LOAN APPROVAL PROCEDURES AND AUTHORITY. Our Board of Directors establishes the
bank's lending policies and procedures. Our Lending Policy Manual is reviewed on
at least an annual basis by our management team in order to propose
modifications as a result of market conditions, regulatory changes and other
factors. All modifications must be approved by our Board of Directors.

Various officers or combinations of officers of Abington Bank have the authority
within specifically identified limits to approve new loans. The largest
individual lending authority is $1.0 million. Amounts in excess of the
individual lending limits must be approved by the Commercial Lending Committee
or the Consumer Lending Committee. Loans in excess of $1.0 million must be
approved by the Board of Directors of Abington Bank.

ASSET QUALITY

GENERAL. One of our key objectives has been, and continues to be, maintaining a
high level of asset quality. In addition to maintaining credit standards for new
originations which we believe are sound, we are proactive in our loan
monitoring, collection and workout processes in dealing with delinquent or
problem loans. In addition, in recent years, we have retained independent, third
parties to undertake reviews of the credit quality of our loan portfolio.

When a borrower fails to make a scheduled payment, we attempt to cure the
deficiency by making personal contact with the borrower. Initial contacts are
generally made 15 days after the date the payment is due. In most cases,
deficiencies are promptly resolved. If the delinquency continues, late charges
are assessed and additional efforts are made to collect the deficiency. All
loans delinquent 60 days or more are reported to the Board of Directors of
Abington Bank.

On loans where the collection of principal or interest payments is doubtful, the
accrual of interest income ceases ("non-accrual" loans). On single-family
residential mortgage loans 120 days or more past due and all other loans 90 days
or more past due, as to principal and interest payments, our policy, with
certain limited exceptions, is to discontinue accruing additional interest and
reverse any interest currently accrued. On occasion, this action may be taken
earlier if the financial condition of the borrower raises significant concern
with regard to his/her ability to service the debt in accordance with the terms
of the loan agreement. Interest income is not accrued on these loans until the
borrower's financial condition and payment record demonstrate an ability to
service the debt.

Real estate which is acquired as a result of foreclosure is classified as real
estate owned until sold. Real estate owned is recorded at the lower of cost or
fair value less estimated selling costs. Costs associated with acquiring and
improving a foreclosed property are usually capitalized to the extent that the
carrying value does not exceed fair value less estimated selling costs. Holding
costs are charged to expense. Gains and losses on the sale of real estate owned
are charged to operations, as incurred.

We account for our impaired loans under generally accepted accounting
principles. An impaired loan generally is one for which it is probable, based on
current information, that the lender will not collect all the amounts due under
the contractual terms of the loan. Large groups of smaller balance, homogeneous
loans are collectively evaluated for impairment. Loans collectively evaluated
for impairment include

                                       11
<PAGE>

smaller balance commercial real estate loans, residential real estate loans and
consumer loans. These loans are evaluated as a group because they have similar
characteristics and performance experience. Larger commercial real estate,
construction and commercial business loans are individually evaluated for
impairment. At December 31, 2005, the Company had $2.9 million of loans that
were determined to be impaired compared to no impaired loans at December 31,
2004. The impaired loan at December 31, 2005 was to one borrower, and a reserve
on this loan is included in the Company's allowance for loan losses at December
31, 2005.

Federal regulations and our policies require that we utilize an internal asset
classification system as a means of reporting problem and potential problem
assets. We have incorporated an internal asset classification system, consistent
with Federal banking regulations, as a part of our credit monitoring system. We
currently classify problem and potential problem assets as "special mention,"
"substandard," "doubtful" or "loss" assets. An asset is considered "special
mention" if it does not yet warrant adverse classification such as "substandard"
or "doubtful," but nonetheless possesses credit deficiencies or potential
weaknesses deserving management's close attention. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "special mention."

When an insured institution classifies one or more assets, or portions thereof,
as "special mention," "substandard" or "doubtful," it is required that a general
valuation allowance for loan losses be established for loan losses in an amount
deemed prudent by management. General valuation allowances represent loss
allowances which have been established to recognize the inherent losses
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies one or more assets, or portions thereof, as "loss," it is required
either to establish a specific allowance for losses equal to 100% of the amount
of the asset so classified or to charge off such amount.

A savings institution's determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by Federal and state
bank regulators which can order the establishment of additional general or
specific loss allowances. The Federal banking agencies, have adopted an
interagency policy statement on the allowance for loan and lease losses. The
policy statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management analyze all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management establish acceptable allowance evaluation
processes that meet the objectives set forth in the policy statement. In July
2001, the SEC issued Staff Accounting Bulletin ("SAB") No. 102, "Selected Loan
Loss Allowance Methodology and Documentation Issues." The guidance contained in
the SAB focuses on the documentation the SEC staff normally expects registrants
to prepare and maintain in support of the allowance for loan and lease losses.
Concurrent with the SEC's issuance of SAB No. 102, the federal banking agencies,
represented by the Federal Financial Institutions Examination Council ("FFIEC"),
issued an interagency policy statement entitled "Allowance for Loan

                                       12
<PAGE>

and Lease Losses Methodologies and Documentation for Banks and Savings
Institutions" (Policy Statement). The SAB and Policy Statement were the result
of an agreement between the SEC and the federal banking agencies in March 1999
to provide guidance on allowance for loan and lease losses methodologies and
supporting documentation. Our allowance for loan losses includes a portion which
is allocated to non-classified loans by type of loan, based primarily upon our
periodic reviews of the risk elements within the various categories of loans.
Our management believes that, based on information currently available, its
allowance for loan losses is maintained at a level which covers all known and
inherent losses that are both probable and reasonably estimable at each
reporting date. However, actual losses are dependent upon future events and, as
such, further additions to the level of allowances for loan losses may become
necessary.






                                       13
<PAGE>

DELINQUENT LOANS. The following table shows the delinquencies in our loan
portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                         December 31, 2005                              December 31, 2004
                           --------------------------------------------  --------------------------------------------
                                    30-89            90 or More Days              30-89            90 or More Days
                                Days Overdue             Overdue              Days Overdue             Overdue
                           ---------------------  ---------------------  ---------------------  ---------------------
                             Number    Principal    Number    Principal    Number    Principal    Number    Principal
                            of Loans    Balance    of Loans    Balance    of Loans    Balance    of Loans    Balance
                           ----------  ---------  ----------  ---------  ----------  ---------  ----------  ---------
                                                             (Dollars in Thousands)
<S>                        <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
One- to four-family
   residential                    15       $608           1       $  8           6     $  460           3       $227
Commercial real estate
and  multi-family
residential                       --         --          --         --          --         --          --         --
Construction                       1      2,885          --         --           1      2,900          --         --
Commercial business               --         --          --         --          --         --          --         --
Home equity lines of
credit                             2         89          --         --           2        314          --         --
Consumer non- real estate          3          4          --         --          --         --          --         --
                           ----------  ---------  ----------  ---------  ----------  ---------  ----------  ---------
Total delinquent loans            21     $3,586           1       $  8           9     $3,674           3       $227
                           ==========  =========  ==========  =========  ==========  =========  ==========  =========
Delinquent loans to
   total net loans                         0.68%                  0.00%                  0.89%                  0.06%
                                       =========              =========              =========              =========
Delinquent loans to
   total loans                             0.61%                  0.00%                  0.82%                  0.05%
                                       =========              =========              =========              =========

(Continued)

                                          December 31, 2003
                           --------------------------------------------
                                   30-89              90 or More Days
                                Days Overdue              Overdue
                           ---------------------  ---------------------
                             Number    Principal    Number    Principal
                            of Loans    Balance    of Loans    Balance
                           ----------  ---------  ----------  ---------
                                       (Dollars in Thousands)

One- to four-family
   residential                    19     $1,055           3     $  321
Commercial real estate
and  multi-family
residential                       --         --          --         --
Construction                      --         --          --         --
Commercial business               --         --          --         --
Home equity lines of
credit                             4        219           3        109
Consumer non- real estate          7         14           2         32
                           ----------  ---------  ----------  ---------
Total delinquent loans            30     $1,288           8     $  462
                           ==========  =========  ==========  =========
Delinquent loans to
   total net loans                         0.35%                  0.13%
                                       =========              =========
Delinquent loans to
   total loans                             0.32%                  0.12%
                                       =========              =========
</TABLE>



                                       14
<PAGE>

NON-PERFORMING LOANS AND REAL ESTATE OWNED. The following table sets forth
information regarding our non-performing loans and real estate owned. Our
general policy is to cease accruing interest on single-family residential
mortgages which are 120 days or more past due and all other loans which are 90
days or more past due and to charge-off all accrued interest. We may also cease
accruing or charge-off interest at an earlier date if collection is considered
doubtful.

For the years ended December 31, 2005, 2004 and 2003, the amount of additional
interest income that would have been recognized on non-accrual loans if such
loans had continued to perform in accordance with their contractual terms was
$20,000, $5,000 and $16,000, respectively.

The following table shows the amounts of our non-performing assets (defined as
non-accruing loans, accruing loans 90 days or more past due and real estate
owned) at the dates indicated. We did not have troubled debt restructurings at
any of the dates indicated.

<TABLE>
<CAPTION>
                                                                       December 31,
                                             -----------------------------------------------------------------
                                                 2005         2004         2003         2002         2001
                                             ------------ ------------ ------------ ------------ -------------
                                                                    (Dollars in Thousands)
<S>                                             <C>          <C>          <C>          <C>          <C>
      Non-accruing loans:
         One- to four-family residential        $     --     $     --     $     99     $     --     $      82
         Commercial real estate and
           multi-family residential                   --           --           --          671           969
         Construction                              2,885           --           --           --            --
         Commercial business                          --           --           --           --            --
         Home equity lines of credit                  --           --           --           99            99
         Consumer non-real estate                     --           --           16           --            --
                                                --------     --------     --------     --------     ---------
            Total non-accruing loans               2,885           --          115          770         1,150
                                                --------     --------     --------     --------     ---------
      Accruing loans 90 days or more past due:
         One- to four-family residential               8          227          222          424           233
         Multi-family residential and
           commercial real estate                     --           --           --           --            --
         Construction                                 --           --           --           --            --
         Commercial business                          --           --           --           --            --
         Home equity lines of credit                  --           --          109           --            24
         Consumer non-real estate                     --           --           16           56            19
                                                --------     --------     --------     --------     ---------
            Total accruing loans 90 days
              or more past due                         8          227          347          480           276
                                                --------     --------     --------     --------     ---------
                Total non-performing loans(1)      2,893          227          462        1,250         1,426
                                                --------     --------     --------     --------     ---------
      Real estate owned, net                          --           --           --           --            --
                Total non-performing assets     $  2,893     $    227     $    462     $  1,250     $   1,426
                                                ========     ========     ========     ========     =========
      Total non-performing loans as a
         percentage of loans                       0.54%        0.06%        0.13%        0.34%         0.41%
                                                ========     ========     ========     ========     =========
      Total non-performing loans as a
         percentage of total assets                0.34%        0.03%        0.08%        0.23%         0.30%
                                                ========     ========     ========     ========     =========
      Total non-performing assets as a
         percentage of total assets                0.34%        0.03%        0.08%        0.23%         0.30%
                                                ========     ========     ========     ========     =========
</TABLE>
------------------
(1)     Non-performing loans consist of non-accruing loans plus accruing loans
        90 days or more past due.

Property acquired by Abington Bank through foreclosure is initially recorded at
the lower of cost, which is the lesser of the carrying value of the loan or fair
value at the date of acquisition, or the fair value of the related assets at the
date of foreclosure, less estimated costs to sell. Thereafter, if there is a
further deterioration in value, we charge earnings for the diminution in value.
Our policy is to obtain an appraisal on all real estate subject to foreclosure
proceedings prior to the time of foreclosure and to require appraisals on a
periodic basis on foreclosed properties and conduct inspections on foreclosed
properties.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses. We maintain the allowance at a level believed to
cover all known and inherent losses in the portfolio that are both probable and
reasonable to estimate at each reporting date. Management reviews the allowance
for loan losses on no less than a quarterly basis in order to identify those
inherent losses

                                       15
<PAGE>

and to assess the overall collection probability for the loan portfolio. Our
evaluation process includes, among other things, an analysis of delinquency
trends, non-performing loan trends, the level of charge-offs and recoveries,
prior loss experience, total loans outstanding, the volume of loan originations,
the type, size and geographic concentration of our loans, the value of
collateral securing the loan, the borrower's ability to repay and repayment
performance, the number of loans requiring heightened management oversight,
local economic conditions and industry experience. In addition, in establishing
the allowance for loan losses, we have implemented a nine point internal rating
system for all loans originated by the Commercial Lending Department. At the
time of origination, each loan, other than single-family residential mortgage
loans, home equity lines and consumer loans, is assigned a rating based on the
assumed risk elements of the loan. Such risk ratings are periodically reviewed
by management and revised as deemed appropriate. The establishment of the
allowance for loan losses is significantly affected by management judgment and
uncertainties and there is a likelihood that different amounts would be reported
under different conditions or assumptions. Various regulatory agencies, as an
integral part of their examination process, periodically review our allowance
for loan losses. Such agencies may require it to make additional provisions for
estimated loan losses based upon judgments different from those of management.
As of December 31, 2005, our allowance for loan losses was 0.27% of total loans
receivable.

In the five-year period ended December 31, 2005, our loan charge-offs have been
relatively minimal and three borrowers and their affiliates were responsible for
87.6% of such charge-offs. During the year ended December 31, 2004, we
charged-off $99,000 of one- to four-family residential mortgage loans. Such
loans were all to one borrower and previously had been deemed impaired. During
the year ended December 31, 2003, we charged-off $671,000 of commercial real
estate and multi-family residential mortgage loans to this borrower. As of
December 31, 2004, all loans to this borrower had been charged-off.

We will continue to monitor and modify our allowances for loan losses as
conditions dictate. No assurances can be given that our level of allowance for
loan losses will cover all of the inherent losses on our loans or that future
adjustments to the allowance for loan losses will not be necessary if economic
and other conditions differ substantially from the economic and other conditions
used by management to determine the current level of the allowance for loan
losses.

        The following table shows changes in our allowance for loan losses
during the periods presented.

<TABLE>
<CAPTION>

                                                         At or For the Year Ended December 31,
                                         -----------------------------------------------------------------
                                             2005         2004         2003         2002         2001
                                         ------------ ------------ ------------ ------------ -------------
                                                            (Dollars in Thousands)
<S>                                         <C>          <C>          <C>          <C>           <C>
Total loans outstanding at end of period    $589,896     $445,622     $400,247     $401,453      $358,883
Average loans outstanding                    469,076      384,990      361,548      366,246       341,112
Allowance for loan losses, beginning of
  period                                       1,413        1,456        1,813        1,590         1,344
Provision for loan losses                         25           45          375          500          628
                                            --------     --------     --------     --------     ---------
Charge-offs:
  One- to four-family residential                 --           16           --           --            --
  Commercial real estate and
     multi-family residential                     --           --          671          298            --
  Construction                                    --           --           --           --            --
  Commercial business                             --           --           --           --           413
  Home equity lines of credit                     --           99           --           --            --
  Consumer non-real estate                        70           32           89           --             2
                                            --------     --------     --------     --------     ---------
    Total charge-offs                             70          147          760          298           415
                                            --------     --------     --------     --------     ---------
Recoveries on loans previously
  charged off                                     87           59           28           21            33
                                            --------     --------     --------     --------     ---------
Allowance for loan losses, end of period    $  1,455     $  1,413     $  1,456     $  1,813     $   1,590
                                            ========     ========     ========     ========     =========
Allowance for loan losses as a percent
  of non-performing loans                     50.29%      622.03%      315.15%      145.04%       111.50%
                                            ========     ========     ========     ========     =========
Ratio of net charge-offs during the
  period to average loans outstanding
  during the period                              n/a        0.02%        0.21%        0.08%         0.12%
                                            ========     ========     ========     ========     =========
</TABLE>


                                       16
<PAGE>

The following table shows how our allowance for loan losses is allocated by type
of loan at each of the dates indicated.

<TABLE>
<CAPTION>
                                                               December 31,
                                  ----------------------------------------------------------------------
                                           2005                    2004                    2003
                                  ----------------------  ----------------------  ----------------------
                                                 Loan                    Loan                    Loan
                                               Category                Category                Category
                                    Amount      as a %      Amount      as a %      Amount      as a %
                                      of       of Total       of       of Total       of       of Total
                                   Allowance     Loans     Allowance     Loans     Allowance     Loans
                                  -----------  ---------  -----------  ---------  -----------  ---------
                                                          (Dollars in Thousands)
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>
One- to four-family residential       $  647      54.88%      $  657      54.69%      $  625      55.95%
Commercial real estate and
  multi-family residential               230      12.99          458      16.75          224      16.00
Construction                             333      22.51          106      18.68           68      16.71
Home equity lines of credit               82       6.96           70       7.19           51       7.79
Commercial business                      110       1.86           85       1.92          104       2.60
Consumer non-real estate                  52       0.80           34       0.77           38       0.95
Unallocated                                1         --            3         --          346         --
                                      ------    -------       ------    -------       ------    -------
  Total                               $1,455     100.00%      $1,413     100.00%      $1,456     100.00%
                                      ======    =======       ======    =======       ======    =======

(Continued)

                                                   December 31,
                                  ----------------------------------------------
                                           2002                    2001
                                  ----------------------  ----------------------
                                                 Loan                    Loan
                                               Category                Category
                                    Amount      as a %      Amount      as a %
                                      of       of Total       of       of Total
                                   Allowance     Loans     Allowance     Loans
                                  -----------  ---------  -----------  ---------
                                               (Dollars in Thousands)

One- to four-family residential       $  694      61.70%      $  856      74.41%
Commercial real estate and
  multi-family residential               636      15.29          505      13.10
Construction                              49      12.58           16       4.10
Home equity lines of credit               55       6.38           52       5.30
Commercial business                      114       2.83           81       2.25
Consumer non-real estate                  49       1.22           30       0.84
Unallocated                              216         --           50         --
                                      ------    -------       ------    -------
  Total                               $1,813     100.00%      $1,590     100.00%
                                      ======    =======       ======    =======
</TABLE>

The allowance consists of specific and general components. The specific
component relates to loans that are classified as either doubtful, substandard
or special mention. The general component covers non-classified loans and is
based on historical loss experience adjusted for qualitative factors.




                                       17
<PAGE>

INVESTMENT ACTIVITIES

GENERAL. We invest in securities pursuant to our Investment Policy, which has
been approved by our board of directors. The Investment Policy designates our
President and three Senior Vice Presidents as the Investment Committee. The
Investment Committee is authorized by the board to make the bank's investments
consistent with the Investment Policy. The board of directors of Abington Bank
reviews all investment activity on a monthly basis.

Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity. We also use a leveraged
investment strategy for the purpose of enhancing returns. Pursuant to this
strategy, we have utilized borrowings from the Federal Home Loan Bank of
Pittsburgh ("FHLB") to purchase additional investment securities. We attempt to
match the advances with the securities purchased in order to obtain a favorable
difference, or "spread," between the interest paid on the advance against the
yield received on the security purchased.

At December 31, 2005, our investment and mortgage-backed securities amounted to
$246.6 million in the aggregate or 29.2% of total assets at such date. The
largest component of our securities portfolio in recent periods has been
mortgage-backed securities, which amounted to $147.4 million or 59.8% of the
securities portfolio at December 31, 2005. In addition, we invest in U.S.
government and agency obligations, municipal securities, corporate debt
obligations and other securities. The majority of our agency debt securities
have call provisions which provide the agency with the ability to call the
securities at specified dates.

Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, our securities
are classified as available for sale, held to maturity, or trading, at the time
of acquisition. Securities classified as held to maturity must be purchased with
the intent and ability to hold that security until its final maturity and can be
sold prior to maturity only under rare circumstances. Held to maturity
securities are accounted for based upon the amortized cost of the security.
Available for sale securities can be sold at any time based upon needs or market
conditions. Available for sale securities are accounted for at fair value, with
unrealized gains and losses on these securities, net of income tax provisions,
reflected in retained earnings as accumulated other comprehensive income. At
December 31, 2005, we had $158.8 million of securities classified as available
for sale, $87.8 million of securities classified as held to maturity and no
securities classified as trading account.

We do not purchase mortgage-backed derivative instruments that would be
characterized "high-risk" under Federal banking regulations at the time of
purchase, nor do we purchase corporate obligations which are not rated
investment grade or better.

Our mortgage-backed securities consist primarily of mortgage pass-through
certificates issued by the Government National Mortgage Association ("GNMA" or
"Ginnie Mae"), Fannie Mae or Freddie Mac. Our mortgage-backed securities also
include collateralized mortgage obligations ("CMOs") issued by such agencies and
certain AAA rated private issuers. At December 31, 2005, $24.7 million of our
mortgage-backed securities were CMOs. At December 31, 2005, $128.6 million or
87.3% of our mortgage-backed securities were issued by the GNMA, FNMA or FHLMC.
The remaining $18.8 million of our mortgage-backed securities were issued by
certain AAA rated private issuers.

Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security, which
may require adjustments to the amortization of

                                       18
<PAGE>

any premium or accretion of any discount relating to such instruments thereby
changing the net yield on such securities. There is also reinvestment risk
associated with the cash flows from such securities or in the event such
securities are redeemed by the issuer. In addition, the market value of such
securities may be adversely affected by changes in interest rates.

Ginnie Mae is a government agency within the Department of Housing and Urban
Development which was created to help finance government-assisted housing
programs. Ginnie Mae securities are backed by loans insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. The timely
payment of principal and interest on Ginnie Mae securities is guaranteed by
Ginnie Mae and backed by the full faith and credit of the U.S. Government.
Freddie Mac is a private corporation chartered by the U.S. Government. Freddie
Mac issues participation certificates backed principally by conventional
mortgage loans. Freddie Mac guarantees the timely payment of interest and the
ultimate return of principal on participation certificates. Fannie Mae is a
private corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. Fannie Mae guarantees the timely payment of
principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae
securities are not backed by the full faith and credit of the U.S. Government,
but because Freddie Mac and Fannie Mae are U.S. Government-sponsored
enterprises, these securities are considered to be among the highest quality
investments with minimal credit risks.

Collateralized mortgage obligations are typically issued by a special-purpose
entity, in our case, of government agencies, which may be organized in a variety
of legal forms, such as a trust, a corporation, or a partnership. Substantially
all of the collateralized mortgage obligations held in our portfolio consist of
senior sequential tranches. By purchasing senior sequential tranches, management
attempts to ensure the cash flow associated with such an investment.

The following table sets forth certain information relating to our investment
and mortgage-backed securities portfolios and our investment in FHLB stock at
the dates indicated.

<TABLE>
<CAPTION>
                                                                     December 31,
                                          -------------------------------------------------------------------
                                                  2005                   2004                  2003
                                          ---------------------  ---------------------  ---------------------
                                          Amortized    Market    Amortized    Market    Amortized    Market
                                             Cost       Value       Cost       Value       Cost       Value
                                          ---------   ---------  ---------   ---------  ---------   ---------
                                                                (Dollars in Thousands)
<S>                                        <C>         <C>        <C>         <C>        <C>         <C>
        Mortgage-backed securities         $149,623    $145,449   $165,005    $164,350   $120,917    $121,104
        U.S. government and agency
          obligations                        74,991      73,120     71,489      70,393     72,988      72,429
        Corporate bonds                         999         998      1,000       1,012      1,501       1,538
        Municipal obligations                20,576      20,497     10,400      10,520        180         189
        Investment certificates of            1,183       1,183      1,282       1,282      1,579       1,579
        deposit
        Mutual funds                          3,422       3,347      3,395       3,292      3,330       3,250
        FHLB stock                           11,061      11,061     10,450      10,450     10,039      10,039
        Other                                    --          --          3           1          3           1
                                           --------    --------   --------    --------   --------    --------
          Total investment and
            mortgage-backed securities     $261,855    $255,655   $263,024    $261,300   $210,537    $210,129
                                           ========    ========   ========    ========   ========    ========
</TABLE>



                                       19
<PAGE>

The following table sets forth the amount of investment securities which mature
during each of the periods indicated and the weighted average yields for each
range of maturities at December 31, 2005. No tax-exempt yields have been
adjusted to a tax-equivalent basis.

<TABLE>
<CAPTION>
                                                        Amounts at December 31, 2005 Which Mature In
                                  ----------------------------------------------------------------------------------------------
                                                            Over One
                                               Weighted        Year      Weighted   Over Five    Weighted     Over     Weighted
                                   One Year     Average      Through      Average    Through      Average      Ten      Average
                                   or Less       Yield      Five Years     Yield    Ten Years      Yield      Years      Yield
                                  ---------    ---------   ------------  ---------  ---------    ---------  ---------  ---------
                                                                       (Dollars in Thousands)
<S>                                <C>             <C>         <C>           <C>     <C>             <C>     <C>           <C>
Bonds and other debt securities:
   U.S. government and agency
    obligations                    $22,500         2.29%       $40,500       3.35%   $ 9,991         4.00%   $  2,000      6.50%
   Corporate bonds 500                6.98          499           5.31         --         --           --          --        --
   Municipal obligations               180         3.90             --         --         --           --      20,396      4.18
   Mortgage-backed securities           21         5.50         54,212       3.78        262         4.39      95,128      4.67
Investment certificates of
   deposit                             884         3.97            299       4.20         --           --          --        --
                                   -------                     -------               -------                 --------
    Total                          $24,085         2.46%       $95,510       3.61%   $10,253         4.01%   $117,524      4.61%
                                   =======                     =======               =======                 ========
</TABLE>

SOURCES OF FUNDS

GENERAL. Deposits, loan repayments and prepayments, proceeds from sales of
loans, cash flows generated from operations and Federal Home Loan Bank advances
are the primary sources of our funds for use in lending, investing and for other
general purposes.

DEPOSITS. We offer a variety of deposit accounts with a range of interest rates
and terms. Our deposits consist of checking, both interest-bearing and
non-interest-bearing, money market, savings and certificate of deposit accounts.
At December 31, 2005, 42.9% of the funds deposited with Abington Bank were in
core deposits, which are deposits other than certificates of deposit.

The flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and competition. Our
deposits are obtained predominantly from the areas where our branch offices are
located. We have historically relied primarily on customer service and
long-standing relationships with customers to attract and retain these deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect our ability to attract and retain deposits.
Abington Bank uses traditional means of advertising its deposit products,
including broadcast and print media and generally does not solicit deposits from
outside its market area.

We do not actively solicit certificate accounts in excess of $100,000, known as
"jumbo CDs," or use brokers to obtain deposits. Our jumbo CDs amounted to $140.4
million and $64.9 million, respectively, at December 31, 2005 and 2004, of which
$76.0 million and $25.0 million, respectively, were scheduled to mature in 12
months. At December 31, 2005, the weighted average remaining maturity of our
certificate of deposit accounts was 17.0 months.

                                       20
<PAGE>

The following table shows the distribution of, and certain other information
relating to, our deposits by type of deposit, as of the dates indicated.

