-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9ZtiDzzbN19mU5GGjBgmxIHoDpar9ZL/6AvvXMuujPf+gCbHjd7vOcvt7rn3KKl nfjcun7HBXyfX7g63lOg1w== 0000927089-06-000386.txt : 20061214 0000927089-06-000386.hdr.sgml : 20061214 20061214144511 ACCESSION NUMBER: 0000927089-06-000386 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061214 DATE AS OF CHANGE: 20061214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANCORP OF NEW JERSEY INC CENTRAL INDEX KEY: 0001330039 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 550897507 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-51500 FILM NUMBER: 061276768 BUSINESS ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 BUSINESS PHONE: 973 748-3600 MAIL ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 10-K 1 abnj10-k2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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	September 30, 2006
-OR-
[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to .

Commission File Number: 0-51500

AMERICAN BANCORP OF NEW JERSEY, INC.
(Exact Name of Registrant as Specified in its Charter)

New Jersey (State or Other Jurisdiction of Incorporation or Organization)		55-0897507 (I.R.S. Employer Identification Number)
365 Broad Street, Bloomfield, New Jersey 07003 (Address of Principal Executive Offices)		07003 (Zip Code)

Registrant's telephone number, including area code: (973) 748-3600

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered

Common Stock, par value $.10 per share	The NASDAQ Stock Market LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No

Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] 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 file, an accelerated filer, or a non-accelerated filer. See definition of "accelerated file and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]

Accelerated filer [X]

Non-accelerated filer [ ]

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

The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant, computed by reference to the closing price of the registrant's common stock on the NASDAQ Stock Market on March 31, 2006, was $129,035,269. The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.

As of December 8, 2006, the registrant had outstanding 13,101,220 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Parts II and IV of Form 10-K - Portions of the Annual Report to Stockholders for the year ended September 30, 2006

Part III of Form 10-K - Portions of the proxy statement for the Annual Meeting of Stockholders for the year ended September 30, 2006

PART I

Forward-Looking Statements

American Bancorp of New Jersey, Inc. (the "Company" or "Registrant") may from time to time make written or oral "forward looking statements," including statements contained in documents filed with or furnished to the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality as compared to competitors' products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks resulting from these factors.

The Company cautions that the listed factors are not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Item 1. Business.

General

On October 5, 2005, American Savings, MHC (the "MHC") completed its reorganization into stock form and the Company succeeded to the business of ASB Holding Company, the MHC's former stock holding company subsidiary. Each outstanding share of common stock of the former mid-tier stock holding company (other than shares held by the MHC which were canceled) was converted into 2.55102 shares of common stock of the Company. As part of the second-step mutual to stock conversion transaction, the Company sold a total of 9,918,750 shares to eligible depositors of American Bank of New Jersey (the "Bank") in a subscription offering at $10.00 per share, including 793,500 shares purchased by the Bank's employee stock ownership plan with funds borrowed from the Company.

The Company is a New Jersey corporation that was incorporated in May 2005 for the purpose of being a holding company for the Bank, a federally-chartered stock savings bank. The Company is a unitary savings and loan holding company and conducts no significant business or operations of its own. References in this Annual Report on Form 10-K to the Company generally refer to the consolidated entity, which includes the Bank, unless the context indicates otherwise. References to "we," "us," or "our" refer to the Bank or Company, or both, as the context indicates.

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The Bank was originally founded in 1919 as the American-Polish Building & Loan Association of Bloomfield, New Jersey. It became a state-chartered savings and loan association in 1948 and converted to a federally chartered savings bank in 1995. The Bank's deposits are insured by the Federal Deposit Insurance Corporation up to the maximum amount permitted by law. The Bank is regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.

Our core business is using retail deposits in order to fund a variety of mortgage and consumer loan products. We operate as a traditional community bank, offering retail banking services, one- to four-family residential mortgage loans, home equity loans and lines of credit, multi-family and non-residential mortgage loans, business and consumer loans. We also invest in mortgage-backed securities, collateralized mortgage-backed obligations and other investment securities. The principal source of funds for our lending and investing activities is retail deposits, supplemented with Federal Home Loan Bank borrowings. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our interest-earning assets consist primarily of residential mortgage loans, multi-family and nonresidential real estate loans, construction loans, as well as residential mortgage-related securities and U.S. Agency debentures. Interest-bearing liabilities consist primarily of retail deposits and borrowings from the Federal Home Loan Bank of New York.

Market Area

Our main office is located in Bloomfield, New Jersey, and our two branch offices are located in Cedar Grove and Verona, New Jersey. Our lending is concentrated in the New Jersey and New York metropolitan area, and our predominant sources of deposits are the communities in which our three offices are located as well as the neighboring communities. Our business of attracting deposits and making loans is primarily conducted within our market area. A downturn in the local economy could reduce the amount of funds available for deposit and the ability of borrowers to repay their loans. As a result, our profitability could decrease.

Competition

We face substantial competition in our attraction of deposits, which are our primary source of funds for lending, and in our origination of loans. Many of our competitors are significantly larger institutions and have greater financial and other resources. Our ability to compete successfully is a significant factor affecting our profitability.

Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking companies for real estate loans, and commercial banks and savings institutions for consumer loans; and we face competition for deposits from investment products such as mutual funds, short-term money funds and corporate and government securities.

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Lending Activities

General. Historically, we have focused on the origination of one- to four-family loans. Consequently, a majority of our total loan portfolio comprises such loans as reflected in the table below. Notwithstanding, our business plan calls for significantly greater emphasis on commercial lending which includes multifamily, nonresidential, construction and business loans. Toward that end, the Bank continues to expand its commercial lending division with the hiring of several additional commercial lending officers and administrative support staff. While outstanding balances in commercial loans still fall below those in the one- to four-family loan category, the table below shows the dollar and percentage of portfolio growth trends in the commercial categories reflecting the Company's loan diversification strategy.

Loan Portfolio Composition. The following table analyzes the composition of our loan portfolio by loan category at the dates indicated.

	At September 30
	2006		2005		2004		2003		2002
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
	(Dollars in thousands)
Type of Loans:
One- to four-family real estate⁽¹⁾	$283,469	68.05%	$267,052	78.09%	$251,531	80.17%	$215,984	81.59%	$167,564	79.06%
Multi-family and nonresidential real estate	73,496	17.64	58,615	17.14	43,197	13.77	36,202	13.68	29,503	13.92
Land	534	0.13	-	-	-	-	-	-	-	-
Construction	33,155	7.96	1,450	0.42	7,175	2.29	1,233	0.47	4,875	2.30
Consumer	720	0.17	702	0.21	746	0.24	780	0.29	795	0.38
Home equity	19,122	4.59	13,413	3.92	10,666	3.40	8,893	3.36	6,904	3.26
Business	6,068	1.46	746	0.22	398	0.13	1,610	0.61	2,298	1.08

Total loans receivable	416,564	100.00%	341,948	100.00%	313,713	100.00%	264,702	100.00%	211,939	100.00%
Less:
Allowance for loan losses	(2,123)		(1,658)		(1,578)		(1,371)		(1,117)
Net deferred origination costs	1,100		1,036		935		796		673
Loans in process	(16,917)		(350)		(4,100)		(783)		(3,121)
Total loans receivable, net	$398,624		$341,006		$308,970		$263,344		$208,374

_____________
⁽¹⁾ Includes loans held for sale of $280,250 and $500,000 at September 30, 2005 and September 30, 2003, respectively.

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Loan Maturity Schedule. The following table sets forth the maturity of our loan portfolio at September 30, 2006. Demand loans, loans having no stated maturity, and overdrafts are shown as due in one year or less. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual repayment of loan balances will vary significantly from their contractual maturities due to amortization and prepayments.

	At September 30, 2006
	One- to Four- Family Real Estate	Multi-family and Nonresidential Real Estate	Land	Construction	Consumer	Home Equity	Business	Total
	(Dollars in thousands)
Amounts Due:
Within 1 Year	$ 51	$ 2,718	$ -	$ 6,684	$ 718	$ -	$ 4,329	$ 14,500
After 1 year:
1 to 5 years	2,980	1,224	-	9,554	2	440	1,605	15,805
5 to 10 years	28,159	8,652	534	-	-	1,706	134	39,185
10 to 15 years	56,372	19,109	-	-	-	3,512	-	78,993
Over 15 years	195,907	41,793	-	-	-	13,464	-	251,164
Total due after one year	283,418	70,778	534	9,554	2	19,122	1,739	385,147
Total amount due	$ 283,469	$ 73,496	$ 534	$ 16,238	$ 720	$ 19,122	$ 6,068	$ 399,647

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The following table sets forth the dollar amount of all loans at September 30, 2006 due after September 30, 2007, which have fixed interest rates and which have floating or adjustable interest rates.

	Fixed Rates	Floating or Adjustable Rates	Total
	(In thousands)

One- to four-family real estate	$ 137,998	$ 145,420	$ 283,418
Multi-family and non-residential real estate	26,629	44,149	70,778
Land	534	-	534
Construction	-	9,554	9,554
Consumer	2	-	2
Home equity	-	19,122	19,122
Business	426	1,313	1,739
Total	$ 165,589	$ 219,558	$ 385,147

One- to Four-Family Real Estate Loans. As noted above, our primary lending activity historically has consisted of the origination of one- to four-family mortgage loans, most of which are secured by property located in northern New Jersey. We will generally originate a one- to four-family mortgage loan in an amount up to 80% of the lesser of the appraised value or the purchase price of a mortgaged property. For loans exceeding this guideline, private mortgage insurance on the loan is typically required.

Our residential loans are generally originated with fixed or adjustable rates and have terms of ten to thirty years. We also offer mortgage loans with bi-weekly payments and recently began offering mortgage loans with terms up to forty years as well as fully amortizing, adjustable rate loans with interest only payments for the first three to five years. Loans with interest only payments are generally considered to entail greater risk than loans whose terms require the payment of both interest and principal over the life of the loan. Of particular concern are borrowers' abilities to meet their payment obligations when the interest rate on the loan resets for the first time while, simultaneously, schedule prinicipal amortization begins to be collect over the loan's remaining term to maturity. These concurrent factors may result in significant increases to a borrower's monthly payment obligations.

The majority of our adjustable rate loan products provide for an interest rate that is tied to the one-year Constant Maturity U.S. Treasury index and have terms of up to thirty years with initial fixed rate periods of one, three, five, seven, or ten years according to the terms of the loan. We also offer an adjustable rate loan with a rate that adjusts every three years to the three-year Constant Maturity U.S. Treasury index.

The fixed rate mortgage loans that we originate generally meet the secondary mortgage market standards of the Federal National Mortgage Association ("FNMA"). For the purposes of interest rate risk management, we have historically sold qualifying one- to four-family residential mortgages into the secondary market on a servicing retained basis without recourse. Toward that end, we have entered into a master selling and servicing agreement with FNMA under which the Bank sold $5.8 million in the year ended September 30, 2006, $2.4 million in the year ended September 30, 2005, and $4.8 million in the year ended September 30, 2004. We have recently entered into a correspondent relationship with Countrywide Home Loans through which we expect to sell one- to four-family mortgage loans on a servicing released basis. With these relationships in place, we expect to increase the number of one- to four-family loans sold into the secondary market.

Substantially all of our residential mortgages include "due on sale" clauses, which are provisions giving us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securing our one- to four-family residential loans are made by state certified or licensed independent appraisers approved by the Board of Directors. Appraisals are performed in accordance with applicable regulations and policies. We require title insurance policies on all first mortgage real estate loans originated. Homeowners, liability, fire and, if required, flood insurance policies are also required.

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Multifamily and Nonresidential Real Estate Loans. We originate and participate in commercial loans on multi-family and non-residential real estate properties, including loans on retail/service properties, small office buildings, strip malls and other income-producing properties. We generally require a 25% down payment or equity position for these mortgage loans. Typically these loans are made with amortization terms of up to twenty-five years. The majority of these loans are on properties located within the New Jersey and New York metropolitan area.

Commercial real estate loans generally are considered to entail significantly greater risk than that which is involved with one- to four-family real estate lending. The repayment of these loans typically is dependent on the real estate securing the loan as collateral and the successful operations of the property and income stream of the borrower generated from the property. These risks can be significantly affected by economic conditions. In addition, commercial loans may carry larger balances to single borrowers or related groups of borrowers than one- to four-family loans. Furthermore, this type of real estate lending generally requires substantially greater evaluation and oversight efforts compared to one-to-four family mortgage lending.

Construction Loans. We originate and participate in construction loans throughout the New Jersey and New York metropolitan area. Our construction lending includes loans to individuals for construction of a primary residence as well as loans to builders and developers for single family homes, multi-family homes, small residential tract development, small condominium projects, as well as other commercial real estate projects. We have no formal limits as to the number of projects a builder may have under construction or development, and make a case by case determination on loans to builders and developers who have multiple projects under development. In some cases, we convert a construction loan to the permanent end mortgage loan upon completion of construction.

Construction lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties. If the estimate of construction cost proves to be inaccurate, we may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover all of the unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time.

Business Loans. We also originate business loans to a variety of professionals, sole proprietorships and small businesses, primarily in our market area. These loans are generally secured by real estate. We generally require the personal guarantee of the business owner. Business lending products include term loans and lines of credit. Our business term loans generally have terms from one to five years and are mostly fixed rate loans. Our business lines of credit have terms from one to three years and are mostly adjustable rate loans.

Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, business loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of business loans may be substantially dependent on the success of the business itself and the general economic environment. Business loans, therefore, have greater credit risk than residential mortgage loans. In addition, business loans may carry larger balances to single borrowers or related groups of borrowers than one- to four-family loans. In addition, business lending generally requires substantially greater evaluation and oversight efforts compared to residential or non-residential real estate lending.

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Home Equity Loans. Our home equity loan portfolio includes home equity lines of credit and second mortgage term loans. Home equity lines of credit are prime-based loans that are adjusted monthly. Home equity loans are primarily originated in our market area and are generally made in amounts of up to 80% of value on term loans and up to 80% of value on home equity lines of credit. During 2001, we began offering home equity loans on investment properties in addition to loans on primary residences. Loans on investment properties are made in amounts of up to 65% of value on term loans and up to 60% of value of home equity lines of credit.

Generally, our second mortgage loans have fixed rates for terms of up to fifteen years. Second mortgages and home equity lines of credit do not require title insurance but do require homeowner, liability, fire and, if required, flood insurance policies.

Consumer Loans. Consumer loans consist of savings secured loans and unsecured consumer loans. We will generally lend up to 90% of the account balance on a savings secured loan. At September 30, 2006, we had $74,000 of unsecured consumer loans.

Consumer loans generally have shorter terms and higher interest rates than residential loans. The consumer loan market can be helpful in improving the spread between the average loan yield and the cost of funds and at the same time improve the matching of rate sensitive assets and liabilities.

Unsecured consumer loans, and consumer loans secured by collateral other than savings accounts, entail greater risks than residential mortgage loans. Consumer loan repayment is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default.

Our underwriting standards for consumer loans include a determination of the applicant's credit history and an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan. The stability of the applicant's monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.

Loans to One Borrower. Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower or a group of related borrowers in an amount equal to the greater of $500,000 or 15% of the institution's unimpaired capital and surplus. As of September 30, 2006, our loans to one borrower limit was approximately $12.7 million.

At September 30, 2006, our largest group of related borrowers had an aggregate balance, including unfunded commitments, of approximately $8.0 million, representing 7 loans on single purpose commercial real estate, mixed use properties, single family residential and a construction loan for residential properties.

At the same date, our second largest group of related borrowers had an aggregate balance including total commitments of approximately $6.3 million, representing 2 loans secured by a construction loan for a condominium project and a small unsecured line of credit. Our third largest group of related borrowers at that date had an aggregate balance including total commitments of approximately $5.6 million, representing 4 loans on condominium units, 9 loans secured by multi-family properties and 3 single family residential loans. At September 30, 2006 , we had 15 additional lending relationships exceeding $2.0 million, with outstanding balances at that date ranging from $2.0 million to $5.6 million. All of these lending relationships were current and performing in accordance with the terms of their loan agreements as of September 30, 2006.

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Loan Originations, Purchases, Sales, Solicitation and Processing. Our loan growth arises primarily from the retail origination of our own loans and retaining such loans in portfolio. Our sources of loan originations include repeat customers, referrals from realtors and other professionals, such as attorneys, accountants and financial planners, as well as "walk-in" customers. Gross loan originations totaled $153 million for the year ended September 30, 2006. Net of principal repayments, loan growth totaled approximately $57.3 million for the year ended September 30, 2006.

By contrast, our loan purchase activity has been limited in recent years. During the year ended September 30, 2004, we purchased $3.3 million of adjustable rate mortgage loans. We did not purchase any whole loans during the years ended September 30, 2006 and 2005. During the years ended September 30, 2006, 2005, and 2004, we sold loans totaling $5.8 million, $2.4 million, and $4.8 million, respectively. Loan sales are part of our interest rate risk management strategy and may increase in the future. Historically, we have sold loans on a non-recourse, servicing retained basis. At September 30, 2006, loans serviced for the benefit of others totaled $20.5 million. Notwithstanding, we may sell loans servicing released in the future based on our correspondent relationship with Countrywide Home Loans.

We occasionally purchase participations in loans originated through other lending institutions. At September 30, 2006, we had participations with New Jersey thrift institutions that had outstanding balances totaling $8.3 million. An additional $1.0 million of unfunded commitments remain outstanding related to those loans. Additionally, we have $1.6 million of outstanding loan balances from the Thrift Institutions Community Investment Corporation of New Jersey ("TICIC"). Our participations through these entities are secured by one-to-four family properties as well as multi-family or other non-one- to-four family properties, such as assisted living facilities. We may also sell participation interests in multi-family, commercial and other real estate loans or construction loans.

Loan Commitments. We provide written commitments to prospective borrowers on all one- to- four-family and commercial loans. The total amount of commitments to extend credit for these loans as of September 30, 2006, was approximately $19.0 million, excluding commitments on unused lines of credit of $23.5 million and undisbursed portions of construction loans totaling $16.9 million.

Loan Approval Procedures and Authority. Our lending policies and loan approval limits are recommended by senior management and approved by the Board of Directors. Our loan origination underwriter has loan authority to approve one-to four-family loans up to $417,000, the Federal National Mortgage Association conforming loan limit. Our Loan Origination Manager has loan authority to approve one-to four-family loans up to $500,000 with Federal National Mortgage Association automated underwriting approvals. Our Loan Committee consists of Officers Kliminski, Kowal, Bzdek and Bringuier. Each of these officers has authority to approve one-to four-family loans up to $750,000. One-to four-family loans between $750,000 and $1,000,000 require two signatures; one member must be from Loan Committee. One-to four-family loans between $1,000,000 and $1,750,000 require two signatures from Loan Committee. One-to four-family loans greater than $1,750,000 require the approval of the Board of Directors.

Loans other than one-to four-family loans up to $750,000 require one signature from Loan Committee, which must be the President or Chief Lending Officer. Loans between $750,000 and $1,750,000 require two signatures from Loan Committee, one of which must be the President or Chief Lending Officer. Approval by the loan sub-committee of the Board is required for non one-to four- family loans over $1,750,000.

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As with existing policies and limits, any such changes recommended by management, regarding loan authority, will be subject to Board of Director approval.

Asset Quality

Loan Delinquencies and Collection Procedures. The borrower is notified by both mail and telephone when a loan is sixteen days past due. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower and additional collection notices and letters are sent. When a loan is ninety days delinquent, it is referred to an attorney for repossession or foreclosure. All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency.

As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated selling costs. The initial write-down of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. At September 30, 2006, we held no real estate owned.

Loans are reviewed on a regular basis and are placed on non-accrual status when they are more than ninety days delinquent. Loans may be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. At September 30, 2006, we had approximately $2.1 million of loans that were held on a non-accrual basis.

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Non-Performing Assets. The following table provides information regarding our non-performing loans and other non-performing assets as of the dates indicated.

	At September 30,
	2006	2005	2004	2003	2002
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
One- to four-family	$ 691	$ 952	$ 445	$ 147	$ 147
Multi-family and non residential	1,398	101	74	369	423
Construction	-	-	-	-	-
Consumer	-	62	-	1	-
Home equity	-	48	-	-	-
Business	-	-	-	-	-
Total	2,089	1,163	519	517	570
Accruing loans contractually past due 90 days or more	-	-	-	-	-
Total non-performing loans	2,089	1,163	519	517	570
Real estate owned	-	-	-	-	-
Other non-performing assets	-	-	-	-	-
Total non-performing assets	$ 2,089	$ 1,163	$ 519	$ 517	$ 570
Allowance for loan losses to non-performing loans	101.64%	142.62%	304.05%	265.18%	195.96%
Total non-performing loans to total loans	0.52%	0.34%	0.17%	0.20%	0.27%
Total non-performing loans to total assets	0.41%	0.21%	0.12%	0.12%	0.17%
Total non-performing assets to total assets	0.41%	0.21%	0.12%	0.12%	0.17%

During the year ended September 30, 2006, gross interest income of $108,000 would have been recorded on loans accounted for on a non-accrual basis if those loans had been current, and $55,000 of interest on such loans was included in income for the year ended September 30, 2006.

Classified Assets. Management, in compliance with Office of Thrift Supervision ("OTS") guidelines, has instituted an internal loan review program, whereby non-performing loans are classified as substandard, doubtful or loss. It is our policy to review the loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as substandard or doubtful, management evaluates the loan for impairment. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is allocated against the loan.

An asset is considered "substandard" if it is inadequately protected by the paying capacity and net worth of the obligor or 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 highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets, or portions thereof, classified as "loss" are considered uncollectible and of so little value that their continuance as assets without the allocation of an impairment reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but which have credit deficiencies or potential weaknesses are required to be designated "special mention" by management.

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Management's classification of assets is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process. The following table discloses our classification of assets and designation of certain loans as special mention as of September 30, 2006. At September 30, 2006, all of the classified assets and special mention designated assets were loans.

	At September 30, 2006
	(In thousands)

Special Mention	$ 473
Substandard	1,698
Doubtful	172
Loss	-
Total	$ 2,343

At September 30, 2006, approximately $1.1 million of loans classified as "substandard" were accounted for as non-performing loans. At September 30, 2006, no loans classified as "special mention" or "doubtful" were accounted for as non-performing loans.

Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses in our loan portfolio to the extent they are both probable and reasonable to estimate. The allowance is maintained through provisions for loan losses that are charged to income in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance.

Our methodology for calculating the allowance for lease and loan losses is based upon FAS 5 and FAS 114. Under FAS 114, we identify and analyze certain loans for impairment. If an impairment is identified on a specific loan, a loss allocation is recorded in the amount of that impairment. Loan types subject to FAS 114 are, multi-family mortgage loans, non-residential mortgage loans, construction loans and business loans. We also conduct a separate review of all loans on which the collectibility of principal may not be reasonably assured. We evaluate all classified loans individually and base our determination of a loss factor on the likelihood of collectibility of principal including consideration of the value of the underlying collateral securing the loan.