<TABLE>
<CAPTION>
                                                                    December 31,
                                      -------------------------------------------------------------------------
                                               2005                     2004                     2003
                                      -----------------------  -----------------------  -----------------------
                                        Amount        %         Amount         %          Amount         %
                                      ---------- ------------  ---------- ------------  ---------- ------------
                                                                (Dollars in Thousands)
<S>                                     <C>           <C>        <C>           <C>        <C>           <C>
     Certificate accounts:
       1.00% - 1.99%                    $     71        0.01%    $ 32,923        8.12%    $ 52,112       14.37%
       2.00% - 2.99%                      29,675        5.92       38,636        9.53       29,555        8.15
       3.00% - 3.99%                      83,256       16.61       60,106       14.83       28,871        7.96
       4.00% - 4.99%                     127,144       25.37       19,691        4.86       16,005        8.16
       5.00% - 5.99%                      31,521        6.29       29,078        7.18       34,289        9.45
       6.00% - 6.99%                      14,454        2.88        2,337        0.58        5,681        1.57
       7.00%  or more                         --          --           --          --           --          --

       Total certificate accounts        286,121       57.08      182,771       45.10      166,513       45.91
                                        --------      ------     --------      ------     --------      ------
     Transaction accounts:
       Savings and money market          115,909       23.13      125,204       30.89      107,565       29.66
       Checking:
         Interest bearing                 55,820       11.14       59,719       14.73       50,733       13.99
         Non-interest bearing             43,333        8.65       37,596        9.28       37,855       10.44
                                        --------      ------     --------      ------     --------      ------
         Total transaction
           accounts                      215,062       42.92      222,519       54.90      196,153       54.09
                                        --------      ------     --------      ------     --------      ------
         Total deposits                 $501,183      100.00%    $405,290      100.00%    $362,666      100.00%
                                        ========      ======     ========      ======     ========      ======
</TABLE>

The following table shows the average balance of each type of deposit and the
average rate paid on each type of deposit for the periods indicated.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                              --------------------------------------------------------------------------------------------------
                                            2005                             2004                             2003
                              -------------------------------- -------------------------------- --------------------------------
                               Average    Interest   Average    Average    Interest   Average    Average    Interest   Average
                               Balance    Expense   Rate Paid   Balance    Expense   Rate Paid   Balance    Expense   Rate Paid
                              ---------  --------- ----------- ---------  --------- ----------- ---------  --------- -----------
                                                                    (Dollars in Thousands)
<S>                            <C>         <C>           <C>    <C>         <C>           <C>    <C>         <C>           <C>
Savings and money market       $125,834    $ 1,412       1.12%  $120,748    $ 1,065       0.88%  $107,291    $ 1,068       1.00%
Checking                         52,282         66       0.13     52,804         44       0.08     46,433         51       0.11
Certificates of
  deposit                       236,962      8,391       3.54    175,492      5,452       3.11    169,058      5,703       3.37
                               --------    -------              --------    -------              --------    -------
Total interest-bearing
  deposits                      415,078      9,869       2.38    349,044      6,561       1.88    322,782      6,822       2.11
                               ========    =======     ======   ========    =======     ======   ========    =======    =======
  Total deposits               $460,939    $ 9,869       2.14%  $394,905    $ 6,561       1.66%  $359,230    $ 6,822       1.90%
                               ========    =======     ======   ========    =======     ======   ========    =======    =======
</TABLE>

The following table shows our savings flows during the periods indicated.

                                                Year Ended December 31,
                                       ----------------------------------------
                                           2005          2004          2003
                                       ------------  ------------  ------------
                                                    (In Thousands)

     Total deposits                     $3,536,390    $3,387,865    $3,016,200
     Total withdrawals                   3,449,453     3,351,887     3,004,934

     Interest credited                       8,956         6,646         7,064
                                        ----------    ----------    ----------

       Total increase in deposits       $   95,893    $   42,624    $   18,330
                                        ==========    ==========    ==========


                                       21
<PAGE>

The following table presents, by various interest rate categories and
maturities, the amount of our certificates of deposit at December 31, 2005.

<TABLE>
<CAPTION>
                                                    Balance at December 31, 2005
                                            Maturing in the 12 Months Ending December 31,
                                    ----------------------------------------------------------
     Certificates of Deposit           2006        2007        2008     Thereafter     Total
     --------------------------     ----------  ----------  ----------  ----------  ----------
                                                             (In Thousands)
<S>                                  <C>         <C>         <C>         <C>          <C>
     Less than 2.00%                 $     71    $     --    $     --    $     --     $     71
     2.00% - 2.99%                     27,216         890       1,206         363       29,675
     3.00% - 3.99%                     59,224      15,542       5,032       3,458       83,256
     4.00% - 4.99%                     57,866      49,299         359      19,620      127,144
     5.00% - 5.99%                      3,309      23,721         220       4,271       31,521
     6.00% or more                     13,471         507         412          64       14,454
                                     --------    --------    --------    --------     --------
       Total certificate accounts    $161,157    $ 89,959    $  7,229    $ 27,776     $286,121
                                     ========    ========    ========    ========     ========
</TABLE>

The following table shows the maturities of our certificates of deposit of
$100,000 or more at December 31, 2005, by time remaining to maturity.

<TABLE>
<CAPTION>
                                   At December 31, 2005
     -----------------------------------------------------------------------------
                                                                      Weighted
                  Quarter Ending:                    Amount         Average Rate
     ------------------------------------------   ------------    ----------------
                                                        (Dollars in Thousands)
<S>                                                 <C>                  <C>
     March 31, 2006                                 $ 22,544             3.67%
     June 30, 2006                                    19,251             4.18
     September 30, 2006                               28,018             4.86
     December 31, 2006                                 6,161             3.56
     After December 31, 2006                          64,405             4.67
                                                    --------
       Total certificates of deposit with
         balances of $100,000 or more               $140,379             4.43%
                                                    ========             ====
</TABLE>

BORROWINGS. We utilize advances from the Federal Home Loan Bank of Pittsburgh as
an alternative to retail deposits to fund our operations as part of our
operating strategy. These FHLB advances are collateralized primarily by certain
of our mortgage loans and mortgage-backed securities and secondarily by our
investment in capital stock of the Federal Home Loan Bank of Pittsburgh. FHLB
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the
Federal Home Loan Bank of Pittsburgh will advance to member institutions,
including Abington Bank, fluctuates from time to time in accordance with the
policies of the Federal Home Loan Bank. At December 31, 2005, we had $201.5
million in outstanding FHLB advances and $314.5 million of additional FHLB
advances available. Approximately $88.0 million of our FHLB advances at December
31, 2005 were part of our matched funding program whereby we use such advances
to purchase securities. Our current policy permits us to utilize up to $100.0
million of advances to match-fund securities. Given the proper interest rate
environment, it is likely that we would increase this limit to permit additional
FHLB advances for such match-funding purposes.

In addition to FHLB advances, our borrowings include securities sold under
agreements to repurchase (repurchase agreements). Repurchase agreements are
contracts for the sale of securities owned or

                                       22
<PAGE>

borrowed by Abington Bank, with an agreement to repurchase those securities at
an agreed upon price and date. We use repurchase agreements as an investment
vehicle for our commercial sweep checking product. We enter into securities
repurchase agreements with our commercial checking account customers under a
sweep account arrangement. Account balances are swept on a daily basis into
mortgage-backed securities purchases from us, which we agree to repurchase as
the checking account is drawn upon by the customer. At December 31, 2005, our
securities repurchase agreements amounted to $16.1 million and all of such
borrowings were short-term, having maturities of one year or less. The average
balance of our securities sold under repurchase agreements for the year ended
December 31, 2005 was $20.2 million.

The following table shows certain information regarding our borrowings at or for
the dates indicated:

<TABLE>
<CAPTION>
                                                            At or For the Year
                                                            Ended December 31,
                                                -----------------------------------------
                                                     2005         2004           2003
                                                ------------- ------------- -------------
                                                           (Dollars in Thousands)
<S>                                                 <C>           <C>           <C>
     FHLB advances:
        Average balance outstanding                 $192,189      $169,699      $148,090
        Maximum amount outstanding at any
          month-end during the period                212,580       185,588       173,732
        Balance outstanding at end of
          period                                     201,445       170,666       173,732
        Average interest rate during the
          period                                      4.510%        4.357%        4.673%
        Weighted average interest rate at
          end of period                               4.506%        4.422%        4.180%

     Other borrowed money:
        Average balance outstanding                 $ 20,198      $ 17,703      $ 15,241
        Maximum amount outstanding at any
          month-end during the period                 25,038        27,686        21,722
        Balance outstanding at end of
          period                                      16,114        12,866         8,681
        Average interest rate during the
          period                                      2.287%        0.817%        0.612%
        Weighted average interest rate at
          end of period                               3.883%        1.785%        0.516%
</TABLE>

At December 31, 2005, $27.7 million of our borrowings were short-term
(maturities of one year or less). Such short-term borrowings had a weighted
average interest rate of 3.82% at December 31, 2005.

EMPLOYEES

At December 31, 2005, we had 108 full-time employees, and 26 part-time
employees. None of such employees are represented by a collective bargaining
group, and we believe that our relationship with our employees is excellent.

                           SUPERVISION AND REGULATION

GENERAL

Abington Bank, as a Pennsylvania-chartered savings bank with deposits insured by
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation, is subject to extensive regulation and examination by the
Pennsylvania Department of Banking and by the Federal Deposit Insurance
Corporation. The federal and state laws and regulations applicable to banks
regulate, among other things, the scope of their business, their investments,
the reserves required to be kept against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. This regulatory structure also gives the federal and state
banking agencies extensive discretion in connection with their supervisory and
enforcement activities and examination policies,

                                       23
<PAGE>

including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. The laws
and regulations governing Abington Bank generally have been promulgated to
protect depositors and not for the purpose of protecting shareholders.

Federal law provides the federal banking regulators, including the Federal
Deposit Insurance Corporation and the Federal Reserve Board, with substantial
enforcement powers. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders, and to initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities. Any change in such regulation, whether by the
Pennsylvania Department of Banking, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or the United States Congress, could have a material
impact on us and our operations.

Abington Community Bancorp and Abington Mutual Holding Company are registered as
bank holding companies under the Bank Holding Company Act and Abington Community
Bancorp and Abington Mutual Holding Company are subject to regulation and
supervision by the Federal Reserve Board and by the Pennsylvania Department of
Banking. Abington Community Bancorp and Abington Mutual Holding Company are also
required to file annually a report of its operations with, and are subject to
examination by, the Federal Reserve Board and the Pennsylvania Department of
Banking. This regulation and oversight is generally intended to ensure that
Abington Community Bancorp and Abington Mutual Holding Company limit their
activities to those allowed by law and that they operate in a safe and sound
manner without endangering the financial health of Abington Bank.

REGULATION OF ABINGTON COMMUNITY BANCORP AND ABINGTON MUTUAL HOLDING COMPANY

BANK HOLDING COMPANY ACT ACTIVITIES AND OTHER LIMITATIONS. Under the Bank
Holding Company Act, Abington Community Bancorp and Abington Mutual Holding
Company must obtain the prior approval of the Federal Reserve Board before they
may acquire control of another bank or bank holding company, merge or
consolidate with another bank holding company, acquire all or substantially all
of the assets of another bank or bank holding company, or acquire direct or
indirect ownership or control of any voting shares of any bank or bank holding
company if, after such acquisition, Abington Community Bancorp and Abington
Mutual Holding Company would directly or indirectly own or control more than 5%
of such shares.

Federal statutes impose restrictions on the ability of a bank holding company
and its nonbank subsidiaries to obtain extensions of credit from its subsidiary
bank, on the subsidiary bank's investments in the stock or securities of the
holding company, and on the subsidiary bank's taking of the holding company's
stock or securities as collateral for loans to any borrower. A bank holding
company and its subsidiaries are also prevented from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property, or furnishing of services by the subsidiary bank.

A bank holding company is required to serve as a source of financial and
managerial strength to its subsidiary banks and may not conduct its operations
in an unsafe or unsound manner. In addition, it is the policy of the Federal
Reserve Board that a bank holding company should stand ready to use available
resources to provide adequate capital to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the Federal Reserve Board to be an unsafe and unsound banking
practice or a violation of the Federal Reserve Board regulations, or both.

                                       24
<PAGE>

NON-BANKING ACTIVITIES. The business activities of Abington Community Bancorp
and Abington Mutual Holding Company, as bank holding companies, are restricted
by the Bank Holding Company Act. Under the Bank Holding Company Act and the
Federal Reserve Board's bank holding company regulations, bank holding companies
may only engage in, or acquire or control voting securities or assets of a
company engaged in:

        o       banking or managing or controlling banks and other subsidiaries
                authorized under the Bank Holding Company Act; and

        o       any Bank Holding Company Act activity the Federal Reserve Board
                has determined to be so closely related that it is incidental to
                banking or managing or controlling banks.

The Federal Reserve Board has by regulation determined that certain activities
are closely related to banking including operating a mortgage company, finance
company, credit card company, factoring company, trust company or savings
association; performing certain data processing operations; providing limited
securities brokerage services; acting as an investment or financial advisor;
acting as an insurance agent for certain types of credit-related insurance;
leasing personal property on a full-payout, non-operating basis; providing tax
planning and preparation services; operating a collection agency; and providing
certain courier services. However, as discussed below, certain other activities
are permissible for a bank holding company that becomes a financial holding
company.

FINANCIAL MODERNIZATION. The Gramm-Leach-Bliley Act permits greater affiliation
among banks, securities firms, insurance companies, and other companies under a
new type of financial services company known as a "financial holding company." A
financial holding company essentially is a bank holding company with
significantly expanded powers. Financial holding companies are authorized by
statute to engage in a number of financial activities previously impermissible
for bank holding companies, including securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; and merchant banking activities. The Gramm-Leach-Bliley
Act also permits the Federal Reserve Board and the Treasury Department to
authorize additional activities for financial holding companies if they are
"financial in nature" or "incidental" to financial activities. A bank holding
company may become a financial holding company if each of its subsidiary banks
is well capitalized, well managed, and has at least a "satisfactory" Community
Reinvestment Act rating. A financial holding company must provide notice to the
Federal Reserve Board within 30 days after commencing activities previously
determined by statute or by the Federal Reserve Board and Department of the
Treasury to be permissible. Abington Community Bancorp and Abington Mutual
Holding Company have not submitted notices to the Federal Reserve Board of their
intent to be deemed financial holding companies. However, they are not precluded
from submitting a notice in the future should they wish to engage in activities
only permitted to financial holding companies.

REGULATORY CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the Bank Holding Company Act. The Federal Reserve Board's capital
adequacy guidelines for Abington Community Bancorp, on a consolidated basis, are
similar to those imposed on Abington Bank by the Federal Deposit Insurance
Corporation. See "-Regulation of Abington Bank - Regulatory Capital
Requirements." At December 31, 2005, Abington Community Bancorp met all
applicable regulatory capital requirements.

RESTRICTIONS ON DIVIDENDS. Abington Community Bancorp's ability to declare and
pay dividends may depend in part on dividends received from Abington Bank. The
Pennsylvania Banking Code regulates the distribution of dividends by savings
banks and states, in part, that dividends may be declared and paid out

                                       25
<PAGE>

of accumulated net earnings, provided that the bank continues to meet its
surplus requirements. In addition, dividends may not be declared or paid if
Abington Bank is in default in payment of any assessment due the Federal Deposit
Insurance Corporation.

A Federal Reserve Board policy statement on the payment of cash dividends states
that a bank holding company should pay cash dividends only to the extent that
the holding company's net income for the past year is sufficient to cover both
the cash dividends and a rate of earnings retention that is consistent with the
holding company's capital needs, asset quality and overall financial condition.
The Federal Reserve Board also indicated that it would be inappropriate for a
company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the federal prompt corrective action regulations,
the Federal Reserve Board may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized." See "-Regulation of Abington Bank - Prompt Corrective
Action," below.

SARBANES-OXLEY ACT OF 2002. On July 30, 2002, the President signed into law the
Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address
corporate and accounting fraud. In addition to the establishment of a new
accounting oversight board which is empowered to enforce auditing, quality
control and independence standards, the Sarbanes-Oxley Act restricts provision
of both auditing and consulting services by accounting firms. To ensure auditor
independence, any non-audit services being provided to an audit client require
pre-approval by the company's audit committee members. In addition, the audit
partners must be rotated. The Sarbanes-Oxley Act requires chief executive
officers and chief financial officers, or their equivalent, to certify to the
accuracy of periodic reports filed with the SEC, subject to civil and criminal
penalties if they knowingly or willfully violate this certification requirement.
In addition, under the Sarbanes-Oxley Act, attorneys are required to report
evidence of a material violation of the securities laws or a breach of fiduciary
duty by a company to its chief executive officer or its chief legal officer,
and, if such officer does not appropriately respond, to report such evidence to
the audit committee or other similar committee of the board of directors or the
board itself.

Longer prison terms were legislated for corporate executives who violate federal
securities laws, the period during which certain types of suits can be brought
against a company or its officers has been extended, and bonuses issued to top
executives prior to restatement of a company's financial statements are now
subject to disgorgement if such restatement was due to corporate misconduct.
Executives are also prohibited from insider trading during retirement plan
"blackout" periods, and loans to company executives are restricted. In addition,
a provision directs that civil penalties levied by the SEC as a result of any
judicial or administrative action under the Sarbanes-Oxley Act be deposited to a
fund for the benefit of harmed investors. The Federal Accounts for Investor
Restitution (FAIR) provision also requires the SEC to develop methods of
improving collection rates. The legislation accelerates the time frame for
disclosures by public companies for any material changes in their financial
condition or operations and certain other events. Directors and executive
officers must also provide information for most changes in ownership in a
company's securities within two business days of the change.

The Sarbanes-Oxley Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm" (RPAF). Audit
Committee members must be independent and are barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert,"
as such term is defined by the SEC, and if not, why not. Under the
Sarbanes-Oxley Act, a RPAF is prohibited from performing statutorily mandated
audit services for a company if such company's chief executive officer, chief
financial officer, comptroller, chief accounting officer or any person serving
in equivalent positions has been employed by such firm and participated in the
audit of such company during the one-year period preceding the audit initiation
date. The Sarbanes-Oxley Act also prohibits any officer or director of a

                                       26
<PAGE>

company or any other person acting under their direction from taking any action
to fraudulently influence, coerce, manipulate or mislead any independent public
or certified accountant engaged in the audit of the company's financial
statements for the purpose of rendering the financial statement's materially
misleading. The Sarbanes-Oxley Act also will require inclusion of an internal
control report and assessment by management in the annual report to shareholders
(which, in the Company's case, is expected to be required for its fiscal year
ending December 31, 2006). The Sarbanes-Oxley Act requires the RPAF that issues
the audit report to attest to and report on management's assessment of the
company's internal controls. In addition, the Sarbanes-Oxley Act requires that
each financial report required to be prepared in accordance with, or reconciled
to, generally accepted accounting principles and filed with the SEC reflect all
material correcting adjustments that are identified by a RPAF in accordance with
generally accepted accounting principles and the rules and regulations of the
SEC.

RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Under authority of Section
115.1 of the Pennsylvania Banking Code of 1965, as amended ("Banking Code"), and
a policy statement issued by the Pennsylvania Department of Banking, the
Department is authorized to approve the reorganization of a state chartered
savings bank to a mutual holding company, provided the savings bank has a CAMEL
composite rating of one or two under the Uniform Financial Institutions Rating
System. While regulations governing the formation of Pennsylvania-chartered
mutual holding companies have not been adopted, the policy statement and form of
application issued by the Department provide the means by which such
applications will be processed and approved.

Pursuant to Pennsylvania law, a mutual holding company may engage only in the
following activities:

        o       Investing in the stock of one or more financial institution
                subsidiaries.

        o       Acquiring one or more additional financial institution
                subsidiaries into a subsidiary of the holding company.

        o       Merging with or acquiring another holding company, one of whose
                subsidiaries is a financial institution subsidiary.

        o       Investing in a corporation the capital stock of which is
                available for purchase by a savings bank under federal law or
                under the Pennsylvania Banking Code.

        o       Engaging in such activities as are permitted, by statute or
                regulation, to a holding company of a federally chartered
                insured mutual institution under federal law.

        o       Engaging in such other activities as may be permitted by the
                Pennsylvania Department of Banking.

If a mutual holding company acquires or merges with another holding company, the
holding company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed above, and
has a period of two years to cease any non-conforming activities and divest of
any non-conforming investments.

The mutual holding company will be subject to such regulations as the
Pennsylvania Department of Banking may prescribe. No mutual holding company
regulations have been issued to date by the Department.

                                       27
<PAGE>

REGULATION OF ABINGTON BANK

PENNSYLVANIA SAVINGS BANK LAW. The Pennsylvania Banking Code contains detailed
provisions governing the organization, location of offices, rights and
responsibilities of directors, officers, and employees, as well as corporate
powers, savings and investment operations and other aspects of Abington Bank and
its affairs. The code delegates extensive rule-making power and administrative
discretion to the Pennsylvania Department of Banking so that the supervision and
regulation of state-chartered savings banks may be flexible and readily
responsive to changes in economic conditions and in savings and lending
practices.

The Pennsylvania Banking Code also provides that state-chartered savings banks
may engage in any activity permissible for a federal savings association,
subject to regulation by the Pennsylvania Department of Banking. The Federal
Deposit Insurance Act, however, prohibits Abington Bank from making new
investments, loans, or becoming involved in activities as principal and equity
investments which are not permitted for national banks unless:

        o       the Federal Deposit Insurance Corporation determines the
                activity or investment does not pose a significant risk of loss
                to the Savings Association Insurance Fund; and

        o       Abington Bank meets all applicable capital requirements.

Accordingly, the additional operating authority provided to Abington Bank by the
Pennsylvania Banking Code is significantly restricted by the Federal Deposit
Insurance Act.

INSURANCE OF ACCOUNTS. The deposits of Abington Bank are insured to the maximum
extent permitted by the Savings Association Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation, and are backed by the
full faith and credit of the U.S. Government. As insurer, the Federal Deposit
Insurance Corporation is authorized to conduct examinations of, and to require
reporting by, insured institutions. It also may prohibit any insured institution
from engaging in any activity the Federal Deposit Insurance Corporation
determines by regulation or order to pose a serious threat to the Federal
Deposit Insurance Corporation. The Federal Deposit Insurance Corporation also
has the authority to initiate enforcement actions against savings institutions.

Under current Federal Deposit Insurance Corporation regulations, Savings
Association Insurance Fund- insured institutions are assigned to one of three
capital groups which are based solely on the level of an institution's capital.
Assessment rates are then tied to the level of an institution's supervisory
concern based on risk classifications derived from the capital groups. Rates
during the last six months of 2005 ranged from zero for well capitalized,
healthy institutions, such as Abington Bank, to 27 basis points for
undercapitalized institutions with substantial supervisory concerns.

In addition, all institutions with deposits insured by the Federal Deposit
Insurance Corporation are required to pay assessments to fund interest payments
on bonds issued by the Financing Corporation, a mixed-ownership government
corporation established to recapitalize the predecessor to the Savings
Association Insurance Fund. These assessments will continue until the Financing
Corporation bonds mature in 2019.

The Federal Deposit Insurance Corporation may terminate the deposit insurance of
any insured depository institution, including Abington Bank, if it determines
after a hearing that the institution has engaged or is engaging in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, order or any condition imposed
by an agreement with the Federal Deposit Insurance Corporation. It also may
suspend deposit insurance temporarily during the

                                       28
<PAGE>

hearing process for the permanent termination of insurance, if the institution
has no tangible capital. If insurance of accounts is terminated, the accounts at
the institution at the time of the termination, less subsequent withdrawals,
shall continue to be insured for a period of six months to two years, as
determined by the Federal Deposit Insurance Corporation. Management is aware of
no existing circumstances which would result in termination of Abington Bank's
deposit insurance.

DEPOSIT INSURANCE REFORM. On February 8, 2006, President Bush signed into law
legislation that merges the Bank Insurance Fund ("BIF") and the SAIF, eliminates
any disparities in bank and thrift risk-based premium assessments, reduces the
administrative burden of maintaining and operating two separate funds and
establishes certain new insurance coverage limits and a mechanism for possible
periodic increases. The legislation also gives the FDIC greater discretion to
identify the relative risks all institutions present to the deposit insurance
fund and set risk-based premiums.

Major provisions in the legislation include: maintaining basic deposit and
municipal account insurance coverage at $100,000 but providing for a new basic
insurance coverage for retirement accounts of $250,000. Insurance coverage for
basic deposit and retirement accounts could be increased for inflation every
five years in $10,000 increments beginning in 2011; providing the FDIC with the
ability to set the designated reserve ratio within a range of between 1.15
percent and 1.50 percent, rather than maintaining 1.25 percent at all times
regardless of prevailing economic conditions; providing a one-time assessment
credit of $4.7 billion to banks and savings associations in existence on
December 31, 1996. The institutions qualifying for the credit may use it to
offset future premiums with certain limitations; requiring the payment of
dividends of 100% of the amount that the insurance fund exceeds 1.5% of the
estimated insured deposits and the payment of 50% of the amount that the
insurance fund exceeds 1.35% of the estimated insured deposits. (when the
reserve is greater than 1.35% but no more than 1.5%); the merger of the SAIF and
BIF must occur no later than July 1, 2006. Other provisions will become
effective within 90 days of the publication date of the final FDIC regulations
implementing the legislation.

REGULATORY CAPITAL REQUIREMENTS. The Federal Deposit Insurance Corporation has
promulgated capital adequacy requirements for state-chartered banks that, like
Abington Bank, are not members of the Federal Reserve Board System. The capital
regulations establish a minimum 3% Tier 1 leverage capital requirement for the
most highly rated state-chartered, non-member banks, with an additional cushion
of at least 100 to 200 basis points for all other state-chartered, non-member
banks, which effectively increases the minimum Tier 1 leverage ratio for such
other banks to 4% to 5% or more. Under the Federal Deposit Insurance
Corporation's regulations, the highest-rated banks are those that the Federal
Deposit Insurance Corporation determines are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, which are considered a strong banking organization, rated composite
1 under the Uniform Financial Institutions Rating System. Tier 1, or leverage
capital, is defined as the sum of common shareholders' equity, including
retained earnings, noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain purchased mortgage servicing rights and purchased credit card
relationships.

The Federal Deposit Insurance Corporation's regulations also require that
state-chartered, non-member banks meet a risk-based capital standard. The
risk-based capital standard requires the maintenance of total capital, defined
as Tier 1 capital and supplementary (Tier 2) capital, to risk weighted assets of
8%. In determining the amount of risk-weighted assets, all assets, plus certain
off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based
on the risks the Federal Deposit Insurance Corporation believes are inherent in
the type of asset or item. The components of Tier 1 capital for the risk-based
standards are the same as those for the leverage capital requirement. The
components of supplementary (Tier 2) capital include cumulative perpetual
preferred stock, mandatory subordinated debt, perpetual

                                       29
<PAGE>

subordinated debt, intermediate-term preferred stock, up to 45% of unrealized
gains on equity securities and a portion of a bank's allowance for loan losses.
Allowance for loan losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of supplementary
capital that may be included in total capital is limited to 100% of Tier 1
capital.

A bank that has less than the minimum leverage capital requirement is subject to
various capital plan and activities restriction requirements. The Federal
Deposit Insurance Corporation's regulations also provide that any insured
depository institution with a ratio of Tier 1 capital to total assets that is
less than 2.0% is deemed to be operating in an unsafe or unsound condition
pursuant to Section 8(a) of the Federal Deposit Insurance Act and could be
subject to potential termination of deposit insurance.

Abington Bank is also subject to minimum capital requirements imposed by the
Pennsylvania Department of Banking on Pennsylvania chartered depository
institutions. Under the Pennsylvania Department of Banking's capital
regulations, a Pennsylvania bank or savings association must maintain a minimum
leverage ratio of Tier 1 capital, as defined under the Federal Deposit Insurance
Corporation's capital regulations, to total assets of 4%. In addition, the
Pennsylvania Department of Banking has the supervisory discretion to require a
higher leverage ratio for any institution or association based on inadequate or
substandard performance in any of a number of areas. The Pennsylvania Department
of Banking incorporates the same Federal Deposit Insurance Corporation
risk-based capital requirements in its regulations. As of December 31, 2005,
Abington Bank was in compliance with all applicable regulatory capital
requirements and was deemed to be a "well-capitalized" institution.

AFFILIATE TRANSACTION RESTRICTIONS. Federal laws strictly limit the ability of
banks to engage in transactions with their affiliates, including their bank
holding companies. Such transactions between a subsidiary bank and its parent
company or the nonbank subsidiaries of the bank holding company are limited to
10% of a bank subsidiary's capital and surplus and, with respect to such parent
company and all such nonbank subsidiaries, to an aggregate of 20% of the bank
subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also requires that all transactions between a bank and its
affiliates be on terms as favorable to the bank as transactions with
non-affiliates.