Under our implementation of FAS 5, we segregate loans by loan category and evaluate homogeneous loans as a group. The loss characteristics of aggregated homogeneous loans are examined using two sets of factors: (1) annual historical loss experience factors that consider the net charge-off history of both the Bank and that of its regional peer group and (2) environmental factors. Although there may be other factors that also warrant consideration, we consider the following environmental factors:

levels and trends of delinquencies and impaired loans;

levels and trends of charge-offs and recoveries;

trends in volume and terms of loans;

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changes to lending policies, procedures and practices;

experience, ability and depth of lending management and staff;

national, regional and local economic trends and conditions;

industry conditions; and

changes in credit concentration.

In recent years, our charge-offs have been low and, consequently, our estimation of the amount of losses in the loan portfolio both probable and reasonable to estimate has been more reflective of other factors.

Our allowance estimation methodology utilizes historical loss experience and environmental factors such as the local and national economy, loan growth rate, trends in delinquencies and non-performing loans, experience of lending personnel, and other similar factors. However, we have had significant growth in recent years. As a result of the significant loan growth, a portion of our loan portfolio is considered "unseasoned," meaning that the loans were originated less than three years ago. Generally, unseasoned loans demonstrate a greater risk of credit losses than their seasoned counterparts. Moreover, in many cases, these unseasoned loans are obligations of borrowers with whom the Bank has had no prior payment experience. In the absence of adequate historical loss experience upon which the Bank can base its allowance calculations, the Bank includes peer group information in its evaluation of the allowance. The peer group information utilized by the Bank is that of OTS regulated thrifts in the northeast region. Management believes that the majority of thrifts in the northeast region have similar loan portfolio composition.

This estimation is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. In addition, the OTS as an integral part of its examination process, periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The OTS may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on its review of information available at the time of the examination, which would negatively affect our earnings.

Based on the allowance for loan loss methodology discussed above, management expects provisions for loan losses to increase as a result of the net growth in loans called for in the Company's business plan. Specifically, our business strategy calls for increased strategic emphasis in commercial real estate and business lending. The loss factors used in the Bank's loan loss calculations are generally higher for such loans compared with those applied to one-to-four family mortgage loans. Consequently, future net growth in commercial real estate and business loans may result in required loss provisions that exceed those recorded in prior years when comparatively greater strategic emphasis had been placed growing the 1-4 family mortgage loan portfolio.

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The following table sets forth information with respect to our allowance for loan losses for the periods indicated:

	Year Ended September 30,
	2006	2005	2004	2003	2002
	(Dollars in thousands)

Allowance balance at beginning of period	$ 1,658	$ 1,578	$ 1,371	$ 1,117	$ 1,009
Provision for loan losses	465	81	207	254	105
Charge-offs:
One- to four-family real estate	-	-	-	-	-
Consumer	-	-	-	-	(1)
Total charge-offs	-	-	-	-	(1)
Recoveries:
Consumer	-	-	-	-	4
Total recoveries	-	-	-	-	4
Net (charge-offs) recoveries	-	-	-	-	3
Allowance balance at end of period	$ 2,123	$ 1,658	$ 1,578	$ 1,371	$ 1,117
Total loans outstanding at end of period	$ 416,564	$ 341,978	$ 313,713	$ 264,702	$ 211,939
Average loans outstanding during period	$ 369,916	$ 327,948	$ 278,632	$ 238,474	$ 186,974
Allowance as a % of total loans	0.53%	0.48%	0.50%	0.52%	0.53%
Net loans charge-offs as a % of average loans	0.00%	0.00%	0.00%	0.00%	0.00%

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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of our allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.

	At September 30
	2006		2005		2004		2003		2002
	Amount	Percent of Loans to Total Loans	Amount	Percent of Loans to Total Loans	Amount	Percent of Loans to Total Loans	Amount	Percent of Loans to Total Loans	Amount	Percent of Loans to Total Loans
	(Dollars in thousands)

At end of period allocated to:
One- to four-family real estate	$ 806	68.05%	$ 782	78.09%	$ 777	80.17%	$ 685	81.59%	$ 531	79.06%
Multi-family and non-residential real estate	878	17.64	737	17.14	680	13.77	566	13.68	452	13.92
Land	6	0.13	-	-	-	-	-	-	-	-
Construction	174	7.96	12	0.42	21	2.29	3	0.47	13	2.30
Consumer	5	0.17	4	0.21	4	0.24	3	0.29	3	0.38
Home equity	95	4.59	63	3.92	43	3.40	37	3.36	29	3.26
Business	115	1.46	16	0.22	9	0.13	34	0.61	46	1.08
Unallocated	44	-	44	-	44	-	43	-	43	-
Total allowance	$2,123	100.00%	$ 1,658	100.00%	$ 1,578	100.00%	$ 1,371	100.00%	$ 1,117	100.00%

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Securities Portfolio

General. Federally chartered savings banks have the authority to invest in various types of liquid assets. The investments authorized by the Bank's board-approved investment policy include U.S. government and government agency obligations, mortgage-related securities of various U.S. government agencies or government-sponsored enterprises and private corporate issuers (including securities collateralized by mortgages), and mutual funds comprising such securities. Authorized investments also include certificates of deposits of insured banks and savings institutions and municipal securities. Our policy does not permit corporate non-residential mortgage related securities. Our investment securities portfolio at September 30, 2006 did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity, excluding those issued by the United States Government or its agencies.

Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that securities be categorized as "held-to-maturity," "trading securities" or "available-for-sale," based on management's intent as to the ultimate disposition of each security. Statement No. 115 allows debt securities to be classified as "held-to-maturity" and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security's prepayment risk, increases in loan demand, or other similar factors cannot be classified as "held-to-maturity."

We do not currently use or maintain a trading account. Securities not classified as "held-to-maturity" are classified as "available-for-sale." These securities are reported at fair value, and unrealized gains and losses on the securities are excluded from earnings and reported, net of deferred taxes, as a separate component of equity.

All of our securities carry market risk insofar as changes in market rates of interest may cause a decrease in their market value. Investments in securities are made based on certain considerations, which include the interest rate, tax considerations, yield, settlement date and maturity of the security, our liquidity position, and anticipated cash needs and sources. The effect that the proposed security would have on our credit and interest rate risk and risk-based capital is also considered. We purchase securities to provide necessary liquidity for day-to-day operations, to aid in the management of interest rate risk and when investable funds exceed loan demand.

Our investment policy, which is approved by the Board of Directors, is designed to foster earnings and liquidity within prudent interest rate risk guidelines, while complementing our lending activities. Generally, our investment policy is to invest funds in various categories of securities and maturities based upon our liquidity needs, asset/liability management policies, investment quality, marketability and performance objectives. The Asset/Liability Management Committee, comprised of Joseph Kliminski, the Bank's Chief Executive Officer, Fred Kowal, the Bank's President and Chief Operating Officer, Richard Bzdek, the Bank's Executive Vice President and Corporate Secretary, Eric Heyer, the Bank's Senior Vice President and Chief Financial Officer, Catherine Bringuier, the Bank's Senior Vice President and Chief Lending Officer, Josephine Castaldo, the Bank's Vice President of Deposit Operations, and John Scognamiglio, the Bank's Vice President and Controller, is responsible for the oversight of the securities portfolio. Management conducts regular, informal meetings, generally on a weekly basis while the committee meets quarterly to formally review the Bank's securities portfolio. The results of the committee's quarterly review are reported to the full Board, which makes adjustment to the investment policy and strategies as it considers necessary and appropriate.

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We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments, but we may do so in the future as part of our interest rate risk management. Further, we do not invest in securities which are not rated investment grade.

Actual maturities of the securities held by us may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without prepayment penalties.

Mortgage-related Securities. Mortgage-related securities represent a participation interest in a pool of one- to four-family or multi-family mortgages, although we focus primarily on mortgage-related securities secured by one- to four-family mortgages. Our mortgage-related securities portfolio includes mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies or government-sponsored entities, such as Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, and the Federal National Mortgage Association, as well as by private corporate issuers.

The mortgage originators use intermediaries (generally government agencies and government-sponsored enterprises, but also a variety of private corporate issuers) to pool and repackage the participation interests in the form of securities, with investors such as us receiving the principal and interest payments on the mortgages. Securities issued or sponsored by U.S. government agencies and government-sponsored entities are guaranteed as to the payment of principal and interest to investors. Privately issued securities typically offer rates above those paid on government agency issued or sponsored securities, but lack the guaranty of those agencies and are generally less liquid investments. In the absence of an agency guarantee, our policy requires that we purchase only privately-issued mortgage-related securities that have been assigned the highest credit rating (AAA) by the applicable securities rating agencies. Limiting our purchases of privately-issued mortgage-related securities to those with a AAA rating reduces our added credit risk in purchasing non-agency guaranteed securities. Moreover, because there is a robust secondary market for AAA-rated privately-issued mortgage-related securities, much of the liquidity risk otherwise associated with our investment in non-agency securities is mitigated.

Mortgage-backed securities are pass-through securities typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a specific range and have varying maturities. The life of a mortgage-backed security thus approximates the life of the underlying mortgages. Mortgage-backed securities generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates.

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Collateralized mortgage obligations are mortgage-derivative products that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules as well as a residual interest with each class having different risk characteristics. The cash flows from the underlying collateral are usually divided into "tranches" or classes whereby tranches have descending priorities with respect to the distribution of principal and interest repayment of the underlying mortgages and mortgage-backed securities as opposed to pass through mortgage-backed securities where cash flows are distributed pro rata to all security holders. Unlike mortgage-backed securities from which cash flow is received and prepayment risk is shared pro rata by all securities holders, cash flows from the mortgages and mortgage-backed securities underlying collateralized mortgage obligations are paid in accordance with a predetermined priority to investors holding various tranches of the securities or obligations. A particular tranche or class may carry prepayment risk which may be different from that of the underlying collateral and other tranches.

At September 30, 2006, the Company's portfolio of collateralized mortgage obligations primarily included tranches whose terms and structure support the regular receipt of principal cash flows within a wide range of prepayment speeds of the underlying collateral. This reduces the likelihood that reductions in market value resulting from movements in market interest rates may be identified as "other than temporary" which would require an adjustment to the carrying cost of the security recorded through earnings. Rather, investing in collateralized mortgage obligations allows us to better manage the prepayment and extension risk associated with conventional mortgage-related securities thereby reducing the market value sensitivity of that segment of the investment portfolio. Management believes collateralized mortgage obligations represent attractive alternatives relative to other investments due to the wide variety of maturity, repayment and interest rate options available. At September 30, 2006, collateralized mortgage obligations comprised $34.6 million of our securities portfolio.

Other Securities. In addition, at September 30, 2006 we held an approximate investment of $3.4 million in Federal Home Loan Bank of New York common stock (this amount is not shown in the securities portfolio).

The following table sets forth the carrying value of our securities portfolio at the dates indicated. Securities that are held-to-maturity are shown at our amortized cost, and securities that are available-for-sale are shown at the current market value.

	At September 30,
	2006	2005	2004
	(In thousands)
Securities Held-to-Maturity:
U.S. government and federal agency obligation	$ 2,000	$ 2,000	$ --
Collateralized mortgage non-agency obligations	2,137	2,503	--
Collateralized mortgage agency obligations	58	76	107
Government National Mortgage Association	200	244	327
Federal Home Loan Mortgage Corporation	286	385	490
Federal National Mortgage Association	5,866	2,616	1,870
Total securities held-to-maturity	10,547	7,824	2,794
Securities Available-for-Sale:
U.S. government and federal agency obligation	10,917	9,805	13,840
Collateralized mortgage non-agency obligations	-	-	1,234
Collateralized mortgage agency obligations	32,393	25,763	42,870
Government National Mortgage Association	108	148	202
Federal Home Loan Mortgage Corporation	12,882	4,090	5,219
Federal National Mortgage Association	18,223	12,782	16,261
Mutual fund	-	9,749	9,869
Total securities available-for-sale	74,523	62,337	89,495
Total	$ 85,070	$ 70,161	$ 92,289

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The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our investment and mortgage-backed securities portfolio at September 30, 2006. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.

	At September 30, 2006
	One Year or Less		One to Five Years		Five to Ten Years		More than Ten Years		Total Securities
	Carrying Value	Average Yield	Carrying Value	Average Yield	Carrying Value	Average Yield	Carrying Value	Average Yield	Carrying Value	Average Yield	Market Value
	(Dollars in thousands)

U.S. Government and Federal Agency	$ 12,917	3.55%	$ -	-%	$ -	- %	$ -	-%	$ 12,917	3.55%	$ 12,893
Mortgage-backed non-agency Obligations	-	-	2,137	3.90	-	-	-	-	2,137	3.90	2,081

Government National Mortgage Association	-	-	-	-	-	-	308	5.19	308	5.19	310

Federal Home Loan Mortgage Association	-	-	958	3.14	11,288	4.15	28,051	4.43	40,297	4.32	40,298

Federal National Mortgage Association	-	-	-	-	14,741	3.88	14,670	4.39	29,411	4.13	29,364

Total	$ 12,917	3.55%	$ 3,095	3.66%	$ 26,029	4.00%	$ 43,029	4.42%	$ 85,070	4.13%	$ 84,946

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Sources of Funds

General. Deposits are our major source of funds for lending and other investment purposes. In addition, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds from the maturity, call and sale of mortgage-backed securities and investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions. Borrowings (principally from the Federal Home Loan Bank) are also used to supplement the amount of funds for lending and investment.

Deposits. Our current deposit products include checking, savings, money market, club accounts, certificates of deposit accounts ranging in terms from thirty days to ten years, and individual retirement accounts. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the applicable interest rate.

Deposits are obtained primarily from within New Jersey. Traditional methods of advertising are used to attract new customers and deposits, including print media, cable television, direct mail and inserts included with customer statements. We have not in the past utilized the services of deposit brokers, however, our current growth strategy includes a modest brokered CD program. Although we did offer special savings programs in connection with the opening of our Cedar Grove branch office, premiums or incentives for opening accounts are generally not offered. We periodically select particular certificate of deposit maturities for promotion.

The determination of interest rates is based upon a number of factors, including: (1) our need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of general market rates and rates of a selected group of competitors' rates for similar products; (3) our current cost of funds and yield on assets; and (4) the alternate cost of funds on a wholesale basis, in particular the cost of advances from the Federal Home Loan Bank. Interest rates are reviewed by senior management on a weekly basis.

At September 30, 2006, $165.2 million or 50.5% of our deposits were in certificates of deposit. Our liquidity could be reduced if a significant amount of certificates of deposit, maturing within a short period of time, were not renewed. Historically, a significant portion of the certificates of deposit remain with us after they mature and we believe that this will continue. However, the need to retain these time deposits could result in an increase in our cost of funds.

At September 30, 2006, we had approximately $16.9 million of municipal deposits at the Bank. These deposits include the one municipal account relationship noted above whose balances at September 30, 2006 totaled approximately $11.8 million. The Bank expects these funds to be withdrawn during the first fiscal quarter of 2007 due to the municipality's closing of that account relationship.

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The following table sets forth the distribution of deposits at the Bank at the dates indicated and the weighted average nominal interest rates for each period on each category of deposits presented.

	At September 30
	2006			2005			2004
	Amount	Percent of Total Deposits	Weighted Average Nominal Rate	Amount	Percent of Total Deposits	Weighted Average Nominal Rate	Amount	Percent of Total Deposits	Weighted Average Nominal Rate
Non-interest-bearing demand deposits	$ 23,545	7.20%	-%	$ 25,583	7.50%	-%	$ 22,599	7.00%	-%

Interest-bearing demand deposits	31,429	9.61	2.25	39,264	11.52	1.87	38,696	11.99	1.06

Savings deposits	107,008	32.71	2.62	123,270	36.16	1.68	143,401	44.44	1.60

Time deposits	165,165	50.48	4.48	152,808	44.82	3.45	118,020	36.57	2.65

Total deposits	$ 327,147	100.00%	3.34%	$ 340,925	100.00%	2.37%	$ 322,716	100.00%	1.81%

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The following table shows the amount of our certificates of deposit of $100,000 or more by time remaining until maturity as of September 30, 2006.

Remaining Time Until Maturity		Certificates of Deposits
		(In thousands)

Within three months		$ 17,477
Three through six months		12,721
Six through twelve months		20,556
Over twelve months		13,538
Total		$ 64,292

Borrowings. To supplement our deposits as a source of funds for lending or investment, we borrow funds in the form of advances from the Federal Home Loan Bank. We regularly make use of Federal Home Loan Bank advances as part of our interest rate risk management, primarily to extend the duration of funding to match the longer term fixed rate loans held in the loan portfolio as part of our growth strategy. During fiscal 2004 we recognized a $125,000 penalty to prepay $3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%. In the future, we may evaluate the costs and benefits of further prepayments, which may result in additional one time charges to earnings in the form of FHLB prepayment penalties to further improve the Bank's net interest spread and margin and enhance future earnings.

Advances from the Federal Home Loan Bank are typically secured by the Federal Home Loan Bank stock we own and a portion of our residential mortgage loans and may be secured by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. At September 30, 2006, our borrowing limit with the Federal Home Loan Bank was approximately $122.3 million. Additional information regarding our Federal Home Loan Bank advances is included under Note 8 of the Notes to the Financial Statements.

The following table sets forth certain information regarding our borrowed funds.

	At or For the Year Ended September 30,
	2006	2005	2004
Federal Home Loan Bank Advances:
Average balance outstanding	$ 52,725	$ 62,056	$ 60,125

Maximum amount outstanding at any month-end during the period	$ 56,075	$ 72,853	$ 65,500

Balance outstanding at end of period	$ 56,075	$ 53,734	$ 57,491

Weighted average interest rate during the period	4.95%	4.58%	4.76%

Weighted average interest rate at end of period	5.16%	4.84%	4.72%

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Subsidiary Activity

In addition to American Bank of New Jersey, the Company has one other subsidiary, ASB Investment Corp., a New Jersey corporation, which was organized in June 2003 for the purpose of selling insurance and investment products, including annuities, to customers of the Bank and the general public through a third party networking arrangement. There has been very little activity at this subsidiary and sales are currently limited to the sale of fixed rate annuities.

American Bank of New Jersey has one subsidiary, American Savings Investment Corp., which was formed in August 2004 under New Jersey law as an investment company subsidiary. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Holding investment securities in this subsidiary reduces our New Jersey state income tax rate.

Personnel

As of September 30, 2006, we had 64 full-time employees and 17 part-time employees. The employees are not represented by a collective bargaining unit. We believe our relationship with our employees is satisfactory.

Regulation

Set forth below is a brief description of certain laws that relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. The Bank and the Company operate in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a federal savings bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors.

Any change in applicable statutory and regulatory requirements, whether by the OTS, the Federal Deposit Insurance Corporation ("FDIC") or the United States Congress, could have a material adverse impact on the Company and the Bank, and their operations. The adoption of regulations or the enactment of laws that restrict the operations of the Bank and/or the Company or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of the Bank's franchise which could hurt the trading price of the Company's common stock.

Regulation of the Bank

General. As a federally chartered, SAIF-insured savings bank, the Bank is subject to extensive regulation by the OTS and the FDIC. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance for loan losses. The activities of federal savings banks are subject to extensive regulation including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity management, transactions with affiliates and community reinvestment. Federal savings banks are also subject to reserve requirements of the Federal Reserve System. A federal savings bank's relationship with its depositors and borrowers is regulated by both state and federal law, especially in such matters as the ownership of savings accounts and the form and content of the bank's mortgage documents.

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The Bank must file regular reports with the OTS and the FDIC concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. The OTS regularly examines the Bank and prepares reports to the Bank's Board of Directors on deficiencies, if any, found in its operations.

Insurance of Deposit Accounts. The FDIC administers two separate deposit insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits of commercial banks and the Savings Association Insurance Fund ("SAIF") insures the deposits of savings institutions. The FDIC is authorized to increase deposit insurance premiums if it determines such increases are appropriate to maintain the reserves of either the BIF or SAIF or to fund the administration of the FDIC. In addition, the FDIC is authorized to levy emergency special assessments on BIF and SAIF members.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017.

Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at least 4% (3% if the institution has received the highest possible rating on its most recent examination) of total adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted assets. At September 30, 2006 the Bank exceeded all regulatory capital requirements and was classified as "well capitalized."

In addition, the OTS may require that a savings institution that has a risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total adjusted assets of less than 4% (3% if the institution has received the highest rating on its most recent examination) take certain action to increase its capital ratios. If the savings institution's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the OTS may restrict its activities.

For purposes of the OTS capital regulations, tangible capital is defined as core capital less all intangible assets except for certain mortgage servicing rights. Tier 1 or core capital is defined as common stockholders' equity, non-cumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, and certain non-withdrawable accounts and pledged deposits of mutual savings banks. The Bank does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core capital are reduced by an institution's intangible assets, with limited exceptions for certain mortgage and non-mortgage servicing rights and purchased credit card relationships. Both core and tangible capital are further reduced by an amount equal to the savings institution's debt and equity investments in "non-includable" subsidiaries engaged in activities not permissible to national banks other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies.

The risk-based capital standard for savings institutions requires the maintenance of total capital of 8% of risk-weighted assets. Total capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, the portion of the allowance for loan losses not designated for specific loan losses and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. For purposes of determining total capital, a savings institution's assets are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and by the amount of the institution's equity investments (other than those deducted from core and tangible capital) and its high loan-to-value ratio land loans and non-residential construction loans.

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A savings institution's risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. These risk weights range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets.

OTS rules require a deduction from capital for savings institutions with certain levels of interest rate risk. The OTS calculates the sensitivity of an institution's net portfolio value based on data submitted by the institution in a schedule to its quarterly Thrift Financial Report and using the interest rate risk measurement model adopted by the OTS. The amount of the interest rate risk component, if any, deducted from an institution's total capital is based on the institution's Thrift Financial Report filed two quarters earlier. The OTS has indefinitely postponed implementation of the interest rate risk component, and the Bank has not been required to determine whether it will be required to deduct an interest rate risk component from capital.

Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action regulations, the OTS is required to take supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's level of capital. Generally, a savings institution that has total risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%, is considered to be undercapitalized. A savings institution that has total risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be "significantly undercapitalized." A savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." Generally, the banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within forty-five days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." In addition, numerous mandatory supervisory actions become immediately applicable to the institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The OTS may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the ability of savings institutions to make capital distributions, including cash dividends.

A savings institution that is a subsidiary of a savings and loan holding company, such as the Bank, must file an application or a notice with the OTS at least thirty days before making a capital distribution. A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited treatment under the applications processing rules of the OTS; (ii) the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings bank's net income for that year to date plus the institution's retained net income for the preceding two years; (iii) it would not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with the OTS or applicable regulations.

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The Bank is required to file a capital distribution notice or application with the OTS before paying any dividend to the Company. However, capital distributions by the Company, as a savings and loan holding company, are not subject to the OTS capital distribution rules.

The OTS may disapprove a notice or deny an application for a capital distribution if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement. In addition, a federal savings institution cannot distribute regulatory capital that is required for its liquidation account.

Qualified Thrift Lender Test. Federal savings institutions must meet a qualified thrift lender ("QTL") test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a QTL, a savings institution must either (i) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL test set forth in the Home Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in certain "Qualified Thrift Investments" (defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans, and 50% of certain community development loans). For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible assets, property used by the institution in conducting its business, and liquid assets equal to 20% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every twelve months. The Bank met the QTL test as of September 30, 2006 and in each of the last twelve months and, therefore, qualifies as a QTL.

Transactions with Affiliates. Generally, federal banking law requires that transactions between a savings institution or its subsidiaries and its affiliates must be on terms as favorable to the savings institution as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the savings institution's capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings institution. In addition, a savings institution may not extend credit to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of any affiliate that is not a subsidiary. The OTS has the discretion to treat subsidiaries of savings institutions as affiliates on a case-by-case basis.

Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every insured depository institution, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OTS to assess the depository institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by the Bank. An unsatisfactory CRA examination rating may be used as the basis for the denial of an application by the OTS. The Office of Thrift Supervision assigned the Bank an overall rating of "Satisfactory" in its most recent CRA evaluation.

Federal Home Loan Bank ("FHLB") System. The Bank is a member of the FHLB of New York, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members pursuant to policies and procedures established by the board of directors of the FHLB.

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As a member, the Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to the greater of 1% of our aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of FHLB advances. We are in compliance with this requirement. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member's capital and limiting total advances to a member.

The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future.

Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain non-interest-bearing reserves at specified levels against their checking accounts and non-personal certificate accounts. The balances maintained to meet the reserve requirements imposed by the Federal Reserve System may be used to satisfy the OTS liquidity requirements.

Savings institutions have authority to borrow from the Federal Reserve System "discount window," but Federal Reserve System policy generally requires savings institutions to exhaust all other sources before borrowing from the Federal Reserve System.

Regulation of the Company

General. The Company is a savings and loan holding company, subject to regulation and supervision by the OTS. In addition, the OTS has enforcement authority over the Company and any non-savings institution subsidiaries. This permits the OTS to restrict or prohibit activities that it determines to be a serious risk to the Company. This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of the Company.

Activities Restrictions. As a savings and loan holding company formed after May 4, 1999, the Company is not a grandfathered unitary savings and loan holding company under the Gramm-Leach-Bliley Act (the "GLB Act"). As a result, the Company and its non-savings institution subsidiaries are subject to statutory and regulatory restrictions on their business activities. Under the Home Owners' Loan Act, as amended by the GLB Act, the non-banking activities of the Company are restricted to certain activities specified by OTS regulation, which include performing services and holding properties used by a savings institution subsidiary, activities authorized for savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 (the "BHC Act") or authorized for financial holding companies pursuant to the GLB Act. Furthermore, no company may acquire control of American Bank of New Jersey unless the acquiring company was a unitary savings and loan holding company on May 4, 1999 (or became a unitary savings and loan holding company pursuant to an application pending as of that date) or the company is only engaged in activities that are permitted for multiple savings and loan holding companies or for financial holding companies under the BHC Act as amended by the GLB Act.

Mergers and Acquisitions. The Company must obtain approval from the OTS before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such a savings institution or savings and loan holding company by merger, consolidation or purchase of its assets. In evaluating an application for the Company to acquire control of a savings institution, the OTS would consider the financial and managerial resources and future prospects of the Company and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors.

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Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange Commission ("SEC") has promulgated new regulations pursuant to the Act and may continue to propose additional implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act, and the regulations implemented by the SEC subject publicly-traded companies to additional and more cumbersome reporting regulations and disclosure requirements. Compliance with the Act and corresponding regulations may increase the Company's expenses.

Item 1A. Risk Factors.

Our strategic plan calls for us to diversify our loan portfolio with increased emphasis on commercial lending.

Commercial loans include multi-family and nonresidential mortgage loans, construction loans and business loans. At September 30, 2006, our loan portfolio included commercial loans totaling $96.3 million, or 24.2% of our total portfolio. It is our intention to significantly increase our origination of these types of loans. As part of our plan to grow and diversify the loan mix, we continue to expand our commercial lending business unit and expect to hire additional commercial lenders over the next several years. Our compensation and benefit expenses will increase significantly as we hire these lenders and associated support staff. We also expect that our construction lending program will also continue to expand in connection with our increasing strategic emphasis on commercial lending.

Commercial loans are generally considered to involve a higher degree of credit risk than long-term financing of owner-occupied residential properties. The likelihood that these loans will not be repaid or will be late in paying is generally greater than with residential loans. Furthermore, it may take some time for us to attract lending business sufficient to offset the increased compensation and benefit expenses that results from hiring the additional personnel we will need. There can be no assurance that the lenders we hire will successfully grow our loan portfolio.

Our strategic plan calls for us to expand our franchise through de novo branching.

We are currently seeking to expand our branch network by up to five branches over the next three to five years. The first of these new branches is located in Verona, New Jersey and opened in November 2006. A second location has been identified in Clifton, New Jersey which we hope to open during the latter half of fiscal 2007. Until new branches attract sufficient business to offset the increased expenses incurred by de novo branching, the new branches are likely to reduce our earnings. There is no assurance, however, that we will be successful in opening de novo branches. Costs for land purchase and branch construction will adversely impact earnings going forward. We currently estimate that total land, construction and equipment costs could average as much as $3.1 million per branch and could be higher. The expenses associated with opening new offices, in addition to the personnel and operating costs that we will have once these offices are open, will significantly increase noninterest expenses. Because these expenses are in fixed assets, they will not result in any additional earnings but will result in a substantial increase in depreciation and occupancy expense. There can be no assurance when, or if, these new offices will open or that we will be successful in executing this part of the business plan. If we are able to locate and obtain suitable sites for these branches, there is no guarantee that these de novo branches will be profitable.

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While not a de novo branch, per se, we also expect to incur additional costs associated with relocating and expanding the Bloomfield deposit branch. The new facility will be located on a property adjacent to our Bloomfield headquarters building where the branch is currently located. This relocation will enable us to greatly enhance and modernize the Bloomfield branch facility. Such enhancements will greatly support our customer service goals and objectives while expanding the office space available for the additional staff needed to support our growth plans. Specifically, our main office in Bloomfield currently houses our management staff as well as our lending and administrative operations. This space will need to be augmented in order to add the additional lenders and support staff called for by our growth plans. Like the do novo branches mentioned above, the relocation of the Bloomfield deposit branch is expected to increase our operating costs through various forms of additional occupancy and depreciation costs,

We expect that changes in interest rates may have a significant, adverse impact on our net interest income.

The income from our assets and the cost of our liabilities are sensitive to changes in interest rates. Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between: (a) the interest income we earn on our interest-earning assets such as loans and securities; and (b) the interest expense we pay on our interest-bearing liabilities such as deposits and amounts we borrow. The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. We, like many savings institutions, have liabilities that generally have shorter contractual maturities or other repricing characteristics than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates the interest income earned on our assets may decrease more rapidly than the interest paid on our liabilities.

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Our business is geographically concentrated in New Jersey and the New York metropolitan area. A downturn in economic conditions in the state and/or the surrounding region could have an adverse impact on our profitability.

A substantial majority of our loans are to individuals and businesses in New Jersey and the New York metropolitan area. Any decline in the regional economy could have an adverse impact on our earnings. Because we have a significant amount of real estate loans, decreases in local real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy and real estate values may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry in New Jersey is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have substantially greater resources and lending limits than we do and offer services that we do not or cannot provide. This competition has made it more difficult for us to make new loans and more difficult to retain deposits. Price competition for loans might result in us originating fewer loans, or earning less on our loans, and price competition for deposits might result in slower growth or reduction of our total deposits or having to pay more for our deposits.

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision and by the Federal Deposit Insurance Corporation. This regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank and the adequacy of a bank's allowance for loan losses. Any change in this regulation and oversight, whether in the form of regulatory policy, regulations, or legislation could have a material impact on us and our operations.

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

At September 30, 2006, our net investment in property and equipment totaled $6.5 million. We use an outside service company for data processing. The following table sets forth the location of our main office, separate drive-up facility and two branch offices, the year each opened and the net book value for each location. The net book value reported for the Verona branch location includes only those funds disbursed through September 30, 2006 relating to branch acquisition and construction. Additional disbursements were made in the first quarter of fiscal 2007 increasing its net book value as construction of that branch was completed. Additionally, at September 30, 2006, we had purchase deposits and other professional fees totaling approximately $274,000 million in connection with de novo branch site acquisitions.

Office Location	Year Facility Opened	Leased or Owned	Net Book Value at September 30, 2006
			(In thousands)
Main Office 365 Broad Street Bloomfield, New Jersey 07003	1965	Owned	$ 1,354

Main Office Drive Up Facility 16 Pitt Street Bloomfield, New Jersey 07003	1998	Owned	$ 316

Full Service Branch 310 Pompton Avenue Cedar Grove, New Jersey 07009	2001	Owned	$ 1,821

Full Service Branch (in process of construction at September 30, 2006) 725 Bloomfield Avenue Verona, New Jersey 07009	2006	Owned	$ 2,758

Item 3. Legal Proceedings.

From time to time the Company and its subsidiaries are parties to routine litigation, which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of the Bank. In the opinion of management, there were no lawsuits pending or known to be contemplated at September 30, 2006 that would have a material effect on operations or income.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The information contained in the section captioned "Stockholder Information" in the portions of the Annual Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

The information contained in "Note 1 of the Consolidated Financial Statements" and the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital" in the portions of the Annual Report filed as Exhibit 13 to this Form 10-K regarding the OTS restrictions on dividends from the Bank to the Company.

The following table summarizes our share repurchase activity during the three months ended September 30, 2006 and additional information regarding our share repurchase program.

Repurchases for the Month	(a) Total Number Of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part Of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under Plans or Programs
July 1 - July 31, 2006	-	-	-	-
August 1 - August 30, 2006	355,898	$11.99	355,898	-
September 1 - September 30, 2006	-	-	-	-
Total repurchases	355,898	$11.99	355,898	-(1)(2)

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

(1) As of September 30, 2006, the Company had completed its repurchase of shares to fund stock awards previously made under the American Bank of New Jersey 2005 Restricted Stock Plan (208,295 shares) and American Bancorp of New Jersey, Inc. 2006 Equity Incentive Plan (358,484 shares).

(2) The table above was prepared as of September 30, 2006 and does not reflect shares to be repurchased in accordance with the Company's 10% share repurchase program announced on October 19, 2006.

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Item 6. Selected Financial Data.

The information contained in the table captioned "Selected Consolidated Financial and Other Data" in the portions of the Annual Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 7 . Management's Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information contained in the section captioned "Management of Interest Rate Risk and Market Risk" in the Annual Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The Company's financial statements listed under Item 15 of this Form 10-K and included in Exhibit 13 to this Form 10-K are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Act")) was carried out as of September 30, 2006 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2006, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

(b) Management's annual report on internal control over financial reporting and attestation report of the registered public accounting firm. The annual report of management on the effectiveness of our internal control over financial reporting and the attestation report thereon issued by our independent registered public accounting firm are set forth under "Management's Report on Internal Control Over Financial Reporting" and "Report of Independent Registered Public Accounting Firm" under "Item 8. Financial Statements and Supplementary Data."

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(c) Changes in internal control over financial reporting. During the quarter ended September 30, 2006, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information required by this item concerning the Company's directors and compliance with section 16(a) of the Act is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in February 2007, except for the information contained under the heading "Compensation Committee Report on Executive Compensation", "Report of the Audit Committee of the Board of Directors" and "Stockholder Return Performance Presentation", a copy of which will be filed not later than 120 days after the close of the fiscal year.

Code of Ethics

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Company's Code of Ethics will be provided without charge upon request to the Corporate Secretary, American Bancorp of New Jersey, Inc., 365 Broad Street, Bloomfield, New Jersey 07003.

Item 11. Executive Compensation.

Information required by this item concerning compensation is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in February 2007, except for the information contained under the heading "Compensation Committee Report on Executive Compensation", "Report of the Audit Committee of the Board of Directors" and "Stockholder Return Performance Presentation", a copy of which will be filed not later than 120 days after the close of the fiscal year.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required by this item concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in February 2007, except for the information contained under the heading "Compensation Committee Report on Executive Compensation", "Report of the Audit Committee of the Board of Directors" and "Stockholder Return Performance Presentation", a copy of which will be filed not later than 120 days after the close of the fiscal year.

EQUITY COMPENSATION PLAN INFORMATION
	(a)	(b)	(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,397,854	$9.23	25,343⁽¹⁾

Equity compensation plans not approved by security holders None	N/A	N/A	N/A

TOTAL	1,397,854	$9.23	25,343⁽¹⁾

___________

⁽¹⁾	Includes 6,249 shares of restricted stock that may be awarded under the Company's 2005 Restricted Stock Plan and 19,094 of options available under the 2005 Stock Option Plan.

Item 13. Certain Relationships and Related Transactions.

Information required by this item concerning certain relationships and related transactions is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in February 2007, except for the information contained under the heading "Compensation Committee Report on Executive Compensation", "Report of the Audit Committee of the Board of Directors" and "Stockholder Return Performance Presentation", a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 14. Principal Accounting Fees and Services.

Information required by this item concerning principal accounting fees and services is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in February 2007, a copy of which will be filed not later than 120 days after the close of the fiscal year.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) Listed below are all financial statements and exhibits filed as part of this Form 10-K.

1. The consolidated statements of financial condition as of September 30, 2006 and 2005 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the three years ended September 30, 2006, together with the related notes and the report of independent certified public accountants.

2. The following exhibits are either included with this Form 10-K or incorporated herein by reference:

(a) List of Exhibits:

3(i)	Certificate of Incorporation of American Bancorp of New Jersey, Inc.⁽¹⁾
3(ii)	Bylaws of American Bancorp of New Jersey, Inc.⁽¹⁾
4	Specimen Stock Certificate of American Bancorp of New Jersey⁽¹⁾
10.1	Employment Agreement between American Bank of New Jersey and Joseph Kliminski⁽²⁾
10.2	Employment Agreement between American Savings Bank of NJ and Richard M. Bzdek⁽²⁾
10.3	Employment Agreement between American Savings Bank of NJ and Eric B. Heyer⁽²⁾
10.4	Form of Executive Salary Continuation Agreement⁽²⁾
10.5	Employment Agreement between ASB Holding Company and Joseph Kliminski⁽³⁾
10.6	Employment Agreement between American Bank of New Jersey and Fred G. Kowal⁽⁴⁾
10.7	Employment Agreement between American Bank of New Jersey and Catherine M. Bringuier⁽¹⁾
10.8	2005 Stock Option Plan⁽⁵⁾
10.9	2005 Restricted Stock Plan⁽⁵⁾
13	Portions of the 2006 Annual Report to Stockholders
21	Subsidiaries
23.1	Consent of Auditor
31	Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

_______________

(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-125957) filed with the SEC on June 20, 2005.

(2) Incorporated by reference to the Registration Statement on Form SB-2 (File No. 333-105472) of ASB Holding Company filed with the SEC on May 22, 2003.

(3) Incorporated by reference to the Form 10-KSB (File No. 000-31789) of ASB Holding Company filed with the SEC on December 24, 2003.

(4) Incorporated by reference to the Form 8-K (File No. 000-31789) of ASB Holding Company filed with the SEC on April 18, 2005.

(5) Incorporated by reference to the definitive proxy statement (File No. 000-31789) of ASB Holding Company filed with the SEC on December 28, 2004.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of December 14, 2006.

	AMERICAN BANCORP OF NEW JERSEY, INC.

	By:	/s/ Fred G. Kowal Fred G. Kowal President and Chief Operating Officer (Duly Authorized Representative)

Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of December 14, 2006.

/s/ W. George Parker W. George Parker Chairman		/s/ Joseph Kliminski Joseph Kliminski Chief Executive Officer and Director (Principal Executive Officer)

/s/ Fred G. Kowal Fred G. Kowal President, Chief Operating Officer and Director		/s/ Eric B. Heyer Eric B. Heyer Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ H. Joseph North H. Joseph North Director		/s/ James H. Ward James H. Ward, III Vice Chairman

/s/ Stanley Obal Stanley Obal Director		/s/ Robert Gaccione Robert Gaccione Director

/s/ Vincent S. Rospond Vincent S. Rospond Director

Next Page 37 EX-13 2 annual2.htm

EXHIBIT 13

TABLE OF CONTENTS

Letter from the Chief Executive Officer	1
Financial Highlights	3
Management's Discussion and Analysis of Financial Condition and Results of Operations	5
Management's Report on Internal Control Over Financial Reporting	37
Report of Independent Registered Public Accounting Firm	38
Consolidated Statements of Financial Condition	41
Consolidated Statements of Income	42
Consolidated Statements of Changes in Equity	43
Consolidated Statements of Cash Flows	46
Notes to Consolidated Financial Statements	48
Directors and Officers	86
Investor and Corporate Information	87
Office Locations	89

LETTER FROM THE CHIEF EXECUTIVE OFFICER

Dear Fellow Stockholders:

On behalf of the Board of Directors and employees, I am pleased to present the 2006 Annual Report to Stockholders.

This was a significant year for American Bank of New Jersey. On October 5, 2005, we completed our conversion from the mutual to the stock form and became a fully public company. Our holding company, American Bancorp of New Jersey, Inc. became the successor to ASB Holding Company. In a stock offering completed as part of the conversion, American Bancorp sold the 70% ownership interest previously held by the mutual holding company, American Savings, MHC, and the 30% ownership interest held by the ASB Holding Company stockholders was converted into an equivalent ownership of American Bancorp of New Jersey, Inc. Shares of American Bancorp began trading on October 6, 2005 on the Nasdaq Global Market under the symbol "ABNJ." After offering expenses and funding the employee stock ownership plan's purchase of 8% of the shares sold in the offering, investable net proceeds were approximately $89.6 million. We believe this additional capital and the flexibility afforded by our new structure has better positioned us to achieve the goals set out in our business plan.

Movements in market interest rates during 2006 presented a challenge for community financial institutions. The inversion of the yield curve placed significant upward pressure on our cost of funds which outpaced the growth in our yield on earning assets for the year. As such, our net interest spread declined from 2.28% for fiscal 2005 to 1.80% for fiscal 2006. The factors resulting in the compression of the Company's net interest spread also impacted the Company's net interest margin. However, the effects of that compression were more than offset by the impact of the additional capital raised in the Company's second-step conversion. As a result, the Company's net interest margin increased 14 basis points from 2.60% for fiscal 2005 to 2.73%% for fiscal 2006.

Notwithstanding these near term earnings challenges, we continued to execute the growth and diversification strategies called for in our business plan. Loans receivable, net grew $57.6 million or 16.9% to $398.6 million at September 30, 2006 from $341.0 million at September 30, 2005. The growth was comprised of net increases in multi-family, nonresidential real estate and construction loans totaling $30.5 million, coupled with net increases in business loans totaling $5.3 million. Together, net growth in these loan balances totaled $35.8 million or 59.3% comprising nearly two-thirds of the Company's net increase in loans receivable for the year.

Deposits decreased by 4.0% to $327.1 million at September 30, 2006 from $340.9 million at September 30, 2005. However, the $13.8 million decline in deposits included approximately $9.8 million of deposit balances withdrawn to purchase shares in the Company's stock offering. Such outflows also included a net reduction of $6.7 million from one municipal account relationship whose declining balances funded the completed stages of a capital improvement project. Offsetting these two deposit outflows were net increases to deposits totaling $2.7 million for the year.

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The overall growth in loans and capital contributed significantly to a $2.5 million, or 22.5%, improvement in net interest income. This increase, however, was significantly offset by higher noninterest expense which increased by $1.7 million, or 19.4% primarily due to comparatively higher compensation, occupancy, professional and consulting, and administrative costs. In large part, these additional costs were an outgrowth of the completion of our second step conversion and the resulting operating costs attributable to the growth and diversification strategies which we are now executing as a fully public company.

In total, net income increased 4.4% to $2.1 million for the fiscal year ended September 30, 2006. Payment of a regular quarterly dividend continued throughout fiscal 2006 - a process that had been initiated during our tenure as ASB Holding Company. The Board was pleased to provide a quarterly dividend of $0.04 to stockholders for each of the four fiscal quarters of 2006.

Fiscal 2007 will continue to be a building year for American Bancorp of New Jersey. Under the leadership of Fred G. Kowal, President and Chief Operating Officer of the Company, we will continue to pursue the strategies of our business plan. These strategies include expanding our deposit branch network, enhancing non-traditional service delivery channels, such as online cash management and remote capture services, and expanding the Company's commercial lending activities. These strategies have been complemented by our current stock repurchase program announced in October 2006. While these strategies are expected to greatly enhance shareholder value over time, we understand that their execution will come at a cost to near term earnings. Toward that end, the Company expects to face significant earnings challenges in fiscal 2007 as we continue to execute these strategies in the midst of the adverse interest rate environment presented by the inverted yield curve.

On behalf of the Board of Directors and the employees, I thank you for your investment and your continued confidence in our people and our plan. We are genuinely pleased about our vision for American Bancorp of New Jersey, and are committed to making steady progress toward our #1 goal - enhancing your investment in us.