FEDERAL HOME LOAN BANK SYSTEM. Abington Bank is a member of the Federal Home
Loan Bank of Pittsburgh, which is one of 12 regional Federal Home Loan Banks.
Each Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
member institutions and proceeds from the sale of consolidated obligations of
the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors of
the Federal Home Loan Bank.

As a member, Abington Bank is required to purchase and maintain stock in the
Federal Home Loan Bank of Pittsburgh in an amount equal to the greater of 1% of
its aggregate unpaid residential mortgage loans, home purchase contracts or
similar obligations at the beginning of each year or 5% of its outstanding
advances from the Federal Home Loan Bank. At December 31, 2005, Abington Bank
was in compliance with this requirement.

FEDERAL RESERVE BOARD SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts, which are primarily checking and NOW
accounts, and non-personal time deposits. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
the liquidity requirements that are imposed by the Pennsylvania Department of
Banking. At December 31, 2005, Abington Bank was in compliance with these
reserve requirements.

                                       30
<PAGE>

                                    TAXATION

FEDERAL TAXATION

GENERAL. Abington Community Bancorp, Abington Mutual Holding Company and
Abington Bank are subject to federal income taxation in the same general manner
as other corporations with some exceptions listed below. The following
discussion of federal, state and local income taxation is only intended to
summarize certain pertinent income tax matters and is not a comprehensive
description of the applicable tax rules.

METHOD OF ACCOUNTING. For federal income tax purposes, Abington Bank reports
income and expenses on the accrual method of accounting and files its federal
income tax return on a calendar year basis.

BAD DEBT RESERVES. The Small Business Job Protection Act of 1996 eliminated the
use of the reserve method of accounting for bad debt reserves by savings
associations, effective for taxable years beginning after 1995. Prior to that
time, Abington Bank was permitted to establish a reserve for bad debts and to
make additions to the reserve. These additions could, within specified formula
limits, be deducted in arriving at taxable income. As a result of the Small
Business Job Protection Act of 1996, savings associations must use the specific
charge-off method in computing their bad debt deduction beginning with their
1996 federal tax return. In addition, federal legislation required the recapture
over a six year period of the excess of tax bad debt reserves at December 31,
1995 over those established as of December 31, 1987.

TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the Small Business Job Protection
Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to
recapture into taxable income if Abington Bank failed to meet certain thrift
asset and definitional tests. New federal legislation eliminated these savings
association related recapture rules. However, under current law, pre-1988
reserves remain subject to recapture should Abington Bank make certain
non-dividend distributions or cease to maintain a bank charter.

At December 31, 2005, Abington Bank's total federal pre-1988 reserve was
approximately $3.2 million. The reserve reflects the cumulative effects of
federal tax deductions by Abington Bank for which no federal income tax
provisions have been made.

ALTERNATIVE MINIMUM TAX. The Internal Revenue Code imposes an alternative
minimum tax at a rate of 20% on a base of regular taxable income plus certain
tax preferences. The alternative minimum tax is payable to the extent such
alternative minimum tax income is in excess of the regular income tax. Net
operating losses, of which Abington Bank has none, can offset no more than 90%
of alternative minimum taxable income. Certain payments of alternative minimum
tax may be used as credits against regular tax liabilities in future years.
Abington Bank has not been subject to the alternative minimum tax or any such
amounts available as credits for carryover.

CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Abington Community Bancorp may exclude
from its income 100% of dividends received from Abington Bank as a member of the
same affiliated group of corporations. The corporate dividends received
deduction is 80% in the case of dividends received from corporations which a
corporate recipient owns less than 80%, but at least 20% of the distribution
corporation. Corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received.

                                       31
<PAGE>

STATE AND LOCAL TAXATION

PENNSYLVANIA TAXATION. Abington Community Bancorp is subject to the Pennsylvania
Corporate Net Income Tax, Capital Stock and Franchise Tax. The Corporation Net
Income Tax rate for 2005 is 9.99% and is imposed on unconsolidated taxable
income for federal purposes with certain adjustments. In general, the Capital
Stock and Franchise Tax is a property tax imposed on a corporation's capital
stock value at a statutorily defined rate, such value being determined in
accordance with a fixed formula based upon average net income and net worth.

Abington Bank is subject to tax under the Pennsylvania Mutual Thrift
Institutions Tax Act, as amended to include thrift institutions having capital
stock. Pursuant to the Mutual Thrift Institutions Tax, the tax rate is 11.5%.
The Mutual Thrift Institutions Tax exempts Abington Bank from other taxes
imposed by the Commonwealth of Pennsylvania for state income tax purposes and
from all local taxation imposed by political subdivisions, except taxes on real
estate and real estate transfers. The Mutual Thrift Institutions Tax is a tax
upon net earnings, determined in accordance with generally accepted accounting
principles with certain adjustments. The Mutual Thrift Institutions Tax, in
computing income according to generally accepted accounting principles, allows
for the deduction of interest earned on state and federal obligations, while
disallowing a percentage of a thrift's interest expense deduction in the
proportion of interest income on those securities to the overall interest income
of Abington Bank. Net operating losses, if any, thereafter can be carried
forward three years for Mutual Thrift Institutions Tax purposes.

ITEM 1A. RISK FACTORS

MARKET RATES OF INTEREST HAVE HURT PROFITABILITY

Market rates of interest are beginning to rise from historically low levels.
Many institutions, including Abington Bank, have experienced a narrowing or
"compression" of their net interest spread, which is the difference between the
average yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities. Abington Bank's net interest spread was 2.27% for
the year ended December 31, 2005 compared to 2.30% and 2.50% for the years ended
December 31, 2004 and 2003, respectively. Abington Bank's net interest margin,
which is net interest income as a percentage of average interest-earning assets,
was 2.78% for the year ended December 31, 2005 compared to 2.67% and 2.88% for
the years ended December 31, 2004 and 2003, respectively. In addition, a sudden
increase in market rates of interest could adversely affect our net portfolio
value. In the event of an immediate and sustained 200 basis point increase in
interest rates, Abington Bank's net portfolio value, which is the present value
of expected cash flows from assets, liabilities and off-balance sheet contracts,
would decrease by $8.2 million or 6.90%. Under the same circumstances, our net
interest income would be expected to decrease by $336,000 or 1.43%.

COMPETITION FOR LOW-COST CORE DEPOSITS IS INCREASING

As a result of rising interest rates in recent periods, deposit customers have
transferred significant amounts of their deposits from low-cost "core deposits"
such as checking and savings accounts to certificates of deposits, also known as
time deposits. For the year ended December 31, 2005 core deposits comprised
42.9% of our average total deposits compared to 49.7% and 47.6% for the years
ended December 31, 2004 and 2003, respectively. This has been a result of the
increased rates now available on those products relative to other deposit
products. As more customers invest in time deposits and as competition for
low-cost core deposits increases, the average rate Abington Bank pays on its
deposits will likely increase. This will have the effect of narrowing our net
interest spread and net interest margin. The

                                       32
<PAGE>

average rate we paid on our interest-bearing deposits was 2.38% for the year
ended December 31, 2005 compared to 1.88% and 2.11% for the years ended December
31, 2004 and 2003, respectively.

OUR LOANS ARE CONCENTRATED TO BORROWERS IN OUR MARKET AREA

At December 31, 2005, the preponderance of our total loans were to individuals
and/or secured by properties located in our market area of Montgomery and Bucks
Counties in Pennsylvania. We have relatively few loans outside of our market. As
a result, we may have a greater risk of loan defaults and losses in the event of
an economic downturn in our market area such as a decline in local property
values.

OUR PORTFOLIO OF LOANS WITH A HIGHER RISK OF LOSS IS INCREASING

In recent years, we have increased our originations of construction loans and
commercial real estate and multi-family residential real estate loans. These
loans have a higher risk of default and loss than single-family residential
mortgage loans. The aggregate of construction loans and commercial real estate
and multi-family residential loans has increased from $61.7 million or 17.2 % of
our total loan portfolio at December 31, 2001 to $209.4 million or 35.5% of the
total loan portfolio at December 31, 2005. At the same time, the percentage of
the loan portfolio comprised of single-family residential mortgage loans has
decreased. Our single-family residential mortgage loans amounted to $267.0
million or 74.4% of our total loan portfolio at December 31, 2001 compared to
$323.7 million or 54.9% at December 31, 2005. Construction loans and commercial
real estate and multi-family residential real estate loans all generally have a
higher risk of loss than single-family residential mortgage loans because
repayment of the loans often depends on the successful operation of a business
or the underlying property. As of December 31, 2005, our non-performing loans
increased to $2.9 million compared to $227,000 at December 31, 2004. This
increase was due to one construction loan which has not performed in accordance
with its terms.

ABINGTON MUTUAL HOLDING COMPANY OWNS A MAJORITY OF OUR OUTSTANDING COMMON STOCK
AND CAN CONTROL THE RESULT OF MOST MATTERS PUT TO A VOTE OF SHAREHOLDERS

Abington Mutual Holding Company owns 55% of our outstanding shares of common
stock, and, through its board of directors, is able to exercise voting control
over most matters put to a vote of our shareholders. The same directors and
officers who manage Abington Community Bancorp and Abington Bank also manage
Abington Mutual Holding Company. No assurances can be given that Abington Mutual
Holding Company will not take action which the minority shareholders believe to
be contrary to their interests. For example, Abington Mutual Holding Company
could approve the implementation of stock benefit plans, prevent a sale or
merger transaction or defeat a candidate for our board of directors or other
proposals put forth by the minority shareholders. Moreover, Abington Mutual
Holding Company's ownership of more than a majority of the outstanding shares of
our common stock is likely to perpetuate existing management and directors.

OUR RESULTS OF OPERATIONS ARE SIGNIFICANTLY DEPENDENT ON ECONOMIC CONDITIONS AND
RELATED UNCERTAINTIES

Banking is affected, directly and indirectly, by domestic and international
economic and political conditions and by governmental monetary and fiscal
policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, real estate values, government monetary policy, international
conflicts, the actions of terrorists and other factors beyond our control may
adversely affect our results of operations. Changes in interest rates, in
particular, could adversely affect our net interest income and have a number of
other adverse effects on our operations, as discussed the first risk factor
above. Adverse economic conditions also could result in an increase in loan
delinquencies, foreclosures and nonperforming assets and a decrease in the value
of the property or other collateral which secures our

                                       33
<PAGE>

loans, all of which could adversely affect our results of operations. We are
particularly sensitive to changes in economic conditions and related
uncertainties in the Delaware Valley because we derive substantially all of our
loans, deposits and other business from the greater Philadelphia region in
eastern Pennsylvania and contiguous counties in New Jersey and Delaware.
Accordingly, we remain subject to the risks associated with prolonged declines
in national or local economies.

OUR ALLOWANCE FOR LOSSES ON LOANS MAY NOT BE ADEQUATE TO COVER PROBABLE LOSSES

We have established an allowance for loan losses which we believe is adequate to
offset probable losses on our existing loans. There can be no assurance that any
future declines in real estate market conditions, general economic conditions or
changes in regulatory policies will not require us to increase our allowance for
loan losses, which would adversely affect our results of operations. Our
allowance for loan losses amounted to 50.3% of non-performing loans at December
31, 2005.

WE ARE SUBJECT TO EXTENSIVE REGULATION WHICH COULD ADVERSELY AFFECT OUR BUSINESS
AND OPERATIONS

We are subject to extensive federal and state governmental supervision and
regulation, which are intended primarily for the protection of depositors. In
addition, we are subject to changes in federal and state laws, as well as
changes in regulations, governmental policies and accounting principles. The
effects of any such potential changes cannot be predicted but could adversely
affect our business and operations in the future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

We currently conduct business from our main office, seven full-service banking
offices and four limited service offices. The following table sets forth the net
book value of the land, building and leasehold improvements and certain other
information with respect to our offices at December 31, 2005.

<TABLE>
<CAPTION>
<S>                                                                           <C>
                                                                                    Net Book
                                                                  Date of Lease        Value       Amount of
             Description/Address                  Leased/Owned      Expiration      of Property     Deposits
----------------------------------------------  ---------------- ---------------  ---------------  ----------
                                                                                          (In Thousands)
Main Office                                          Owned             N/A             $1,300        $141,645
180 Old York Road
Jenkintown, PA 19046

Loan Processing Office                               Owned             N/A                963             n/a
179 Washington Lane
Jenkintown, PA 19046

Glenside Branch                                   Bldg. Owned         12/31/19            456          80,525
273 Keswick Avenue                                Ground Lease
Glenside, PA 19038

Abington Branch                                      Leased            1/31/19            171          56,102
990 Old York Road
Abington, PA 19001
</TABLE>


                                       34
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                           <C>
                                                                                    Net Book
                                                                  Date of Lease        Value       Amount of
             Description/Address                  Leased/Owned      Expiration      of Property     Deposits
----------------------------------------------  ---------------- ---------------  ---------------  ----------

Willow Grove Branch                                  Owned             N/A              1,422          70,321
275 Moreland Road
Willow Grove, PA 19090

Horsham Branch                                       Leased            5/31/08            226          36,036
Rt 611 & County Line Road
Horsham, PA 19044

Huntingdon Valley Branch                             Leased           12/31/13            133          25,760
667 Welsh Road
Huntingdon Valley, PA 19006

Fort Washington Branch                               Leased            8/15/08            140          25,039
101 Fort Washington Avenue
Fort Washington, PA 19034

Montgomeryville Branch                               Leased            3/31/11             57          23,798
521 Stump Road
North Wales, PA 19454

Rydal Park Limited Service Office                    Leased            5/21/08             --           8,917
1515 The Fairway
Rydal, PA 19046

Centennial Station Limited Service Office            Leased            7/31/08              5           3,068
12106-B Centennial Station
Warminster, PA 18974

Regency Towers Limited Service Office                Leased           10/31/08             40           4,357
1003 Easton Road
Willow Grove, PA 19090

Ann's Choice Limited Service Office                  Leased            7/31/08              2          25,561
10000 Ann's Choice Way
Warminster, PA 18974
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 2005, we were not, and we presently are not, involved in any
legal proceedings of a material nature. From time to time, we are a party to
legal proceedings incidental to our business to enforce our security interest in
collateral pledged to secure loans made by Abington Bank.

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

Not applicable.


                                       35
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

(a)     Abington Community Bancorp, Inc. common stock trades on the Nasdaq
        National Market under the trading symbol "ABBC." At the close of
        business on December 31, 2005, there were 1,600 shareholders of record.

        Company common shares were first sold in Abington Community Bancorp's
        initial public offering as a part of Abington Bank's mutual holding
        company reorganization on December 16, 2004 at the offering price of
        $10.00 per share. The Company's common stock began trading on Nasdaq on
        December 17, 2004.

        The following table sets forth the high and low closing stock prices of
        the Company's common stock as reported by the Nasdaq stock market during
        the periods presented.

                                            YEAR ENDED DECEMBER 31,
                                -------------------------------------------
                                        2005                  2004
                                --------------------- ---------------------

                                   High       Low        High       Low

           First Quarter         $ 13.75     $ 12.79       n/a        n/a
           Second Quarter        $ 13.15     $ 10.30       n/a        n/a
           Third Quarter         $ 13.09     $ 11.65       n/a        n/a
           Fourth Quarter        $ 13.65     $ 11.90   $ 13.70     $ 13.01

        The following table summarizes the cash dividends per share of common
        stock paid by the Company during the periods indicated.

                                   YEAR ENDED DECEMBER 31,
                                ---------------------------
                                    2005          2004
                                ------------- -------------

           First Quarter               n/a           n/a
           Second Quarter           $ 0.05           n/a
           Third Quarter            $ 0.05           n/a
           Fourth Quarter           $ 0.05           n/a


        The Company did not sell any of its equity securities during 2005 that
        were not registered under the Securities Act of 1933.

        For information regarding the Company's equity compensation plans see
        Item 12.

(b)     Not applicable.

(c)     PURCHASES OF EQUITY SECURITIES

        The Company did not make any repurchases of its common stock during the
        fourth quarter of 2005.

                                       36
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial and other data of Abington Community
Bancorp, Inc. set forth below does not purport to be complete and should be read
in conjunction with, and is qualified in its entirety by, the more detailed
information, including the Consolidated Financial Statements and related Notes,
appearing elsewhere herein.

<TABLE>
<CAPTION>

                                                                      At December 31,
                                             ------------------------------------------------------------------
                                                 2005          2004          2003         2002         2001
                                             ------------  ------------  ------------  -----------  -----------
                                                                   (Dollars in Thousands)
<S>                                              <C>           <C>           <C>          <C>          <C>
SELECTED FINANCIAL AND OTHER DATA:
Total assets                                     $844,072      $717,978      $604,439     $535,797     $476,646
Cash and cash equivalents                          27,714        33,296        19,696       51,702       36,689
Investment securities and FHLB stock:
  Held-to-maturity                                 20,396        10,220            --           --           --
  Available-for-sale                               89,890        86,614        89,023       50,351       35,237
Mortgage-backed securities:
  Held-to-maturity                                 67,411        81,704        43,009       10,060           --
  Available-for-sale                               79,943        83,028        78,213       41,251       45,663
Loans receivable, net                             529,487       412,656       364,620      371,024      348,912
Deposits                                          501,183       405,290       362,666      344,336      309,059
FHLB advances                                     201,445       170,666       173,732      122,761      107,251
Other borrowings                                   16,114        12,866         8,681       11,937        9,749
Stockholders' equity                              117,231       123,055        53,234       50,591       45,388

Banking offices                                        12            12            12            9            9
                                                                  Year Ended December 31,
                                             ------------------------------------------------------------------
                                                 2005          2004          2003         2002         2001
                                             ------------  ------------  ------------  -----------  -----------
                                                       (Dollars in Thousands, except per share data)
SELECTED OPERATING DATA:
Total interest income                             $40,011       $30,849       $29,997      $31,797      $32,345
Total interest expense                             18,999        14,209        13,898       14,583       16,792
                                                  -------       -------       -------      -------      -------
Net interest income                                21,012        16,640        16,099       17,214       15,553
Provision for loan losses                              25            45           375          500          628
                                                  -------       -------       -------      -------      -------
  Net interest income after provision
      for loan losses                              20,987        16,595        15,724       16,714       14,925
Total non-interest income                           2,798         2,243         1,859          741        1,072
Total non-interest expense                         14,976        12,015        11,472       10,611        9,470
                                                  -------       -------       -------      -------      -------
Income before income taxes                          8,809         6,823         6,111        6,844        6,527
Income taxes                                        2,507         2,268         2,021        2,467        2,328
                                                  -------       -------       -------      -------      -------
Net income                                        $ 6,302       $ 4,555       $ 4,090      $ 4,377      $ 4,199
                                                  =======       =======       =======      =======      =======
Basic earnings per share                          $  0.41       n/a (1)           n/a          n/a          n/a
Diluted earnings per share                        $  0.41       n/a (1)           n/a          n/a          n/a
</TABLE>


                                       37
<PAGE>
<TABLE>
<CAPTION>
                                                                       At or For the
                                                                  Year Ended December 31,
                                             ------------------------------------------------------------------
                                                 2005          2004          2003         2002         2001
                                             ------------  ------------  ------------  -----------  -----------
<S>                                               <C>           <C>           <C>          <C>          <C>
SELECTED OPERATING RATIOS(2):
Average yield on interest-earning assets            5.30%         4.95%         5.36%        6.47%        7.25%
Average rate on interest-bearing
liabilities                                         3.03          2.65          2.86         3.44         4.37
Average interest rate spread(3)                     2.27          2.30          2.50         3.03         2.88
Net interest margin(3)                              2.78          2.67          2.88         3.50         3.49
Average interest-earning assets to average
  interest-bearing liabilities                    120.28        116.08        115.11       116.12       116.07
Net interest income after provision
  for loan losses to non-interest expense         140.14        138.12        137.06       157.52       157.60
Total non-interest expense to average
  assets                                            1.88          1.85          1.97         2.09         2.06
Efficiency ratio(4)                                62.90         63.63         63.88        59.10        56.96
Return on average assets                            0.79          0.70          0.70         0.86         0.91
Return on average equity                            5.27          7.52          7.85         9.11         9.71
Average equity to average assets                   15.02          9.30          8.94         9.46         9.42


                                                                       At or For the
                                                                  Year Ended December 31,
                                             ------------------------------------------------------------------
                                                 2005          2004          2003         2002         2001
                                             ------------  ------------  ------------  -----------  -----------
ASSET QUALITY RATIOS(5):
Non-performing loans as a percent of
  total loans receivable(6)                         0.54%         0.05%         0.12%        0.31%        0.40%
Non-performing assets as a percent of
  total assets(6)                                   0.34          0.03          0.08         0.23         0.30
Allowance for loan losses as a percent of
  non-performing loans                             50.29        622.03        315.15       145.04       111.50
Net (recoveries)/charge-offs to average
  loans receivable                                  0.02          0.02          0.21         0.08         0.12

CAPITAL RATIOS(7):
Tier 1 leverage ratio                              10.46%        12.73%         8.81%        9.33%        9.50%
Tier 1 risk-based capital ratio                    16.93         21.24         15.12        14.64        15.33
Total risk-based capital ratio                     17.21         21.57         15.53        15.18        15.88
</TABLE>
------------------

(1)     Due to the timing of the Bank's reorganization into the mutual holding
        company form and the completion of the Company's initial public offering
        on December 16, 2004, earnings per share for the period from December
        16, 2004 to December 31, 2004 is not considered meaningful and is not
        shown.

(2)     With the exception of end of period ratios, all ratios are based on
        average monthly balances during the indicated periods.

(3)     Average interest rate spread represents the difference between the
        average yield on interest-earning assets and the average rate paid on
        interest-bearing liabilities, and net interest margin represents net
        interest income as a percentage of average interest-earning assets.

(4)     The efficiency ratio represents the ratio of non-interest expense
        divided by the sum of net interest income and non-interest income.

(5)     Asset quality ratios are end of period ratios, except for net
        charge-offs to average loans receivable.

                                       38
<PAGE>

(6)     Non-performing assets consist of non-performing loans and real estate
        owned. Non-performing loans consist of all accruing loans 90 days or
        more past due and all non-accruing loans. It is our policy to cease
        accruing interest on all loans 90 days or more past due. Real estate
        owned consists of real estate acquired through foreclosure and real
        estate acquired by acceptance of a deed-in-lieu of foreclosure.

(7)     Capital ratios are end of period ratios and are calculated for Abington
        Bank per regulatory requirements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

We had net income of $6.3 million for the year ended December 31, 2005, our
first full year as a public company, representing an increase of $1.7 million or
38.4% over net income of $4.6 million for the year ended December 31, 2004.
Earnings per share was $0.41 for the year ended December 31, 2005. Our net
interest income improved by $4.4 million or 26.3% to $21.0 million for 2005 from
$16.6 million for 2004. The improvement was primarily a result of an increase in
the average balances of our interest earning assets, most notably loans,
combined with increases in the average yields on those assets. These increases
were partially offset by increases in the average balances of our interest
bearing liabilities and the rates paid on those liabilities. The Company's total
assets increased $126.1 million or 17.6% to $844.1 million at December 31, 2005
compared to $718.0 million at December 31, 2004. The primary reason for the
increase in total assets in 2005 was a $116.8 million or 28.3% increase in net
loans receivable to $529.5 million. Our total deposits increased $95.9 million
or 23.7% to $501.2 million at December 31, 2005 from $405.3 million at December
31, 2004, primarily as a result of a $103.4 million increase in certificate
accounts. The shift towards higher-rate certificates of deposits was a result of
the increased rates available on those products relative to other deposit
products in the current interest rate environment. The Company continues to
remain focused on maintaining and growing its base of core deposits over the
long term. The upcoming opening of three new branches is expected to contribute
towards this goal.

                                       39
<PAGE>

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES--In reviewing and
understanding financial information for Abington Community Bancorp, Inc., you
are encouraged to read and understand the significant accounting policies used
in preparing our consolidated financial statements. These policies are described
in Note 1 of the notes to our consolidated financial statements included in Item
8 of this Form 10-K. The accounting and financial reporting policies of Abington
Community Bancorp, Inc. conform to accounting principles generally accepted in
the United States of America and to general practices within the banking
industry. The preparation of the Company's consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Management evaluates these
estimates and assumptions on an ongoing basis including those related to the
allowance for loan losses and deferred income taxes. Management bases its
estimates on historical experience and various other factors and assumptions
that are believed to be reasonable under the circumstances. These form the bases
for making judgments on the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

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

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

We establish an allowance on certain impaired loans for the amount by which the
discounted cash flows, observable market price or fair value of collateral if
the loan is collateral dependent is lower than the carrying value of the loan. A
loan is considered to be impaired when, based upon current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan. An insignificant delay or
insignificant shortfall in amount of payments does not necessarily result in the
loan being identified as impaired.

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

We establish a general allowance on non-classified loans to recognize the
inherent losses associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem loans. This general
valuation allowance is determined by segregating the loans by loan category and

                                       40
<PAGE>

assigning allowance percentages based on our historical loss experience,
delinquency trends, and management's evaluation of the collectibility of the
loan portfolio.

The allowance is adjusted for significant factors that, in management's
judgment, affect the collectibility of the portfolio as of the evaluation date.
These significant factors may include changes in lending policies and
procedures, changes in existing general economic and business conditions
affecting our primary lending areas, credit quality trends, collateral value,
loan volumes and concentrations, seasoning of the loan portfolio, loss
experience in particular segments of the portfolio, duration of the current
business cycle, and bank regulatory examination results. The applied loss
factors are reevaluated each reporting period to ensure their relevance in the
current economic environment.

While management uses the best information available to make loan loss allowance
valuations, adjustments to the allowance may be necessary based on changes in
economic and other conditions, changes in the composition of the loan portfolio
or changes in accounting guidance. In times of economic slowdown, either
regional or national, the risk inherent in the loan portfolio could increase
resulting in the need for additional provisions to the allowance for loan losses
in future periods. An increase could also be necessitated by an increase in the
size of the loan portfolio or in any of its components even though the credit
quality of the overall portfolio may be improving. Historically, our estimates
of the allowance for loan loss have approximated actual losses incurred. In
addition, the Pennsylvania Department of Banking and the FDIC, as an integral
part of their examination processes, periodically review our allowance for loan
losses. The Pennsylvania Department of Banking or the FDIC may require the
recognition of adjustment to the allowance for loan losses based on their
judgment of information available to them at the time of their examinations. To
the extent that actual outcomes differ from management's estimates, additional
provisions to the allowance for loan losses may be required that would adversely
impact earnings in future periods.

INCOME TAXES--Management makes estimates and judgments to calculate some of our
tax liabilities and determine the recoverability of some of our deferred tax
assets, which arise from temporary differences between the tax and financial
statement recognition of revenues and expenses. Management also estimates a
reserve for deferred tax assets if, based on the available evidence, it is more
likely than not that some portion or all of the recorded deferred tax assets
will not be realized in future periods. These estimates and judgments are
inherently subjective. Historically, our estimates and judgments to calculate
our deferred tax accounts have not required significant revision from
management's initial estimates.

In evaluating our ability to recover deferred tax assets, management considers
all available positive and negative evidence, including our past operating
results, recent cumulative losses and our forecast of future taxable income. In
determining future taxable income, management makes assumptions for the amount
of taxable income, the reversal of temporary differences and the implementation
of feasible and prudent tax planning strategies. These assumptions require us to
make judgments about our future taxable income and are consistent with the plans
and estimates we use to manage our business. Any reduction is estimated future
taxable income may require us to record an additional valuation allowance
against our deferred tax assets. An increase in the valuation allowance would
result in additional income tax expense in the period and could have a
significant impact on our future earnings.