Sincerely,

Joseph Kliminski
Chief Executive Officer

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FINANCIAL HIGHLIGHTS

	At September 30,
	2006	2005	2004	2003	2002
	(In thousands)
SELECTED FINANCIAL DATA:
Total assets	$ 514,319	$ 555,860	$ 424,944	$ 427,066	$ 334,879
Cash and cash equivalents	7,165	125,773	8,034	38,365	17,330
Securities available-for-sale	74,523	62,337	89,495	107,391	90,134
Securities held-to-maturity	10,547	7,824	2,794	2,839	6,970
Loans held for sale	-	280	-	500	-
Loans receivable, net	398,624	341,006	308,970	262,844	208,374
Federal Home Loan Bank stock	3,356	3,119	2,890	3,150	2,200
Cash surrender value of life insurance	8,747	7,512	6,242	5,028	4,477
Deposits	327,147	340,925	322,716	292,826	264,587
Stock subscriptions received	-	115,201	-	52,137	-
Total borrowings	56,075	53,734	57,491	55,000	44,000
Total equity	124,861	39,506	39,314	22,339	21,872

	Years Ended September 30,
	2006	2005	2004	2003	2002
	(In thousands)
SELECTED OPERATING DATA:
Total interest income	$ 25,344	$ 20,601	$ 18,204	$ 17,476	$ 17,578
Total interest expense	11,802	9,546	8,105	8,870	8,829
Net interest income	13,542	11,055	10,099	8,606	8,749
Provision for loan losses	465	81	207	254	105
Net interest income after provision for loan losses	13,077	10,974	9,892	8,352	8,644
Noninterest income	1,021	1,196	1,298	718	595
Noninterest expense	10,657	8,924	7,657	6,862	6,274
Income before income taxes	3,441	3,246	3,533	2,208	2,965
Income tax provision	1,308	1,203	1,371	805	1,075
Net income	$ 2,133	$ 2,043	$ 2,162	$ 1,403	$ 1,890

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	At or for the year ended September 30,
	2006	2005	2004	2003	2002
*SELECTED FINANCIAL DATA:**
*Performance Ratios:*
Return on average assets (1)	0.42%	0.46%	0.54%	0.39%	0.63%
Return on average equity (2)	1.68	5.30	5.77	6.48	9.30
Net interest rate spread (3)	1.80	2.28	2.28	2.14	2.63
Net interest margin (4)	2.73	2.60	2.60	2.44	3.00
Operating (noninterest) expense to average total assets	2.08	2.02	1.92	1.89	2.09
Efficiency ratio (5)	73.18	72.84	67.18	73.60	67.14
Average interest-earning assets to average interest-bearing liabilities	139.21	114.30	115.67	111.69	112.30
*Capital Ratios:*
Equity to total assets at end of period	24.28	7.11	9.25	5.23	6.53
Average equity to average assets	24.72	8.74	9.37	5.98	6.78
*Asset Quality Ratios:*
Non-performing loans to total loans (6)	0.52	0.34	0.17	0.20	0.27
Non-performing assets to total assets (6)	0.41	0.21	0.12	0.12	0.17
Net charge-offs to average loans outstanding	0.00	0.00	0.00	0.00	0.00
Allowance for loan losses to non-performing loans (6)	101.64	142.62	304.05	265.18	195.96
Allowance for loan losses to total loans	0.53	0.48	0.50	0.52	0.53
PER SHARE DATA:
Earnings per share: (7)
Basic	$ 0.16	$ 0.15	$ 0.16	$ 0.14	$ 0.19
Diluted	$ 0.16	$ 0.15	$ 0.16	$ 0.14	$ 0.19
Cash dividends paid (8)	$ 0.16	$ 0.36	$ 0.00	$ 0.00	$ 0.00
Dividend payout ratio	99.02%	70.09%	-%	-%	-%

*	Certain ratios were significantly affected by stock subscriptions received pending completion of the Company's first and second public offerings. At September 30, 2003, stock subscriptions received relating to the Company's first public offering which closed October 3, 2003 totaled $52.1 million. At the time of closing, approximately $15.3 million, less offering expenses, became capital of the Company with the remainder returned on oversubscriptions. At September 30, 2005, stock subscriptions received relating to the Company's second public offering which closed October 5, 2005 totaled $115.2 million. At the time of closing, approximately $91.3 million, less offering expenses, became capital of the Company with the remainder returned on oversubscriptions.
(1)	Net income divided by average total assets.
(2)	Net income divided by average total equity.
(3)	Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.
(4)	Net interest income as a percentage of average interest-earning assets.
(5)	Noninterest expense divided by the sum of net interest income and noninterest income.
(6)	Nonperforming loans consist of nonaccrual loans and loans greater than 90 days delinquent and still accruing.
(7)	Earnings per share for the fiscal years ended September 30, 2003 and 2002 have been restated to reflect the conversion of 100 shares of Bank stock into 9,918,750 shares of Company stock representing 100% ownership of the Bank prior to the minority stock offering which closed on October 3, 2003
(8)	Cash dividends paid in fiscal 2005 include special dividend of $0.294 per share paid in December 2004 and $0.035 regular quarterly dividends paid in June 2005 and September 2005. American Savings, MHC waived receipt of all dividends in 2005. Consequently, cash dividends were paid to public shareholders only durign fiscal 2005.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse affect on the operations and future prospects of the Company and its wholly-owned subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; and demand for financial services in the Company's market area. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements.

Business Strategy

Our business strategy has been to operate as a well-capitalized independent financial institution dedicated to providing convenient access and quality service at competitive prices. During recent years, we have experienced significant growth, with total loans receivable, net growing from $208.4 million at September 30, 2002 to $398.6 million at September 30, 2006 and total deposits growing from $264.6 million at September 30, 2002 to $327.1 million at September 30, 2006.

Our current strategy seeks to continue the growth of the last several years. The highlights of our business strategy include the following:

Grow and diversify the deposit mix by emphasizing non-maturity account relationships acquired through de novo branching and existing deposit growth. We currently plan to open up to five de novo branches over approximately the next three to five years.

Grow and diversify the loan mix by increasing commercial real estate and business lending capacity.

Grow and diversify noninterest income through supplemental deposit and lending related services and strategies.

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Continue to implement alternative loan and deposit product and service delivery channels.

Broaden and strengthen customer relationships by bolstering cross marketing strategies and tactics with a focus on multiple account/service relationships.

Utilize capital markets tools to effectively manage capital and enhance shareholder value.

Executive Summary

The Company's results of operations depend primarily on its net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our interest-earning assets consist primarily of residential mortgage loans, multi-family and nonresidential real estate mortgage loans, residential mortgage-related securities, and U.S. Agency debentures. Interest-bearing liabilities consist primarily of retail deposits and borrowings from the Federal Home Loan Bank of New York.

Through the first half of fiscal 2005, the Company continued to realize improvements in its net interest margin that had begun in fiscal 2004 as the general level of market interest rates increased from the historical lows of the prior periods. The improvements in net interest margin during that time resulted from increases in earning asset yields that outpaced those of its interest bearing-liabilities. However, that trend reversed in the latter half of 2005 when upward pressure on the Company's cost of deposits resulted in a greater increase in the Company's cost of interest-bearing liabilities than the increase in the yield on its interest-earning assets. For the year ended September 30, 2005, the Company experienced a 16 basis point increase in its yield on earning assets to 4.84% from 4.68% for year ended September 30, 2004. This increase was attributable to a 22 basis point increase in the yield on investment securities and a 207 basis point increase in the yield on interest-earning deposits and other earning assets. These increases were partially offset by a 7 basis point decline in the yield on loans. Offsetting this overall improvement in earning asset yields was a 15 basis point increase in the cost of interest-bearing liabilities to 2.56% from 2.41%. This increase resulted, in part, from a 26 basis point increase in the cost of interest-bearing deposits. This increase was partially offset by an 18 basis point decrease in the cost of borrowings resulting primarily from increased utilization of overnight borrowings. In total, the Company's net interest margin remained unchanged at 2.60% for fiscal 2005 and fiscal 2004.

For the most recent fiscal year ended September 30, 2006, the Company's net interest spread declined to 1.80% in comparison to 2.28% for fiscal 2005 as increases in the Company's cost of interest-bearing liabilities continued to outpace the increase in the Company's yield on earning assets. This decline was largely attributable to continued upward pressure on the cost of retail deposits resulting in increases in interest expense which outpaced the increase in interest income resulting from improved yields on loans. The average cost of interest-bearing deposits increased 87 basis points from 2.16% for fiscal 2005 to 3.03% for the year ended September 30, 2006. For the same comparative periods, yield on loans increased 17 basis points from 5.32% to 5.49%.

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The factors resulting in the compression of the Company's net interest spread also impacted the Company's net interest margin. However, the effects of that compression were more than offset by the impact of the additional capital raised in the Company's second-step conversion. As a result, the Company's net interest margin increased 14 basis points from 2.60% for fiscal 2005 to 2.73%% for the year ended September 30, 2006.

Our results of operations are also affected by our provision for loan losses. Provisions for specific nonperforming assets and historical losses based on net charge-offs continue to be nominal due to a history of low charge-offs and the relative stability of nonperforming asset balances. Non-performing loans as a percentage of total assets have increased modestly to 0.41% of total assets at September 30, 2006 from 0.21% of total assets at September 30, 2005. However, management's quarterly assessment of the valuation and collectibility of these non-performing loans resulted in no required additions to the allowance for loan loss attributable to these loans. Consequently, loan loss provisions in the current year continue to be made primarily in connection with the overall growth in portfolio loans.

Our results of operations also depend on our noninterest income and noninterest expense. Noninterest income includes deposit service fees and charges, income on the cash surrender value of life insurance, gains on sales of loans and securities, gains on sales of other real estate owned and loan related fees and charges. Excluding gains and losses on sale of assets, annualized noninterest income as a percentage of average assets totaled 0.25% for the year ended September 30, 2006 - a reduction of 2 basis points from 0.27% from fiscal 2005. This decrease is primarily attributable to overall growth in average earning assets outpacing that of fee income from deposits and loans. Such growth resulted from the closing of the Company's second step conversion.

Gains and losses on sale of assets, excluded in the comparison above, typically result from the Company selling long term, fixed rate mortgage loan originations into the secondary market for interest rate risk management purposes. Demand for such loans typically fluctuates with market interest rates. As interest rates rise, market demand for long term, fixed rate mortgage loans diminishes in favor of hybrid ARMs which the Company has historically retained in the portfolio rather than selling into the secondary market. Consequently, the gains and losses on sale of loans reported by the Company will fluctuate with market conditions. Additionally, such gains and losses may also reflect the impact of infrequent investment security sales for asset/liability management purposes. This was the case in fiscal 2006 when the Company realized a $271,000 loss on sale of an underperforming investment security.

Noninterest expense includes salaries and employee benefits, occupancy and equipment expenses, data processing and other general and administrative expenses. Generally, certain operating costs have increased since our first public offering in the beginning of fiscal 2004. Operating as a public entity resulted in comparatively higher legal, accounting and compliance costs throughout fiscal 2004 and fiscal 2005 than had been recorded in earlier years. This trend continued through fiscal 2006, as the Company incurred additional compliance costs associated with the Sarbanes-Oxley Act of 2002. Additionally, the Company is recording higher employee compensation and benefit expense than it had in the years preceding the stock offerings. A portion of this increase is attributable to additional personnel costs associated with the Company's increased strategic focus on commercial lending. This increase is also attributable, in part, to the implementation of ESOP benefits resulting from the first and second step conversions that did not exist prior to fiscal 2004. Additionally, benefit costs have also increased as we granted shares under the restricted stock and stock option plans approved by shareholders during both fiscal 2005 and fiscal 2006. In the aggregate, noninterest expense as a percentage of average assets totaled 2.08% for the year ended September 30, 2006 - an increase of 6 basis points from 2.02% for fiscal 2005.

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Management expects occupancy and equipment expense to increase in future periods as we implement our de novo branching strategy to expand our branch office network. Our plan is to open up to five de novo branches over approximately the next three to five years. Toward that end, we opened our Verona branch in November, 2006. As discussed in our financial statements, we have also identified a site in Clifton, New Jersey for another de novo branch. Additionally, we continue to evaluate and pursue other retail branching opportunities. Costs for land purchases or leases and branch construction costs will impact earnings going forward. The expenses associated with opening new offices, in addition to the personnel and operating costs that we will have once these offices are open, are expected to significantly increase noninterest expenses.

The Company also expects compensation and occupancy expense to increase in future periods as additional lending staff is added to support the Bank's commercial loan growth and diversification strategies. Implementation of these strategies will likely result in the need to augment the office space available for our lending and administrative operations in order to add the personnel called for by our growth plans.

Finally, management expects the costs associated with the Sarbanes-Oxley Act of 2002 to continue into fiscal 2007, albeit at a comparatively lower level than that recorded in fiscal 2006 - the first year of compliance with Section 404 of the Act. In particular, management expects the cost of the Company's outsourced internal audit services and, to a lesser extent, that of its external auditors, to be reduced as the Company transitions from building and implementing its Sarbanes Oxley compliance program to managing and maintaining it.

In total, our annualized return on average assets decreased 4 basis point to 0.42% for the year ended September 30, 2006 from 0.46% for fiscal 2005 while annualized return on average equity decreased 362 basis points to 1.68% from 5.30% for the same comparative periods. The reduction in return on average equity reflects the increase in shareholder's equity resulting from the closing of the Company's second step conversion during the quarter ended December 31, 2005.

Our net interest margin may continue to be adversely affected in either a rising or falling rate environment. A decrease in interest rates could trigger another wave of loan refinancing that could result in the margin compression experienced in prior years when rates fell to their historical lows. Conversely, further increases in interest rates from current levels could trigger increases in the Bank's cost of interest-bearing liabilities that continue to outpace its yield on earning assets causing further net interest spread compression. As noted earlier, such compression occurred during the year ended September 30, 2006 when our net interest spread shrank 48 basis points to 1.80% from 2.28% for the fiscal year ended September 30, 2005. During that time, the continued growth in the Company's commercial lending activities contributed significantly to improved yields on earning assets, which increased 28 basis points from 4.84% to 5.12%. However, these improved yields were more than offset by increases in the cost of interest-bearing liabilities which grew by 76 basis points from 2.56% to 3.32%. This increased cost was attributable, in large part, to overall increases in market interest rates and the resulting increases in the Company's cost of retail deposits which were - and continue to be - - subject to significant upward pressure due to highly competitive market pricing for deposits.

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The risk of continued disintermediation of our deposits into higher cost accounts continues to be noteworthy given the Bank's substantial net growth in non-maturity deposits prior to fiscal 2006. Like many banks, we were successful in growing deposits while interest rates decreased to their historical lows. However, our ability to retain such deposits at a reasonable cost, while a highly competitive marketplace adjusts its pricing strategies to an environment of rising interest rates, continues to be rigorously challenged.

Finally, our results of operations may also be affected significantly by other economic and competitive conditions in our market area as well as changes in applicable laws, regulations or governmental policies. Furthermore, because our lending activity is concentrated in loans secured by real estate located in New Jersey and the New York metropolitan area, downturns in the regional economy could have a negative impact on our earnings.

Comparison of Financial Condition at September 30, 2006 and September 30, 2005

Our total assets decreased by $41.5 million, or 7.5%, to $514.3 million at September 30, 2006 from $555.9 million at September 30, 2005. The decrease reflected reductions in cash and cash equivalents, partially offset by increases in securities available for sale, securities held to maturity and loans receivable, net.

At September 30, 2005, the Bank's total assets were inflated by $115.2 million of stock subscriptions held pending the closing of the Company's second step conversion. To better reflect the allocation of the Company's interest-earning assets and interest-costing liabilities, the September 30, 2005 information presented in the tables below utilizes the pro forma balance of total assets discussed in Note 3 of the financial statements in percentage of total assets calculations.

Cash and cash equivalents decreased by $118.6 million, or 94.3%, to $7.2 million at September 30, 2006 from $125.8 million at September 30, 2005. The decrease in cash and cash equivalents was largely attributable to the investment of capital proceeds received following the closing of the Company's second step conversion into loans receivable, net, securities available-for-sale and securities held-to-maturity. Additionally, the Company refunded $33.7 million of oversubscriptions upon closing the second step conversion.

Securities classified as available-for-sale increased $12.2 million, or 19.6%, to $74.5 million at September 30, 2006 from $62.3 million at September 30, 2005. Additionally, securities held to maturity increased $2.7 million, or 34.8% to $10.5 million at September 30, 2006 from $7.8 million at September 30, 2005. The net growth in investments reflects the purchase of $57.5 million of securities during the first quarter of fiscal 2006 funded by a portion of the net proceeds received in the Company's second step conversion and the proceeds of a mutual fund sale. The sale comprised the Company's entire investment in a mutual fund whose underlying assets consisted primarily of adjustable rate and other shorter duration mortgage-related securities.

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The securities purchased comprised a combination of fixed and adjustable rate MBS, fixed rate CMOs and fixed rate, non-callable U.S. agency debentures. Securities were selected to be consistent with the short average life and stable cash flow characteristics of the Company's existing securities portfolio. During the latter three quarters of fiscal 2006, the Company utilized these cash flows and a substantial portion of the balance of cash and cash equivalents noted above to fund its growth in commercial real estate and business loans.

The following table compares the composition of the Company's investment securities portfolio by security type as a percentage of total assets at September 30, 2006 and September 30, 2005. Amounts reported exclude unrealized gains and losses on the available for sale portfolio.

	September 30, 2006		September 30, 2005
Type of Securities	Amount	Percent of Total Assets	Amount	Percent of Pro Forma Total Assets
	(Dollars in thousands)

Fixed rate MBS	$ 14,406	2.80%	$ 13,007	2.49%
ARM MBS	23,773	4.62	7,770	1.49
Fixed rate CMO	32,930	6.40	26,111	5.00
Floating rate CMO	2,369	0.46	2,809	0.54
ARM mutual fund	-	-	10,000	1.92
Fixed rate agency debentures	12,989	2.53	11,998	2.30
Total	$ 86,467	16.81%	$ 71,695	13.74%

Assuming no change in interest rates, the estimated average life of the investment securities portfolio, excluding the ARM mutual fund, was 2.37 years and 2.26 years, respectively, at September 30, 2006 and September 30, 2005. Assuming a hypothetical immediate and permanent increase in interest rates of 300 basis points, the estimated average life of the portfolio extends to 2.83 years and 2.67 years at September 30, 2006 and September 30, 2005, respectively.

Loans receivable, net increased by $57.6 million, or 16.9%, to $398.6 million at September 30, 2006 from $341.0 million at September 30, 2005. The growth was comprised of net increases in multi-family, nonresidential real estate and construction loans totaling $30.5 million coupled with net increases in business loans totaling $5.3 million. Together, net growth in these loan balances totaled 59.3% or $35.8 million for the year ended September 30, 2006 and comprised approximately 62.2% of the Company's net increase in loans receivable for the year. The remaining net growth in loans included increases in one-to-four family mortgages, including home equity loans and home equity lines of credit, totaling $22.2 million. This growth in 1-4 family mortgages included increases in prime-based, floating rate home equity lines of credit which grew approximately $5.7 million or 42.6% from $13.5 million to $19.2 million for fiscal 2006. Finally, growth in loans receivable, net was partially offset by net increases to the allowance for loan losses totaling 28.0% or $465,000 attributable primarily to the net growth in those loans.

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The following two tables compare the composition of the Company's loan portfolio by loan type as a percentage of total assets at September 30, 2006 with that of September 30, 2005. Amounts reported exclude allowance for loan losses and net deferred origination costs.

The table below generally defines loan type by loan maturity and/or repricing characteristics:

	September 30, 2006		September 30, 2005
Type of Loans	Amount	Percent of Total Assets	Amount	Percent of Pro Forma Total Assets
	(Dollars in thousands)

Construction	$ 16,238	3.16%	$ 1,100	0.21%
1/1 and 3/3 ARMs	5,835	1.13	3,664	0.70
3/1 and 5/1 ARMs	140,124	27.24	115,878	22.22
5/5 and 10/10 ARMs	43,770	8.51	37,079	7.11
7/1 and 10/1 ARMs	2,061	0.40	1,743	0.33
15 year fixed or less	111,725	21.72	108,731	20.85
Greater than 15 year fixed	53,984	10.50	58,852	11.28
HELOC	19,122	3.72	13,413	2.57
Consumer	720	0.14	702	0.13
Business	6,068	1.18	746	0.14
Total	$ 399,647	77.70%	$ 341,908	65.54%

At September 30, 2006 and 2005, the balance of one- to four-family mortgage loans included $20.0 million and $2.9 million, respectively, of thirty year adjustable rate loans with initial fixed interest rate periods of three to five years during which time monthly loan payments comprise interest only. After the initial period, the monthly payments on such loans are adjusted to reflect the collection of both interest and principal over the loan's remaining term to maturity.

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The table below generally defines loan type by collateral or purpose:

	September 30, 2006		September 30, 2005
Type of Loans	Amount	Percent of Total Assets	Amount	Percent of Pro Forma Total Assets
	(Dollars in thousands)
Construction	$ 16,238	3.16%	$ 1,100	0.21%
1-4 family mortgage	283,469	55.11	267,332	51.25
Multifamily (5+) mortgage	35,088	6.82	27,519	5.28
Nonresidential mortgage	38,408	7.47	31,096	5.96
Land	534	0.10	-	-
1-4 family HELOC	19,122	3.72	13,413	2.57
Consumer	720	0.14	702	0.13
Business	6,068	1.18	746	0.14
Total	$ 399,647	77.70%	$ 341,908	65.54%

Total deposits decreased by $13.8 million, or 4.0%, to $327.1 million at September 30, 2006 from $340.9 million at September 30, 2005. This decrease was primarily attributable to $9.8 million of deposit balances withdrawn to purchase shares in the Company's stock offering. Additionally, the decrease included net outflows of $6.7 million from one municipal account relationship of which a significant portion related to disbursements made by the municipality to fund the completed stages of a capital improvement project. Net of these outflows, total deposit growth was limited to $2.7 million which reflected the aggressive level of deposit competition in the markets served by the Company. In total, savings deposits declined $16.3 million or 13.2% while checking deposits, including demand, NOW and money market checking accounts, also declined $9.9 million or 15.2%. Notwithstanding, the specific deposit outflows noted above, the declines in savings and checking largely reflected disintermediation between deposit account types as certificates of deposit increased $12.4 million or 8.1%.

At September 30, 2006, the Bank held approximately $16.9 million of municipal deposits. These deposits include the one municipal account relationship noted above whose balances at September 30, 2006 totaled approximately $11.8 million. The Bank expects these funds to be withdrawn during the first fiscal quarter of 2007 due to the municipality's closing of that account relationship.

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The following table compares the composition of the Company's deposit portfolio by category as a percentage of total assets at September 30, 2006 with that of September 30, 2005.

	September 30, 2006		September 30, 2005
Deposit category	Amount	Percent of Total Assets	Amount	Percent of Pro Forma Total Assets
	(Dollars in thousands)

Money market checking	$ 20,474	3.98%	$ 25,759	4.94%
Noninterest bearing checking	23,545	4.58	25,583	4.90
Interest bearing checking	10,955	2.13	13,505	2.59
Money market savings	13,396	2.60	32,736	6.28
Other savings	93,612	18.20	90,534	17.36
Certificates of deposit	165,165	32.12	152,808	29.29
Total	$ 327,147	63.61%	$ 340,925	65.36%

FHLB advances increased $2.3 million, or 4.4%, to $56.1 million at September 30, 2006 as the Company's utilization of overnight repricing borrowings more than offset the impact of maturities and scheduled principal repayments of amortizing advances.

The following table compares the composition of the Company's borrowing portfolio by remaining term to maturity as a percentage of total assets at September 30, 2006 with that of September 30, 2005. Scheduled principal payments on amortizing borrowings are reported as maturities.

	September 30, 2006		September 30, 2005
Remaining Term	Amount	Percent of Total Assets	Amount	Percent of Pro Forma Total Assets
	(Dollars in thousands)

Overnight	$ 10,400	2.02%	$ -	-%
One year or less	8,063	1.57	8,060	1.55
One to two years	12,065	2.36	8,062	1.55
Two to three years	7,547	1.47	12,065	2.30
Three to four years	6,000	1.16	7,547	1.45
Four to five years	6,000	1.16	6,000	1.15
More than five years	6,000	1.16	12,000	2.30

Total	$ 56,075	10.90%	$ 53,734	10.30%

Equity increased $85.4 million, or 216.1% to $124.9 million at September 30, 2006 from $39.5 million at September 30, 2005. The increase was primarily due to capital proceeds of $89.6 million resulting from the Company's closing of its second step conversion. The increase also reflects net income of $2.1 million for fiscal 2006. Offsetting these increases to equity were dividends paid of approximately $2.1 million and repurchases of ABNJ shares to fund the Company's restricted stock plans. Finally, the amount reclassified on ESOP shares decreased from $473,000 to $0. On October 6, 2005, the Company began trading on Nasdaq which is considered to be an established market under ERISA regulations. As a result, the Company is no longer required to establish a liability to reflect this repurchase obligation.

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Comparison of Operating Results for the Years Ended September 30, 2006 and 2005

General. Net income for the year ended September 30, 2006 was $2.1 million, an increase of $90,000, or 4.4% from the year ended September 30, 2005. The increase in net income resulted from an increase in net interest income offset by a decrease in noninterest income coupled with increases in noninterest expense, the provision for loan losses and the provision for income taxes.