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

                                       41
<PAGE>

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

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

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

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

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

                                       42
<PAGE>

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

The Company's total assets increased $126.1 million or 17.6% to $844.1 million
at December 31, 2005 compared to $718.0 million at December 31, 2004. The
primary reason for the increase in total assets in 2005 was a $116.8 million or
28.3% increase in net loans receivable to $529.5 million. All categories of
loans increased, with the largest growth occurring in one- to four-family
residential loans and construction loans. Growing the Company's loan portfolio
through new loan originations, loan purchases and loan participations has been a
key element of the Company's long-term plan to leverage its capital. Our
investment securities, both held-to-maturity and available-for-sale, increased
by an aggregate of $12.8 million or 14.9% to an aggregate of $99.2 million at
December 31, 2005 compared to an aggregate of $86.4 million at December 31,
2004. This increase was primarily the result of the purchase of approximately
$10.2 million of municipal bonds. The tax-exempt income generated by these bonds
has contributed to the reduction of the Company's effective tax rate. Our
mortgage-backed securities, both held-to-maturity and available-for-sale,
decreased by an aggregate of $17.4 million or 10.5% to an aggregate of $147.4
million at December 31, 2005 compared to an aggregate of $164.7 million at
December 31, 2004. During 2005, purchases of approximately $29.3 million of both
available-for-sale and held-to-maturity mortgage-backed securities were offset
by approximately $44.5 million in repayments of such securities. The excess
repayments were primarily invested in new loan originations. Our cash and cash
equivalents decreased $5.6 million or 16.8% to $27.7 million at December 31,
2005 compared to $33.3 million at December 31, 2004. This decrease was also due
primarily to investments in new loan originations. Additionally, the Company
purchased $15.0 million of bank owned life insurance ("BOLI") during the first
quarter of 2005, which is reflected in the Company's balance sheet at its cash
surrender value. The BOLI is intended to fund various benefit programs of the
Company.

Our total deposits increased $95.9 million or 23.7% to $501.2 million at
December 31, 2005 from $405.3 million at December 31, 2004 as a result of a
$103.4 million increase in certificate accounts and a $1.8 million increase in
checking accounts that were partially offset by a decrease in savings and money
market accounts. The shift towards higher-rate certificates of deposits was a
result of the increased rates available on those products relative to other
deposit products in the current interest rate environment. The Company continues
to remain focused on maintaining and growing its base of core deposits over the
long term. The upcoming opening of three new branches is expected to contribute
towards this goal. Our advances from the Federal Home Loan Bank ("FHLB")
increased $30.8 million or 18.0% during 2005 to $201.4 million at December 31,
2005 compared to $170.7 million at December 31, 2004. We utilize advances from
the FHLB as an alternative to retail deposits in order to fund operations and
additional asset growth. The $3.2 million increase in other borrowed money to
$16.1 million at December 31, 2005 compared to $12.9 million at December 31,
2004 reflects an increase in the amount of securities repurchase agreements
entered into with certain commercial checking account customers.

Our stockholders' equity decreased $5.8 million to $117.2 million at December
31, 2005 compared to $123.1 million at December 31, 2004. The decrease was
primarily due to the purchase of approximately 419,000 shares of the Company's
common stock for an aggregate of $5.3 million by the Company's employee stock
ownership plan ("ESOP") and the purchase of approximately 286,000 shares of the
Company's common stock for an aggregate of $3.7 million by the Company's 2005
Recognition and Retention Plan ("RRP"). The payment of the Company's quarterly
cash dividends of $0.05 per share in June, September and December reduced
retained earnings by an aggregate of $2.3 million. Additionally, our accumulated
other comprehensive loss increased $1.8 million. These decreases to
stockholders' equity were partially offset by our net income for 2005, resulting
in a net increase in retained earnings of $4.0 million.

                                       43
<PAGE>

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 December 31, 2005,
our cash and cash equivalents amounted to $27.7 million. In addition, at such
date we had $24.1 million in investment securities scheduled to mature within
the next 12 months. Our available for sale investment and mortgage-backed
securities amounted to an aggregate of $158.8 million at December 31, 2005.

We use our liquidity to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses. At December 31,
2005, we had certificates of deposit maturing within the next 12 months
amounting to $161.2 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us. For years ended December 31, 2005 and 2004, the average
balance of our outstanding FHLB advances was $192.2 million and $169.7 million,
respectively. At December 31, 2005, we had $201.4 million in outstanding FHLB
advances and we had $314.5 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 a cost efficient addition 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 $117.2 million at December 31, 2005, a
decrease of $5.8 million from stockholders' equity of $123.1 million at December
31, 2004. Our stockholders' equity includes $69.3 million in net proceeds from
the Company's initial public offering completed on December 16, 2004. A
substantial amount of the net proceeds that had been initially invested
conservatively in instruments that yield a market rate have been redeployed into
loans. As part of our long-term strategic plan to leverage our capital through
retail deposit and loan growth, we anticipate opening three additional branches
within the next twelve months. Stockholders' equity was impacted during 2005 by
the purchase of shares of our common stock by our ESOP and RRP. As noted above,
our ESOP purchased approximately 419,000 shares of the Company's common stock in
the open market for an aggregate of $5.3 million and our RRP purchased
approximately 286,000 shares of the Company's common stock for an aggregate of
$3.7 million during 2005. Additionally, during 2005 the Company began its policy
of paying quarterly cash dividends. We paid quarterly cash dividends of $0.05
per share in June, September and December 2005 and such dividend payments in
2005 amounted to approximately $2.3 million in the aggregate. We recently
commenced our first stock repurchase program. Through this program, which was
announced on January 31, 2006, the Company will repurchase up to 10% of its
outstanding shares held by persons other than Abington Mutual Holding Company,
or 714,150 shares. The shares may be purchased in the open market or in
privately negotiated transactions from time to time depending upon market
conditions and other factors over a one-year period. We believe that the stock
repurchase program will benefit our shareholders by improving the Company's
return on equity and earnings per share and, at the same time, aid us in
managing our strong capital position. The stock repurchase program reflects our

                                       44
<PAGE>

commitment to manage our capital in a manner which should enhance shareholder
value while permitting us to prudently grow and diversify our business.

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

<TABLE>
<CAPTION>

                                               Actual Ratios At
                                               ----------------
                                                 December 31,
                                                 ------------         Regulatory    To Be Well
                                               2005         2004        Minimum     Capitalized
                                            -----------  -----------  -----------  -------------
<S>                                            <C>          <C>           <C>           <C>
     CAPITAL RATIOS:
     Tier 1 leverage ratio
        The Company                            14.28%       17.67%        4.00%          N/A
        The Bank                               10.46        12.73         4.00          5.00%
     Tier 1 risk-based capital ratio
        The Company                            16.94        29.62         4.00           N/A
        The Bank                               16.93        21.24         4.00          6.00
     Total risk-based capital ratio
        The Company                            23.47        29.96         8.00           N/A
        The Bank                               17.21        21.57         8.00         10.00
</TABLE>

DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. On occasion during the three years ended December 31, 2005, we
have used interest rate caps and swap agreements to manage our exposure to
fluctuations in interest rates on a portion of our fixed-rate loans and variable
rate deposits. We used interest rate swap agreements to hedge interest rate risk
resulting from our portfolio of interest-earning loans and interest-bearing
deposit liabilities. We do not hold any derivative financial instruments for
trading purposes.

At December 31, 2005, the Company was not party to any cap or swap agreements as
our final swap agreements expired in December 2005. At December 31, 2004 the
Company was party to two swap agreements with terms expiring in June 2005, and
December 2005. Under the June 2005 agreement, the Company either received or
paid, on a quarterly basis, the amount by which the ten-year Constant Maturity
Treasury ("CMT") exceeded or fell below 5.57% on the notional amount of $15
million. This agreement effectively changed a portion of the Company's fixed
rate mortgage portfolio to a variable rate of interest. Under the December 2005,
agreement, the Company either received or paid on a quarterly basis, the amount
by which the three month LIBOR exceeded or fell below 2.59% on the notional
amount of $15 million. This agreement effectively changed the Company's variable
rate money market accounts to a fixed rate of interest.

The swaps did not qualify as hedges under SFAS No. 133. As such, the fair value
of the interest rate swaps were reflected as a liability in the accompanying
consolidated statements of financial condition with the offset recorded in loss
on derivative instruments, net in the consolidated statements of income. The
fair value of the swap agreements was negative $85,000 at December 31, 2004.

Amounts paid or received under the cap or swap agreement are recognized in gain
(loss) on derivative instruments, net in the Company's consolidated statements
of income during the period in which they accrue. During the year ended December
31, 2005, the Company received $13,000 from the contra parties under the
agreements. During the years ended December 31, 2004, and 2003, the Company paid
$641,000 and $770,000, respectively, to the contra parties under the agreements.
In addition, the unrealized gains

                                       45
<PAGE>

on derivatives recognized in gain (loss) on derivative instruments, net in the
Company's consolidated statements of income were $85,000, $501,000 and $363,000
for the years ended December 31, 2005, 2004, and 2003, respectively.

SHARE-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R (revised 2004),
SHARE-BASED PAYMENT, which revises SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, and supersedes Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. This Statement requires an entity to
recognize the cost of employee services received in share-based payment
transactions and measure the cost on the grant-date fair value of the award.
That cost will be recognized over the period during which an employee is
required to provide service in exchange for the award. The provisions of SFAS
No. 123R were adopted by the Company as of July 1, 2005.

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

At December 31, 2005, the Company has two stock-based compensation plans, the
2005 Recognition and Retention Plan and the 2005 Stock Option Plan. Share awards
were first issued under these plans in July 2005. See Note 14 in the Notes to
the Consolidated Financial Statements in Item 8 herein for a further description
of these plans.

During the year ended December 31, 2005, we recognized $333,000 in compensation
expense related to the amortization of RRP shares, compared to no such expense
in 2004. As of December 31, 2005, approximately $3.1 million in additional
compensation expense will be recognized over the remaining lives of the RRP
awards. At December 31, 2005, the weighted average remaining lives of the RRP
awards is approximately 4.5 years.

During the year ended December 31, 2005, approximately $181,000 was recognized
in compensation expense for the Option Plan. At December 31, 2005, approximately
$1.7 million in additional compensation expense for awarded options remained
unrecognized. The weighted average period over which this expense will be
recognized is approximately 4.5 years.

The Company also has an employee stock ownership plan ("ESOP"). See Note 14 in
the Notes to the Consolidated Financial Statements in Item 8 herein for a
further description of this plan. Shares awarded under the ESOP are accounted
for in accordance with AICPA Statement of Position ("SOP") 93-6, EMPLOYERS'
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. As ESOP shares are committed to
be released and allocated among participants, the Company recognizes
compensation expense equal to the average market price of the shares over the
period earned. We recognized $475,000 in compensation expense due to the ESOP in
the year ended December 31, 2005 compared to no ESOP expense in 2004.

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

                                       46
<PAGE>

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 December 31, 2005 and
2004, we had no commitments to originate loans for sale.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. The amount and type of collateral required
varies, but may include accounts receivable, inventory, equipment, real estate
and income-producing commercial properties. At December 31, 2005 and 2004,
commitments to originate loans and commitments under unused lines of credit,
including undisbursed portions of construction loans in process, for which the
Bank is obligated amounted to approximately $125.2 million and $92.4 million,
respectively.

Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, bond financings and similar transactions. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Collateral may be required to
support letters of credit based upon management's evaluation of the
creditworthiness of each customer. The credit risk involved in issuing letters
of credit is substantially the same as that involved in extending loan
facilities to customers. Most letters of credit expire within one year. At
December 31, 2005 and December 31, 2004, the Bank had letters of credit
outstanding of approximately $14.1 million and $11.3 million, respectively, of
which $12.5 million and $10.5 million, respectively, were standby letters of
credit. At December 31, 2005 and 2004, the uncollateralized portion of the
letters of credit extended by the Bank was approximately $169,000 and $215,000,
respectively, of which $97,000 and $99,000, respectively, was for standby
letters of credit.

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

Among the Bank's contingent liabilities are exposures to limited recourse
arrangements with respect to the Bank's sales of whole loans and participation
interests. At December 31, 2005, the exposure, which represent 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.


                                       47
<PAGE>

The following tables summarize 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 December 31, 2005.

<TABLE>
<CAPTION>
                                                                Amount of Commitment Expiration - Per Period
                                                         ----------------------------------------------------------
                                         Total Amount         To             1-3           4-5           After 5
                                          Committed         1 Year          Years         Years           Years
                                       ----------------  -------------  -------------  -------------  -------------
                                                                       (In Thousands)
<S>                                         <C>              <C>            <C>            <C>            <C>
Letters of credit                           $ 14,101         $ 13,448       $    648       $     --       $      5
Recourse obligations on loans sold               185               --             --             --            185
Commitments to originate loans                 3,597            3,597             --             --             --
Unused portion of home equity
   lines of credit                            22,252               --             --             --         22,252
Unused portion of commercial
   lines of credit                            41,701           41,701             --             --             --
Undisbursed portion of
   construction loans in process              57,690           18,655         39,035             --             --
                                            --------         --------       --------       --------       --------
      Total commitments                     $139,526         $ 77,401       $ 39,683       $     --       $ 22,442
                                            ========         ========       ========       ========       ========
</TABLE>

The following tables summarize our contractual cash obligations at December 31,
2005.

<TABLE>
<CAPTION>
                                                                      Payments Due By Period
                                                         ----------------------------------------------
                                                             To          1-3        4-5        After 5
                                              Total        1 Year       Years      Years        Years
                                          -------------  ----------  ----------  ----------  ----------
                                                                   (In Thousands)
<S>                                          <C>          <C>         <C>         <C>         <C>
Certificates of deposit                      $286,121     $161,157    $ 97,188    $ 14,272    $ 13,504
                                             --------     --------    --------    --------    --------
FHLB advances                                 201,445       11,616      78,809      58,065      52,955
Repurchase agreements                          16,114       16,114          --          --          --
                                             --------     --------    --------    --------    --------
   Total debt                                 217,559       27,730      78,809      58,065      52,955
                                             --------     --------    --------    --------    --------
Operating lease obligations                     4,832          564       1,113         862       2,293
                                             --------     --------    --------    --------    --------
   Total contractual obligations             $508,512     $189,451    $177,110    $ 73,199    $ 68,752
                                             ========     ========    ========    ========    ========
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

GENERAL. We had net income of $6.3 million for the year ended December 31, 2005,
representing an increase of $1.7 million or 38.4% over net income of $4.6
million for the year ended December 31, 2004. Earnings per share was $0.41 for
the year ended December 31, 2005. Our net interest income improved by $4.4
million or 26.3% to $21.0 million for 2005 from $16.6 million for 2004. The
improvement was primarily a result of an increase in the average balances of our
interest earning assets, most notably loans, combined with increases in the
average yields on those assets. These increases were partially offset by
increases in the average balances of our interest bearing liabilities and the
rates paid on those liabilities. Overall, our net interest margin improved 11
basis points to 2.78% for 2005 from 2.67% for 2004, although our average
interest rate spread decreased slightly to 2.27% for 2005 from 2.30% for 2004.
Our non-interest income improved $555,000 or 24.7% to $2.8 million for 2005 from
$2.2 million for 2004. The increase was due primarily to an improvement in our
gain (loss) on derivative instruments, net and income on bank owned life
insurance, which was purchased in 2005. Our non-interest expense also

                                       48
<PAGE>

increased, growing $3.0 million or 24.6% to $15.0 million for 2005 from $12.0
million for 2004. The increase was due primarily to increases salaries and
employee benefits expense, occupancy expense, professional services expense and
advertising and promotions expense.

INTEREST INCOME. Interest income was $40.0 million for the year ended December
31, 2005, an increase of $9.2 or 29.7% from $30.8 million of interest income for
the year ended December 31, 2004. This increase in interest income was primarily
a result of growth in the average balance of interest-earning assets, as well as
increases in the average yields on those assets. The average balance of our
interest-earning assets improved $99.0 million or 15.1% to $754.7 million for
2005 compared to $622.7 million for 2004. The average yield on our
interest-earnings assets improved 35 basis points to 5.30% for 2005 compared to
4.95% for 2004. The most substantial growth was seen in our loan portfolio. The
average balance of our loan portfolio increased $84.1 million or 21.8% to $469.1
million for 2005 from $385.0 million for 2004. Additionally, the average yield
on our loan portfolio improved 31 basis points to 6.24% for 2005 compared to
5.93% for 2004. The average balance of our mortgage-backed securities in 2005
increased by $29.4 million over the 2004 average and the average balance of our
investment securities increased by $12.5 million over the same periods. The
average yields on such securities improved 17 and 49 basis points, respectively,
from the prior year to 4.13% and 3.36%, respectively, for 2005. The asset growth
has been a result of the Company's strategic plan to leverage the capital raised
in its initial public offering, in part, through loan growth. A substantial
amount of the net proceeds that had been initially invested conservatively in
instruments that yielded a market rate have been redeployed into loans.

INTEREST EXPENSE. Interest expense increased $4.8 million or 33.7% to $19.0
million for the year ended December 31, 2005 compared to $14.2 million for the
year ended December 31, 2004. The increase in interest expense for 2005 was the
result of increases in the average balances of, and average rates paid on, all
categories of interest-bearing liabilities. The average balance of our
interest-bearing liabilities increased $91.0 million or 17.0% to $627.5 million
for 2005 compared to $536.4 million for 2004. The average rate on our
interest-bearing liabilities increased 38 basis points to 3.03% for 2005
compared to 2.65% for 2004. For 2005 compared to 2004, our average deposit
balance grew by $66.0 million or 18.9%, due primarily to growth in higher-rate
certificates of deposit. The average balance of our certificates of deposit
increased $61.5 million or 35.0% to $237.0 million for 2005 compared to $175.5
million for 2004. The growth in certificates of deposit was a result of higher
market rates of interest on certificates of deposit relative to other deposit
products in the current interest rate environment. Over the long term, the
Company continues to remain focused on maintaining and growing its base of core
deposits. There is, however, significant competition for core deposits, and no
assurance can be given that we will succeed in increasing the proportion of core
deposits that we hold. The average balance of FHLB advances also increased for
2005 when compared to 2004. The average balance of our FHLB advances increased
$22.5 million or 13.3% to $192.2 million for 2005 compared to $170.0 million for
2004. The average rate on our FHLB advances was relatively consistent,
increasing only 7 basis points to 4.51% for 2005 compared to 4.44% for 2004.


                                       49
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                            ----------------------------------------------------------------------------------
                                                              2005                                      2004
                                            ----------------------------------------  ----------------------------------------
                                               Average                    Average        Average                    Average
                                               Balance      Interest     Yield/Rate      Balance      Interest     Yield/Rate
                                            ------------- ------------  ------------  ------------- ------------  ------------
                                                                          (Dollars in Thousands)
<S>                                            <C>            <C>             <C>         <C>            <C>            <C>
Interest-earning assets:
     Investment securities(1)                  $ 96,786      $ 3,250          3.36%       $ 84,320     $ 2,423          2.87%
     Mortgage-backed securities                 166,309        6,869          4.13         136,864       5,421          3.96
     Loans receivable(2)                        469,076       29,283          6.24         384,990      22,821          5.93
     Other interest-earning assets               22,551          609          2.70          16,554         184          1.11
                                               --------      -------                      --------     -------
       Total interest-earning assets            754,722       40,011          5.30%        622,728      30,849          4.95%
                                                             -------         -----                     -------         -----
     Cash and non-interest bearing
       balances                                  20,413                                     17,241
     Other non-interest-earning assets           21,556                                     11,157
                                               --------                                   --------
       Total assets                            $796,691                                   $651,126
                                               ========                                   ========
Interest-bearing liabilities:
  Deposits:
     Savings and money market accounts         $125,834        1,412          1.12%       $120,748       1,065          0.88%
     Checking accounts                           52,282           66          0.13          52,804          44          0.08
     Certificate accounts                       236,962        8,391          3.54         175,492       5,452          3.11
                                               --------      -------                      --------     -------
       Total deposits                           415,078        9,869          2.38         349,044       6,561          1.88
  FHLB advances                                 192,189        8,668          4.51         169,699       7,532          4.44
  Other borrowings                               20,198          462          2.29          17,703         116          0.66
                                               --------      -------                      --------     -------
     Total interest-bearing liabilities         627,465      $18,999          3.03%        536,446     $14,209          2.65%
                                                             -------         -----                     -------         -----
Non-interest-bearing liabilities:
     Non-interest-bearing demand
       accounts                                  39,900                                     45,861
     Real estate tax escrow accounts              2,263                                      2,204
     Other liabilities                            7,406                                      6,028
                                               --------                                   --------
       Total liabilities                        677,034                                    590,539
     Stockholders' equity                       119,657                                     60,587
                                               --------                                   --------
       Total liabilities and
         stockholders' equity                  $796,691                                   $651,126
                                               ========                                   ========
     Net interest-earning assets               $127,257                                   $ 86,282
                                               ========                                   ========
     Net interest income; average
       Interest rate spread                                  $21,012          2.27%                    $16,640          2.30%
                                                             =======         =====                     =======         =====
     Net interest margin(3)                                                   2.78%                                     2.67%
                                                                             =====                                     =====
</TABLE>
------------------------
(1)     Investment securities for the 2005 period include 47 non-taxable
        municipal bonds with an aggregate average balance of $16.3 million and
        an average yield of 4.2%. Investment securities for the 2004 period
        include 26 non-taxable municipal bonds with an aggregate average balance
        of $3.4 million and an average yield of 4.3%. The tax-exempt income from
        such securities has not been calculated on a tax equivalent basis.
(2)     Includes nonaccrual loans during the respective periods. Calculated net
        of deferred fees and discounts, loans in process and allowance for loan
        losses. The impact of loan fee income is immaterial effect on this
        analysis.
(3)     Equals net interest income divided by average interest-earning assets.


                                       50
<PAGE>

RATE/VOLUME ANALYSIS. The following table shows the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities affected our interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year
volume, and (2) changes in volume, which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.

                                                2005 vs. 2004
                                  ----------------------------------------
                                    Increase (Decrease) Due to
                                  ------------------------------
                                                                   Total
                                                        Rate/     Increase
                                     Rate     Volume    Volume   (Decrease)
                                  ---------  --------- --------- ---------
                                            (Dollars in Thousands)
     Interest income:
       Investment securities(1)    $   409    $   358   $    60   $   827
       Mortgage-backed
        securities                     232      1,166        50     1,148
       Loans receivable, net         1,213      4,984       265     6,462
       Other interest-
        earning assets                 263         67        95       425
                                   -------    -------   -------   -------
        Total interest-
          earning assets             2,117      6,575       470     9,162
                                   -------    -------   -------   -------
     Interest expense:
       Savings accounts                290         45        12       347
       Checking accounts                22         --        --        22

       Certificate accounts            762      1,910       267     2,939
                                   -------    -------   -------   -------
        Total deposits               1,074      1,955       279     3,308
       FHLB advances                   122        998        16     1,136

       Other borrowings                289         16        41       346
                                   -------    -------   -------   -------
        Total interest-
          bearing liabilities        1,485      2,969       336     4,790
                                   -------    -------   -------   -------
     Increase in net interest
       income                      $   632    $ 3,606   $   134   $ 4,372
                                   =======    =======   =======   =======

---------------
(1)     Investment securities for the 2005 period include 47 non-taxable
        municipal bonds with an aggregate average balance of $16.3 million and
        an average yield of 4.2%. Investment securities for the 2004 period
        include 26 non-taxable municipal bonds with an aggregate average balance
        of $3.4 million and an average yield of 4.3%. The tax-exempt income from
        such securities has not been calculated on a tax equivalent basis.

PROVISION FOR LOAN LOSSES. We made a $25,000 provision to the allowance for loan
losses for the year ended December 31, 2005 compared to a provision of $45,000
for the year ended December 31, 2004. The provision for loan losses is charged
to expense as necessary to bring our allowance for loan losses to a sufficient
level to cover known and inherent losses in the loan portfolio. The provision
taken during 2005 was primarily the result of growth in the loan portfolio while
the overall credit quality of the loan portfolio remained strong. At December
31, 2005, non-performing loans amounted to 0.54% of loans receivable and our
allowance for loan losses amounted to 50.3% of non-performing loans. The balance
of non-performing loans at December 31, 2005 consisted primarily of one loan,
with a carrying value of $2.9 million, placed on non-accrual status in the
fourth quarter. An allowance was reserved on this loan at December 31, 2005.
During the first quarter of 2006, we agreed to allow the sale of a portion of
the underlying collateral of the loan, with the proceeds paid to the Bank.
Approximately $1.7 million in net proceeds was received, reducing the
outstanding balance of the loan to $1.2 million. Based on the specific
circumstances of this loan, including the estimated value of the remaining
collateral, we do not expect to incur any significant loss.

                                       51
<PAGE>

NON-INTEREST INCOME. Our total non-interest income amounted to $2.8 million for
the year ended December 31, 2005 compared to $2.2 million for year ended
December 31, 2004. The increase was due primarily to $499,000 of income from
BOLI purchased in March 2005 and a $98,000 gain on derivative instruments in
2005 compared to a loss of $141,000 in 2004. Our BOLI is expected to continue to
generate positive income going forward and is intended to fund various benefit
programs of the Company. The Company does not expect to generate any income from
derivatives in 2006, as the Company is no longer party to any derivative
agreements. Income from BOLI and the gain on derivative instruments in the year
ended December 31, 2005, was partially offset by a $73,000 impairment charge on
investment securities recognized in 2005 with no comparable charge in 2004, a
$67,000 decrease in service charges and a $31,000 decrease in other non-interest
income. The impairment charge taken during 2005 was the result of management's
periodic evaluations of its investment portfolio and the determination that the
fair value of certain securities would not recover to their cost. Although
market values of the Company's investments fluctuate as market conditions
change, management believes that the overall credit quality of its investment
portfolio is strong. The decrease in service charges in 2005 when compared to
2004 was due primarily to a $61,000 decrease in fees generated by our overdraft
protection program due to a decrease in the volume of customer overdrafts. The
decrease in other non-interest income is due to decreases in various categories
of income.

NON-INTEREST EXPENSE. Our total non-interest expense for the year ended December
31, 2005 amounted to $15.0 million, representing an increase of $3.0 million or
24.6% from the year ended December 31, 2004. The overall increase was due to
increases in all categories of non-interest expense other than data processing
expense, which decreased slightly. Salaries and employee benefits expense
increased $1.6 million or 24.7% for 2005 compared to 2004. This increase was
primarily due to additional expenses of $838,000 in the aggregate relating to
the Company's ESOP, SOP and RRP, all of which began in 2005. The aggregate
expense for these plans is expected to increase in 2006 to approximately $1.3
million in the aggregate. The remainder of the increase in salaries and employee
benefits expense was due to growth in the total number of employees, normal
merit increases in salaries, and higher benefit costs. We anticipate additional
increases in salaries and employee benefits in 2006 due to additional staffing
needs, further merit increases in salary, and continued rising benefit costs.
Our occupancy expense increased approximately $480,000 or 41.2% in 2005 compared
to 2004, due in part to the leases entered into for three new branches. We do
not expect to experience a significant increase in occupancy expense in 2006.
Professional services expense increased approximately $382,000 or 75.1% due
primarily to increased audit and professional fees as the result of becoming a
public reporting entity. Such professional fees are expected to continue to be a
significant expense in 2006. Other non-interest expense increased approximately
$374,000 or 25.8% due primarily to additional expense of $151,000 for SOP and
RRP awards to directors combined with smaller increases in various other
categories of other non-interest expense. The aggregate expense for these plans
for directors is expected to increase in 2006 to approximately $300,000.

INCOME TAX EXPENSE. Income tax expense for the year ended December 31, 2005
amounted to $2.5 million compared to $2.3 million for the year ended December
31, 2004. The fluctuations in income tax expense from year to year is the result
of an increase in our pre-tax income partially offset by an improvement in our
effective tax rate. Our effective tax rate decreased to 28.5% for 2005 from
33.2% for 2004. The improved tax rate was primarily a result of increased
investment in tax-exempt municipal securities and BOLI income, which is also tax
exempt.