Interest Income. Total interest income increased 23.0% or $4.7 million to $25.3 million for the year ended September 30, 2006 from $20.6 million for the year ended September 30, 2005. For those same comparative years, the average yield on interest-earning assets increased 28 basis points to 5.12% from 4.84% while the average balance of interest-earning assets increased $69.5 million or 16.3% to $495.4 million from $425.9 million.

Interest income on loans increased $2.8 million or 16.2%, to $20.3 million for the year ended September 30, 2006 from $17.5 million for the same period in 2005. This increase was due, in part, to a $42.0 million increase in the average balance of loans receivable to $369.9 million for the year ended September 30, 2006 from $327.9 million for the year ended September 30, 2005. In addition, the average yield on loans increased 17 basis points to 5.49% from 5.32% for those same comparative periods. The increase in the average balance of loans receivable was the result of loan originations exceeding repayments due to strong borrower demand and a growing strategic emphasis on commercial lending.

The rise in interest income on loans was augmented by higher interest income on securities, which increased $1.2 million or 43.7% to $3.9 million for the year ended September 30, 2006 from $2.7 million for fiscal 2005. The increase was due in part, to a 76 basis point increase in the average yield on securities which grew to 3.99% from 3.23% for the same comparative periods. The impact on interest income attributable to this increase was further augmented by a $13.8 million increase in the average balance of investment securities to $98.4 million for the year ended September 30, 2006 from $84.6 million for the same 2005 period. The increase in yield primarily resulted from purchases of investment securities with the proceeds of the Company's second step conversion and higher yields on adjustable rate securities which have repriced upward in accordance with the general movement of market interest rates.

Further, interest and dividend income on federal funds sold, other interest-bearing deposits and FHLB stock increased $717,000 to $1.1 million for the year ended September 30, 2006 from $408,000 for fiscal 2005. This increase was due, in part, to an increase of $13.7 million in the average balance of these assets to $27.1 million for the year ended September 30, 2006 from $13.3 million for the year ended September 30, 2005. The impact on interest income attributable to this growth was further augmented by a 110 basis point rise in the average yield on these assets which increased to 4.16% from 3.06%.

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Interest Expense. Total interest expense increased by $2.3 million or 23.6% to $11.8 million for the year ended September 30, 2006 from $9.5 million for fiscal 2005. For those same comparative periods, the average cost of interest-bearing liabilities increased 76 basis points from 2.56% to 3.32%, while the average balance of interest-bearing liabilities decreased $16.7 million or 4.5% to $355.9 million for the year ended September 30, 2006 from $372.6 million for fiscal 2005.

Interest expense on deposits increased $2.5 million or 37.15% to $9.2 million for the year ended September 30, 2006 from $6.7 million for fiscal 2005. This increase was due, in part, to the disintermediation of lower cost transaction account balances into higher yielding certificates of deposit. The average balance of interest-bearing deposits, including stock subscriptions received, decreased $7.4 million to $303.1 million for the year ended September 30, 2006 from $310.5 million for fiscal 2005. The components of this net decrease for the comparative periods include a decline in the average balance of savings and interest bearing checking deposits of $26.3 million and $864,000 respectively. These decreases were largely offset by an increase in the average balance of higher costing certificates of deposit totaling $19.8 million.

The impact on interest expense attributable to the disintermediation noted above was exacerbated by an 87 basis point increase in the average cost of interest-bearing deposits to 3.03% for the year ended September 30, 2006 from 2.16% for fiscal 2005. The components of this increase include an 86 basis point increase in the average cost of certificates of deposit, an 84 basis point increase in the average cost of interest-bearing checking accounts and a 60 basis point increase in the average cost of savings accounts.

Interest expense on FHLB advances decreased $233,000 to $2.6 million for the year ended September 30, 2006 from $2.8 million for the fiscal 2005. This decrease was due, in part, to a $9.3 million decrease in the average balance to $52.7 million for the year ended September 30, 2006 from $62.1 million for fiscal 2005. The impact on expense attributable to this decrease in average balance was partly offset by a 37 basis point increase in the average cost of advances from 4.58% for the year ended September 30, 2005 to 4.95% for fiscal 2006. The higher average cost for the current period was partly due to the lower average balance of overnight repricing line of credit borrowings compared with that held during the earlier comparative period. The cost of such overnight borrowings during that earlier period was significantly less than that of the remaining portfolio of fixed-rate term advances. Additionally, the maturity of lower costing term advances in fiscal 2006 have resulted in comparatively higher costs for the remaining portfolio of fixed-rate term advances.

Net Interest Income. Net interest income increased by $2.5 million or 22.5%, to $13.5 million for the year ended September 30, 2006 from $11.1 million for fiscal 2005. The net interest rate spread declined 48 basis points from 2.28% to 1.80% for the same comparative periods, while the net interest margin increased 13 basis points from 2.60% to 2.73%.

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Provision for Loan Losses. Using the allowance methodology described under Critical Accounting Policies found later in this discussion, the provision for loan losses totaled $465,000 for the year ended September 30, 2006 representing an increase of $384,000 over fiscal 2005. The Company's net loan loss provision for the earlier comparative period reflected the reversal of a previously recorded loss provision of $42,000. After adjusting for the reversal in that earlier period, the increase in loan loss provision is generally attributable to the comparatively higher net growth in our commercial loan portfolio. Specifically, each year's comparative provision resulted from the incremental growth in the outstanding balance of the loans on which historical and environmental loss factors are applied. For the year ended September 30, 2006, outstanding loan balances, excluding the allowance for loan loss, increased 16.8% or $57.8 million to $400.7 million from $342.9 million at September 30, 2005. The growth comprised a net increase in the disbursed balances of construction loans of $15.1 million, net increases in multi-family and nonresidential real estate loans totaling $15.4 million and a net increase in business loans totaling $5.3 million. Additional components of the net change in gross loan balances included net increases in one-to-four family mortgages totaling $13.0 million coupled with increases in home equity loans and lines of credit of $9.2 million.

By comparison, for the year ended September 30, 2005, outstanding loan balances, excluding the allowance for loan loss, grew $32.4 million or 10.4% from $310.5 million at September 30, 2004 to $342.9 million at September 30, 2005. The growth was primarily comprised of net increases in multi-family and nonresidential real estate loans totaling $15.4 million coupled with net increases in one-to-four family mortgages totaling $15.8 million. Additional components of the net change in gross loan balances included increases in home equity loans of $2.7 million and net increases in business and consumer loans totaling $304,000. This growth was offset by a decline in the disbursed balance of construction loans totaling $1.9 million.

In total, the allowance for loan losses as a percentage of gross loans outstanding increased 5 basis points to 0.53% at September 30, 2006 from 0.48% at September 30, 2005. These ratios reflect allowance for loan loss balances of $2.1 million and $1.7 million, respectively. The increase in the ratio of allowance to gross loans reflects the changing composition of the portfolio which reflects comparatively greater net growth in loans with higher risk factors. The level of the allowance is based on estimates and the ultimate losses may vary from those estimates.

Noninterest Income. Noninterest income decreased $175,000 to $1.0 million for the year ended September 30, 2006 compared to $1.2 million for fiscal 2005. This reduction was primarily attributable to a $271,000 loss on sale of an underperforming investment security during the first quarter of fiscal 2006 compared with a similar loss on sale of $16,000 in fiscal 2005. This net $255,000 variance was offset, in part, by increases to other noninterest income categories. Deposit service fees and charges increased $32,000 due primarily to increased receipts of deposit account service charges offset by reduced levels of fee income from annuity sales. The Company also recorded comparatively higher income from cash surrender value of life insurance of approximately $45,000 reflecting higher policy balances held by the Company and increases in policy yields attributable to increases in market interest rates.

Noninterest Expense. Noninterest expense increased $1.7 million, or 19.4% to $10.7 million for the year ended September 30, 2006 from $8.9 million for the year ended September 30, 2005. This increase was attributable to higher expenses for salaries and benefits, occupancy and equipment, advertising, legal, professional and consulting fees, and other noninterest expenses partially offset by decreases in data processing expenses.

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Salaries and employee benefits increased $1.0 million or 17.2% to $6.9 million for the year ended September 30, 2006 as compared to $5.9 million for fiscal 2005. Salaries and wages including bonus and payroll taxes, increased $448,000 Such increases were primarily attributable to growth in the Company's commercial lending staff and additions to retail deposit personnel in anticipation of the Company's next branch opening coupled with overall annual increases in employee compensation.

Retirement and stock benefit plan costs increased $809,000 resulting primarily from increased ESOP costs stemming from completion of Company's second step conversion and the subsequent implementation of the Company's 2006 Equity Incentive Plan approved by shareholders in May, 2006. ESOP costs increased $310,000 from $270,000 for fiscal 2005 to $580,000 for fiscal 2006 (See Note 5 Employee Stock Ownership Plan). For those same comparative periods, restricted stock plan costs increased $430,000 from $207,000 to $637,000. The amount recorded in fiscal 2005 reflected only nine months of RSP expenses reflecting plan approval by shareholders in January 2005. By comparison, the amount recorded in fiscal 2006 included a full year of RSP benefits approved in 2005 plus a pro rata portion of the annual RSP benefits relating to the Company's 2006 Equity Incentive Plan approved by shareholders in May, 2006. Finally, the Company began recognizing stock options expense upon the adoption of FAS 123R on October 1, 2005. For the year ended September 30, 2006, the Company recorded $384,000 in stock options expense for which no comparative expense was recorded in the prior fiscal year. Together, these factors contributed $1.1 million to the comparative increase in retirement and stock benefit plan costs. These benefit cost increases were partly offset by a comparative decrease in profit sharing expense of $306,000 resulting from $131,000 of accrued plan expenses that were reversed in fiscal 2006 due to the Company's discontinuation of that plan. By comparison, profit sharing plan expenses in fiscal 2005 totaled $175,000.

Medical and other insurance benefit premiums, net of employee co-payments, increased approximately $64,000 while other employee expenses increased approximately $71,000 resulting primarily from comparatively greater costs associated with employee training and personnel procurement expenses.

Finally, offsetting these net increases in salaries and employee benefits for the year ended September 30, 2006 was a net decrease in director compensation expense of $382,000 due largely to costs recognized in the earlier comparative period relating to changes in the Company's director retirement plan for which no comparable costs were incurred in fiscal 2006.

Occupancy and equipment expense increased $119,000 to $949,000 for the year ended September 30, 2006 as compared to $830,000 for fiscal 2005 while data processing costs decreased by approximately $17,000. The increase in occupancy and equipment costs was attributable, in large part, to the recognition of approximately $91,000 of deposit branch acquisition costs in the more recent period relating to sites for which the Bank and/or Seller were unable to fulfill the conditional terms of the sales contract. Such expenses would have been capitalized into the depreciable cost of the branch had they come to fruition. Notwithstanding these challenges, the Company continues to pursue its deposit branch growth strategy. Toward that end, the Bank opened a full service branch located on Bloomfield Avenue in Verona, New Jersey in November 2006. The remaining increase in occupancy and equipment costs is attributable primarily to additional property tax expense relating to that branch. Additionally, the Company recently received the requisite municipal approvals needed to construct a full service branch on a site in Clifton, New Jersey.

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Increases in noninterest expense also included increases in advertising and marketing expenses of approximately $62,000 attributable primarily to costs associated with enhanced corporate and lending marketing programs. Legal expenses for the year ended September 30, 2006 were $52,000 higher than those recorded for fiscal 2005. This comparative increase in legal expenses was attributable, in large part, to the Company's annual meeting held in May, 2006 and matters addressed by shareholders at that time. Additionally, professional and consulting fees increased $257,000 to $531,000 for the year ended September 30, 2006 from $274,000 for fiscal 2005. In large part, these increases were attributable to audit and consulting costs incurred by the Company relating to compliance with the Sarbanes Oxley Act of 2002 and the outsourcing of other internal audit and compliance-related services.

Finally, the Company recognized noteworthy increases in a variety of other noninterest expenses in fiscal 2006 compared with fiscal 2005. Other noninterest expenses increased $247,000 from $752,000 for the year ended September 30, 2005 to $999,000 for the year ended September 30, 2006. A significant portion of this increase was directly attributable to the Company's conversion into a fully public entity. Such cost increases include those associated with corporate insurance, transfer agent services, NASDAQ membership fees and regulatory oversight costs. Additional increases in other noninterest expense resulted from the implementation of the Company's strategic growth and business diversification strategies. For example, the Company recognized a substantial portion of the general and administrative "start up costs" of its new deposit branch in the fourth quarter of fiscal 2006. The Verona branch location opened in the first quarter of fiscal 2007.

Provision for Income Taxes. The provision for income taxes increased $195,000 for the year ended September 30, 2006 compared with fiscal 2005. For those same comparative periods, the Company's effective tax rate was 38.0% and 37.1%, respectively. The net increase in the effective tax rate was attributable, in part, to the decline in the average balance of investment securities held by the Bank's investment subsidiary, American Savings Investment Corporation ("ASIC"). ASIC is a wholly owned New Jersey investment subsidiary formed in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the state of New Jersey at an effective rate lower than the statutory corporate state income tax rate.

Throughout fiscal 2006, cash flows from ASIC were utilized by the Bank to fund loan growth. This resulted in comparatively lower net income recorded by the investment subsidiary offset by greater net income recorded by the Bank resulting in the increase in the Company's effective income tax rate.

Additionally, the Company recorded comparatively higher non-deductible expenses associated with incentive stock options due to the adoption of FAS 123R in the current fiscal year. Partially offsetting these factors were comparatively higher levels of tax exempt income in fiscal 2006 from the cash surrender value of bank owned life insurance compared with that recorded in fiscal 2005.

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Comparison of Operating Results for the Years Ended September 30, 2005 and 2004

General. Net income for the year ended September 30, 2005 was $2.0 million, a decrease of $119,000, or 5.5% from fiscal 2004. The decrease in net income resulted from an increase in noninterest expense offset by an increase in net interest income coupled with decreases in non-interest income, the provision for loan losses and the provision for income taxes.

Interest Income. Total interest income increased 13.2% or $2.4 million to $20.6 million for the year ended September 30, 2005 from $18.2 million for the year ended September 30, 2004. For those same years, the average yield on interest-earning assets increased 16 basis points to 4.84% from 4.68% while the average balance of interest-earning assets increased $37.0 million or 9.5% to $425.9 million from $388.9 million.

Interest income on loans increased $2.5 million or 16.77%, to $17.5 million for the year ended September 30, 2005 from $15.0 million for fiscal 2004. This increase was due, in part, to a $49.3 million increase in the average balance of loans receivable to $327.9 million for the year ended September 30, 2005 from $278.6 million fiscal 2004. The impact on interest income attributable to this growth more than offset the 7 basis points decrease in the average yield on loans which declined to 5.32% from 5.39% for those same comparative periods. The increase in the average balance of loans receivable was the result of loan originations exceeding repayments due to strong borrower demand and a growing strategic emphasis on commercial lending.

The rise in interest income on loans was partially offset by lower interest income on securities, which decreased $391,000 or 12.5% to $2.7 million for the year ended September 30, 2005 from $3.1 million for fiscal 2004. The decrease was due in part, to a $19.4 million decline in the average balance of investment securities to $84.6 million for the year ended September 30, 2005 from $104.0 million for fiscal 2004. The impact on interest income attributable to this decline was partly offset by a 22 basis point increase in the average yield on securities which grew to 3.23% from 3.01% for those same comparative periods. This increase in yield primarily resulted from slowing prepayments which reduced net premium amortization and higher yields on adjustable rate securities which have repriced upward in accordance with the general movement of market interest rates.

Further, interest income on federal funds sold and other interest-bearing deposits increased $346,000 to $408,000 for the year ended September 30, 2005 from $62,000 for the same period in 2004. This increase was due, in part, to an increase of $7.0 million in the average balance of these assets to $13.3 million for the year ended September 30, 2005 from $6.3 for fiscal 2004. The impact on interest income attributable to this growth was further augmented by a 207 basis point rise in the average yield on these assets which increased to 3.06% from 0.98%.

Interest Expense. Total interest expense increased by $1.4 million or 17.8% to $9.5 million for the year ended September 30, 2005 from $8.1 million for fiscal 2004. For those same comparative periods, the average cost of interest-bearing liabilities increased 15 basis points from 2.41% to 2.56% while the average balance of interest bearing liabilities increased $36.3 million or 10.8% to $372.6 million for fiscal 2005 from $336.2 million for fiscal 2004.

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Interest expense on deposits increased $1.5 million or 27.8% to $6.7 million for the year ended September 30, 2005 from $5.2 million for fiscal 2004. This increase was due, in part, to a $34.4 million increase in the average balance of interest-bearing deposits to $310.5 million for the year ended September 30, 2005 from $276.1 million for fiscal 2004. The components of this net increase for the comparative periods include an increase of $18.6 million in the average balance of certificates of deposit, a $1.6 million increase in the average balance of savings accounts and a $14.2 million increase in the average balance of interest-bearing checking accounts.

The impact on interest expense attributable to the net growth in these average balances was exacerbated by a 26 basis point increase in the average cost of interest-bearing deposits to 2.16% for the year ended September 30, 2005 from 1.90% for fiscal 2004. The components of this increase include a 52 basis point increase in the average cost of certificates of deposit and a 35 basis point increase in the average cost of interest-bearing checking accounts while the average cost of savings accounts remained the same at 1.55%.

Interest expense on FHLB advances decreased $15,000 to $2.8 million for the year ended September 30, 2005 from $2.9 million for the same period in 2004. This decrease was due, in part, to an 18 basis point decline in the average cost of advances from 4.76% in 2004 to 4.58% in 2005. The impact on expense attributable to this decrease in average cost was partly offset by a $1.9 million increase in the average balances to $62.1 million for the year ended September 30, 2005 from $60.1 million for fiscal 2004. The lower average cost is primarily due to utilization of overnight repricing line of credit borrowings whose current cost is less than that of the remaining portfolio of fixed-rate term advances.

Net Interest Income. Net interest income increased by $956,000 or 9.5%, to $11.1 million for the year ended September 30, 2005 from $10.1 million for the year ended September 30, 2004. The net interest rate spread remained the same in fiscal 2005 at 2.28%, while the net interest margin also remained the same at 2.60%.

Provision for Loan Losses. Using the allowance methodology described under Critical Accounting Policies found later in this discussion, the provision for loan losses totaled $81,000 for the year ended September 30, 2005 representing a decrease of $126,000 over 2004. The loss provision in fiscal 2005 was reduced by the reversal of a $42,000 reserve previously established against an impaired loan which paid off in full during the year. Notwithstanding this reversal, other provisions for specific nonperforming assets and historical losses based on net charge-offs were nominal due to a history of low charge-offs and the relative stability of nonperforming asset balances. As such, incremental growth in the outstanding balance of the loans on which historical and environmental loss factors are applied accounted for the additional loss provisions for the year. For the year ended September 30, 2005, loans receivable, net increased 10.4% to $341.0 million from $309.0 million at September 30, 2004. Total gross loan balances, excluding loans held for sale, net deferred loan costs and the allowance for loan loss, grew $32.0 million or 10.3%. The growth was primarily comprised of net increases in multi-family and nonresidential real estate loans totaling $15.4 million coupled with net increases in one-to-four family mortgages totaling $15.5 million. Additional components of the net change in gross loan balances included increases in home equity loans of $2.7 million and net increases in business and consumer loans totaling $304,000. This growth was offset by a decline in the disbursed balance of construction loans totaling $1.9 million.

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By comparison, loan growth for the year ended September 30, 2004 totaled $46.4 million or $14.0 million more than the same comparative period this year. The growth in this prior comparative period was primarily comprised of an increase in one-to-four family mortgages totaling $36.3 million, an increase of $7.0 million in multi-family and nonresidential real estate loans, an increase of $2.6 million in the disbursed balances of construction loans and an increase of $1.8 million in home equity loans, offset by net decreases in consumer loans and business loans totaling $1.2 million.

In total, the allowance for loan losses as a percentage of gross loans outstanding decreased 2 basis points to 0.48% at September 30, 2005 from 0.50% at September 30, 2004. These ratios reflect allowance for loan loss balances of $1.7 million and $1.6 million, respectively. The level of the allowance is based on estimates and the ultimate losses may vary from those estimates.

Noninterest Income. Noninterest income decreased $102,000 to $1.2 million for the year ended September 30, 2005 compared to the same period in 2004. A significant portion of that decrease resulted from the absence in 2005 of $176,000 in gain on sale of other real estate that had been recorded during 2004. The remaining components of the decrease are attributable to a $16,000 loss on sale of available-for-sale securities coupled with a decline of $7,000 in deposit service fees resulting from reduced customer utilization of deposit services introduced in the prior fiscal year. In addition, there was a decrease of $11,000 in gains on sale of held for sale loans as fewer long term, fixed rate loans were originated and sold into the secondary market. These decreases were offset by an increase in income from cash surrender value of life insurance which grew $63,000 from $207,000 for the year ended September 30, 2004 to $270,000 for fiscal 2005 reflecting higher policy balances held by the Company. Other non-interest income increased $45,000 from year to year primarily due to collection of comparatively higher loan prepayment penalties.

Noninterest Expense. Noninterest expense increased $1.3 million, or 16.6% to $8.9 million for the year ended September 30, 2005 from $7.7 million for the year ended September 30, 2004. The increase was primarily a result of higher expenses for salaries and employee benefits, advertising and other non-interest expenses, partially offset by decreases in occupancy and equipment, data processing and borrowed funds prepayment penalty.

Salaries and employee benefits increased $1.1 million or 22.5% to $5.9 million for the year ended September 30, 2005 as compared to $4.8 million for 2004. A significant portion of this increase was attributable to a charge of $444,000 resulting from restructuring the Bank's director retirement plan. The plan was amended to provide that retirement benefits will be calculated based upon the sum of the annual retainer and regular meeting fees paid by the Company as well as the Bank. Previously, such retirement plan benefits were based upon only the annual retainer paid by the Bank. Additionally, deferred compensation benefits costs increased $207,000 due to the implementation of a restricted stock plan during fiscal 2005 while expenses associated with the employee stock ownership plan grew $54,000 due to increases in the market value of the shares of Company's stock held by the plan. Salaries and wages including bonus and payroll taxes, increased $324,000 or 9.3% due, in part, to executive and lending staffing additions coupled with overall annual increases in employee compensation. Finally, medical insurance benefit premiums increased $36,000 or 8.9%.

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Occupancy and equipment expense decreased $23,000 to $830,000 for the year ended September 30, 2005 as compared to $853,000 for 2004. This decrease is primarily attributable to a $67,000 decrease in computer depreciation expense. For the same comparative periods, data processing costs also decreased $18,000 from $704,000 to $686,000 due to the absence in the current period of information technology conversion and upgrade expenses that were recognized during 2004.