                                       52
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

GENERAL. We had net income of $4.6 million for the year ended December 31, 2004,
representing an increase of $465,000 or 11.4% over net income of $4.1 million
for the year ended December 31, 2003. Our net interest income improved by
$541,000 or 3.4% to $16.6 million for the year ended December 31, 2004 from
$16.1 million for the year ended December 31, 2003. Our results in the 2004
period reflect, in part, increases in the amount of interest-earning assets,
which have offset, in whole or in part, the narrowing or compression of our net
interest margins in 2004 compared to 2003. Our net interest margin decreased by
21 basis points to 2.67% for the year ended December 31, 2004 compared to 2.88%
for the year ended December 31, 2003 while our net interest spread decreased to
2.30% for the year ended December 31, 2004 compared to 2.50% for the year ended
December 31, 2003. In addition, non-interest income improved $383,000 or 20.6%
to $2.2 million for the year ended December 31, 2004 compared to $1.9 million
for the year ended December 31, 2003. This improvement was due to an increase in
service charge income and a decrease in the net loss on derivative instruments.
Partially offsetting these increases in income was a $543,000 or 4.7% increase
in non-interest expense to $12.0 million for the year ended December 31, 2004
compared to $11.5 million for the year ended December 31, 2003, primarily due to
increases in salaries and employee benefits expense, the largest component of
non-interest expense, professional services expense and data processing expense

INTEREST INCOME. Interest income was $30.8 million for the year ended December
31, 2004, an increase of $852,000 or 2.8% from $30.0 million of interest income
for the year ended December 31, 2003. The increase in interest income was
primarily due to increases in interest income on investments and mortgage-backed
securities. Both the average yield and average balance of investment securities
increased in 2004 compared to 2003. The average yield of investment securities
increased to 2.87% for 2004 from 2.67% for 2003 while the average balance of
investment securities increased to $84.3 million in 2004 from $78.4 million in
2003. A slight decrease in the average yield of mortgage-backed securities to
3.96% in 2004 from 4.09% in 2003 was more than offset by a $44.8 million or
48.6% increase in the average balance. A decrease in the average yield on loans
receivable to 5.93% in 2004 compared to 6.59% in 2003 offset a $23.4 million
increase in the average balance of such assets.

INTEREST EXPENSE. Interest expense increased $310,000 or 2.2% to $14.2 million
for the year ended December 31, 2004 compared to $13.9 million for the prior
year. The increase was due primarily to increases in the average balances of
FHLB advances and other borrowings. The average balance of FHLB advances
increased $21.6 million or 14.6% to $169.7 million in 2004 from $148.1 million
in 2003. The increase in the average balance more than offset a decrease in the
average cost to 4.44% in 2004 from 4.73% in 2003. The average balance of other
borrowings increased $2.5 million or 16.2% to $17.7 million in 2004 from $15.2
million in 2003. The increase in the average balance of other borrowings was
accompanied by an increase in the average cost of other borrowings to 0.66% in
2004 from 0.45% in 2003. Interest expense on deposits decreased $261,000 or 3.8%
to $6.6 million in 2004 from $6.8 million in 2003 due to a decrease in the
average cost to 1.88% in 2004 from 2.11% in 2003. The decrease in cost was
partially offset by an increase in the average balance of deposits to $349.0
million for 2004 compared to $322.8 million for 2003.

                                       53
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                            ----------------------------------------------------------------------------------
                                                              2004                                      2003
                                            ----------------------------------------  ----------------------------------------
                                               Average                    Average        Average                    Average
                                               Balance      Interest     Yield/Rate      Balance      Interest     Yield/Rate
                                            ------------- ------------  ------------  ------------- ------------  ------------
                                                                          (Dollars in Thousands)
<S>                                            <C>            <C>             <C>         <C>            <C>            <C>
Interest-earning assets:
     Investment securities(1)                  $ 84,320       $2,423          2.87%       $ 78,351     $ 2,090          2.67%
     Mortgage-backed securities                 136,864        5,421          3.96          92,108       3,770          4.09
     Loans receivable(2)                        384,990       22,821          5.93         361,548      23,828          6.59
     Other interest-earning assets               16,554          184          1.11          27,566         309          1.12
                                               --------      -------                      --------     -------
       Total interest-earning assets            622,728       30,849          4.95%        559,573      29,997          5.36%
                                                             -------         -----                     -------         -----
     Cash and non-interest bearing
       balances                                  17,241                                     12,069
     Other non-interest-earning assets           11,157                                     11,338
                                               --------                                   --------
       Total assets                            $651,126                                   $582,980
                                               ========                                   ========
Interest-bearing liabilities:
  Deposits:
     Savings and money market accounts         $120,748        1,065          0.88%       $107,291       1,068          1.00%
     Checking accounts                           52,804           44          0.08          46,433          51          0.11
     Certificate accounts                       175,492        5,452          3.11         169,058       5,703          3.37
                                               --------      -------                      --------     -------
       Total deposits                           349,044        6,561          1.88         322,782       6,822          2.11
  FHLB advances                                 169,699        7,532          4.44         148,090       7,008          4.73
  Other borrowings                               17,703          116          0.66          15,241          68          0.45
                                               --------      -------                      --------     -------
     Total interest-bearing liabilities         536,446      $14,209          2.65%        486,113     $13,898          2.86%
                                                             -------         -----                     -------         -----
Non-interest-bearing liabilities:
     Non-interest-bearing demand
       accounts                                  45,861                                     36,449
     Real estate tax escrow accounts              2,204                                      2,093
     Other liabilities                            6,028                                      6,194
                                               --------                                   --------
       Total liabilities                        590,539                                    530,849
     Stockholders' equity                        60,587                                     52,131
                                               --------                                   --------
       Total liabilities and
         stockholders' equity                  $651,126                                   $582,980
                                               ========                                   ========
     Net interest-earning assets               $ 86,282                                   $ 73,460
                                               ========                                   ========
     Net interest income; average
       Interest rate spread                                  $16,640          2.30%                    $16,099          2.50%
                                                             =======         =====                     =======         =====
     Net interest margin(3)                                                   2.67%                                     2.88%
                                                                             =====                                     =====
</TABLE>
--------------------
(4)     Investment securities for the 2004 period include 26 non-taxable
        municipal bonds with an aggregate average balance of $3.4 million and an
        average yield of 4.3%. Investment securities for the 2003 period include
        one non-taxable municipal bond in the amount of $180,000 and a yield of
        3.9%. The tax-exempt income from such securities has not been calculated
        on a tax equivalent basis.
(5)     Includes nonaccrual loans during the respective periods. Calculated net
        of deferred fees and discounts, loans in process and allowance for loan
        losses. The impact of loan fee income is immaterial effect on this
        analysis.
(6)     Equals net interest income divided by average interest-earning assets.


                                       54
<PAGE>

RATE/VOLUME ANALYSIS. The following table shows the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities affected our interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year
volume, and (2) changes in volume, which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.

                                                2004 vs. 2003
                                  ----------------------------------------
                                    Increase (Decrease) Due to
                                  ------------------------------
                                                                   Total
                                                        Rate/     Increase
                                     Rate     Volume    Volume   (Decrease)
                                  ---------  --------- --------- ---------
                                            (Dollars in Thousands)
     Interest income:
       Investment securities(1)    $   161    $   159   $    13   $  333
       Mortgage-backed
         securities                   (122)     1,832       (59)   1,651
       Loans receivable, net        (2,397)     1,545      (155)  (1,007)
       Other interest-
         earning assets                 (3)      (123)        1     (125)
                                   -------    -------   -------   -------
         Total interest-
           earning assets           (2,361)     3,413      (200)      852
                                   -------    -------   -------   -------
     Interest expense:
       Savings accounts               (122)       134       (15)       (3)
       Checking accounts               (12)         7        (2)       (7)
       Certificate accounts           (451)       217       (17)     (251)
                                   -------    -------   -------   -------
         Total deposits               (585)       358       (34)     (261)
       FHLB advances                  (435)     1,023       (64)      524
       Other borrowings                 32         11         5        48
                                   -------    -------   -------   -------
         Total interest-
           bearing liabilities        (988)     1,392       (93)      311
                                   -------    -------   -------   -------
     Increase (decrease) in
       net interest income        $(1,373)    $ 2,021   $  (107)  $   541
                                  =======     =======   =======   =======

---------------
(1)     Investment securities for the 2004 period include 26 non-taxable
        municipal bonds with an aggregate average balance of $3.4 million and an
        average yield of 4.3%. Investment securities for the 2003 period include
        one non-taxable municipal bond in the amount of $180,000 and a yield of
        3.9%. The tax-exempt income from such securities has not been calculated
        on a tax equivalent basis.

PROVISION FOR LOAN LOSSES. For the year ended December 31, 2004 our provision
for loan losses was $45,000 compared to $375,000 for the year ended December 31,
2003. The provision for loan losses is charged to expense as necessary to bring
our allowance for loan losses to a sufficient level to cover known and inherent
losses in the loan portfolio. At December 31, 2004 we had $227,000 of
non-performing assets and our allowance for loan losses amounted to $1.4
million. Our non-performing loans as a percentage of total loans receivable was
0.06% at December 31, 2004 and 0.13% at December 31, 2003. For the year ended
December 31, 2004 our net loan charge-offs amounted to $88,000. Net loan
charge-offs amounted to $733,000 for the year ended December 31, 2003 of which
$671,000 related to one borrower.

NON-INTEREST INCOME. Total non-interest income increased $383,000 or 20.6% to
$2.2 million for the year ended December 31, 2004 compared to $1.9 million for
the year ended December 31, 2003. Contributing to the increase was a $318,000 or
20.8% increase in service charge income, particularly fees earned on our
overdraft protection program which we began offering in May 2003. Our loss on
derivative instruments improved to $141,000 for the year ended December 31, 2004
compared to $407,000 for the

                                       55
<PAGE>

year ended December 31, 2003. These changes were somewhat offset as $190,000 of
combined gains on sales of loans and property that were recognized in 2003 did
not recur in 2004.

NON-INTEREST EXPENSE. Our total non-interest expense for the year ended December
31, 2004 amounted to $12.0 million representing an increase of $543,000 from the
year ended December 31, 2003. The increase for the year ended December 31, 2004
when compared to the prior year was due primarily to increases in salaries and
employee benefits expense, the largest component of non-interest expense, and
data processing expense. The $453,000 or 7.6% increase in salaries and employee
benefits expense to $6.4 million in 2004 from $6.0 million in 2003 was due
primarily to normal merit increases in salaries and an increase in staffing
levels. Our professional services expense increased $186,000 or 57.5% due
primarily to increased audit and professional fees as the result of becoming a
public reporting entity. Our data processing expense increased $116,000 or 10.0%
to $1.3 million in 2004 from $1.2 million in 2003 as a result of increased
deposits and deposit activity. The increase in deposit activity result in an
increase in our data processing expense as data processing expense is dependent
in part on the number of deposit transactions that are processed. These
increases were partially offset by decreases of $131,000 and $64,000 in ATM
expense and advertising and promotions expense, respectively. The decrease in
ATM expense was due to certain savings negotiated during a contract renewal in
2004. The decrease in advertising and promotions was due to higher expenditures
in 2003 to promote the opening of new branches in that year.

INCOME TAX EXPENSE. Income tax expense for the year ended December 31, 2004
amounted to $2.3 million, compared to $2.0 million for the year ended December
31, 2003. The increase in income tax expense was due primarily to the increase
in our pre-tax income. Our effective income tax rate remained relatively
consistent at 33.2% and 33.1% for the years ended December 31, 2004 and 2003,
respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
         RISK

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

The principal objective of our interest rate risk management function is to
evaluate the interest rate risk embedded in certain balance sheet accounts,
determine the level of risk appropriate given our business strategy, operating
environment, capital and liquidity requirements and performance objectives, and
manage the risk consistent with approved guidelines. We seek to manage our
exposure to risks from changes in interest rates while at the same time trying
to improve our net interest spread. We monitor interest rate risk as such risk
relates to our operating strategies. We have established an Asset/Liability
Committee at Abington Bank, 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.

                                       56

<PAGE>

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

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

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

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

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

GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
and liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is 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 4.09% at December 31,
2005, compared to a positive 0.57% at December 31, 2004. We have become more
liability sensitive in 2005 mainly as a result of increases in our short-term
repricing deposits, primarily short-term certificates of deposit. Partially for
this reason, we continue to remain focused on maintaining and growing our base
of core deposits, which are less interest-rate sensitive. Part of the reason
that we determined several years ago to increase our originations of commercial
real estate and multi-family residential real estate loans, construction loans,
home equity lines and commercial business loans, all of which generally have
shorter terms to maturity than single-family residential mortgage loans and are
more likely to have floating or adjustable rates of interest, was, in part, to
increase 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.


                                       57
<PAGE>

The following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding December 31, 2005, which we expect,
based upon certain assumptions, to reprice or mature in each of the future time
periods shown (the "GAP Table"). Except as stated below, the amount of assets
and liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at December
31, 2005, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate loans and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
Annual prepayment rates for adjustable-rate and fixed-rate single-family and
multi-family mortgage loans are assumed to range from 10% to 26%. The annual
prepayment rate for mortgage-backed securities is assumed to range from 9% to
63%. Money market deposit accounts, savings accounts and interest-bearing
checking accounts are assumed to have annual rates of withdrawal, or "decay
rates," of 16%, 12.5% and 0%, respectively.


                                       58
<PAGE>
<TABLE>
<CAPTION>

                                                     More than     More than      More than
                                        6 Months     6 Months        1 Year         3 Years      More than
                                        or Less      to 1 Year     to 3 Years     to 5 Years      5 Years     Total Amount
                                       ----------   -----------   ------------   ------------   -----------   ------------
                                                                    (Dollars in Thousands)
<S>                                    <C>          <C>           <C>            <C>            <C>           <C>
Interest-earning assets(1):
  Loans receivable(2)                  $  204,836   $    38,976   $    114,630   $     68,077   $   104,423   $    530,942
  Mortgage-backed securities               28,061        22,783         53,815         22,227        22,134        149,020
  Investment securities                    14,530        12,997         31,799          9,500        32,345        101,171
  Other interest-earning assets            19,315            --             --             --            --         19,315
                                       ----------   -----------   ------------   ------------   -----------   ------------
    Total interest-earning assets         266,742        74,756        200,244         99,804       158,902        800,448
                                       ==========   ===========   ============   ============   ===========   ============
Interest-bearing liabilities:
  Savings and money market accounts    $   17,365   $    17,365   $     43,561   $     20,042   $    17,576   $    115,909
  Checking accounts                            --            --             --             --        55,820         55,820
  Certificate accounts                    107,973        87,931         62,441         14,271        13,505        286,121
  FHLB advances                           118,062        11,172         42,498          6,793        22,920        201,445

  Other borrowed money                     16,114            --             --             --            --         16,114
                                       ----------   -----------   ------------   ------------   -----------   ------------
    Total interest-bearing
      liabilities                         259,514       116,468        148,500         41,106       109,821        675,409
                                       ==========   ===========   ============   ============   ===========   ============

Interest-earning assets less
  interest-bearing liabilities         $    7,228   $   (41,712)  $     51,744   $     58,698   $    49,081   $    125,039
                                       ==========   ===========   ============   ============   ===========   ============

Cumulative interest-rate
  sensitivity gap(3)                   $    7,228   $   (34,484)  $     17,260   $     75,958   $   125,039
                                       ==========   ===========   ============   ============   ===========

Cumulative interest-rate gap as a
  percentage of total assets at
  December 31, 2005                          0.86%        (4.09)%         2.04%          9.00%        14.81%
                                       ==========   ===========   ============   ============   ===========

Cumulative interest-earning assets
  as a percentage of cumulative
  interest-bearing liabilities at
  December 31, 2005                        102.79%        90.83%        103.29%        113.43%       118.51%
                                       ==========   ===========   ============   ============   ===========
</TABLE>
---------------------
(1)     Interest-earning assets are included in the period in which the balances
        are expected to be redeployed and/or repriced as a result of anticipated
        prepayments, scheduled rate adjustments and contractual maturities.

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

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


                                       59
<PAGE>

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

NET PORTFOLIO VALUE AND NET INTEREST INCOME ANALYSIS. Our interest rate
sensitivity also is monitored by management through the use of models which
generate estimates of the change in its net portfolio value ("NPV") and net
interest income ("NII") over a range of interest rate scenarios. NPV is the
present value of expected cash flows from assets, liabilities, and off-balance
sheet contracts. The NPV ratio, under any interest rate scenario, is defined as
the NPV in that scenario divided by the market value of assets in the same
scenario. The following table sets forth our NPV as of December 31, 2005 and
reflects the changes to NPV as a result of immediate and sustained changes in
interest rates as indicated.

<TABLE>
<CAPTION>

     Change in                                                                         NPV as % of Portfolio
   Interest Rates                       Net Portfolio Value                               Value of Assets
  In Basis Points     -------------------------------------------------------  -------------------------------------
    (Rate Shock)           Amount            $ Change           % Change           NPV Ratio            Change
--------------------  -----------------  -----------------  -----------------  -----------------  ------------------
                                                          (Dollars in Thousands)
<S>                        <C>               <C>                 <C>                 <C>                 <C>
      200bp                $110,389          $ (8,184)           (6.90)%             13.78%              (36)bp
      100                   114,755            (3,818)           (3.22)              14.01               (13)
     Static                 118,573                --               --               14.14                --
     (100)                  118,449              (124)           (0.10)              13.83               (31)
     (200)                  107,478           (10,971)           (9.26)              12.43              (170)
</TABLE>

In addition to modeling changes in NPV, we also analyze potential changes to NII
for a twelve-month period under rising and falling interest rate scenarios. The
following table shows our NII model as of December 31, 2005.

     Change in
   Interest Rates
  In Basis Points
    (Rate Shock)        Net Interest Income       $ Change         % Change
--------------------  -----------------------  ---------------  ---------------
                             (Dollars in Thousands)
      200bp                 $23,225               $  (336)           (1.43)%
      100                    23,692                   131             0.56
     Static                  23,561                    --               --
     (100)                   22,792                  (769)           (3.26)
     (200)                   21,388                (2,173)           (9.22)

The above table indicates that as of December 31, 2005, in the event of an
immediate and sustained 200 basis point increase in interest rates, Abington
Bank's net interest income for the 12 months ending December 31, 2006 would be
expected to decrease by $336,000 or 1.43% to $23.2 million.

As is the case with the GAP Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV and NII require the making of certain


                                       60
<PAGE>

assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the models
presented assume that the composition of our interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV measurements and net interest income models provide an
indication of interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on net interest income and will
differ from actual results.


                                       61
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
  Abington Community Bancorp, Inc. and subsidiaries:
Jenkintown, Pennsylvania

We have audited the accompanying consolidated statements of financial condition
of Abington Community Bancorp, Inc. and subsidiaries (the "Company") as of
December 31, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity and comprehensive income and cash flows for each of the
three years in the period ended December 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, such consolidated financial
statements present fairly, in all material respects, the financial position of
Abington Community Bancorp, Inc. and subsidiaries at December 31, 2005 and 2004,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania
March 22, 2006


                                       62
<PAGE>
<TABLE>
<CAPTION>

ABINGTON COMMUNITY BANCORP, INC.

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

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

Cash and due from banks                                                     $          19,460,237   $          24,867,784
Interest-bearing bank balances                                                          8,254,004               8,428,048
                                                                            ---------------------   ---------------------
      Total cash and cash equivalents                                                  27,714,241              33,295,832
Investment securities held to maturity (estimated fair
  value--2005, $20,316,775; 2004, $10,336,485)                                         20,395,593              10,219,764
Investment securities available for sale (amortized cost--
  2005, $80,775,605; 2004, $77,348,884)                                                78,828,696              76,163,951
Mortgage-backed securities held to maturity (estimated fair
  value--2005, $65,505,255; 2004, $81,322,041)                                         67,410,735              81,703,737
Mortgage-backed securities available for sale (amortized cost--
  2005, $82,212,270; 2004, $83,300,963)                                                79,943,379              83,027,943
Loans receivable, net of allowance for loan losses
   (2005, $1,454,510; 2004, $1,412,697)                                               529,487,209             412,655,664
Accrued interest receivable                                                             3,475,350               2,710,162
Federal Home Loan Bank stock--at cost                                                  11,061,200              10,450,100
Cash surrender value - bank owned life insurance                                       15,498,958                       -
Property and equipment, net                                                             6,510,144               5,533,085
Deferred tax asset                                                                      2,648,200               1,313,068
Prepaid expenses and other assets                                                       1,098,106                 905,074
                                                                            ---------------------   ---------------------

TOTAL ASSETS                                                                $         844,071,811   $         717,978,380
                                                                            =====================   =====================

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits:
    Noninterest-bearing                                                     $          43,333,286   $          37,596,228
    Interest-bearing                                                                  457,849,738             367,693,829
                                                                            ---------------------   ---------------------
      Total deposits                                                                  501,183,024             405,290,057
  Advances from Federal Home Loan Bank                                                201,444,952             170,666,374
  Other borrowed money                                                                 16,113,949              12,865,521
  Accrued interest payable                                                              1,909,234                 910,040
  Advances from borrowers for taxes and insurance                                       2,384,314               2,047,151
  Accounts payable and accrued expenses                                                 3,805,571               3,144,536
                                                                            ---------------------   ---------------------

           Total liabilities                                                          726,841,044             594,923,679
                                                                            ---------------------   ---------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $0.01 par value, 10,000,000 shares authorized,
    none issued                                                                                 -                       -
  Common stock, $0.01 par value, 40,000,000 shares authorized,
    issued and outstanding: 15,870,000 in 2005 and 2004                                   158,700                 158,700
  Additional paid-in capital                                                           69,234,964              69,096,936
  Unallocated common stock held by:
    Employee Stock Ownership Plan (ESOP)                                               (6,880,236)             (2,046,137)
    Recognition & Retention Plan Trust (RRP)                                           (3,339,413)                      -
    Deferred compensation plans trust                                                  (1,050,000)             (1,074,200)
  Retained earnings                                                                    61,889,180              57,881,651
  Accumulated other comprehensive loss                                                 (2,782,428)               (962,249)
                                                                            ---------------------   ---------------------

           Total stockholders' equity                                                 117,230,767             123,054,701
                                                                            ---------------------   ---------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $         844,071,811   $         717,978,380
                                                                            =====================   =====================
</TABLE>

See notes to consolidated financial statements.


                                       63
<PAGE>
<TABLE>
<CAPTION>

ABINGTON COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME
------------------------------------------------------------------------------------------------------------------------
                                                                                Year Ended December 31,
                                                              ----------------------------------------------------------
                                                                     2005                2004                2003
                                                              ------------------  ------------------  ------------------
<S>                                                           <C>                 <C>                 <C>
INTEREST INCOME:
  Interest and fees on loans                                  $       29,282,683  $       22,820,635  $       23,827,902
  Interest and dividends on investment and
    mortgage-backed securities
      Taxable                                                         10,041,615           7,878,515           6,161,818
      Tax-exempt                                                         686,357             149,477               7,020
                                                              ------------------  ------------------  ------------------

           Total interest income                                      40,010,655          30,848,627          29,996,740

INTEREST EXPENSE:
  Interest on deposits                                                 9,868,820           6,561,036           6,822,294
  Interest on Federal Home Loan Bank advances                          8,668,118           7,531,886           7,008,352
  Interest on other borrowed money                                       461,892             115,618              67,494
                                                              ------------------  ------------------  ------------------

           Total interest expense                                     18,998,830          14,208,540          13,898,140
                                                              ------------------  ------------------  ------------------

NET INTEREST INCOME                                                   21,011,825          16,640,087          16,098,600

PROVISION FOR LOAN LOSSES                                                 25,000              45,000             375,000
                                                              ------------------  ------------------  ------------------

NET INTEREST INCOME AFTER
  PROVISION FOR LOAN LOSSES                                           20,986,825          16,595,087          15,723,600
                                                              ------------------  ------------------  ------------------

NON-INTEREST INCOME:
  Service charges                                                      1,779,684           1,846,622           1,528,524
  Rental income                                                           39,272              52,327              55,667
  Gain (loss) on derivative instruments, net                              98,286            (140,813)           (406,710)
  Income on bank owned life insurance                                    498,958                   -                   -
  Gain on sale of property                                                     -                   -             146,268
  Gain on sale of loans                                                        -                   -              44,036
  Impairment charge on investment securities                             (72,500)                  -                   -
  Other income                                                           454,147             484,682             492,048
                                                              ------------------  ------------------  ------------------

           Total non-interest income                                   2,797,847           2,242,818           1,859,833
                                                              ------------------  ------------------  ------------------

NON-INTEREST EXPENSES:
  Salaries and employee benefits                                       8,010,642           6,424,232           5,971,415
  Occupancy                                                            1,643,621           1,163,667           1,157,090
  Depreciation                                                           519,345             496,477             539,454
  Professional services                                                  890,550             508,640             322,875
  Data processing                                                      1,207,013           1,283,362           1,166,936
  ATM expense                                                            333,692             291,962             422,463
  Deposit insurance premium                                              123,775             113,318             107,565
  Advertising and promotions                                             425,259             285,532             349,448
  Other                                                                1,821,520           1,448,015           1,434,973
                                                              ------------------  ------------------  ------------------

           Total non-interest expenses                                14,975,417          12,015,205          11,472,219
                                                              ------------------  ------------------  ------------------

INCOME BEFORE INCOME TAXES                                             8,809,255           6,822,700           6,111,214
                                                              ------------------  ------------------  ------------------

PROVISION FOR INCOME TAXES                                             2,506,924           2,267,429           2,021,192
                                                              ------------------  ------------------  ------------------

NET INCOME                                                    $        6,302,331  $        4,555,271  $        4,090,022
                                                              ==================  ==================  ==================

BASIC EARNINGS PER COMMON SHARE                               $             0.41         n/a (1)              n/a
DILUTED EARNINGS PER COMMON SHARE                             $             0.41         n/a (1)              n/a

BASIC AVERAGE COMMON SHARES OUTSTANDING:                              15,290,391         n/a (1)              n/a
DILUTED AVERAGE COMMON SHARES OUTSTANDING:                            15,377,049         n/a (1)              n/a

---------------------------------------------------------------------------------------------------------------------------
(1)     Due to the timing of the Bank's reorganization into the mutual holding company form and the completion of the
        Company's initial public offering on December 16, 2004, earnings per share for the period from December 16, 2004
        to December 31, 2004 is not considered meaningful and is not shown. See notes to consolidated financial statements.
</TABLE>

                                       64
<PAGE>
<TABLE>
<CAPTION>

ABINGTON COMMUNITY BANCORP, INC.

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

                                                              Common
                                                              Stock
                                                             Acquired                   Accumulated
                                             Additional        by                         Other           Total
                                  Common      Paid-in        Benefit       Retained    Comprehensive   Stockholders'  Comprehensive
                                  Stock       Capital         Plans        Earnings        Loss           Equity         Income
                                ----------  ------------  -------------  ------------  -------------   -------------  -------------
<S>                             <C>         <C>           <C>            <C>           <C>             <C>            <C>
BALANCE--JANUARY 1, 2003        $        -  $          -  $           -  $ 49,336,358  $   1,255,023   $  50,591,381

Comprehensive income:
  Net income                             -             -              -     4,090,022              -       4,090,022  $   4,090,022
  Net unrealized holding loss
    on available for sale
    securities arising during
    the period, net of tax
    benefit of $745,494 (1)              -             -              -             -     (1,447,135)     (1,447,135)    (1,447,135)
                                ----------  ------------  -------------  ------------  -------------   -------------  -------------

Comprehensive income                                                                                                  $   2,642,887
                                                                                                                      =============

BALANCE--DECEMBER 31, 2003               -             -              -    53,426,380       (192,112)     53,234,268

Comprehensive income:
  Net income                             -             -              -     4,555,271              -       4,555,271  $   4,555,271
  Net unrealized holding loss
    on available for sale
    securities arising during
    the period, net of tax
    benefit of $396,923 (1)              -             -              -             -       (770,137)       (770,137)      (770,137)
                                                                                                                      -------------

Comprehensive income                                                                                                  $   3,785,134
                                                                                                                      =============
Capitalization of mutual
  holding company                        -             -              -      (100,000)             -        (100,000)
Issuance of common stock           158,700    69,096,936              -             -              -      69,255,636
Common stock acquired by ESOP            -             -     (2,046,137)            -              -      (2,046,137)
Common stock acquired by
  deferrd compensation plans
  trust                                  -             -     (1,074,200)            -              -      (1,074,200)
                                ----------  ------------  -------------  ------------  -------------   -------------

BALANCE--DECEMBER 31, 2004         158,700    69,096,936     (3,120,337)   57,881,651       (962,249)    123,054,701

Comprehensive income:
  Net income                             -             -              -     6,302,331              -       6,302,331  $   6,302,331
  Net unrealized holding loss
    on available for sale
    securities arising during
    the period, net of tax
    benefit of $937,668 (1)              -             -              -              -    (1,820,179)     (1,820,179)    (1,820,179)
                                                                                                                      -------------
  Comprehensive income
  Cash dividends paid                    -             -              -    (2,294,802)             -      (2,294,802) $   4,482,152
                                                                                                                      =============
  Stock options expense                  -       180,785              -             -              -         180,785
  Shares released from deferred
    compensation plans trust             -             -         24,200             -              -          24,200
  Amortization of RRP shares             -       (25,962)       359,155             -              -         333,193
  ESOP shares committed to be
    released                             -       (16,795)       491,447             -              -         474,652
  Common stock acquired by RRP           -             -     (3,698,568)            -              -      (3,698,568)
  Common stock acquired by ESOP          -             -     (5,325,546)            -              -      (5,325,546)
                                ----------  ------------  -------------  ------------  -------------   -------------

BALANCE--DECEMBER 31, 2005      $  158,700  $ 69,234,964  $ (11,269,649) $ 61,889,180  $  (2,782,428)  $ 117,230,767
                                ==========  ============  =============  ============  =============   =============



(1)  Disclosure of reclassication amount, net of tax, for:                            YEAR ENDED
                                                                                     DECEMBER 31,
                                                                    ----------------------------------------------
                                                                         2005            2004            2003
                                                                    --------------  --------------  --------------

Net unrealized depreciation arising during the year                 $   (1,868,029) $     (770,137) $   (1,447,135)
Plus: reclassification adjustment for net losses included in
  net income, net of tax benefit of $24,650 in 2005                         47,850               -               -
                                                                    --------------  --------------  --------------

Net unrealized loss on securities                                   $   (1,820,179) $     (770,137) $   (1,447,135)
                                                                    ==============  ==============  ==============

See notes to consolidated financial statements.
</TABLE>

                                       65
<PAGE>
<TABLE>
<CAPTION>

ABINGTON COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------------------------
                                                                                       Year Ended December 31,
                                                                      ----------------------------------------------------------
                                                                             2005                2004                2003
                                                                      ------------------  ------------------  ------------------
<S>                                                                   <C>                 <C>                 <C>
OPERATING ACTIVITIES:
  Net income                                                          $        6,302,331  $        4,555,271  $        4,090,022
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for loan losses                                                     25,000              45,000             375,000
    Depreciation                                                                 519,345             496,477             539,454
    Share-based compensation expense                                             988,630                   -                   -
    Unrealized gain on derivative instruments                                    (85,000)           (500,500)           (363,462)
    Impairment charge on investment securities                                    72,500                   -                   -
    Gain on sale of property and loans                                                 -                   -            (190,304)
    Deferred income tax (benefit) expense                                       (397,464)            146,326              38,914
    Amortization of:
      Deferred loan fees                                                      (1,127,360)           (891,877)         (1,562,388)
      Premiums and discounts, net                                                261,581             342,307             171,940
    Income from bank owned life insurance                                       (498,958)                  -                   -
    Changes in assets and liabilities which (used) provided cash:
      Accrued interest receivable                                               (765,188)           (323,321)           (279,209)
      Prepaid expenses and other assets                                         (193,032)           (276,643)             (2,175)
      Accrued interest payable                                                   999,194             (33,909)           (194,411)
      Accounts payable and accrued expenses                                      770,235             598,309             659,629
                                                                      ------------------  ------------------  ------------------

           Net cash provided by operating activities                           6,871,814           4,157,440           3,283,010
                                                                      ------------------  ------------------  ------------------

INVESTING ACTIVITIES:
  Principal collected on loans                                               139,389,188         135,777,456         184,360,172
  Disbursements for loans                                                   (255,118,373)       (182,966,622)       (174,769,108)
  Purchases of:
    Mortgage-backed securities held to maturity                               (8,774,897)        (47,862,570)        (37,289,373)
    Mortgage-backed securities available for sale                            (20,553,403)        (35,222,233)        (61,942,717)
    Investments held to maturity                                             (10,178,366)        (10,220,792)                  -
    Investments available for sale                                            (4,097,475)        (34,263,462)       (109,356,340)
    Federal Home Loan Bank stock                                              (5,719,100)         (2,911,021)         (3,892,340)
    Property and equipment                                                    (1,496,404)           (229,494)           (456,760)
    Bank owned life insurance                                                (15,000,000)                  -                   -
  Proceeds from:
    Maturities of mortgage-backed securities available for sale                1,211,522             221,147           5,406,638
    Maturities of investments available for sale                                 599,000          36,495,000          72,574,172
    Principal repayments of mortgage-backed securities
      held to maturity                                                        22,864,351           8,989,832           4,268,486
    Principal repayments of mortgage-backed securities
      available for sale                                                      20,374,332          29,444,915          18,398,879
    Sale of real estate                                                                -                   -             626,334
    Redemption of Federal Home Loan Bank stock                                 5,108,000           2,500,221             885,940
                                                                      ------------------  ------------------  ------------------

           Net cash used in investing activities                            (131,391,625)       (100,247,623)       (101,186,017)
                                                                      ------------------  ------------------  ------------------

FINANCING ACTIVITIES:
  Net (decrease) increase in demand deposits and savings accounts             (7,456,352)         26,366,205          25,284,368
  Net increase (decrease) in certificate accounts                            103,349,319          16,257,680          (6,954,670)
  Net increase (decrease) in other borrowed money                              3,248,428           4,184,605          (3,256,189)
  Advances from Federal Home Loan Bank                                       517,801,820         352,275,000          61,024,379
  Repayments of advances from Federal Home Loan Bank                        (487,023,242)       (355,340,249)        (10,053,408)
  Net increase (decrease) in advances from borrowers
    for taxes and insurance                                                      337,163             (88,150)           (147,554)
  Proceeds from stock issuance, net of conversion costs and
    acquisition of stock for deferred compensation plans trust                         -          68,181,436                   -
  Capitalization of mutual holding company                                             -            (100,000)                  -
  Acquisition of stock for ESOP and RRP                                       (9,024,114)         (2,046,137)                  -
  Payment of cash dividend                                                    (2,294,802)                  -                   -
                                                                      ------------------  ------------------  ------------------

             Net cash provided by financing activities                       118,938,220         109,690,390          65,896,926
                                                                      ------------------  ------------------  ------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                          (5,581,591)         13,600,207         (32,006,081)

CASH AND CASH EQUIVALENTS--Beginning of year                                  33,295,832          19,695,625          51,701,706
                                                                      ------------------  ------------------  ------------------

CASH AND CASH EQUIVALENTS--End of year                                $       27,714,241  $       33,295,832  $       19,695,625
                                                                      ==================  ==================  ==================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest on deposits and other borrowings                         $       17,999,636  $       14,242,449  $       13,956,551
                                                                      ==================  ==================  ==================

    Income taxes                                                      $        3,000,000  $        2,350,000  $        1,931,135
                                                                      ==================  ==================  ==================

  Release of stock from deferred compensation plans trust             $           24,200  $                -  $                -
                                                                      ==================  ==================  ==================

  Noncash transfer of real estate investment to loans receivable      $                -  $                -  $        1,955,322
                                                                      ==================  ==================  ==================

See notes to consolidated financial statements.
</TABLE>

                                       66
<PAGE>

ABINGTON COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
--------------------------------------------------------------------------------

1.      NATURE OF OPERATIONS

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

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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        PRINCIPLES OF CONSOLIDATION--All significant intercompany transactions
        and balances have been eliminated.

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

        CASH AND CASH EQUIVALENTS--For purposes of the consolidated statements
        of cash flows, cash and cash equivalents include cash and
        interest-bearing deposits with banks, commercial paper and liquid money
        market funds with original maturities of three months or less.


                                       67
<PAGE>

        INVESTMENT AND MORTGAGE-BACKED SECURITIES--Debt and equity securities
        are classified and accounted for as follows:

        HELD TO MATURITY--Debt securities that management has the positive
        intent and ability to hold until maturity are classified as held to
        maturity and are carried at their remaining unpaid principal balances,
        net of unamortized premiums or unaccreted discounts. Premiums are
        amortized and discounts are accreted using the interest method over the
        estimated remaining term of the underlying security.

        AVAILABLE FOR SALE--Debt and equity securities that will be held for
        indefinite periods of time, including securities that may be sold in
        response to changes in market interest or prepayment rates, needs for
        liquidity, and changes in the availability of and in the yield of
        alternative investments, are classified as available for sale. These
        assets are carried at fair value. Fair value is determined using
        published quotes as of the close of business. Unrealized gains and
        losses are excluded from earnings and are reported net of tax as a
        separate component of stockholders' equity until realized. Realized
        gains and losses on the sale of investment and mortgage-backed
        securities are reported in the consolidated statements of income and
        determined using the adjusted cost of the specific security sold.

        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. During the year ended
        December 31, 2005, the Company recognized an impairment charge of
        approximately $73,000 to write-down the carrying values of two
        securities. No impairment charge was recognized during the years ended
        December 31, 2004 and 2003.

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

        The allowance consists of specific allowances for impaired loans, a
        general allowance on all classified loans which are not impaired and a
        general allowance on the remainder of the portfolio. Although we
        determine the amount of each element of the allowance separately, the
        entire allowance for loan losses is available for the entire portfolio.
        The allowance on impaired loans is established for the amount by which
        the discounted cash flows, observable market price or fair value of
        collateral if the loan is collateral dependent is lower than the
        carrying value of the loan. The general valuation allowance on
        classified loans which are not impaired relates to loans that are
        classified as either doubtful, substandard or special mention. Such
        classifications are based on identified weaknesses that increase the
        credit risk of the loan. The general allowance on non-classified loans
        is established to


                                       68
<PAGE>

        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.

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

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

        LOANS HELD FOR SALE AND LOANS SOLD--The Company originates mortgage
        loans held for investment and for sale. At origination, the mortgage
        loan is identified as either held for sale or for investment. Mortgage
        loans held for sale are carried at the lower of cost or forward
        committed contracts (which approximates market), determined on a net
        aggregate basis. The Company had no loans classified as held for sale at
        December 31, 2005 or 2004.

        The Company assesses the retained interest in the servicing asset or
        liability associated with the sold loans based on the relative fair
        values. The servicing asset or liability is amortized in proportion to
        and over the period during which estimated net servicing income or net
        servicing loss, as appropriate, will be received. Assessment of the fair
        value of the retained interest is performed on a continual basis. At
        December 31, 2005 and 2004, mortgage servicing rights of $61,000 and
        $72,000, respectively, were included in other assets. No valuation
        allowance was deemed necessary for any of the periods presented.

        Amortization of the servicing asset totaled $11,000, $19,000 and $43,000
        for the years ended December 31, 2005, 2004 and 2003, respectively.

        REAL ESTATE OWNED--Real estate properties acquired through foreclosure
        are initially recorded at fair value at the date of foreclosure,
        establishing a new cost basis. 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. Net
        revenue and expenses from operations and additions to the valuation
        allowance are included in gain or loss on foreclosed real estate.

        REAL ESTATE INVESTMENT--Real estate investment is carried at lower of
        cost, including cost of improvements, or fair value less cost to sell.
        Costs relating to development and improvement of property are
        capitalized, whereas costs relating to holding the property are
        expensed.


                                       69
<PAGE>

        PROPERTY AND EQUIPMENT--Property and equipment is recorded at cost.
        Depreciation is computed using the straight-line method over the
        expected useful lives of the related assets. The costs of maintenance
        and repairs are expensed as they are incurred, and renewals and
        betterments are capitalized.

        BANK OWNED LIFE INSURANCE ("BOLI")-- In March 2005, the Company
        purchased $15 million in Bank Owned Life Insurance as a mechanism for
        funding various employee benefit costs. The Company is the beneficiary
        of this policy that insures the lives of certain officers of its
        subsidiaries. The Company has recognized the cash surrender value under
        the insurance policy as an asset in the consolidated statements of
        financial condition. Changes in the cash surrender value are recorded in
        other non-interest income in the consolidated statements of income.

        OTHER BORROWED MONEY--The Company enters into overnight repurchase
        agreements with commercial checking account customers. These agreements
        are treated as financings, and the obligations to repurchase securities
        sold are reflected as a liability in the consolidated statements of
        financial condition. Securities pledged as collateral under agreements
        to repurchase are reflected as assets in the consolidated statements of
        financial condition.

        LOAN ORIGINATION AND COMMITMENT FEES--The Company defers loan
        origination and commitment fees, net of certain direct loan origination
        costs. The balance is accreted into income as a yield adjustment over
        the life of the loan using the level-yield method.

        INTEREST ON LOANS--The Company recognizes interest on loans on the
        accrual basis. Income recognition is generally discontinued when a loan
        becomes 90 days or more delinquent. Any interest previously accrued is
        deducted from interest income. Such interest ultimately collected is
        credited to income when collection of principal and interest is no
        longer in doubt.

        INCOME TAXES--Deferred income taxes are recognized for the tax
        consequences of "temporary differences" by applying enacted statutory
        tax rates applicable to future years to differences between the
        financial statement carrying amounts and the tax bases of existing
        assets and liabilities. The effect on deferred taxes of a change in tax
        rates is recognized in income in the period that includes the enactment
        date.

        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 (losses) on available for sale securities.

        UNALLOCATED COMMON STOCK--Stock held in treasury by the Company,
        including unallocated stock held by certain benefit plans, is accounted
        for using the cost method which treats stock held in treasury as a
        reduction to total shareholders' equity.

        SHARE-BASED COMPENSATION--In December 2004, the Financial Accounting
        Standards Board ("FASB") issued SFAS No. 123R (revised 2004),
        SHARE-BASED PAYMENT, which revises SFAS No. 123, ACCOUNTING FOR
        STOCK-BASED COMPENSATION, and supersedes Accounting Principles Board
        ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. This
        Statement requires an entity to recognize the cost of employee services
        received in share-based payment transactions and measure the cost on the
        grant-date fair value of the award. That cost will be recognized over
        the period during which an employee is required to provide service in
        exchange for the award. The provisions of SFAS No. 123R were adopted by
        the Company as of July 1, 2005.


                                       70
<PAGE>

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

        At December 31, 2005, the Company has two stock-based compensation
        plans, the 2005 Recognition and Retention Plan and the 2005 Stock Option
        Plan. Share awards were first issued under these plans in July 2005.
        These plans are more fully described in Note 14.

        The Company also has an employee stock ownership plan ("ESOP"). This
        plan is more fully described in Note 14. 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. For purposes of computing
        basic and diluted earnings per share, ESOP shares that have been
        committed to be released are considered outstanding. ESOP shares that
        have not been committed to be released are not considered outstanding.
        Dividends paid on unallocated shares are used to pay debt service.

        EARNINGS PER SHARE--Earnings per share ("EPS") consists of two separate
        components, basic EPS and diluted EPS. Basic EPS is computed based on
        the weighted average number of shares of common stock outstanding for
        each period presented. Diluted EPS is calculated based on the weighted
        average number of shares of common stock outstanding plus dilutive
        common stock equivalents ("CSEs"). CSEs consist of shares that are
        assumed to have been purchased with the proceeds from the exercise of
        stock options, as well as unvested common stock awards. Common stock
        equivalents which are considered antidilutive are not included for the
        purposes of this calculation. At December 31, 2005, there were 643,250
        antidilutive CSEs, representing 100% of the outstanding options.
        Earnings per share were calculated as follows:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 2005
                                                    -----------------------------------
                                                          BASIC             DILUTED
                                                    ----------------   ----------------
<S>                                                 <C>                <C>
        Net income                                  $      6,302,331   $      6,302,331
        Weighted average shares outstanding               15,290,391         15,290,391
        Effect of common share equivalents                         -             86,658
                                                    ----------------   ----------------
        Adjusted weighted average shares used in
          earnings per  share computation                 15,290,391         15,377,049
                                                    ----------------   ----------------


        Earnings per share                          $           0.41   $           0.41
                                                    ================   ================
</TABLE>

        Due to the timing of the Bank's reorganization into the mutual holding
        company form and the completion of the Company's initial public offering
        on December 16, 2004, earnings per share for the period from December
        16, 2004 to December 31, 2004 is not considered meaningful and is not
        shown.


                                       71
<PAGE>

        RECENT ACCOUNTING PRONOUNCEMENTS--In May 2005, the FASB issued SFAS No.
        154, ACCOUNTING CHANGES AND ERROR CORRECTIONS- A REPLACEMENT OF APB
        OPINION NO. 20 AND FASB STATEMENT NO. 3. SFAS No. 154 replaces APB
        Opinion No. 20, ACCOUNTING CHANGES, and FASB Statement No. 3, REPORTING
        ACCOUNTING CHANGES IN INTERIM FINANCIAL STATEMENTS, and changes the
        accounting and reporting requirements for a change in accounting
        principle. SFAS No. 154 applies to all voluntary changes in an
        accounting principle, as well as to changes required by a new accounting
        pronouncement in the unusual instance that the pronouncement does not
        include specific transition provisions. SFAS No. 154 is effective for
        accounting changes and error corrections made in fiscal years beginning
        after December 15, 2005 and requires retrospective application to prior
        periods' financial statements for most voluntary changes in an
        accounting principle, unless it is impracticable to do so. The Company
        adopted this guidance on January 1, 2006. The adoption did not have a
        material effect on the Company's financial position or results of
        operations.

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

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

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

        In March 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF
        FINANCIAL ASSET- AN AMENDMENT OF FASB STATEMENT NO. 140. This statement
        amends SFAS No. 140, ACCOUNTING FOR


                                       72
<PAGE>

        TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
        LIABILITIES, with respect to the accounting for separately recognized
        servicing assets and servicing liabilities. This statement requires that
        all separately recognized servicing assets and servicing liabilities be
        initially measured at fair value, if practicable. It also permits, but
        does not require, the subsequent measurement of servicing assets and
        servicing liabilities at fair value. This Company plans to adopt this
        statement effective January 1, 2007. The Company is continuing to
        evaluate the impact of this pronouncement and does not expect that the
        guidance will have a material effect on the Company's financial position
        or results of operations.

        RECLASSIFICATIONS--Certain items in the 2004 and 2003 consolidated
        financial statements have been reclassified to conform to the
        presentation in the 2005 consolidated financial statements. Such
        reclassifications did not have a material impact on the presentation of
        the overall financial statements.

3.      RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

        The Bank is required to maintain average balances on hand or with the
        Federal Reserve Bank. At December 31, 2005 and 2004, these reserve
        balances amounted to $5.8 million and $13.3 million, respectively.

4.      INVESTMENT SECURITIES

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

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

            Total debt securities      $  20,395,593  $       57,765  $     (136,583) $  20,316,775
                                       =============  ==============  ==============  =============
</TABLE>

                                       73
<PAGE>
<TABLE>
<CAPTION>
                                                            AVAILABLE FOR SALE
                                                            December 31, 2005
                                       ------------------------------------------------------------
                                                           GROSS          GROSS         ESTIMATED
                                         AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                           COST            GAINS          LOSSES          VALUE
                                       -------------  --------------  --------------  -------------
<S>                                    <C>            <C>             <C>             <C>

        Debt securities:
          Agency bonds                 $  74,990,878  $       17,500  $   (1,888,453) $  73,119,925
          Corporate bonds                    999,457               -          (1,412)       998,045
          Municipal bonds                    180,000             275               -        180,275
          Certificates of deposit          1,183,000               -               -      1,183,000
                                       -------------  --------------  --------------  -------------

            Total debt securities         77,353,335          17,775      (1,889,865)    75,481,245
                                       -------------  --------------  --------------  -------------

        Equity securities:
          Common stock                            10             380               -            390
          Mutual funds                     3,422,260               -         (75,199)     3,347,061
                                       -------------  --------------  --------------  -------------

            Total equity securities        3,422,270             380         (75,199)     3,347,451
                                       -------------  --------------  --------------  -------------

        Total                          $  80,775,605  $       18,155  $   (1,965,064) $  78,828,696
                                       =============  ==============  ==============  =============


                                                            HELD TO MATURITY
                                                            December 31, 2004
                                       ------------------------------------------------------------
                                                           GROSS          GROSS         ESTIMATED
                                         AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                           COST            GAINS          LOSSES          VALUE
                                       -------------  --------------  --------------  -------------

        Debt securities:
          Municipal bonds              $  10,219,764  $      116,721  $            -  $  10,336,485
                                       -------------  --------------  --------------  -------------

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

                                       74
<PAGE>
<TABLE>
<CAPTION>
                                                            AVAILABLE FOR SALE
                                                            December 31, 2004
                                       ------------------------------------------------------------
                                                           GROSS          GROSS         ESTIMATED
                                         AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                           COST            GAINS          LOSSES          VALUE
                                       -------------  --------------  --------------  -------------
<S>                                    <C>            <C>             <C>             <C>
        Debt securities:
          Agency bonds                 $  71,489,648  $       55,440  $   (1,152,448) $  70,392,640
          Corporate bonds                    999,940          14,306          (1,951)     1,012,295
          Municipal bonds                    180,000           3,960               -        183,960
          Certificates of deposit          1,282,000               -               -      1,282,000
                                       -------------  --------------  --------------  -------------

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

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

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

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

        There were no sales of debt or equity securities during the years ended
        December 31, 2005, 2004 and 2003.

        During the year ended December 31, 2005, the Company recognized an
        impairment charge of approximately $73,000 to write-down the carrying
        values of two equity securities. The determination of impairment was
        made based on an analysis of all the quantitative and qualitative
        characteristics of the securities taken as whole, including the
        magnitude and duration of the decline in value and the nature of the
        investments. No impairment charge was recognized during the years ended
        December 31, 2004 and 2003.

        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 call the bonds on the step-up
        date.


                                       75
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        DECEMBER 31, 2005
                                                ----------------------------------------------------------------
                                                      AVAILABLE FOR SALE                 HELD TO MATURITY
                                                ------------------------------    ------------------------------
                                                                   ESTIMATED                         ESTIMATED
                                                  AMORTIZED          FAIR           AMORTIZED          FAIR
                                                    COST             VALUE            COST             VALUE
                                                -------------    -------------    -------------    -------------
<S>                                             <C>              <C>              <C>              <C>
        Due in one year or less                 $  24,064,061    $  23,762,795    $           -    $           -
        Due after one year through five years      41,298,396       40,247,850                -                -
        Due after five years through ten years      9,990,878        9,453,100                -                -
        Due after ten years                         2,000,000        2,017,500       20,395,593       20,316,775
                                                -------------    -------------    -------------    -------------

        Total                                   $  77,353,335    $  75,481,245    $  20,395,593    $  20,316,775
                                                =============    =============    =============    =============
</TABLE>

        The table below sets forth investment securities which have unrealized
        loss positions as of December 31, 2005:

<TABLE>
<CAPTION>
                                                       LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                 --------------------------------    --------------------------------
                                                      GROSS           ESTIMATED           GROSS           ESTIMATED
                                                   UNREALIZED           FAIR           UNREALIZED           FAIR
                                                     LOSSES             VALUE            LOSSES             VALUE
                                                 --------------    --------------    --------------    --------------
<S>                                              <C>               <C>               <C>               <C>
        Securities held to maturity:
          Municipal bonds                        $     (136,583)   $   11,922,095    $            -    $            -
                                                 --------------    --------------    --------------    --------------

            Total securities held to maturity          (136,583)       11,922,095                 -                 -
                                                 --------------    --------------    --------------    --------------

        Securities available for sale:
          Government agency securities           $     (195,180)   $   13,304,820    $   (1,693,273)   $   57,797,605
          Other securities                               (1,136)          498,925           (75,475)        3,345,896
                                                 --------------    --------------    --------------    --------------

            Total securities available for sale        (196,316)       13,803,745        (1,768,748)       61,143,501
                                                 --------------    --------------    --------------    --------------

        Total                                    $     (332,899)   $   25,725,840    $   (1,768,748)   $   61,143,501
                                                 ==============    ==============    ==============    ==============
</TABLE>

                                       76
<PAGE>

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

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

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

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

        On at least a quarterly basis, management of the Company formally
        reviews the securities in its investment portfolio to identify any
        securities that might have an other-than-temporary impairment. At
        December 31, 2005, investment securities in a gross unrealized loss
        position for twelve months or longer consist of 29 securities having an
        aggregate depreciation of 2.8% from the Company's amortized cost basis.
        Investment securities in a gross unrealized loss position for less than
        twelve months at December 31, 2005, consist of 33 securities having an
        aggregate depreciation of 1.3% from the Company's amortized cost basis.
        Management has concluded that the unrealized losses above are temporary
        in nature. They are not related to the underlying credit quality of the
        issuers, and (with the exception of equity securities) they are on
        securities that have contractual maturity dates. The principal and
        interest payments on our debt securities have been made as scheduled,
        and there is no evidence that 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 these investments for the
        time necessary to recover its cost.


                                       77
<PAGE>

5.      MORTGAGE-BACKED SECURITIES

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

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

                   Total               $  67,410,735  $       39,195  $   (1,944,675) $  65,505,255
                                       =============  ==============  ==============  =============


                                                            AVAILABLE FOR SALE
                                                            DECEMBER 31, 2005
                                       ------------------------------------------------------------
                                                           GROSS          GROSS         ESTIMATED
                                         AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                           COST            GAINS          LOSSES          VALUE
                                       -------------  --------------  --------------  -------------

        GNMA pass-through
          certificates                 $     583,131  $       17,217  $       (1,226) $     599,122
        FNMA pass-through
          certificates                    10,626,026          59,644        (151,016)    10,534,654
        FHLMC pass-through
          certificates                    64,913,936          76,092      (2,099,759)    62,890,269
        Real estate mortgage
          investment conduits              6,089,177           3,544        (173,387)     5,919,334
                                       -------------  --------------  --------------  -------------

                   Total               $  82,212,270  $      156,497  $   (2,425,388) $  79,943,379
                                       =============  ==============  ==============  =============
</TABLE>

                                       78
<PAGE>
<TABLE>
<CAPTION>
                                                            HELD TO MATURITY
                                                            DECEMBER 31, 2004
                                       ------------------------------------------------------------
                                                           GROSS          GROSS         ESTIMATED
                                         AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                           COST            GAINS          LOSSES          VALUE
                                       -------------  --------------  --------------  -------------
<S>                                    <C>            <C>             <C>             <C>
        FNMA pass-through
          certificates                 $  33,609,534  $      135,032  $     (409,512) $  33,335,054
        FHLMC pass-through
          certificates                    23,539,633          85,073        (216,836)    23,407,870
        Real estate mortgage
          investment conduits             24,554,570          28,116          (3,569)    24,579,117
                                       -------------  --------------  --------------  -------------

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


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

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

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

        There were no sales of mortgage-backed securities during the years ended
        December 31, 2005, 2004 and 2003.

        No impairment charge was recognized on mortgage-backed securities during
        the years ended December 31, 2005, 2004 and 2003.