Legal fees increased $129,000 to $234,000 for the year ended September 30, 2005 from $105,000 for 2004. A portion of the increase in legal fees is attributable to organizational and benefits related matters presented to shareholders at the Company's annual meeting held January 20, 2005. Additionally, professional and consulting fees, including auditing and accounting fees, increased $131,000 to $274,000 for the year ended September 30, 2005 as compared to 2004. A portion of this increase is attributable to the Company's operation as a public company including implementation costs associated with the Sarbanes-Oxley Act of 2002. Other comparative increases in both legal and professional and consulting fees are attributable to ongoing evaluation and implementation of growth and diversification strategies relating to the execution of the Company's business plan.

The Bank did not prepay any borrowings during the year ended September 30, 2005. As such, no borrowed funds prepayment penalties were incurred during the year. By comparison, in fiscal 2004 the Bank prepaid $3.0 million of FHLB advances with a weighted average cost of 6.28% which resulted in prepayment penalties totaling $125,000.

Finally, other noninterest expenses increased $84,000 for the year ended September 30, 2005 as compared to 2004 due, in large part, to increases in net loan processing charges and other general and administrative expenses.

Notwithstanding these increases mentioned above, management expects ongoing compliance costs of the Sarbanes-Oxley Act of 2002 to continue to grow. Furthermore, we currently intend to expand our branch office network over the next several years, and expenses related to such expansion may impact earnings in future periods.

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Provision for Income Taxes. The provision for income taxes decreased $168,000 for the year ended September 30, 2005 from fiscal 2004. The effective tax rate was 37.1% and 38.8% for the years ended September 30, 2005 and 2004. The modest decrease in the effective tax rate is primarily attributable to the Company's funding of American Savings Investment Corporation in November 2004, a wholly owned New Jersey investment subsidiary formed in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the State of New Jersey at an effective rate lower than the statutory corporate state income tax rate. Additionally, increases in the Bank's balance of bank-owned life insurance, which generates tax-exempt income from growth in the cash surrender value of policies, has also contributed to reductions in the Company's effective income tax rate.

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Average Balances, Interest, and Average Yields/Cost

The following table presents certain information at and for the periods indicated regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances were derived from average daily balances.

			Years Ended September 30,
	At September 30, 2006		2006			2005			2004
	Balance	Yield/ Cost	Average Balance	Interest Earned/ Paid	Average Yield/ Cost	Average Balance	Interest Earned/ Paid	Average Yield/ Cost	Average Balance	Interest Earned/ Paid	Average Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)	$ 398,624	5.71%	$ 369,916	$ 20,291	5.49%	$ 327,948	$ 17,459	5.32%	$ 278,632	$ 15,017	5.39%
Investment securities(2)	86,466	4.13	98,405	3,928	3.99	84,565	2,734	3.23	103,978	3,125	3.01
Other interest-earning assets(3)	3,850	5.25	27,058	1,125	4.16	13,343	408	3.06	6,302	62	0.98
Total interest-earning assets	488,940	5.43	495,379	25,344	5.12	425,856	20,601	4.84	388,912	18,204	4.68
Non-interest-earning assets	25,379		17,415			15,286			10,755
Total assets	$ 514,319		$ 512,794			$ 441,142			$ 399,667
Interest-bearing liabilities:
NOW & money market	$ 31,429	2.25%	$ 36,379	$ 785	2.16%	$ 37,243	$ 490	1.32%	$ 23,086	$ 225	0.97%
Savings deposits(4)	107,008	2.62	111,398	2,389	2.14	137,723	2,130	1.55	136,100	2,109	1.55
Certificates of deposit	165,165	4.48	155,350	6,017	3.87	135,547	4,082	3.01	116,926	2,912	2.49
Total interest-bearing deposits	303,602	3.59	303,127	9,191	3.03	310,513	6,702	2.16	276,113	5,246	1.90
FHLB advances	56,075	5.16	52,725	2,611	4.95	62,056	2,844	4.58	60,125	2,859	4.76
Total interest-bearing liabilities	359,677	3.84	355,852	11,802	3.32	372,569	9,546	2.56	336,238	8,105	2.41
Non-interest-bearing deposits	23,545		23,664			23,954			22,080
Other non-interest-bearing liabilities	6,236		6,522			6,070			3,884
Total liabilities	389,458		386,038			402,593			362,202
Accumulated other comprehensive income	(881)		(1,129)			(649)			(508)
Retained earnings & other equity	125,742		127,885			39,198			37,973
Total liabilities and equity	$ 514,319		$ 512,794			$ 441,142			$ 399,667
Net interest spread(5)		1.59%		$ 13,542	1.80%		$ 11,055	2.28%		$ 10,099	2.28%
Net interest margin(6)		2.60%			2.73%			2.60%			2.60%
Ratio of interest-earning assets to interest-bearing liabilities	135.94%		139.21%			114.30%			115.67%

_____________

(1)	Calculated net of deferred fees and loss reserves. Includes loans held for sale.
(2)	Calculated based on amortized cost and excludes FAS 115 market value adjustment.
(3)	Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions.
(4)	2005 average balances include money market savings accounts and stock subscriptions received in connection with the Company's second public offering which closed October 5, 2005.
(5)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(6)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

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Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on the interest income and interest expense of the Company. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate/volume column shows changes attributable to changes in both rate and volume, which cannot be segregated.

	2006-2005
	Increase (Decrease)
	Volume	Rate	Rate/ Volume	Net
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$ 2,234	$ 529	$ 68	$ 2,831
Securities	447	642	105	1,194
Other interest-earning assets	419	147	151	717
Total interest-earning assets	3,100	1,318	324	4,742

Interest-bearing liabilities:
NOW and money market accounts	(12)	314	(7)	295
Savings accounts	(408)	824	(157)	259
Certificates of deposit	596	1,168	171	1,935
Total interest bearing deposits	176	2,306	7	2,489
Federal Home Loan Bank advances	(428)	229	(34)	(233)
Total interest-bearing liabilities	(252)	2,535	(27)	2,256
Increase (decrease) in net interest income	$ 3,352	$ (1,217)	$ 351	$ 2,486

	2005-2004
	Increase (Decrease)
	Volume	Rate	Rate/ Volume	Net
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$ 2,658	$ (183)	$ (32)	$ 2,442
Securities	(583)	236	(44)	(391)
Other interest-earning assets	69	131	146	346
Total interest-earning assets	2,144	184	70	2,397

Interest-bearing liabilities:
NOW and money market accounts	138	79	48	265
Savings accounts	25	(4)	-	21
Certificates of deposit	464	609	97	1,170
Total interest bearing deposits	627	684	145	1,456
Federal Home Loan Bank advances	92	(104)	(3)	(15)
Total interest-bearing liabilities	719	580	142	1,441
Increase (decrease) in net interest income	$ 1,425	$ (396)	$ (72)	$ 956

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Critical Accounting Policies

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The following is a description of our critical accounting policy and an explanation of the methods and assumptions underlying its application.

Allowance for Loan Losses. Our policy with respect to the methodologies used to determine the allowance for loan losses is our most critical accounting policy. This policy is important to the presentation of our financial condition and results of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in our results of operations or financial condition.

In evaluating the level of the allowance for loan losses, management considers the Company's historical loss experience as well as various "environmental factors" including the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, industry condition information, and prevailing economic conditions. Large groups of smaller balance homogeneous loans, such as residential real estate and home equity and consumer loans, are evaluated in the aggregate using historical loss factors and peer group data adjusted for current economic conditions. Large balance and/or more complex loans, such as multi-family, nonresidential real estate and construction loans, are evaluated individually for impairment. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available or as projected events change.

Management assesses the allowance for loan losses quarterly. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses in the periods presented was maintained at a level that represented management's best estimate of losses in the loan portfolio to the extent they were both probable and reasonable to estimate.

Application of the Bank's loan loss methodology outlined above results, in part, in historical and environmental loss factors being applied to the outstanding balance of homogeneous groups of loans to estimate probable credit losses. For example, as a result of continued loan growth, a part of the Bank's loan portfolio is considered "unseasoned," meaning the loans were originated less than three years ago. Generally, unseasoned loans demonstrate a greater risk of credit losses than their seasoned counterparts. Moreover, in many cases, these unseasoned loans are obligations of borrowers with whom the Bank has had no prior payment experience. These risks are considered in the environmental factors used in the Bank's loss provision calculations as described above. Both historical and environmental loss factors are reviewed and updated quarterly, where appropriate, as part of management's assessment of the allowance for loan losses.

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During fiscal 2005, changes to environmental factors used in the Bank's loss provision calculations generally reflected the Company's increased strategic focus on commercial lending. Environmental factors applied to the outstanding balance of commercial mortgages reflected increased balances of unseasoned loans and concerns about potential changes in real estate values. However, the impact of these increases were partially offset by reductions in environmental factors attributable to the experience, ability, and depth of lending management and staff both of which were enhanced during the prior fiscal year. No significant changes to environmental factors used in the Bank's loss provision calculations were made during fiscal 2006.

Management generally expects provisions for loan losses to increase as a result of the net growth in loans called for in the Company's business plan. Specifically, our business strategy calls for increased strategic emphasis in commercial lending. The loss factors used in the Bank's loan loss calculations are generally higher for such loans compared with those applied to one-to-four family mortgage loans. Consequently, future net growth in commercial loans may result in required loss provisions that exceed those recorded in prior years when comparatively greater strategic emphasis had been placed on growing the 1-4 family mortgage loan portfolio.

Liquidity and Commitments

We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

The Bank's short term liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Bank's primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the level of market interest rates, economic conditions, and competition. In addition, the Bank invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Bank also generates cash through borrowings. The Bank utilizes Federal Home Loan Bank advances to leverage its capital base by providing funds for its lending activities, and to enhance its interest rate risk management.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities. On a longer-term basis, the Bank maintains a strategy of investing in various loan products and in securities collateralized by loans. The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and

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savings withdrawals, to fund loan commitments and to maintain its portfolio of mortgage-backed securities and investment securities. At September 30, 2006, the total approved loan origination commitments outstanding amounted to $19.0 million. At the same date, unused lines of credit were $23.5 million and construction loans in process were $16.9 million.

Certificates of deposit scheduled to mature in one year or less at September 30, 2006, totaled $135.3 million. Management's policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on the competitive rates and on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank. Additionally, at September 30, 2006 the Bank has $18.5 million of borrowings from the Federal Home Loan Bank of New York ("FHLB") maturing in one year or less. Of those advances, $10.4 million represents funds drawn on the Bank's overnight line of credit. Repayment of such advances increases the Bank's unused borrowing capacity from the FHLB which, at September 30, 2006 totaled $66.2 million. In calculating our borrowing capacity, the Bank utilizes the FHLB's guideline, which generally limits advances secured by residential mortgage collateral to 25% of the Bank's total assets.

The following tables disclose our contractual obligations and commercial commitments as of September 30, 2006. Scheduled principal payments on amortizing borrowings are reported as maturities.

	Total	Less Than 1 Year	1-3 Years	4-5 Years	After 5 Years
	(In thousands)
Time Deposits	$ 165,165	$135,329	$ 17,030	$ 2,828	$ 9,978
FHLB advances(1)	56,075	18,463	19,612	12,000	6,000
Total	$ 221,240	$153,792	$ 36,642	$ 14,828	$ 15,978

___________
(1) At September 30, 2006, the total collateralized borrowing limit was $122.3 million, of which we had $56.1 million outstanding.

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	Total Amounts Committed	Less Than 1 Year	1-3 Years	4-5 Years	Over 5 Years
	(In thousands)
Lines of credit(1)	$ 23,541	$ 2,016	$ 1,064	$ 527	$ 19,934
Land lease	2,407	69	277	277	1,784
Construction loans in process(1)	16,917	1,686	15,231	-	-
Other commitments to extend credit(1)	19,045	19,045	-	-	-
Total	$ 61,910	$ 22,816	$ 16,572	$ 804	$ 21,718

_____________

(1) Represents amounts committed to customers.

In addition to the above commitments, the Company has financial obligations regarding outstanding contracts for purchase and leases relating to branch sites. As of September 30, 2006, the Bank has paid a deposit totaling $147,500 on a purchase contract for a future branch location. Upon closing, the Bank is committed to disbursing an additional $1,327,500 to fulfill its obligations under this contract. This commitment is contingent upon the fulfillment of certain conditions outlined in the purchase contract.

As noted in the table above, the Bank has entered into a land lease agreement through which it is committed to pay $2,407,079 over a 15 year term. This commitment relates to the relocation of the Bank's Bloomfield branch site. Such relocation will significantly upgrade and modernize the Bloomfield branch facility supporting the Company's deposit growth and customer service enhancement objectives. The relocation will also support expansion of the administrative and lending office space within the Company's existing headquarters facility where the branch is currently located. This commitment is contingent upon the fulfillment of certain conditions outlined in the lease contract.

Regulatory Capital

Consistent with its goals to operate a sound and profitable financial organization, American Bank of New Jersey actively seeks to maintain its classification as a "well capitalized" institution in accordance with regulatory standards. The Bank's total equity was $81.8 million at September 30, 2006, or 16.73% of total assets on that date. As of September 30, 2006, the Bank exceeded all capital requirements of the Office of Thrift Supervision. The Bank's regulatory capital ratios at September 30, 2006 were as follows: core capital 16.86%; Tier I risk-based capital, 27.83%; and total risk-based capital, 28.52%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively.

Impact of Inflation

The consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America.

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These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels.

The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of noninterest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Recent Accounting Pronouncements

In July 2006, the FASB released Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This Interpretation revises the recognition tests for tax positions taken in tax returns such that a tax benefit is recorded only when it is more likely than not that the tax position will be allowed upon examination by taxing authorities. The amount of such a tax benefit to record is the largest amount that is more likely than not to be allowed. Any reduction in deferred tax assets or increase in tax liabilities upon adoption will correspondingly reduce retained earnings. The Company has not yet determined the effect of adopting this Interpretation, which is effective for it on October 1, 2007.

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 155 "Accounting for Certain Hybrid Financial Instruments" ("SFAS No. 155"), which 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". SFAS No. 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. Management is currently evaluating the impact of SFAS No. 155 on the Corporation's consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156 "Accounting for Servicing of Financial Assets" ("SFAS No. 156"), which amends FASB Statement No. 140, "Accounting For Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No. 156 is not expected to impact the Corporation's consolidated financial statements.

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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to impact the Corporation's consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The requirement to measure the funded status of a plan as of the date of its year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The adoption of this standard is not expected to impact the Corporation's consolidated financial statements.

On September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 ("SAB 108"). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective for financial statements issued for fiscal years ending after November 15, 2006. Management is currently evaluating the impact of SAB 108 on the Corporation's consolidated financial statements.

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Management of Interest Rate Risk and Market Risk

Qualitative Analysis. Because the income on the majority of our assets and the cost of the majority of our liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk, or changes in interest rates. Notwithstanding the unpredictability of future interest rates, we expect that changes in interest rates may have a significant, adverse impact on our net interest income.

Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between:

The interest income we earn on our interest-earning assets such as loans and securities; and

The interest expense we pay on our interest-bearing liabilities such as deposits and amounts we borrow.

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. We, like many savings institutions, have liabilities that generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates the interest income earned on our assets may decrease more rapidly, due to accelerated prepayments, than the interest paid on our liabilities.

The prepayment characteristics of our loans and mortgage-backed and related securities are greatly influenced by movements in market interest rates. For example, a reduction in interest rates results in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we are generally not able to reinvest prepayments at rates that are comparable to the rates we previously earned on the prepaid loans or securities. By contrast, increases in interest rates reduce the incentive for borrowers to refinance their debt. In such cases, prepayments on loans and mortgage-backed and related securities may decrease thereby extending the average lives of such assets and reducing the cash flows that are available to be reinvested by the Company at higher interest rates.

Tables presenting the composition and allocation of the Company's interest-earning assets and interest-costing liabilities from an interest rate risk perspective are set forth in the preceding section of this report titled "Comparison of Financial Condition at September 30, 2006 and September 30, 2005." These tables present the Company's investment securities, loans, deposits, and borrowings by categories that reflect the contractual repricing characteristics of the underlying assets or liabilities. Shown as a percentage of total assets, the comparative data presents changes in the repricing characteristics of the Company's balance sheet - an important component of interest rate risk.

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Our net interest rate spread is the difference between the yields we receive on our interest-earning assets and the rates we pay on our interest-costing liabilities. Through the first half of fiscal 2005, the Company continued to realize improvements in its net interest spread as increases in earning asset yields continued to outpace increases in the cost of its interest-bearing liabilities. However, that trend reversed in the latter half of fiscal 2005 when upward pressure on the Company's cost of deposits resulted in greater increases in the Company's cost of interest-bearing liabilities than those of its interest earning assets. The trend of net interest spread compression continued throughout fiscal 2006 during which our net interest spread decreased to 1.80% from 2.28% for the year ended September 30, 2005.

In large part, this net interest rate spread compression resulted from an increase in the Company's cost of interest-bearing liabilities which outpaced the increase in the Company's yield on earning assets. This decline was attributable, in part, to the Company maintaining a comparatively higher average balance of lower yielding, shorter duration investment securities and short term, liquid assets during the current fiscal year. These balances resulted from the initial receipt of capital proceeds from the Company's second step conversion which were deployed into such investment securities throughout the quarter ended December 31, 2005. Additionally, continued upward pressure on the cost of retail deposits resulted in increases in interest expense which outpaced the increase in interest income resulting from improved yields on loans.

Depending upon the movement of market interest rates, our earnings may continue to be impacted by an "earnings squeeze" in the future. For example, we are vulnerable to an increase in interest rates because the majority of our loan portfolio consists of longer-term, fixed rate loans and hybrid ARMs that are fixed rate for an initial period of time. At September 30, 2006, excluding allowance for loan losses and net deferred origination costs and including loans held for sale, loans totaled $399.6 million comprising 77.7% of total assets. Of those loans, fixed rate mortgages totaled $165.7 million or 32.2% of total assets while hybrid ARMs, including 3/1, 5/1, 7/1, and 10/1 ARMs totaled $191.8 million or 37.3% of total assets. In an increasing rate environment, our cost of funds may increase more rapidly than the interest earned on our loan portfolio and investment securities portfolio because our primary source of funds is deposits with substantially greater repricing sensitivity than that of our loans and investment securities. Having interest-bearing liabilities that reprice more frequently than interest-earning assets is detrimental during periods of rising interest rates and could cause our net interest rate spread to shrink because the increase in the rates we would earn on our securities and loan portfolios would be less than the increase in the rates we would pay on deposits and borrowings. This could cause a decrease in our earnings and an "earnings squeeze" just as the decrease in interest rates in prior periods had impacted our earnings.

The Board of Directors has established an Asset/Liability Management Committee which is responsible for monitoring interest rate risk. The committee comprises the Bank's Chief Executive Officer, the Bank's President and Chief Operating Officer, the Bank's Executive Vice President and Corporate Secretary, the Bank's Senior Vice President and Chief Financial Officer, the Bank's Senior Vice President and Chief Lending Officer and the Bank's Vice President and Controller. Management conducts regular, informal meetings, generally on a weekly basis, to address the day-to-day management of the assets and liabilities of the Bank, including review of the Bank's short term liquidity position; loan and deposit pricing and

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production volumes and alternative funding sources; current investments; average lives, durations and repricing frequencies of loans and securities; and a variety of other asset and liability management topics. The committee meets quarterly to formally review such matters. The results of the committee's quarterly review are reported to the full Board, which makes adjustments to the Bank's interest rate risk policy and strategies, as it considers necessary and appropriate.

To reduce the effect of interest rate changes on net interest income, we may utilize various strategies aimed at improving the matching of interest-earning asset maturities to interest-bearing liability maturities. The strategies may include:

	(1)	Originate and retain loans with adjustable rate features and fixed rate loans with shorter maturities including commercial loans;
	(2)	Originate 1-4 family mortgage loans eligible for sale in the secondary market and, if warranted, sell such loans on either a servicing retained or servicing released basis;
	(3)	Lengthen the maturities of our liabilities through utilization of FHLB advances and other wholesale funding alternatives;
	(4)	Attract low cost checking and transaction accounts which tend to be less interest rate sensitive; and
	(5)	Purchase short to intermediate term securities and maintain a securities portfolio that provides a stable cash flow, thereby providing investable funds in varying interest rate cycles.

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Quantitative Aspects of Market Risk. The following table presents American Bank of New Jersey's net portfolio value as of September 30, 2006. The net portfolio value was calculated by the Office of Thrift Supervision, based on information provided by the Bank.

Net Portfolio Value			Net Portfolio Value as % of Present Value of Assets			Board Established Limits
Changes in Rates(1)	$ Amount	$ Change	% Change	Net Portfolio Value Ratio	Basis Point Change	Net Portfolio Value Ratio	Basis Point Change
(Dollars in thousands)
+300 bp	64,266	-21,293	-25%	13.89%	-344bp	5.00%	-450bp
+200 bp	72,082	-13,478	-16%	15.23%	-211bp	6.00%	-300bp
+100 bp	79,173	-6,387	-7%	16.37%	-97bp	7.00%	-150bp
0 bp	85,559			17.34%		8.00%
-100 bp	90,833	5,274	+6%	18.07%	+73bp	7.00%	-150bp
-200 bp	94,180	8,620	+10%	18.46%	+112bp	6.00%	-300bp

_____________
⁽¹⁾ The -300bp scenario is not shown due to the low prevailing interest rate environment.

Future interest rates or their effect on net portfolio value or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets such as adjustable rate mortgages generally have features, which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.

Notwithstanding the discussion above, the qualitative interest rate analysis findings presented herein indicate that further increases in interest rates would continue to adversely affect our net interest margin and earnings. Management is continuing to evaluate and implement a variety of strategies to manage the earnings risks presented by the continued upward movement in interest rates and flattening of the yield curve. The most significant of these are the Company's lending diversification and growth strategies complemented by strategies focused on growing core deposits. Such deposit strategies highlight both retail branch expansion as well as enhancing business banking products and services.

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Additionally, the Company expects to continue the sale of longer-term, fixed rate conforming loan originations into the secondary market while evaluating greater use of the secondary markets for selling other conforming and non-conforming 1-4 family mortgage loan originations. For the year ended September 30, 2006, we sold a total of $5.8 million of loans to the Federal National Mortgage Association which resulted in gains on sales of mortgage loans held for sale of $15,000. Because we offer borrowers the option to lock in their interest rate prior to closing their mortgage loans, we may be exposed to market risk on the loans we sell into the secondary market. Once a loan's rate is locked, the price at which we can sell the loan will vary with movements in market interest rates. To manage that risk, we may take forward commitments to sell loans at a fixed price. At September 30, 2006, the Bank had no outstanding contracts to sell long term, fixed rate mortgage loans into the secondary market. Loans sold under contracts drawn in the future may generate additional gains or losses on sale of mortgage loans in subsequent periods.

Finally, during fiscal 2004 we recognized a $125,000 penalty to prepay $3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%. Although no such prepayments were transacted in fiscal 2005 or fiscal 2006, we may evaluate the costs and benefits of further borrowing prepayments or other balance sheet restructuring transactions, which may result in additional one-time charges to earnings to further improve the Bank's net interest spread and margin and enhance future earnings.