                                       79
<PAGE>

        The table below sets forth mortgage-backed securities which have
        unrealized loss positions as of December 31, 2005:

<TABLE>
<CAPTION>
                                                           LESS THAN 12 MONTHS                  MORE THAN 12 MONTHS
                                                     --------------------------------    --------------------------------
                                                          GROSS           ESTIMATED           GROSS           ESTIMATED
                                                       UNREALIZED           FAIR           UNREALIZED           FAIR
                                                         LOSSES             VALUE            LOSSES             VALUE
                                                     --------------    --------------    --------------    --------------
<S>                                                  <C>               <C>               <C>               <C>
        Securities held to maturity:
          FNMA pass-through certificates             $     (124,140)   $    9,309,491    $     (794,064)   $   18,220,217
          FHLMC pass-through certificates                  (325,995)        9,889,436          (417,313)        9,576,385
          Real estate mortgage investment conduits         (283,163)       11,509,933                 -                 -
                                                     --------------    --------------    --------------    --------------

              Total securities held to maturity            (733,298)       30,708,860        (1,211,377)       27,796,602
                                                     --------------    --------------    --------------    --------------

        Securities available for sale:
          GNMA pass-through certificates             $       (1,226)   $      126,544    $            -    $            -
          FNMA pass-through certificates                    (29,704)        4,311,626          (121,312)        3,527,004
          FHLMC pass-through certificates                  (539,147)       26,123,727        (1,560,612)       33,299,429
          Real estate mortgage investment conduits         (130,316)        4,144,716           (43,071)        1,669,510
                                                     --------------    --------------    --------------    --------------

             Total securities available for sale           (700,393)       34,706,613        (1,724,995)       38,495,943
                                                     --------------    --------------    --------------    --------------

        Total                                        $   (1,433,691)   $   65,415,473    $   (2,936,372)   $   66,292,545
                                                     ==============    ==============    ==============    ==============
</TABLE>

                                       80
<PAGE>

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

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

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

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

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

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

        On at least a quarterly basis, management of the Company formally
        reviews the securities in its investment portfolio to identify any
        securities that might have an other-than-temporary impairment. At
        December 31, 2005, mortgage-backed securities in a gross unrealized loss
        position for twelve months or longer consist of 30 securities having an
        aggregate depreciation of 4.2% from the Company's amortized cost basis.
        Mortgage-backed securities in a gross unrealized loss position for less
        than twelve months at December 31, 2005, consist of 21 securities having
        an aggregate depreciation of 2.1% from the Company's amortized cost
        basis. Management has concluded that the unrealized losses above are
        temporary in nature. They are not related to the underlying credit
        quality of the issuers, and 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. The current declines in market value
        are not significant, and management of the Company believes that these
        values will recover as market interest rates move. The Company has the
        intent and ability to hold these investments for the time necessary to
        recover its cost.


                                       81
<PAGE>

6.      DERIVATIVE FINANCIAL INSTRUMENTS

        The Company previously entered into interest rate cap and swap
        agreements in order to manage its exposure to fluctuations in interest
        rates on a portion of its fixed rate loans and variable rate deposits.

        At December 31, 2005, the Company is not party to any cap or swap
        agreements. At December 31, 2004, the Company was party to two swap
        agreements with terms expiring in June 2005, and December 2005. Under
        the June 2005 agreement, the Company either received or paid, on a
        quarterly basis, the amount by which the ten-year Constant Maturity
        Treasury ("CMT") exceeded or fell below 5.57% on the notional amount of
        $15 million. This agreement effectively changed a portion of the
        Company's fixed rate mortgage portfolio to a variable rate of interest.
        Under the December 2005, agreement, the Company either received or paid
        on a quarterly basis, the amount by which the three month LIBOR exceeded
        or fell below 2.59% on the notional amount of $15 million. This
        agreement effectively changed the Company's variable rate money market
        accounts to a fixed rate of interest.

        The swaps did not qualify as hedges under SFAS No. 133. As such, the
        fair value of the interest rate swaps were reflected as a liability in
        the accompanying consolidated statements of financial condition with the
        offset recorded in loss on derivative instruments, net in the
        consolidated statements of income. The fair value of the swap agreements
        was negative $85,000 at December 31, 2004.

        Amounts paid or received under the cap or swap agreement are recognized
        in gain (loss) on derivative instruments, net in the Company's
        consolidated statements of income during the period in which they
        accrue. During the year ended December 31, 2005, the Company received
        $13,000 from the contra parties under the agreements. During the years
        ended December 31, 2004, and 2003, the Company paid $641,000 and
        $770,000, respectively, to the contra parties under the agreements. In
        addition, the unrealized gains on derivatives recognized in gain (loss)
        on derivative instruments, net in the Company's consolidated statements
        of income were $85,000, $501,000 and $363,000 for the years ended
        December 31, 2005, 2004, and 2003, respectively.

        The Company was exposed to credit losses in the event of nonperformance
        by the counterparties to its interest rate caps and swaps, but has no
        off-balance-sheet credit risk of accounting loss. The counterparties
        were able to fully satisfy their obligations under the contracts. The
        Company did not obtain collateral or other security to support financial
        instruments subject to credit risk but monitored the credit standing of
        counterparties.


                                       82
<PAGE>

7.      LOANS RECEIVABLE--NET

        Loans receivable consist of the following:

                                                          DECEMBER 31,
                                                 ------------------------------
                                                      2005            2004
                                                 --------------  --------------

        One-to four-family residential           $  323,709,542  $  243,705,065
        Multi-family residential and commercial      76,646,911      74,642,109
        Construction                                132,789,343      83,253,027
        Home equity lines of credit                  41,063,321      32,048,508
        Commercial business loans                    10,974,955       8,539,781
        Consumer non-real estate loans                4,711,519       3,433,536
                                                 --------------  --------------

           Total loans                              589,895,591     445,622,026

        Less:
          Construction loans in process             (57,690,327)    (30,130,703)
          Deferred loan fees                         (1,263,545)     (1,422,962)
          Allowance for loan loss                    (1,454,510)     (1,412,697)
                                                 --------------  --------------

        Loans receivable--net                    $  529,487,209  $  412,655,664
                                                 ==============  ==============

        Our one- to four-family residential loans also include some loans to
        local businessmen for a commercial purpose, but which are secured by
        liens on the borrower's residence.

        The Bank has sold and is servicing for others loans in the amounts of
        approximately $13,591,000 and $15,268,000 at December 31, 2005 and 2004,
        respectively. These loan balances are excluded from the Company's
        consolidated financial statements. At December 31, 2005 and 2004,
        mortgage servicing rights of $61,000 and $72,000, respectively, were
        included in other assets. No valuation allowance was deemed necessary
        for any of the periods presented.

        Certain officers and directors have loans with the Bank. The aggregate
        dollar amount of these loans outstanding to related parties along with
        an analysis of the activity is summarized as follows:

                                               YEAR ENDED DECEMBER 31,
                                     ------------------------------------------
                                         2005           2004           2003
                                     ------------   ------------   ------------

        Balance--beginning of year   $    927,514   $  1,241,595   $    861,985
          Additions                        89,566        229,878        667,943
          Repayments                     (122,640)      (543,959)      (288,333)
                                     ------------   ------------   ------------

        Balance--end of year         $    894,440   $    927,514   $  1,241,595
                                     ============   ============   ============

        The Bank grants loans primarily to customers in its local market area.
        The ultimate repayment of these loans is dependent to a certain degree
        on the local economy and real estate market.


                                       83
<PAGE>

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

                                               YEAR ENDED DECEMBER 31,
                                     ------------------------------------------
                                         2005           2004           2003
                                     ------------   ------------   ------------

        Balance--beginning of year   $  1,412,697   $  1,455,889   $  1,813,450
          Provision for loan losses        25,000         45,000        375,000
          Charge-offs                     (69,774)      (146,736)      (760,145)
          Recoveries                       86,587         58,544         27,584
                                     ------------   ------------   ------------
            Charge-offs/recoveries-
              net                          16,813        (88,192)      (732,561)
                                     ------------   ------------   ------------

        Balance--end of year         $  1,454,510   $  1,412,697   $  1,455,889
                                     ============   ============   ============

        The provision for loan losses charged to expense is based upon past loan
        and loss experience and an evaluation of losses in the current loan
        portfolio, including the evaluation of impaired loans. A loan is
        considered to be impaired when, based upon current information and
        events, it is probable that the Company will be unable to collect all
        amounts due according to the contractual terms of the loan. An
        insignificant delay or insignificant shortfall in amount of payments
        does not necessarily result in the loan being identified as impaired.
        For this purpose, delays less than 90 days are considered to be
        insignificant. During the periods presented, loan impairment was
        evaluated based on the fair value of the loans' collateral. Impairment
        losses are included in the provision for loan losses. Large groups of
        smaller balance, homogeneous loans are collectively evaluated for
        impairment, except for those loans restructured under a troubled debt
        restructuring. Loans collectively evaluated for impairment include
        smaller balance commercial real estate loans, residential real estate
        loans and consumer loans. As of December 31, 2005, 2004 and 2003, the
        recorded investment in loans that are considered to be impaired is as
        follows:

                                     ------------------------------------------
                                         2005           2004           2003
                                     ------------   ------------   ------------

        Impaired collateral-
          dependent loans            $  2,885,364   $          -   $     99,137

        Average impaired loan
          balance                    $     94,861   $     41,828   $    264,586

        Interest income recognized
          on impaired loans          $          -   $          -   $          -

        As a result of the Company's measurement of impaired loans, an allowance
        for probable loan losses of approximately $116,000 was established for
        the $2.9 million of total impaired loans (which consisted of one
        construction loan) at December 31, 2005. During the first quarter of
        2006, we agreed to allow the sale of a portion of the underlying
        collateral of the loan, with the proceeds paid to the Bank.
        Approximately $1.7 million in net proceeds was received, reducing the
        outstanding balance of the loan to $1.2 million. Based on the specific
        circumstances of this loan, including the estimated value of the
        remaining collateral, we do not expect to incur any significant loss on
        this loan.

        Nonaccrual loans (which consist of smaller balance, homogeneous loans)
        at December 31, 2005, 2004 and 2003 amounted to approximately $2.9
        million, $0, and $115,000, respectively. Commercial loans and commercial
        real estate loans are placed on nonaccrual at the time the loan is 90
        days delinquent unless the credit is well secured and in the process of
        collection. Commercial loans are charged off when the loan is deemed
        uncollectible. Residential real estate loans are typically placed on
        nonaccrual only when the loan is 90 days delinquent and not well secured
        and in the process of


                                       84
<PAGE>

        collection. Other consumer loans are typically charged off at 90 days
        delinquent. In all cases, loans must be placed on nonaccrual or charged
        off at an earlier date if collection of principal or interest is
        considered doubtful. Non-performing loans, which consist of non-accruing
        loans plus accruing loans 90 days or more past due, at December 31,
        2005, 2004 and 2003 amounted to approximately $2.9 million, $227,000 and
        $462,000, respectively.

        Interest payments on impaired loans and nonaccrual loans are typically
        applied to principal unless the ability to collect the principal amount
        is fully assured, in which case interest is recognized on the cash
        basis. At December 31, 2005 and 2004, no cash basis interest income has
        been recognized. Interest income foregone on nonaccrual loans was
        $20,000, $5,000 and $16,000 for years ended December 31, 2005, 2004, and
        2003, respectively.

8.      ACCRUED INTEREST RECEIVABLE

        Accrued interest receivable consists of the following:

                                                          DECEMBER 31,
                                                 ------------------------------
                                                      2005            2004
                                                 --------------  --------------

        Investments and interest-bearing
          deposits                               $      730,677  $      603,207
        Mortgage-backed securities                      538,723         593,241
        Loans receivable                              2,205,950       1,513,714
                                                 --------------  --------------

        Total                                    $    3,475,350  $    2,710,162
                                                 ==============  ==============

9.      PROPERTY AND EQUIPMENT

        Property and equipment is summarized by major classifications as
        follows:

                                                          DECEMBER 31,
                                                 ------------------------------
                                                      2005            2004
                                                 --------------  --------------

        Properties and equipment:
          Land and buildings                     $    4,220,125  $    3,818,178
          Leasehold improvements                      3,102,688       2,640,527
          Furniture and fixtures                      4,883,498       4,251,201
                                                 --------------  --------------

                   Total                             12,206,311      10,709,906
        Accumulated depreciation                     (5,696,167)     (5,176,821)
                                                 --------------  --------------

        Total property and equipment, net of
          accumulated depreciation               $    6,510,144  $    5,533,085
                                                 ==============  ==============

        Certain office facilities and equipment are leased under various
        operating leases. The leases range in terms from 1 year to 14 years,
        some of which include renewal options as well as specific provisions
        relating to rent increases. Rent expense on those lease agreements that
        contain incremental increases in rent is recognized on a straight-line
        basis over the life of the lease. Rental expense under


                                       85
<PAGE>

        operating leases was approximately $833,000, $427,000, and $405,000 for
        the years ended December 31, 2005, 2004, and 2003, respectively.

        Future minimum annual rental payments required under noncancelable
        operating leases are as follows:

                                                        DECEMBER 31,
                                                           2005
                                                      ---------------

        2006                                          $       563,770
        2007                                                  580,903
        2008                                                  532,439
        2009                                                  424,706
        2010                                                  436,967
        Thereafter                                          2,293,291
                                                      ---------------

                                                      $     4,832,076
                                                      ===============

10.     DEPOSITS

        Deposits consist of the following major classifications:

                                               DECEMBER 31,
                           ---------------------------------------------------
                                    2005                        2004
                           ------------------------   ------------------------

        Type of Account       Amount       Percent       Amount       Percent

        Certificates        $286,120,697     57.1 %    $182,771,378     45.1 %
        NOW and MMDA         119,572,302     23.9       117,782,800     29.1
        Passbook and club     95,490,025     19.0       104,735,879     25.8
                            ------------   ------      ------------   ------

        Total               $501,183,024    100.0 %    $405,290,057    100.0 %
                            ============   ======      ============   ======

        The weighted average rate paid on deposits at December 31, 2005 and
        2004, was 2.43% and 1.62%, respectively. Deposits in amounts greater
        than $100,000 were approximately $140,379,000 and $64,924,000 at
        December 31, 2005 and 2004, respectively, of which approximately
        $75,973,000 and $24,983,000 were due in one year or less at December 31,
        2005 and 2004, respectively.

        A summary of certificates by maturities is as follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                   ---------------------------------------------------
                                            2005                        2004
                                   ------------------------   ------------------------

                                      Amount       Percent       Amount       Percent
<S>                                 <C>              <C>       <C>              <C>
        One year or less            $161,157,332     56.3 %    $ 74,475,925     40.7 %
        One through three years       97,187,051      34.0       85,353,319     46.7
        Three through five years      14,272,219      5.0        10,567,336      5.8
        Over five years               13,504,095      4.7        12,374,798      6.8
                                    ------------   ------      ------------   ------

        Total                       $286,120,697    100.0 %    $182,771,378    100.0 %
                                    ============   ======      ============   ======
</TABLE>

                                       86
<PAGE>

11.     ADVANCES FROM FEDERAL HOME LOAN BANK

        Advances from Federal Home Loan Bank consist of the following:

                                                 DECEMBER 31,
                             ---------------------------------------------------
                                       2005                      2004
                             ------------------------- -------------------------

                                            WEIGHTED                   WEIGHTED
                                            INTEREST                   INTEREST
        Maturing Period         Amount        Rate         Amount        Rate

        1 to 12 months      $  11,616,290      3.74 %  $  10,200,000      2.62 %
        13 to 24 months        29,836,998      4.03        4,384,533      2.49
        25 to 36 months        48,972,133      4.14        9,532,595      4.07
        37 to 48 months        16,012,531      4.57       51,966,104      4.12
        49 to 60 months        42,051,697      5.53       18,183,739      4.45
        Over 60 months         52,955,303      4.45       76,399,403      5.01
                            -------------    ------    -------------    ------

        Total               $ 201,444,952      4.51 %  $ 170,666,374      4.42 %
                            =============    ======    =============    ======

        The advances are collateralized by all of the Federal Home Loan Bank
        stock and substantially all qualifying first mortgage loans and
        mortgage-backed securities. The weighted average interest rate on FHLB
        advances was 4.51% and 4.42% at December 31, 2005 and 2004,
        respectively. The average balance outstanding was approximately $192.2
        million and $169.7 million for the years ended December 31, 2005 and
        2004 respectively. The maximum amount outstanding at any month-end was
        $212.6 million and $185.6 million for the years ended December 31, 2005
        and 2004, respectively.

12.     OTHER BORROWED MONEY

        During the years ended December 31, 2005 and 2004, the Bank entered into
        overnight repurchase agreements with commercial checking account
        customers. At December 31, 2005 and 2004, the amounts outstanding were
        $16.1 million and $12.9 million, respectively. Interest expense on
        customer repurchase agreements was $462,000, $116,000, and $67,000 for
        the years ended December 31, 2005, 2004 and 2003, respectively.
        Collateral for customer repurchase agreements was mortgage-backed
        securities. The market value of the collateral was approximately equal
        to the amounts outstanding. The weighted average interest rate on other
        borrowed money was 3.88% and 1.79% at December 31, 2005 and 2004,
        respectively. The average balance outstanding was approximately $20.2
        million and $17.7 million for the years ended December 31, 2005 and 2004
        respectively. The maximum amount outstanding at any month-end was $25.0
        million and $27.7 million for the years ended December 31, 2005 and
        2004, respectively.


                                       87
<PAGE>

13.     INCOME TAXES

        The income tax provision consists of the following:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------
                                             2005             2004             2003
                                        --------------   --------------   --------------
<S>                                     <C>              <C>              <C>
        Current:
          Federal                       $    2,904,388   $    2,127,036   $    1,978,578
          State                                      -           (5,933)           3,700
                                        --------------   --------------   --------------

               Total current                 2,904,388        2,121,103        1,982,278
        Deferred--Federal                     (397,464)         146,326           38,914
                                        --------------   --------------   --------------

        Total income tax provision      $    2,506,924   $    2,267,429   $    2,021,192
                                        ==============   ==============   ==============
</TABLE>

        The following table presents a reconciliation between the reported
        income tax expense and the income tax expense which would be computed by
        applying the normal federal income tax rate of 34% to income before
        income taxes:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------
                                             2005             2004             2003
                                        --------------   --------------   --------------
                                            Amount           Amount           Amount
<S>                                     <C>              <C>              <C>
        At statutory rate               $    2,995,147   $    2,319,718   $    2,076,982
        Adjustments resulting from:
          State tax--net of federal
            tax benefit                              -           (3,916)           2,442
          Tax-exempt income                   (452,588)         (50,822)          (2,387)
          Other                                (35,635)           2,449          (55,845)
                                        --------------   --------------   --------------

        Total                           $    2,506,924   $    2,267,429   $    2,021,192
                                        ==============   ==============   ==============

        Effective income tax rate                 28.5%            33.2%            33.1%
                                        --------------   --------------   --------------
</TABLE>

                                       88
<PAGE>

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

                                                          DECEMBER 31,
                                                 ------------------------------
                                                      2005            2004
                                                 --------------  --------------

        Deferred tax assets:
          Allowance for loan losses              $      494,533  $      480,317
          Deferred compensation                       1,136,056         839,320
          Unrealized loss on securities
            available-for-sale and cap
            and swap contracts                        1,457,172         524,604
          Other                                               -               -
                                                 --------------  --------------

                Total deferred tax assets             3,087,761       1,844,241
                                                 --------------  --------------

        Deferred tax liabilities:
          Property                                     (105,635)       (201,066)
          Deferred loan fees                           (313,175)       (259,767)
          Other                                         (20,751)        (70,340)
                                                 --------------  --------------

                Total deferred tax liabilities         (439,561)       (531,173)
                                                 --------------  --------------

        Net deferred tax asset                   $    2,648,200  $    1,313,068
                                                 ==============  ==============

        The Bank uses the specific charge-off method for computing reserves for
        bad debts. The bad debt deduction allowable under this method is
        available to large banks with assets greater than $500 million.
        Generally, this method allows the Bank to deduct an annual addition to
        the reserve for bad debts equal to its net charge-offs. Retained
        earnings at December 31, 2005 and 2004 include approximately $3,250,000
        representing bad debt deductions for which no deferred income tax has
        been provided. This amount represents the Bank's bad debt reserve as of
        the base year and is not subject to recapture as long as the Bank
        continues to carry on the business of banking.

        A thrift institution required to change its method of computing reserve
        for bad debts treats such change as a change in a method of accounting
        determined solely with respect to the "applicable excess reserves" of
        the institution. The amount of the applicable excess reserves is taken
        into account ratably over a six-taxable year period, beginning with the
        first taxable year beginning after December 31, 1995. The timing of this
        recapture may be delayed for a two-year period provided certain
        residential lending requirements are met. For financial reporting
        purposes, the Bank has not incurred any additional tax expense. At
        December 31, 2005, deferred taxes were provided on the difference
        between the book reserve at December 31, 2005 and the applicable excess
        reserve in the amount equal to the Bank's increase in the tax reserve
        from December 31, 1987 to December 31, 2005. Retained earnings at
        December 31, 2005 and 2004 includes approximately $3,250,000 of income
        for which no deferred income taxes will need to be provided.


                                       89
<PAGE>

14.     PENSION AND PROFIT SHARING PLANS

        DEFERRED COMPENSATION PLANS
        The Company maintains an executive deferred compensation plan for
        selected executive officers under which the Board of Directors may elect
        to contribute a portion of the Company's net profits. In December 2005,
        the Board of Directors elected to freeze this plan retroactive to
        January 1, 2005, such that no further contributions will be made on
        behalf of the executive officers under the plan. The Board of Directors
        took this action upon its review of the total compensation programs
        available to the Company's employees, including the increased benefits
        available as a result of the mutual holding company reorganization
        completed in December 2004 and the adoption of equity compensation plans
        by the Company's shareholders in June 2005. The Company also maintains a
        board of directors deferred compensation plan into which the Board of
        Directors may elect to contribute a percentage of their board fees. The
        expense relating to these plans was approximately $38,000, $159,000, and
        $169,000 for the years ended December 31, 2005, 2004, and 2003,
        respectively.

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

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------------
                                                        2005             2004             2003
                                                   --------------   --------------   --------------
<S>                                                <C>              <C>              <C>
        Components of net periodic benefit cost:
        Service cost                               $      107,755   $       99,056   $       97,232
        Interest cost                                     131,324          116,503          104,710
        Expected return on assets                               -                -                -
        Amortization of prior service cost                121,925          121,925          121,925
                                                   --------------   --------------   --------------

        Net periodic pension cost                  $      361,004   $      337,484   $      323,867
                                                   ==============   ==============   ==============

        Weighted average assumptions:

        Discount rate                                        5.55%           6.50%            6.50%
        Rate of return on assets                              n/a             n/a              n/a
        Rate of increase in future board
          fees/salary levels                                 4.00%           4.00%            4.00%
</TABLE>

        401(K) PLAN
        The Company also maintains a 401(k) retirement plan for substantially
        all of its employees. Certain senior officers of the Bank have been
        designated as Trustees of the 401(k) plan. The Company will match an
        employee's contribution up to a maximum of 5% of the employee's annual
        gross compensation. For the years ended December 31, 2004 and 2003, the
        Company matched 200% of the employee's contribution. Beginning January
        1, 2005, this match was reduced to 100% of the employee's contribution.
        The Board of Directors took this action upon its review of the total
        compensation programs available to the Company's employees, including
        the increased benefits available as a result of the mutual holding
        company reorganization completed in December 2004. The expense incurred
        for this plan was approximately $181,000, $330,000, and $308,000 for the
        years ended December 31, 2005, 2004, and 2003, respectively.


                                       90
<PAGE>

        EMPLOYEE STOCK OWNERSHIP PLAN
        In 2004, the Company established an employee stock ownership plan
        ("ESOP") for substantially all of its full-time employees. Certain
        senior officers of the Bank have been designated as Trustees of the
        ESOP. Shares of the Company's common stock purchased by the ESOP are
        held in a suspense account until released for allocation to
        participants. Shares are expected to be released over a 15-year period.
        Shares released are allocated to each eligible participant based on the
        ratio of each such participant's base compensation to the total base
        compensation of all eligible plan participants. As the unearned shares
        are committed to be released and allocated among participants, the
        Company recognizes compensation expense equal to the average market
        price of the shares. As of December 31, 2005, 571,320 shares of the
        Company's common stock had been purchased for approximately $7.4 million
        by the ESOP. Of these shares, 418,820 shares were purchased in 2005 for
        approximately $5.3 million. As of December 31, 2004, 152,500 shares of
        the Company's common stock had been purchased for approximately $2.0
        million by the ESOP. No additional purchases are expected to be made by
        the ESOP under this plan. The average purchase price of the 571,320
        shares held at December 31, 2005 was $12.90 per share. The fair value of
        these shares December 31, 2005 was approximately $7.2 million. During
        the year ended December 31, 2005, approximately 38,000 shares were
        committed to be released to participants resulting in recognition of
        approximately $475,000 in compensation expense. These shares were
        subsequently released to participants' accounts in March 2006. During
        the year ended December 31, 2004, no shares were committed to be
        released and no expense was recognized.

        RABBI TRUST
        During 2004, the Company established a rabbi trust to fund certain
        benefit plans. An officer of the Bank has been designated as Trustee of
        the trust. Approximately 107,000 shares of the Company's common stock
        were purchased for $1.1 million by this trust in December 2004 for the
        benefit of certain officers and directors that acquired shares through
        our deferred compensation plans. During the year ended December 31,
        2005, approximately 2,000 shares of the Company's common stock held by
        the trust were released to one eligible participant. As of December 31,
        2005, the trust holds 105,000 shares of the Company's common stock as
        well as an additional $274,000 in cash. The assets of the trust are
        sufficient to cover the liabilities of the Company's executive deferred
        compensation plan and board of directors deferred compensation plan.

        RECOGNITION AND RETENTION PLAN
        In June 2005, the shareholders of the Company approved the adoption of
        the 2005 Recognition and Retention Plan (the "RRP"). Certain senior
        officers of the Bank have been designated as Trustees of the RRP. The
        RRP provides for the grant of shares of common stock of the Company to
        certain officers, employees and directors of the Company. In order to
        fund the RRP, the Recognition Plan Trust (the "Trust") purchased 285,660
        shares of the Company's common stock in the open market for
        approximately $3.7 million, an average price of $12.95 per share. The
        Company made sufficient contributions to the Trust to fund these
        purchases. No additional purchases are expected to be made by the Trust
        under this plan. Pursuant to the terms of the plan, all 285,660 shares
        acquired by the Trust were granted to certain officers, employees and
        directors of the Company in July 2005. Approximately 3,000 forfeited
        shares were reallocated in December 2005. RRP shares will generally vest
        at the rate of 20% per year over five years.


                                       91
<PAGE>

        A summary of the status of the shares under the RRP as of December 31,
        2005 and changes during the year ended December 31, 2005 are presented
        below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31, 2005
                                                       ------------------------------------------------
                                                                                  WEIGHTED AVERAGE
                                                         NUMBER OF SHARES       GRANT DATE FAIR VALUE
                                                       --------------------   -------------------------
<S>                                                    <C>                    <C>
        Nonvested at the beginning of the year                            -   $                       -
        Granted                                                     288,160                       12.02
        Vested                                                            -                           -
        Forfeited                                                    (2,500)                      12.01
                                                       --------------------   -------------------------

        Nonvested at the end of the year                            285,660   $                   12.02
                                                       ====================   =========================
</TABLE>

        Compensation expense on RRP shares granted is recognized ratably over
        the five year vesting period in an amount which totals the market price
        of the Company's stock at the date of grant. During the year ended
        December 31, 2005, approximately 28,000 shares were amortized to
        expense, based on the proportional vesting of the awarded shares. During
        year ended December 31, 2005, approximately $333,000 was recognized in
        compensation expense for the plan. No tax benefit was recognized from
        the plan during this period. As of December 31, 2005, approximately $3.1
        million in additional compensation expense will be recognized over the
        remaining lives of the RRP awards. At December 31, 2005, the weighted
        average remaining lives of the RRP awards is approximately 4.5 years.

        STOCK OPTIONS
        In June 2005, the shareholders of the Company also approved the adoption
        of the 2005 Stock Option Plan (the "Option Plan"). The Option Plan
        authorizes the grant of stock options to officers, employees and
        directors of the Company to acquire shares of common stock with an
        exercise price equal to the fair market value of the common stock on the
        grant date. Options will generally become vested and exercisable at the
        rate of 20% per year over five years and are generally exercisable for a
        period of ten years after the grant date. A total of 714,150 shares of
        common stock have been reserved for future issuance pursuant to the
        Option Plan of which 70,900 shares remain unawarded. Approximately 3,000
        options forfeited during the year ended December 31, 2005 were granted
        to other employees.

        A summary of the status of the Company's stock options under the Option
        Plan as of December 31, 2005 and changes during the year ended December
        31, 2005 are presented below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31, 2005
                                                       ------------------------------------------------
                                                                                  WEIGHTED AVERAGE
                                                         NUMBER OF SHARES       GRANT DATE FAIR VALUE
                                                       --------------------   -------------------------
<S>                                                    <C>                    <C>
        Outstanding at the beginning of the year                          -   $                       -
        Granted                                                     646,100                       12.02
        Exercised                                                         -                           -
        Forfeited                                                    (2,850)                      12.01
                                                       --------------------   -------------------------

        Outstanding at the end of the year                          643,250   $                   12.02
                                                       ====================   =========================

        Exercisable at the end of the year                                -   $                       -
                                                       ====================   =========================
</TABLE>

                                       92
<PAGE>

        The following table summarizes all stock options outstanding under the
        Option Plan as of December 31, 2005:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                          ----------------------------------------------------  ---------------------------------
                                              WEIGHTED       WEIGHTED AVERAGE                       WEIGHTED
                            NUMBER OF         AVERAGE           REMAINING         NUMBER OF         AVERAGE
        Exercise Price        SHARES       EXERCISE PRICE    CONTRACTUAL LIFE       SHARES       EXERCISE PRICE
      ------------------  -------------  ------------------ ------------------  -------------  ------------------
                                                                (in years)
<S>                           <C>           <C>                         <C>                       <C>
            $12.01            638,750       $      12.01                9.5               -       $          -
             13.35              4,500              13.35                9.9               -                  -
                            ---------       ------------       ------------       ---------       ------------

            Total             643,250       $      12.02                9.5               -       $          -
                            =========       ============       ============       =========       ============
</TABLE>

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

                                                    YEAR ENDED
                                                DECEMBER 31, 2005
                                              ---------------------

        Dividend yield                                      1.67%
        Expected volatility                                23.62%
        Risk-free interest rate                      3.74 - 4.34%
        Expected life of options                      3 - 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.

        As this was the first option award provided to employees and directors
        of the Company, 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.

        Given the relatively short time period for which the Company has had its
        common stock outstanding to the public, it was determined that the
        historical volatility of our stock price since our initial public
        offering in December 2004 would not provide a reliable basis for
        determining the expected volatility of our stock price over the expected
        lives of our option awards. Accordingly, management determined that the
        volatility used in the option pricing model should be based on the
        volatilities of comparable companies. Management engaged a third party
        to assist in performing the task of selecting comparable companies and
        determining the volatility of their stock. The volatility used by the
        Company was based on the average historical volatilities of these
        comparable companies.

        During the year ended December 31, 2005, approximately $181,000 was
        recognized in compensation expense for the Option Plan. No tax benefit
        was recognized from the plan during this period. At December 31, 2005,
        approximately $1.7 million in additional compensation expense for
        awarded options remained unrecognized. The weighted average period over
        which this expense will be recognized is approximately 4.5 years.


                                       93
<PAGE>

15.     COMMITMENTS AND CONTINGENCIES

        The Bank had approximately $3,597,000 in outstanding mortgage loan
        commitments at December 31, 2005. The commitments are expected to be
        funded within 90 days with $3,597,000 in fixed rates ranging from 5.50%
        to 6.25%. These loans are not originated for resale. Also outstanding at
        December 31, 2005 were unused lines of credit totaling approximately
        $63,953,000.

        The Bank had approximately $3,700,000 in outstanding mortgage loan
        commitments at December 31, 2004. The commitments are expected to be
        funded within 90 days with $3,700,000 in fixed rates ranging from 5.00%
        to 6.25%. These loans are not originated for resale. Also outstanding at
        December 31, 2004 were unused lines of credit totaling approximately
        $58,585,000.

        Letters of credit are conditional commitments issued by the Bank
        guaranteeing payments of drafts in accordance with the terms of the
        letter of credit agreements. Commercial letters of credit are used
        primarily to facilitate trade or commerce and are also issued to support
        public and private borrowing arrangements, bond financings and similar
        transactions. Standby letters of credit are conditional commitments
        issued by the Bank to guarantee the performance of a customer to a third
        party. Collateral may be required to support letters of credit based
        upon management's evaluation of the creditworthiness of each customer.
        The credit risk involved in issuing letters of credit is substantially
        the same as that involved in extending loan facilities to customers.
        Most letters of credit expire within one year. At December 31, 2005 and
        December 31, 2004, the Bank had letters of credit outstanding of
        approximately $14.1 million and $11.3 million, respectively, of which
        $12.5 million and $10.5 million, respectively, were standby letters of
        credit. At December 31, 2005 and 2004, the uncollateralized portion of
        the letters of credit extended by the Bank was approximately $169,000
        and $215,000, respectively, of which $97,000 and $99,000, respectively,
        was for standby letters of credit.

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

        Among the Company's contingent liabilities, are exposures to limited
        recourse arrangements with respect to the sales of whole loans and
        participation interests. At December 31, 2005, the exposure, which
        represent 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.

16.     REGULATORY CAPITAL REQUIREMENTS

        The Company and the Bank are subject to various regulatory capital
        requirements administered by federal and state banking agencies. Failure
        to meet minimum capital requirements can initiate certain mandatory--and
        possibly additional discretionary--actions by regulators, that, if
        undertaken, could have a direct material effect on the Company's
        consolidated financial statements. Under capital adequacy guidelines and
        the regulatory framework for prompt corrective action, the Bank must
        meet specific capital guidelines that involve quantitative measures of
        the Bank's assets, liabilities and certain off-balance-sheet items as
        calculated under regulatory accounting practices. The Company's and the
        Bank's capital amounts and classification are also subject to
        qualitative judgments by the regulators about components, risk
        weightings and other factors.


                                       94
<PAGE>

        Quantitative measures established by regulation to ensure capital
        adequacy require the Bank to maintain minimum amounts and ratios (set
        forth in the table below) of total and Tier I capital (as defined in the
        regulations) to risk-weighted assets (as defined), and of Tier I capital
        (as defined) to average assets (as defined). As of December 31, 2005,
        the Company and the Bank meet all capital adequacy requirements to which
        they are subject.

        As of December 31, 2005 and 2004, the most recent notification from the
        FDIC categorized the Bank as well capitalized under the regulatory
        framework for prompt corrective action. To be categorized as well
        capitalized, the Bank must maintain minimum Tier I risk-based, total
        risk-based, and Tier I leverage ratios as set forth in the table. There
        are no conditions or events since that notification that management
        believes have changed the Bank' s category.

        The Company's and the Bank's actual capital amounts and ratios are
        presented in the table below:

<TABLE>
<CAPTION>
                                                                                           TO BE WELL CAPITALIZED
                                                                       REQUIRED FOR            UNDER PROMPT
                                                                     CAPITAL ADEQUACY        CORRECTIVE ACTION
                                                 ACTUAL                   PURPOSES               PROVISIONS
                                       -------------------------  -----------------------  ----------------------
                                           AMOUNT       RATIO         AMOUNT      RATIO       AMOUNT      RATIO
<S>                                    <C>              <C>       <C>              <C>     <C>            <C>
        As of December 31, 2005:
        Total Capital
          (to Risk Weighted Assets)
            The Company                $ 121,387,000    23.47 %   $ 41,373,000     8.00 %       N/A         N/A
            The Bank                      89,058,000    17.21       41,398,000     8.00    $ 51,748,000   10.00 %
        Tier I Capital
          (to Risk Weighted Assets)
            The Company                  119,932,000    16.94       20,686,000     4.00         N/A         N/A
            The Bank                      87,603,000    16.93       20,699,000     4.00      31,049,000    6.00
        Tier I Capital
          (to Average Assets)
            The Company                  119,932,000    14.28       28,045,000     4.00         N/A         N/A
            The Bank                      87,603,000    10.46       33,496,000     4.00      41,870,000    5.00

        As of December 31, 2004:
        Total Capital
          (to Risk Weighted Assets)
            The Company                $ 125,318,000    29.96 %   $ 33,460,000     8.00 %       N/A         N/A
            The Bank                      90,690,000    21.57       33,631,000     8.00    $ 42,039,000   10.00 %
        Tier I Capital
          (to Risk Weighted Assets)
            The Company                  123,905,000    29.62       16,730,000     4.00         N/A         N/A
            The Bank                      89,277,000    21.24       16,816,000     4.00      25,223,000    6.00
        Tier I Capital
          (to Average Assets)
            The Company                  123,905,000    17.67       28,596,000     4.00         N/A         N/A
            The Bank                      89,277,000    12.73       28,045,000     4.00      35,057,000    5.00
</TABLE>

                                       95
<PAGE>

17.     FAIR VALUE OF FINANCIAL INSTRUMENTS

        The estimated fair value amounts have been determined by the Company
        using available market information and appropriate valuation
        methodologies. However, considerable judgment is necessarily required to
        interpret market data to develop the estimates of fair value.
        Accordingly, the estimates presented herein are not necessarily
        indicative of the amounts the Company could realize in a current market
        exchange. The use of different market assumptions and/or estimation
        methodologies may have a material effect on the estimated fair value
        amounts.

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                         --------------------------------------------------------
                                                   2005                         2004
                                         ---------------------------  ---------------------------
                                                         ESTIMATED                    ESTIMATED
                                           CARRYING        FAIR         CARRYING         FAIR
                                            AMOUNT         VALUE         AMOUNT         VALUE
                                               (IN THOUSANDS)               (IN THOUSANDS)
<S>                                       <C>           <C>            <C>           <C>
        Assets:
          Cash and cash equivalents       $   27,714    $   27,714     $   33,296    $    33,296
          Investment securities               99,224        99,145         86,384         86,500
          Mortgage-backed securities         147,354       145,449        164,732        164,350
          Loans receivable--net              529,487       512,873        412,656        410,388

        Liabilities:
          Deposits                        $  501,183    $  469,970     $  405,290    $   380,580
          Advances from Federal
            Home Loan Bank                   201,445       203,431        170,666        174,735
          Other borrowed money                16,114        16,114         12,866         12,866
          Interest rate swaps and caps             -             -             85             85
</TABLE>

        CASH AND CASH EQUIVALENTS--For cash and cash equivalents, the carrying
        amount is a reasonable estimate of fair value.

        INVESTMENT AND MORTGAGE-BACKED SECURITIES--The fair value of investment
        securities and mortgage-backed securities is based on quoted market
        prices, dealer quotes and prices obtained from independent pricing
        services.

        LOANS RECEIVABLE--The fair value of loans is estimated based on present
        value using approximate current entry-value interest rates applicable to
        each category of such financial instruments.

        DEPOSITS--The fair value of NOW, money market deposits and passbook and
        club accounts is the amount reported in the consolidated financial
        statements. The fair value of time certificates is based on a present
        value estimate using rates currently offered for deposits of similar
        remaining maturity.

        ADVANCES FROM FEDERAL HOME LOAN BANK--The fair value is the amount
        payable on demand at the reporting date.

        OTHER BORROWED MONEY--The fair value is considered to be equal to the
        carrying amount due to the short-term nature of the instruments.

        INTEREST RATE SWAPS AND CAPS--The fair value of the interest rate swaps
        and caps are based on prices obtained from an independent pricing
        service.


                                       96
<PAGE>

        COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT--The majority of the
        Bank's commitments to extend credit and letters of credit carry current
        market interest rates if converted to loans. Because commitments to
        extend credit and letters of credit are generally unassignable by either
        the Bank or the borrower, they only have value to the Bank and the
        borrower. The estimated fair value approximates the recorded deferred
        fee amounts, which are not significant.

        The fair value estimates presented herein are based on pertinent
        information available to management as of December 31, 2005 and 2004.
        Although management is not aware of any factors that would significantly
        affect the estimated fair value amounts, such amounts have not been
        comprehensively revalued for purposes of these financial statements
        since December 31, 2005 and 2004 and, therefore, current estimates of
        fair value may differ significantly from the amounts presented herein.

18.     ABINGTON COMMUNITY BANCORP, INC. (PARENT COMPANY ONLY)

        Certain condensed financial information follows:

<TABLE>
<CAPTION>

        STATEMENTS OF FINANCIAL CONDITION
        ---------------------------------------------------------------------------------------------------

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

        Cash and cash equivalents                            $          25,639,310    $          36,766,348
        Investment in Abington Bank                                     84,901,681               88,426,883
        Loans receivable                                                 7,007,751                        -
        Other assets                                                         2,025                        -
                                                             ---------------------    ---------------------

        TOTAL ASSETS                                         $         117,550,767    $         125,193,231
                                                             =====================    =====================

        LIABILITIES AND STOCKHOLDERS' EQUITY

        LIABILITIES:
            Accounts payable and accrued expenses            $             320,000    $           2,138,530
                                                             ---------------------    ---------------------

                   Total liabilities                                       320,000                2,138,530
                                                             ---------------------    ---------------------

        STOCKHOLDERS' EQUITY
          Preferred stock, $0.01 par value, 10,000,000
            shares authorized, none issued
          Common stock, $0.01 par value, 40,000,000
            shares authorized, issued and outstanding:
            15,870,000 in 2004                                             158,700                  158,700
          Additional paid-in capital                                    69,234,964               69,096,936
          Unallocated common stock held by:
            Employee Stock Ownership Plan (ESOP)                        (6,880,236)              (2,046,137)
            Recognition and Retention Plan Trust (RRP)                  (3,339,413)                       -
            Deferred compensation plans trust                           (1,050,000)              (1,074,200)
          Retained earnings                                             61,889,180               57,881,651
          Accumulated other comprehensive loss                          (2,782,428)                (962,249)
                                                             ---------------------    ---------------------

                   Total stockholders' equity                          117,230,767              123,054,701
                                                             ---------------------    ---------------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $         117,550,767    $         125,193,231
                                                             =====================    =====================
</TABLE>

                                       97
<PAGE>

        STATEMENT OF INCOME
        ------------------------------------------------------------------------
                                                                 Year Ended
                                                                December 31,
                                                              ---------------
                                                                    2005
                                                              ---------------

        INCOME:
          Interest on loans                                   $       346,045
                                                              ---------------
                   Total income                                       346,045
                                                              ---------------
        EXPENSES:
          Professional services                                       200,000
          Other                                                       152,000
                                                              ---------------
                   Total expenses                                     352,000
                                                              ---------------
        INCOME BEFORE INCOME TAXES                                     (5,955)
                                                              ---------------
        EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY                6,306,261
                                                              ---------------
        PROVISION FOR INCOME TAXES                                     (2,025)
                                                              ---------------
        NET INCOME                                            $     6,302,331
                                                              ===============


        STATEMENT OF CASH FLOWS
        ------------------------------------------------------------------------

                                                                 Year Ended
                                                                December 31,
                                                              ---------------
                                                                    2005
                                                              ---------------

        OPERATING ACTIVITIES:
          Net income                                          $     6,302,331
          Adjustments to reconcile net income to net cash
            provided by operating activities:
            Undistributed income of subsidiary                     (6,306,261)
            Changes in assets and liabilities which (used)
              provided cash:
              Other assets                                             (2,025)
              Accounts payable and accrued expenses                   320,000
                                                              ---------------
                Net cash provided by operating activities             314,045
                                                              ---------------
        INVESTING ACTIVITIES:
          Principal collected on loans                                466,624
          Disbursements for loans                                  (7,474,375)
                                                              ---------------
                Net cash used in investing activities              (7,007,751)
                                                              ---------------
        FINANCING ACTIVITIES:
          Repayments of liabilities                                (2,138,530)
          Payment of cash dividend                                 (2,294,802)
                                                              ---------------
                Net cash provided by financing activities          (4,433,332)
                                                              ---------------

        NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS      (11,127,038)
        CASH AND CASH EQUIVALENTS--Beginning of period             36,766,348
                                                              ---------------
        CASH AND CASH EQUIVALENTS--End of period              $    25,639,310
                                                              ===============

        Since Abington Community Bancorp, Inc. was formed on December 16, 2004,
        no condensed statements of income or cash flows are presented for the
        period from December 16, 2004 to December 31, 2004 due to the
        insignificant nature of the balances.


                                       98
<PAGE>

19.     CONVERSION AND REORGANIZATION TO MUTUAL HOLDING COMPANY

        On April 21, 2004, the Board of Trustees approved a plan of
        reorganization by which Abington Bank reorganized from a mutual savings
        bank to a mutual holding company structure. Upon completion of the
        reorganization on December 16, 2004, Abington Bank became a wholly owned
        subsidiary of Abington Community Bancorp, Inc. Abington Mutual Holding
        Company, a Pennsylvania corporation, became the mutual holding company
        parent of Abington Community Bancorp, Inc. Abington Mutual Holding
        Company owns 55% of Abington Community Bancorp, Inc.'s outstanding
        common stock and must continue to own at least a majority of the voting
        stock of Abington Community Bancorp, Inc. In addition to the shares of
        Abington Community Bancorp, Inc. which it owns, Abington Mutual Holding
        Company was capitalized with $100,000 in cash.

        As part of the reorganization, approximately 45% of the outstanding
        common stock was offered to the public. The purchase price was $10.00
        per share. All investors (including trustees and officers of Abington
        Bank) paid the same price per share in the offering. The Company sold
        7,141,500 shares of stock to eligible depositors, generating $71.4
        million in gross proceeds, and an additional 8,728,500 shares were
        issued to Abington Mutual Holding Company. Net proceeds were
        approximately $69.3 million after $2.2 million in conversion costs were
        deducted. Half of the net proceeds from the offering, approximately
        $34.6 million, were used by the Company to buy the common stock of the
        Bank.

        As part of the initial public offering, a rabbi trust, which was
        established by the Bank to fund certain benefit plans, purchased
        approximately 107,000 shares of the Company's common stock for $1.1
        million for the benefit of certain officers and directors that acquired
        shares through our deferred compensation plans.


                                     ******


                                       99
<PAGE>

SUPPLEMENTARY DATA

SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table presents summarized quarterly data for each of the
last two years.

<TABLE>
<CAPTION>

Three Months Ended:                            DECEMBER 31,   SEPTEMBER 30,   JUNE 30,   MARCH 31,
                                               ------------   -------------   --------   ---------
                                                 (Dollars in thousands, except per share data)
<S>                                            <C>            <C>             <C>        <C>
2005
Total interest income                          $     11,039   $      10,399   $  9,666   $   8,907
Total interest expense                                5,564           5,050      4,433       3,952
                                               ------------   -------------   --------   ---------
Net interest income                                   5,475           5,349      5,233       4,955
Provision for loan losses                                 5              20         --          --
                                               ------------   -------------   --------   ---------
  Net interest income after provision for
       loan losses                                    5,470           5,329      5,233       4,955
Total non-interest income                               688             769        762         579
Total non-interest expense                            4,053           3,900      3,538       3,485
                                               ------------   -------------   --------   ---------
Income before income taxes                            2,105           2,198      2,457       2,049
Income taxes                                            544             604        721         638
                                               ------------   -------------   --------   ---------
Net income                                     $      1,561   $       1,594   $  1,736   $   1,411
                                               ============   =============   ========   =========
Basic earnings per share                                .10             .10        .11         .09
Diluted earnings per share                              .10             .10        .11         .09

2004
Total interest income                          $      8,426   $       7,761   $  7,339   $   7,323
Total interest expense                                3,803           3,601      3,441       3,364
                                               ------------   -------------   --------   ---------
Net interest income                                   4,623           4,160      3,898       3,959
Provision for loan losses                                --              --         --          45
                                               ------------   -------------   --------   ---------
  Net interest income after provision for
       loan losses                                    4,623           4,160      3,898       3,914
Total non-interest income                               639             509        824         271
Total non-interest expense                            3,197           3,044      2,824       2,950
                                               ------------   -------------   --------   ---------
Income before income taxes                            2,065           1,625      1,898       1,235
Income taxes                                            656             571        631         410
                                               ------------   -------------   --------   ---------
Net income                                     $      1,409   $       1,054   $  1,267   $     825
                                               ============   =============   ========   =========
Basic earnings per share                            n/a (1)             n/a        n/a         n/a
Diluted earnings per share                          n/a (1)             n/a        n/a         n/a
</TABLE>
------------------
(1)     Due to the timing of the Bank's reorganization into the mutual holding
        company form and the completion of the Company's initial public offering
        on December 16, 2004, earnings per share for the period from December
        16, 2004 to December 31, 2004 is not considered meaningful and is not
        shown.


                                      100
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 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, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and regulations and are operating in an effective manner. No change in the
Company's internal control over financial reporting (as defined in Rules
13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred
during the quarter ended December 31, 2005 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

        Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to "Information with Respect to Nominees for Director,
Continuing Directors and Executive Officers" in our definitive proxy statement
for the annual meeting of shareholders to be held in May 2006 (the "Proxy
Statement"), which will be filed with the Securities and Exchange Commission on
or before April 30, 2006.

Incorporated by reference to "Beneficial Ownership of Common Stock by Certain
Beneficial Owners and Management - Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.

The Company has adopted a Code of Conduct and Ethics that applies to its
principal executive officer and principal financial officer, as well as other
officers and employees of the Company and the Bank. A copy of the Code of
Conduct and Ethics may be found on the Company's website at
WWW.ABINGTONBANK.COM.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to "Management Compensation," "Report of the
Compensation Committee" and "Performance Graph" in the Proxy Statement.


                                      101
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information
regarding security ownership of certain beneficial owners and management is
incorporated by reference to "Beneficial Ownership of Common Stock by Certain
Beneficial Owners and Management" in the Proxy Statement.

EQUITY COMPENSATION PLAN INFORMATION. The following table provides information
as of December 31, 2005 with respect to shares of common stock that may be
issued under our existing equity compensation plans, which consist of the 2005
Stock Option Plan and 2005 Recognition and Retention Plan, both of which were
approved by our shareholders.

<TABLE>
<CAPTION>
                                                                                              Number of securities
                                                                                            remaining available for
                                   Number of securities to be        Weighted-average     future issuance under equity
                                     issued upon exercise of        exercise price of    compensation plans (excluding
                                  outstanding options, warrants    outstanding options,     securities reflected in
                                           and rights              warrants and rights            column (a))
         Plan Category                         (a)                         (b)                        (c)
--------------------------------  ------------------------------  ---------------------  ------------------------------
<S>                                          <C>                        <C>                        <C>
Equity compensation plans
   approved by security holders              928,910(1)                 $12.02(1)                  70,900
Equity compensation plans
   not approved by security
   holders                                        --                        --                         --
                                             -------                    ------                     ------
Total                                        928,910                    $12.02                     70,900
                                             =======                                               ======
</TABLE>
-------------------
(1)     Includes 285,660 shares subject to restricted stock grants which were
        not vested as of December 31, 2005. The weighted-average exercise price
        excludes such restricted stock grants.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to "Management Compensation - Indebtedness of
Management and Related Party Transactions" in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference to "Ratification of Appointment of Independent
Registered Public Accounting Firm" in the Proxy Statement.


                                     PART IV

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(A)     DOCUMENTS FILED AS PART OF THIS REPORT:

        Financial Statements: The Consolidated Financial Statements of Abington
        Community Bancorp, Inc. and the Report of Independent Registered Public
        Accounting Firm thereon, as listed below, have been filed under "Item 8,
        Financial Statements and Supplementary Data".

        Report of Independent Registered Public Accounting Firm


                                      102
<PAGE>

        Consolidated Statements of Financial Condition for the Years Ended
        December 31, 2005 and 2004

        Consolidated Statements of Income for the Years Ended December 31, 2005,
        2004 and 2003

        Consolidated Statements of Changes in Shareholders' Equity and
        Comprehensive Income for the Years Ended December 31, 2005, 2004 and
        2003

        Consolidated Statements of Cash Flows for the Years Ended December 31,
        2005, 2004 and 2003

        Notes to Consolidated Financial Statements

(B)     LIST OF EXHIBITS

<TABLE>
<CAPTION>
<S>                                                                             <C>
NO.            DESCRIPTION                                                                       LOCATION
-----------    -------------------------------------------------------------------------------   -----------------
  3.1          Articles of Incorporation of Abington Community Bancorp, Inc.                                   (1)

  3.2          Bylaws of Abington Community Bancorp, Inc.                                                      (1)

  4.0          Form of Stock Certificate of Abington Community Bancorp, Inc.                                   (1)

 10.1*         Employment Agreement between Abington Bank and Robert W. White                                  (1)

 10.2*         Form of Draft Employment Agreement between Abington Bank and each of Edward                     (1)
               W. Gormley, Frank Kovalcheck and Jack J. Sandoski

 10.3*         Amended and Restated Board of Directors Deferred Compensation Plan                              (2)

 10.4*         Amended and Restated Executive Deferred Compensation Plan                                       (2)

 10.5*         Supplemental Executive Retirement Plan                                                          (2)

 10.6*         Board of Trustees Retirement Plan                                                               (2)

 10.7*         Abington Community Bancorp, Inc. 2005 Stock Option Plan                                         (3)

 10.8*         Abington Community Bancorp, Inc. 2005 Recognition and Retention Plan and                        (3)
               Trust Agreement

 23.0          Consent of Deloitte & Touche LLP                                                     Filed Herewith

 31.1          Rule 13(a)-14(a) Certification of the Chief Executive Officer                        Filed Herewith

 31.2          Rule 13(a)-14(a) Certification of the Chief Financial Officer                        Filed Herewith

 32.0          Section 1350 Certifications                                                          Filed Herewith
</TABLE>
-------------
*       Denotes a management contract or compensatory plan or arrangement

(1)     Incorporated by reference from Abington Community Bancorp's Registration
        Statement on Form S-1 filed on June 10, 2004, as amended and declared
        effective on October 21, 2004 (Registration No. 333-116370)


                                      103
<PAGE>

(2)     Incorporated by reference from the registrant's Annual Report on Form
        10-K for the year ended December 31, 2004 as filed with the SEC on March
        31, 2005 (File No. 0-51077).

(3)     Incorporated by reference from the registrant's Current Report on Form
        8-K dated as of June 23, 2005 and filed with the SEC on June 27, 2005
        (File No. 0-51077).

        (C)     FINANCIAL STATEMENT SCHEDULES

                All schedules have been omitted as the required information is
                not applicable or is presented in the consolidated financial
                statements or related notes included in Item 8 hereof.


                                      104
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                ABINGTON COMMUNITY BANCORP, INC.



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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

             NAME                                     TITLE                                 DATE
-----------------------------------     -------------------------------------        --------------------
<S>                                     <C>                                             <C>
/s/ Robert W. White                     Chairman of the Board, President and            March 27, 2006
-----------------------------------     Chief Executive Officer
Robert W. White


/s/ Jack J. Sandoski                    Senior Vice President and Chief                 March 27, 2006
-----------------------------------     Financial Officer
Jack J. Sandoski


/s/ Michael F. Czerwonka, III           Director                                        March 27, 2006
-----------------------------------
Michael F. Czerwonka, III


/s/ A. Stuard Graham, Jr.               Director                                        March 27, 2006
-----------------------------------
A. Stuard Graham, Jr.


/s/ Jane Margraff Kieser                Director                                        March 27, 2006
-----------------------------------
Jane Margraff Kieser


/s/ Joseph B. McHugh                    Director                                        March 27, 2006
-----------------------------------
Joseph B. McHugh


/s/ Robert John Pannepacker, Sr.        Director                                        March 27, 2006
-----------------------------------
Robert John Pannepacker, Sr.
</TABLE>


                                      105