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of American Bancorp of New Jersey, Inc. ("the Company") is responsible for establishing and maintaining an effective system of internal control over financial reporting. The Company's system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the Company's systems of internal control over financial reporting as of September 30, 2006. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of September 30, 2006, the Company maintained effective internal control over financial reporting based on those criteria.

The Company's independent registered public accounting firm that audited the financial statements that are included in this annual report on Form 10-K, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. The attestation report of Crowe Chizek and Company LLC appears on the following page.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
American Bancorp of New Jersey, Inc.
Bloomfield, New Jersey

We have audited management's assessment, included in the accompanying Report by Management On Internal Control Over Financial Reporting, that American Bancorp of New Jersey, Inc. maintained effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). American Bancorp of New Jersey, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that American Bancorp of New Jersey, Inc. maintained effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, American Bancorp of New Jersey, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of American Bancorp of New Jersey, Inc. as of September 30, 2006 and 2005, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended September 30, 2006, and our report dated December 8, 2006 expressed an unqualified opinion on those consolidated financial statements.

	Crowe Chizek and Company LLC
Livingston, New Jersey December 8, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
American Bancorp of New Jersey, Inc.
Bloomfield, New Jersey

We have audited the accompanying consolidated statements of financial condition of American Bancorp of New Jersey, Inc. as of September 30, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2006. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of American Bancorp of New Jersey, Inc.'s internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 8, 2006 expressed an unqualified opinion thereon.

	Crowe Chizek and Company LLC
Livingston, New Jersey December 8, 2006

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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2006 and 2005
(In thousands except share data)

	2006	2005
ASSETS
Cash and cash equivalents
Cash and due from banks	$ 6,671	$ 2,622
Interest-bearing deposits	494	105,851
Federal funds sold	-	17,300
Total cash and cash equivalents	7,165	125,773

Securities available-for-sale	74,523	62,337
Securities held-to-maturity (fair value: 2006-$10,423, 2005 - $7,694)	10,547	7,824
Loans held for sale	-	280
Loans receivable, net of allowance for loan losses (2006-$2,123, 2005 - $1,658)	398,624	341,006
Premises and equipment	6,523	4,131
Federal Home Loan Bank stock, at cost	3,356	3,119
Cash surrender value of life insurance	8,747	7,512
Accrued interest receivable	1,979	1,468
Other assets	2,855	2,410
Total assets	$ 514,319	$ 555,860
LIABILITIES AND EQUITY
Deposits
Non-interest-bearing	$ 23,545	$ 25,583
Interest-bearing	303,602	315,342
Total deposits	327,147	340,925
Stock subscriptions received	-	115,201
Advance payments by borrowers for taxes and insurance	2,466	2,443
Federal Home Loan Bank advances	56,075	53,734
Accrued expenses and other liabilities	3,770	3,578
Common Stock in ESOP subject to contingent repurchase obligation	-	473
Total liabilities	389,458	516,354

Commitments and contingent liabilities

Equity
Preferred stock, $.10 par value, 10,000,000 and 5,000,000 shares authorized at September 30, 2006 and 2005;	-	-

Common stock, $.10 par value, 20,000,000 shares authorized, 14,527,953 and 5,554,500 shares issued and outstanding at September 30, 2006 and 2005	1,453	555
Additional paid in capital	111,780	16,030
Unearned ESOP shares	(8,549)	(1,064)
Retained earnings	25,438	25,417
Treasury Stock; 364,733 shares	(4,380)	-
Accumulated other comprehensive loss	(881)	(959)
Amount reclassified on ESOP shares	-	(473)
Total equity	124,861	39,506
Total liabilities and equity	$ 514,319	$ 555,860

See accompanying notes to consolidated financial statements
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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 2006, 2005, and 2004
(In thousands except share data)

	2006	2005	2004
Interest and dividend income
Loans, including fees	$ 20,291	$ 17,459	$ 15,017
Securities	3,928	2,734	3,125
Federal funds sold and other	1,125	408	62
Total interest income	25,344	20,601	18,204

Interest Expense
Now and money market	785	490	225
Savings	2,389	2,130	2,109
Certificates of deposit	6,017	4,082	2,912
Federal Home Loan Bank advances	2,611	2,844	2,859
Total interest expense	11,802	9,546	8,105
Net interest income	13,542	11,055	10,099

Provision for loan losses	465	81	207

Net interest income after provision for loan losses	13,077	10,974	9,892

Noninterest income
Deposit service fees and charges	722	690	697
Income from cash surrender value of life insurance	315	270	207
Gain on sale of loans	15	16	27
Loss on sales of securities available-for-sale	(271)	(16)	-
Gain on sale of other real estate owned	-	-	176
Other	240	236	191
Total noninterest income	1,021	1,196	1,298

Noninterest expense
Salaries and employee benefits	6,910	5,896	4,812
Occupancy and equipment	949	830	853
Data processing	669	686	704
Advertising	314	252	247
Professional and consulting	530	274	143
Legal	286	234	105
Borrowed funds prepayment penalty	-	-	125
Other	999	752	668
Total noninterest expense	10,657	8,924	7,657

Income before provision for income taxes	3,441	3,246	3,533
Provision for income taxes	1,308	1,203	1,371
Net income	$ 2,133	$ 2,043	$ 2,162
Earnings per share:
Basic	$ 0.16	$ 0.15	$ 0.16
Diluted	$ 0.16	$ 0.15	$ 0.16

See accompanying notes to consolidated financial statements
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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended September 30, 2006, 2005 and 2004
(In thousands)

	Common Stock	Additional Paid-in Capital	Unearned ESOP Shares	Unearned RSP Shares	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Amount Reclassified On ESOP Shares	Total Equity	Compre hensive Income (Loss)
Balance at September 30, 2003	$ -	$ 100	$ -	$ -	$ 22,644	$ (405)	$ -	$ 22,339
Issuance of common stock, net of issuance costs	555	15,506	(1,333)	-	-	-	-	14,728
ESOP shares earned	-	81	133	-	-	-	-	214
Reclassification of common stock in ESOP to contingent repurchase obligation	-	-	-	-	-	-	(52)	(52)
Comprehensive income
Net income	-	-	-	-	2,162	-	-	2,162	$ 2,162
Change in unrealized gain (loss) on securities available-for-sale, net of taxes	-	-	-	-	-	(77)	-	(77)	(77)
Total comprehensive income									$ 2,085
Balance at September 30, 2004	$ 555	$ 15,687	$ (1,200)	$ -	$ 24,806	$ (482)	$ (52)	$ 39,314

(Continued)
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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended September 30, 2006, 2005 and 2004
(In thousands)

	Common Stock	Additional Paid-in Capital	Unearned ESOP Shares	Unearned RSP Shares	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Amount Reclassified On ESOP Shares	Total Equity	Compre hensive Income (Loss)
Balance at September 30, 2004	$ 555	$ 15,687	$ (1,200)	$ -	$ 24,806	$ (482)	$ (52)	$ 39,314

RSP stock grants	-	1,419	-	(1,419)	-	-	-	-

RSP shares earned	-		-	207	-	-	-	207

ESOP shares earned	-	136	136	-	-	-	-	272
Cash dividends paid - $0.93 per share	-	-	-	-	(1,432)	-	-	(1,432)
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation	-	-	-	-	-	-	(421)	(421)

Comprehensive income
Net income	-	-	-	-	2,043	-	-	2,043	$ 2,043
Change in unrealized gain (loss) on securities available-for-sale, net of taxes	-	-	-	-	-	(477)	-	(477)	(477)
Total comprehensive income									$ 1,566
Balance at September 30, 2005	$ 555	$ 17,242	$ (1,064)	$ (1,212)	$ 25,417	$ (959)	$ (473)	$ 39,506

(Continued)
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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended September 30, 2006, 2005 and 2004
(In thousands)

	Common Stock	Additional Paid-in Capital	Unearned ESOP Shares	Unearned RSP Shares	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Amount Reclassified On ESOP Shares	Total Equity	Compre hensive Income (Loss)
Balance at September 30, 2005	$ 555	$17,242	$ (1,064)	$ (1,212)	$ 25,417	$ (959)	$ -	$ (473)	$ 39,506
Transfer of Unearned RSP to APIC due to adoption of FAS 123R	-	(1,212)	-	1,212	-	-	-	-
Issuance and exchange of common stock, net of issuance costs (9,918,750 shares issued)	862	96,661	(7,935)	-	-	-	-	-	89,588
MHC capital infusion from merger	-	99	-	-	-	-	-	-	99
RSP stock grants (358,484 shares issued)	36	(36)	-	-	-	-	-
Share purchases (566,779 shares)	-	(2,254)	-	-	-	-	(4,282)	-	(6,536)
RSP shares earned including tax benefit of vested awards	-	668	-	-	-	-	-	-	668
RSP shares transfer from APIC	-	98	-	-	-	-	(98)	-	-

Stock options earned	-	384	-	-	-	-	-	-	384
ESOP shares earned	-	130	450	-	-	-	-	-	580
Cash dividends paid - $0.16 per share	-	-	-	-	(2,112)	-	-	-	(2,112)
Reclassification due to elimination of repurchase obligation	-	-	-	-	-	-	-	473	473

Comprehensive income
Net income	-	-	-	-	2,133	-	-	-	2,133	$ 2,133
Change in unrealized gain (loss) on securities available-for-sale, net of taxes	-	-	-	-	-	78	-	-	78	78
Total comprehensive income										$ 2,211
Balance at September 30, 2006	$ 1,453	$ 111,780	$ (8,549)	$ -	$ 25,438	$ (881)	$ (4,380)	$ -	$ 124,861

See accompanying notes to consolidated financial statements
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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 2006, 2005, and 2004
(In thousands)

	2006	2005	2004
Cash flows from operating activities	$ 2,133	$ 2,043	$ 2,162
Net Income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	342	353	417
Net amortization of premiums and discounts	(89)	126	292
Losses on sales of securities available-for-sale	271	16	-
ESOP compensation expense	580	272	214
RSP compensation expense	668	207	-
SOP compensation expense	384	-	-
Provision for loan losses	465	81	207
Increase in cash surrender value of life insurance	(315)	(270)	(207)
Gain on sale of other real estate owned	-	-	(176)
Gain on sale of loans	(15)	(16)	(27)
Proceeds from sales of loans	5,820	2,431	4,774
Origination of loans held for sale	(5,525)	(2,695)	(4,247)
Decrease (increase) in accrued interest receivable	(511)	(109)	(104)
Decrease (increase) in other assets	16	(732)	591
Change in deferred income taxes	(520)	(174)	(34)
Increase (decrease) in other liabilities	192	529	364
Net cash provided by operating activities	3,896	2,062	4,226
Cash flows from investing activities
Net increase in loans receivable	(58,083)	(32,117)	(46,542)
Purchases of securities held-to-maturity	(4,935)	(6,227)	(922)
Principal paydowns on securities held-to-maturity	2,184	1,183	954
Purchases of securities available-for-sale	(52,606)	-	(21,459)
Sales of securities available-for-sale	9,750	1,984	-
Maturities of securities available-for-sale	11,000	-	-
Calls of securities available-for-sale	-	2,000	13,560
Principal paydowns on securities available-for-sale	19,654	22,315	25,387
Purchase of Federal Home Loan Bank stock	(2,836)	(2,734)	(2,222)
Redemption of Federal Home Loan Bank stock	2,599	2,505	2,482
Purchase of bank-owned life insurance	(920)	(1,000)	(1,007)
Purchase of premises and equipment	(2,734)	(574)	(388)
Proceeds from sale of other real estate owned	-	-	385
Net cash used in investing activities	(76,927)	(12,665)	(29,772)
Cash flows from financing activities
Net increase in deposits	(13,778)	18,209	29,890
Stock subscriptions held for parent received (refunded or applied)	(115,201)	115,201	(52,137)
Net change in advance payments by borrowers for taxes and insurance	22	121	243
Repayment of Federal Home Loan Bank of New York advances	(8,059)	(16,057)	(7,009)
Federal Home Loan Bank of New York advances	-	15,000	6,800
Net change in Federal Home Loan Bank of New York overnight lines of credit	10,400	(2,700)	2,700
Cash dividends paid	(2,112)	(1,432)	-
MHC Capital infusion	99	-	-
RSP and treasury share purchases	(6,536)	-	-
Net proceeds from stock issuance	89,588	-	14,728
Net cash provided by (used in) financing activities	(45,577)	128,342	(4,785)
Net change in cash and cash equivalents	(118,608)	117,739	(30,331)
Cash and cash equivalents at beginning of year	125,773	8,034	38,365
Cash and cash equivalents at end of year	$ 7,165	$ 125,773	$ 8,034

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 2006, 2005, and 2004
(In thousands)

	2006	2005	2004
Supplemental cash flow information:
Cash paid during the period for
Interest	$ 11,814	$ 9,544	$ 8,101
Income taxes, net of refunds	1,797	1,675	1,166
Supplemental disclosures of noncash investing transactions:
Conversion of loans to other real estate owned	$ -	$ -	$ 209

See accompanying notes to consolidated financial statements.

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: American Bancorp of New Jersey, Inc. ("ABNJ") is a New Jersey chartered corporation organized in May, 2005 that was formed for the purpose of acquiring all of the capital stock of American Bank of New Jersey, which was previously owned by ASB Holding Company ("ASBH") and American Savings, MHC, a federally chartered mutual holding company. American Bank of New Jersey originally converted from a mutual to a stock savings bank in a mutual holding company reorganization in 1999 in which no stock was sold to any person other than American Savings, MHC.

On October 3, 2003, ASB Holding Company, the predecessor of American Bancorp of New Jersey, Inc., completed a minority stock offering and sold 1,666,350 shares of common stock in a subscription offering at $10 per share and received proceeds of $16,060,000 net of offering costs of $603,000. ASBH contributed $9,616,000 or approximately 60% of the net proceeds to the Bank in the form of a capital contribution. ASBH loaned $1,333,080 to the Bank's employee stock ownership plan and the ESOP used those funds to acquire 133,308 shares of common stock at $10 per share.

After the sale of the stock, the MHC held 70%, or 3,888,150 shares, of the outstanding stock of ASBH with the remaining 30% or, 1,666,350 shares, held by persons other than the MHC. ASBH held 100% of the Bank's outstanding common stock.

On October 5, 2005, the Company completed a second step conversion at which time ASB Holding Company ceased to exist and American Bancorp of New Jersey, Inc. became the new holding company for the Bank. See Note 2 for further discussion.

The consolidated financial statements include American Bancorp of New Jersey, Inc. and its wholly owned subsidiaries, American Bank of New Jersey ("the Bank") and ASB Investment Corp ("the Investment Corp"), and the Bank's wholly owned subsidiary American Savings Investment Corp ("ASIC"), together referred to as "the Company." Intercompany transactions and balances are eliminated in consolidation.

The only business of the Company is the ownership of the Bank and the Investment Corp. The Bank provides a full range of banking services to individual and corporate customers in New Jersey. ASIC was formed for the purpose of investing in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the State of New Jersey at an effective tax rate lower than the statutory state income tax rate. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Investment Corp was organized for the purpose of selling insurance and investment products, including annuities, to customers of the Bank and the general public, with initial activities limited to the sale of fixed rate annuities.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The accounting and reporting policies of the Company are based upon accounting principles generally accepted in the United States of America and conform to predominant practices within the banking industry. Significant accounting polices followed by the Company are presented below.

Use of Estimates: In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans, prepayment speed assumptions related to mortgage-backed securities and collateralized mortgage obligations, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.

A substantial portion of the Bank's loans are secured by real estate in the New Jersey market. Accordingly, as with most financial institutions in the market area, the ultimate collectibility of a substantial portion of the Bank's loan portfolio is susceptible to changes in market conditions.

Cash and Cash Equivalents: For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and in banks; interest-bearing deposits; and federal funds sold, which are generally sold for one-day periods. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions, and federal funds purchased.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities, including mutual funds, with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Other securities such as Federal Home Loan Bank stock are carried at cost.

Interest income includes amortization of purchase premium or discount. Premiums and discounts are amortized using the level yield method. Gains and losses on sales are based on the amortized cost of the security sold.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company's ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Mortgages on real estate and other loans are stated at the outstanding principal amount of the loans, net of deferred loan fees and the allowance for loan losses. Interest income on loans is accrued and credited to interest income as earned. Loans are generally placed on nonaccrual status when they become delinquent 90 days or more as to principal or interest or when it appears that principal or interest is uncollectible. Interest accrued prior to a loan being placed on nonaccrual status is subsequently reversed. Interest income on nonaccrual loans is recognized only in the period in which it is ultimately collected. Loans are returned to an accrual status when factors indicating doubtful collectibility no longer exist.

The Bank defines the population of potentially impaired loans to be all nonaccrual commercial real estate and business loans. Commercial real estate loans are defined herein as multifamily and nonresidential real estate loans and construction loans. Potentially impaired loans are individually assessed to determine if the loan's carrying value exceeds the fair value of the collateral or the present value of the loan's expected future cash flows. If full repayment of the loan is not expected, the loan is identified as impaired. Smaller balance homogeneous loans that may be collectively evaluated for impairment such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio.

Loans Held-For-Sale: Loans held-for-sale are carried at the lower of cost or market, using the aggregate method. Gains and losses on sales of mortgage loans are recognized at the time of sale.

Allowance For Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, peer group information, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. If a loan is identified as impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flow using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan balance is confirmed.

Loan Fees: Loan fees and certain direct loan origination costs for originating mortgage loans are deferred and the net fee or cost is recognized into interest income using the interest method over the actual lives of the loans.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Real Estate Owned: When properties are acquired through foreclosure, they are transferred at the lower of the carrying value or estimated fair value of the collateral and any required write-downs are charged to the allowance for loan losses. Subsequently, such properties are carried at the lower of the adjusted cost or fair value less estimated selling costs. Estimated fair value of the property is generally based on an appraisal. The Bank maintains an allowance for real estate owned losses for subsequent declines in estimated fair value. Expenses of holding foreclosed properties, net of other income, are charged to operations as incurred. Gains and losses from sales of such properties are recognized at the time of sale.

Premises and Equipment: Land is carried at cost. Office properties and equipment are carried at cost, less accumulated depreciation. Office buildings and improvements are depreciated using the straight-line method with useful lives ranging from 20 to 40 years. Furniture, fixtures, and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 10 years.

Mortgage Servicing Rights: Servicing assets represent the allocated value of retained servicing rights on loans sold. Servicing assets are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the assets, using groupings of the underlying loans as to interest rates and then, secondarily, as to prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance. Mortgage servicing rights totaled $99,484 and $77,667 at September 30, 2006 and 2005 and are included with other assets on the balance sheet.

Income Taxes: The provision for income taxes is the total of the current year income tax due or refundable and the change in the deferred tax assets and liabilities. Deferred tax assets and liabilities are the estimated future tax consequences attributable to differences between the financial statements' carrying amounts of existing assets and liabilities and their respective tax bases, computed using enacted tax rates. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest. Participants may put their ESOP shares back to the Company upon termination, and an amount of equity equal to these shares times current market price is reclassified out of shareholders' equity at September 30, 2005. On October 6, 2005, the Company began trading on Nasdaq which is considered an established market under ERISA regulations and as a result the Company no longer is required to record this liability.

Stock-Based Compensation: For the year ended September 30, 2005, employee compensation expense under stock options was reported using the intrinsic value method. No stock-based compensation cost was reflected in net income, as all options granted had an exercise price equal to the market price of the underlying common stock at date of grant.

The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation for the year ended September 30, 2005. Actual and pro forma earnings per share reported for 2005 have been adjusted to reflect the exchange of shares resulting from the Company's second step conversion.

	September 30, 2005
Net income as reported	$2,043
Deduct: Stock-based compensation expense determined under fair value based method, net of taxes	223
Pro forma net income	$1,820

Basic earnings per share as reported	$0.15
Pro forma basic earnings per share	$0.13
Diluted earnings per share as reported	$0.15
Pro forma diluted earnings per share	$0.13

For the year ended September 30, 2006, compensation expense regarding stock options was recorded using the fair value recognition provisions of FASB Statement No. 123R, Accounting for Stock-Based Compensation (see Note 12 Other Stock-Based Compensation).

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

For accounting purposes, the Bank is recognizing compensation expense for shares of common stock awarded under the 2005 and 2006 Restricted Stock Plans. Expense is recognized over the vesting period of five years from the date of award at the fair market value of the shares on the date they were awarded.

Earnings Per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and restricted stock awards. Weighted average shares for 2005 and 2004 have been adjusted to reflect the exchange of shares resulting from our second step conversion.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, which are also recognized as separate components of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

Recent Accounting Developments: FAS 123, Revised, requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. FAS 123R is applied to awards granted or modified after the first year beginning after June 15, 2005 and also requires the recording of compensation cost for prior option grants that vest after the date of adoption. The impact of the Company's adoption of FAS 123R in fiscal 2006 is presented in Note 12 Other Stock-Based Compensation. Notwithstanding the additional expense disclosed in the footnote, there has been no significant effect on our financial position relating to the expensing of stock options as total equity does not change as a result thereof.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 2 - SECOND STEP CONVERSION

On October 5, 2005, the Company completed a second step conversion in which the 3,888,150 shares of ASB Holding Company held by American Savings, MHC were converted and sold in a subscription offering. Through this transaction, ASB Holding company ceased to exist and was supplanted by American Bancorp of New Jersey as the holding company for the Bank. A total of 9,918,750 shares of common stock were sold in the offering at $10 per share through which the Company received proceeds of $97,524,302 net of offering costs of $1,663,198. The Company contributed $48,762,151 or approximately 50% of the net proceeds to the Bank in the form of a capital contribution. The Company loaned $7,935,000 to the Bank's employee stock ownership plan and the ESOP used those funds to acquire 793,500 shares of common stock at $10 per share.

As part of the conversion, the 1,666,350 outstanding shares of ASB Holding Company were each exchanged for 2.55102 shares of American Bancorp of New Jersey, the new holding Company of American Bank of New Jersey. This exchange resulted in an additional 4,250,719 of outstanding shares of American Bancorp of New Jersey, Inc. for a total of 14,169,469 outstanding shares.

The Company had stock subscriptions received totaling $115,201,806 at September 30, 2005 pending completion of the conversion and stock offering. At the time of closing on October 5, 2005, approximately $91,252,500, less offering expenses, became capital of the Company with the remainder returned on oversubscriptions. The following table summarizes the pro forma impact of the conversion and stock offering results on the Company's September 30, 2005 balance sheet.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

Actual and Pro Forma Summary Consolidated Statement of Financial Condition
September 30, 2005


	Actual	Pro Forma
Cash and cash equivalents⁽¹⁾	$ 125,773	$ 92,166
Securities available-for-sale	62,337	62,337
Securities held-to-maturity	7,824	7,824
Loans held for sale	280	280
Loans receivable, net of allowance for loan losses	341,006	341,006
Premises and equipment	4,131	4,131
Federal Home Loan Bank stock, at cost	3,119	3,119
Cash surrender value of life insurance	7,512	7,512
Accrued interest receivable	1,468	1,468
Other assets	2,410	1,797
Total assets	$ 555,860	$ 521,640
LIABILITIES AND EQUITY
Deposits⁽²⁾	$ 340,925	$ 331,167
Stock subscriptions received⁽³⁾	115,201	-
Advance payments by borrowers for taxes and insurance	2,443	2,443
Federal Home Loan Bank advances	53,734	53,734
Accrued expenses and other liabilities	3,578	4,629
Common stock in ESOP subject to contingent repurchase obligation⁽⁶⁾	473	-
Total liabilities	516,354	391,973
Equity
Common stock and additional paid in capital⁽⁴⁾	17,797	115,420
Unearned ESOP shares⁽⁵⁾	(1,064)	(8,999)
Unearned RSP shares	(1,212)	(1,212)
Retained earnings	25,417	25,417
Accumulated other comprehensive loss	(959)	(959)
Amount reclassified on ESOP shares⁽⁶⁾	(473)	-
Total equity	39,506	129,667
Total liabilities and equity	$ 555,860	$ 521,640

⁽¹⁾	Pro forma balance reflects reduction of cash for funding the return of approximately $33.7 million in oversubscriptions.
⁽²⁾	Pro forma balance reflects approximately $9.8 million of deposit balances withdrawn to purchase shares in the stock offering.
⁽³⁾	Pro forma balance reflects refund of $33.7 million of oversubscriptions plus the utilization of $81.5 million of subscriptions to purchase shares in the stock offering.
⁽⁴⁾	Pro forma balance reflects additional capital from deposits, subscriptions and ESOP purchases of $9.8 million, $81.5 million and $7.9 million, respectively. An additional $99,000 of capital was received through the merger of American Savings, MHC into the Bank. These additions to capital were offset by stock offering expenses of approximately $1.6 million.
⁽⁵⁾	Pro forma balance reflects of the addition of $7.9 million of unearned shares purchased by the ESOP during the stock offering.
⁽⁶⁾	Pro forma balance reflects the elimination of ESOP contingent repurchase obligation of $473,000.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES

The fair value of securities available-for-sale was as follows:

	Fair Value	Gross Unrealized Gains	Gross Unrealized Losses
2006
U.S. Government and federal agency	$ 10,917	$ -	$ (72)
Mortgage-backed
FHLMC	12,882	16	(64)
FNMA	18,223	18	(583)
GNMA	108	-	-
Collateralized mortgage obligations
Agency	32,393	1	(712)
	$ 74,523	$ 35	$ (1,431)
2005
U.S. Government and federal agency	$ 9,805	$ -	$ (193)
Mortgage-backed
FHLMC	4,090	1	(25)
FNMA	12,782	9	(498)
GNMA	148	1	-
Collateralized mortgage obligations
Agency	25,763	2	(580)
Mutual fund	9,749	-	(251)
	$ 62,337	$ 13	$ (1,547)

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES (Continued)

The amortized cost and fair value of securities held-to-maturity were as follows:

	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
2006
U.S. Government and federal agency	$ 2,000	$ -	$ (24)	$ 1,976
Mortgage-backed
FHLMC	286	1	(1)	286
FNMA	5,866	2	(49)	5,819
GNMA	200	2	-	202
Collateralized mortgage obligations
Agency	58	1	-	59
Non-agency	2,137	-	(56)	2,081
	$ 10,547	$ 6	$ (130)	$ 10,423
2005
U.S. Government and federal agency	$ 2,000	$ -	$ (38)	$ 1,962
Mortgage-backed
FHLMC	385	1	(1)	385
FNMA	2,616	6	(31)	2,591
GNMA	244	2	-	246
Collateralized mortgage obligations
Agency	76	1	-	77
Non-agency	2,503	-	(70)	2,433
	$ 7,824	$ 10	$ (140)	$ 7,694

Proceeds from sales of securities amounted to $9,750,233 and $1,983,620 during the years ended September 30, 2006 and 2005 resulting in gross gains of $0 both years and gross losses of $271,084 and $16,380. There were no securities sold during the year ended September 30, 2004.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES (Continued)

The fair value of debt securities and carrying amount, if different, at September 30, 2006 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

			Available
	Held-to-Maturity		for Sale
	Carrying	Fair	Fair
	Amount	Value	Value

Due from one to five years	$ 2,000	$ 1,976	$ 10,917
Mortgage-backed	8,547	8,447	63,606
Total	$ 10,547	$ 10,423	$ 74,523

Securities with carrying values of $12,513,151 and $11,805,048 at September 30, 2006 and 2005, respectively, were pledged to secure public deposits and advances as required or permitted by law.

Available-for-sale securities with unrealized losses at September 30, 2006 not recognized in income are presented below by length of time the securities have been in an unrealized loss position:

	Less than 12 Months		12 Months or More		Total
Description of Securities	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss

U.S. Government and federal agency	$ 5,985	$ (4)	$ 4,932	$ (68)	$ 10,917	$ (72)
Mortgage backed	21,953	(68)	9,260	(579)	31,213	(647)
Collateralized mortgage obligations	15,593	(111)	16,800	(601)	32,393	(712)
Total temporarily impaired	$ 43,531	$ (183)	$ 30,992	$ (1,248)	$ 74,523	$ (1,431)

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES (Continued)

Available-for-sale securities with unrealized losses at September 30, 2005 not recognized in income are presented below by length of time the securities have been in an unrealized loss position:

	Less than 12 Months		12 Months or More		Total
Description of Securities	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss

U.S. Government and federal agency	$ -	$ -	$ 9,805	$ (193)	$ 9,805	$ (193)
Mortgage backed	3,456	(70)	9,777	(453)	13,233	(523)
Collateralized mortgage obligations	6,651	(89)	18,880	(491)	25,531	(580)
Mutual fund	-	-	9,749	(251)	9,749	(251)
Total temporarily impaired	$ 10,107	$ (159)	$ 48,211	$ (1,388)	$ 58,318	$ (1,547)

Held-to-maturity securities with unrealized losses at September 30, 2006 not recognized in income are as follows:

	Less than 12 Months		12 Months or More		Total
Description of Securities	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss

U.S. Government and federal agency	$ -	$ -	$ 1,976	$ (24)	$ 1,976	$ (24)
Mortgage-backed	4,670	(7)	1,637	(43)	6,307	(50)
Collateralized mortgage obligations	59	-	2,081	(56)	2,140	(56)
Total temporarily impaired	$ 4,729	$ (7)	$ 5,694	$ (123)	$ 10,423	$ (130)

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES (Continued)

Held-to-maturity securities with unrealized losses at September 30, 2005 not recognized in income are as follows:

	Less than 12 Months		12 Months or More		Total
Description of Securities	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss	Fair Value	Unrealized Loss

U.S. Government and federal agency	$ 1,962	$ (38)	$ -	$ -	$ 1,962	$ (38)
Mortgage-backed	1,538	(23)	382	(9)	1,920	(32)
Collateralized mortgage obligations	2,434	(70)	-	-	2,434	(70)
Total temporarily impaired	$ 5,934	$ (131)	$ 382	$ (9)	$ 6,316	$ (140)

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition.

At September 30, 2006, securities with unrealized losses had depreciated 1.8% from the Company's amortized cost basis. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. The Company concluded that the financial strength of the issuers of its securities - primarily U.S. agencies - did not contribute to any impairment of value. Rather, these unrealized losses related principally to changes in market interest rates. The Company then evaluated the expected timeframe and conditions within which a recovery of such impairments could be reasonably forecasted. For example, the Company's debenture, mortgage backed security and collateralized mortgage obligation portfolios are expected to reprice, amortize, prepay or mature within a timeframe that is supported by the Company's ability and intent to hold such securities. Forecasted repricing of the Company's adjustable rate investments to market levels is one means by which an impairment resulting from a security's "below market" yields can be recovered. Another means of impairment recovery is through the timely return of principal invested. Given the relatively short duration of these investment securities, the Company can reasonably forecast a timely and full return of the principal invested thereby recovering the impairment that had resulted from movements in market interest rates.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 3 - SECURITIES (Continued)

Based on that evaluation and the Company's ability and intent to hold those securities for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider those securities to be other-than-temporarily impaired at September 30, 2006.

NOTE 4 - LOANS

Loans at period-end were as follows:

	2006	2005
Mortgage loans:
One-to-four-family	$ 283,469	$ 267,052
Multi-family and nonresidential	73,496	58,615
Construction	33,155	1,450
Land	534	-
Consumer	720	702
Home equity	19,122	13,413
Business	6,068	746
Total loans	416,564	341,978
Allowance for loan losses	(2,123)	(1,658)
Net deferred loan costs	1,100	1,036
Loans in process	(16,917)	(350)

Loans, net	$ 398,624	$ 341,006

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 4 - LOANS (Continued)

Certain directors and officers of the Bank and companies with which they are affiliated have obtained loans from the Bank on various occasions. A summary of such loans made by the Bank is as follows:

	2006	2005
Beginning balance	$ 922	$ 1,007
New loans	103	1
Effect of changes in related parties	726	-
Repayments	(134)	(86)
Ending balance	$ 1,617	$ 922

Mortgage loans serviced for others are not included in the accompanying financial statements. At September 30, 2006 and 2005, the unpaid principal balances of these loans totaled $20,481,818 and $15,898,971, respectively.

Activity in the allowance for loan losses was as follows:

	2006	2005	2004
Balance at beginning of year	$ 1,658	$ 1,578	$ 1,371
Provision charged to income	465	81	207
Charge-offs	-	-	-
Recoveries	-	-	-
Balance at end of year	$ 2,123	$ 1,658	$ 1,578

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 4 - LOANS (Continued)

Impaired loans were as follows:

	2006	2005	2004
Period-end loans with no allocated allowance for loan losses	$ -	$ -	$ -
Period-end loans with allocated allowance for loan losses	172	174	259
Total	$ 172	$ 174	$ 259

	2006	2005	2004
Amount of the allowance for loan losses allocated	$ 86	$ 87	$ 129
Average of impaired loans during the period	173	225	398
Interest income recognized during impairment	10	10	19
Cash-basis interest income recognized	10	10	19

Nonperforming loans were as follows:

	2006	2005	2004
Loans past due over 90 days still on accrual	$ -	$ -	$ -
Nonaccrual loans	2,089	1,163	519

Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 5 - ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:

	2006	2005
Securities	$ 406	$ 249
Loans receivable	1,573	1,219

Total	$ 1,979	$ 1,468

NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	2006	2005
Land	$ 840	$ 840
Office buildings and improvements	3,448	3,295
Furniture and equipment	3,743	3,611
Future branch site costs	3,032	584
	11,063	8,330
Less accumulated depreciation	4,540	4,199

Total	$ 6,523	$ 4,131

An agreement dated December 17, 2004 was signed to purchase real estate for the acquisition of a future branch site in Passaic County. Total purchase price is $1,475,000. The September 30, 2006 amounts above include $251,687 incurred for a deposit on the contract of sale and professional fees in connection with the acquisition. The balance of $1,327,500 is due in cash at closing and will be recorded upon closing.

The agreement noted above is contingent on certain items as detailed in the contract including but not limited to (i) Title to be conveyed shall be marketable and insurable; (ii) Municipal and county approvals shall be obtained by the buyer and the closing will be extended to the extent such approvals are delayed by no fault of the buyer; and (iii) To the extent environmental inspections result in a clean up or other action by governmental authorities the seller will have completed all environmental requests made by the buyer including removal of underground tanks at its own cost and expense and complete any and all site investigation and remediation activities.

Future branch site costs also includes $2,757,509 of construction in progress related to our Verona branch that was opened in November, 2006.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 7 - DEPOSITS

Deposit accounts are summarized as follows:

	2006	2005
Demand deposits	$ 23,545	$ 25,583
NOW and money market accounts	31,429	39,264
Savings accounts	107,008	123,270
Certificates of deposit	165,165	152,808

Total deposits	$ 327,147	$ 340,925

Certificates of deposit accounts with balances over $100,000 totaled $59,392,422 and $47,856,093 at September 30, 2006 and 2005, respectively. All other deposit accounts with balances over $100,000 totaled $86,490,684 and $97,558,011 at September 30, 2006 and 2005, respectively. Generally, deposit balances over $100,000 are not federally insured.

Scheduled maturities of certificates of deposit were as follows:

2007	$ 135,329
2008	12,067
2009	4,963
2010	1,108
2011 and thereafter	11,698
	$ 165,165

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 8 - FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES

The Bank has $45.7 million of fixed rate advances with the Federal Home Loan Bank with maturities through 2013 and fixed rate rates ranging from 3.07% to 6.18% at September 30, 2006. None of the advances are callable prior to maturity. One advance for $1.7 million with a coupon of 4.57% has a five-year final maturity in June 2009, with a twenty-year amortization schedule. The remaining $44.0 million of Federal Home Loan Bank advances are non-amortizing term advances. The Bank also has an overnight line of credit with the ability to borrow $47.8 million of which $10.4 million was drawn at September 30, 2006. For the years ended September 30, 2006 and 2005, the scheduled repayments and maturities of FHLB advances by fiscal year are as follows:

	September 30, 2006		September 30, 2005
	Balance	Weighted Average Rate	Balance	Weighted Average Rate

Maturing in 2006	$ -	- %	$ 8,060	3.51%
Maturing in 2007	8,063	4.39	8,062	4.39
Maturing in 2008	12,065	5.51	12,065	5.51
Maturing in 2009	7,547	4.88	7,547	4.88
Maturing in 2010	6,000	5.15	6,000	5.15
Maturing in 2011	6,000	5.18	6,000	5.18
Maturing in 2012	5,000	5.22	5,000	5.22
Maturing in 2013	1,000	4.79	1,000	4.79
Overnight line of credit	10,400	5.57	-	-
	$56,075	5.16%	$53,734	4.84%

At September 30, 2006, advances are secured primarily by mortgage loans totaling $94,977,950, and all stock in the Federal Home Loan Bank totaling $3,355,900 under a blanket collateral agreement for the amount of the notes outstanding. Additionally, specific investment securities with a carrying value totaling $10,540,291 also secure such advances. At September 30, 2006, the Bank's borrowing limit with the Federal Home Loan Bank was approximately $122.3 million.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 9 - INCOME TAXES

An analysis of the provision for income taxes is as follows:

	2006	2005	2004
Current
Federal	$ 1,507	$ 1,196	$ 1,078
State and local	321	264	327
	1,828	1,460	1,405
Deferred
Federal	(404)	(193)	(16)
State and local	(96)	(84)	(18)
	(500)	(277)	(34)
Change in valuation allowance	(20)	20	-

	$ 1,308	$ 1,203	$ 1,371

A reconciliation of income tax expense at the statutory federal income tax rate and the actual income tax expense was as follows:

	2006	2005	2004
Federal income tax expense at statutory rate	$ 1,170	$ 1,104	$ 1,201
Increase in taxes resulting from
State income taxes, net of federal benefit	135	132	204
Tax-exempt income from life insurance	(107)	(92)	(70)
Nondeductible ESOP expense	44	46	28
Nondeductible stock options expense	49	-	-
Other, net	17	13	8

Income tax expense	$ 1,308	$ 1,203	$ 1,371

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 9 - INCOME TAXES (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	2006	2005
Deferred tax assets
Unrealized loss on securities available-for-sale	$ 515	$ 575
Provision for loan losses	848	662
Deferred loan origination fees	-	3
Capital losses on security sales	114	-
Accrued expenses and other liabilities	1,346	1,027
Total gross deferred tax assets	2,823	2,267

Deferred tax liabilities
Depreciation	(198)	(203)
Deferred loan origination costs	(815)	(703)
Other	(207)	(198)
Total gross deferred tax liabilities	(1,220)	(1,104)
Valuation allowance	-	(20)

Net deferred tax asset	$ 1,603	$ 1,143

The valuation allowance reported in 2005 consisted of the tax effect of state net operating losses of the stand-alone holding company which were not utilized upon the dissolution of the company upon completion of the second step conversion.

Retained earnings includes allocations for federal income tax purposes representing tax bad debt deductions of approximately $4,034,000 through September 30, 2006 on which no tax has been paid and no deferred federal income taxes have been provided. The related amount of deferred tax liability is approximately $1,611,000. Reductions of amounts so allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 10 - BENEFIT PLANS

The Bank has a directors' retirement plan that provides retirement benefits to all members of the Board of Directors vested under the plan in accordance with the plan document. During the years ended September 30, 2006, 2005, and 2004 the Bank accrued expenses related to the plan totaling $64,165, $476,860 and $55,179, respectively. Accrued expenses in 2005 included $444,000 related to an amendment to the plan by which retirement benefits would be calculated based upon the sum of the annual retainer and regular meeting fees paid by the Company as well as the Bank. Previously, such retirement plan benefits were based upon the annual retainer paid by the Bank only.

The Bank has a 401(k) profit sharing plan covering substantially all employees. Contributions to the plan in fiscal 2006 were limited to participant salary deferrals along with a matching contribution provided by the Bank. Related expenses in fiscal 2005 and fiscal 2004 also included the cost of annual plan contributions made at the discretion of the Board of Directors and charged to expense annually. For the year ended September 30, 2006, 401(k) matching contribution expense totaled $74,220. Offsetting that cost in fiscal 2006 was the reversal of $131,250 of profit sharing expense that had been accrued in fiscal 2005 for which no discretionary contribution to the plan was made in 2006. Total expenses related to the plan, including employer match and accrued profit sharing contributions, were $247,906 and $248,163 for the years ended September 30, 2005 and 2004.

The Bank implemented a supplemental executive retirement plan that provides benefits to certain key officers in accordance with the plan document. During the years ended September 30, 2006, 2005 and 2004, Bank expenses related to the plan totaled $226,371, $235,611 and $204,632. The Bank also purchased bank-owned life insurance on the individuals covered by the supplemental executive retirement plan. The cash surrender value of the Company's bank-owned life insurance policies at September 30, 2006 was $8.7 million of which approximately $5.6 million relate to policies originally purchased to offset the costs of the Bank's supplemental executive retirement plans.

The Bank has entered into employment agreements with its Chief Executive Officer (CEO), President & Chief Operating Officer (COO), Executive Vice President (EVP), and two Senior Vice Presidents (SVPs). The CEO's and President & COO's employment agreements have a term of three years while the EVP's and SVPs' agreements have a term of two years. Each of the agreements provides for an annual one-year extension of the term of the agreement upon determination of the Board of Directors that the executive's performance has met the requirements and standards of the Board, so that the remaining term of the agreement continues to be three years, in the case of the CEO and President & COO, and two years, in the case of the EVP and SVPs. If the Bank terminates the officer without "just cause" as defined in the agreement, they will be entitled to a continuation of their salary from the date of termination

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 10 - BENEFIT PLANS (Continued)

through the remaining term of their agreement at a minimum. The agreements also provide for various payouts if the officer is terminated without just cause following a change in control.

The Company has also entered into an employment agreement with the Chief Executive Officer with terms of which are substantially the same as the employment agreement with the Bank. However, it provides that if employment is terminated without just cause as defined in the agreement, he will be entitled to a continuation of his salary for three years from the date of termination.

NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN

As part of the minority stock offering, the Bank established an employee stock ownership plan ("ESOP") for the benefit of substantially all employees. The ESOP borrowed $1,333,080 from ASBH and used those funds to acquire 133,308 shares of ASBH stock at $10 per share. As part of the second step conversion, the ESOP borrowed $7,935,000 from the Company to acquire an additional 793,500 shares of the Company's stock at $10 per share. At the time of the closing of the second step conversion, the unpaid balance of the first ESOP borrowing of approximately $1,064,000 was combined with the balance of the second ESOP borrowing resulting in a total ESOP borrowing obligation of approximately $8,999,000 to the Company. Additionally, each of the 133,308 ASBH shares held by the ESOP from the minority offering were exchanged for 2.55102 shares of the Company.

Shares issued to the ESOP are allocated to ESOP participants based on principal and interest repayments made by the ESOP on the loan from the Company. The loan is secured by shares purchased with the loan proceeds and is being repaid by the ESOP with funds from the Bank's discretionary contributions to the ESOP and earnings on the ESOP's assets. Principal and interest payments are scheduled to occur over a twenty-year period.

At September 30, 2006, the ESOP held 1,132,046 shares of the Company's common stock and 80,408 of these shares had been allocated to the accounts maintained for participants. The reported number of total shares and allocated shares held by the ESOP each reflect the cumulative distribution of 1,525 allocated shares to participants in accordance with the plan. The original number of ESOP plan shares totaled 1,133,571 of which 81,933 have been allocated through September 30, 2006. Participants become eligible to receive payment of the vested benefits under the plan upon retirement, disability or termination of employment. Prior to the completion of the second step conversion, participants who elected to receive their benefit payments in the form of ASB Holding Company common stock could require ASBH to purchase the common stock distributed at fair value during two 60-day periods. The first purchase period began on the date the benefit was paid and the second purchase period began

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)

on the first anniversary of the payment date. At September 30, 2005, this contingent repurchase obligation was reflected in the Company's financial statements as "Common stock in ESOP subject to contingent repurchase obligation" and reduced stockholder's equity by an amount that represents the fair value of all the shares of Company common stock held by the ESOP, without regard to whether it was likely that the shares would be distributed or that the recipients of the shares would be likely to exercise their right to require the Company to purchase the shares. At September 30, 2005, this contingent repurchase obligation reduced stockholders' equity by $473,000. On October 5, 2005, the Company completed its second step offering (as discussed in Note 2 to the consolidated financial statements). On October 6, 2005, the Company began trading on Nasdaq which is considered to be an established market under ERISA regulations. As a result, effective October 6, 2005, the Company is no longer required to establish a liability to reflect this repurchase obligation. Consequently, at September 30, 2006, this contingent repurchase obligation was no longer recorded as a reduction of stockholders' equity.

Shares held by the ESOP at September 30, 2006 and 2005 are presented below. The number of ESOP shares reported for 2005 reflect the exchange of shares resulting from the Company's second step conversion discussed in Note 2 above.

	2006	2005
Allocated to participants	80,408	43,146
Unearned	1,051,638	296,925
Total ESOP shares	1,132,046	340,071
Fair value of unearned shares	$ 12,462	$ 3,256
Fair value of allocated shares subject to repurchase obligation	$ -	$ 473
ESOP compensation expense	$ 580	$ 270

NOTE 12 - OTHER STOCK-BASED COMPENSATION

At the annual meeting held on January 20, 2005, stockholders of ASBH approved the ASB Holding Company 2005 Stock Option Plan and the American Bank of New Jersey 2005 Restricted Stock Plan. 272,171 shares of common stock were made available under the 2005 Stock Option Plan. On January 20, 2005, options to purchase 259,923 shares were awarded with

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 12 - OTHER STOCK-BASED COMPENSATION (Continued)

the remaining 12,248 shares awarded on May 6, 2005. In addition, 81,651 shares of common stock were made available under the 2005 Restricted Stock Plan. On January 20, 2005, 76,752 shares of restricted stock were awarded with the remaining 4,899 shares awarded on May 6, 2005.

As of the closing of the Company's second step conversion on October 5, 2005, each of the ASBH shares included in the 2005 Restricted Stock Plan and 2005 Stock Option Plan were exchanged for 2.55102 shares of American Bancorp of New Jersey, Inc. Consequently, awarded shares under the 2005 Restricted Stock Plan and 2005 Stock Option Plan totaled 208,295 and 694,315, respectively, at that time.

At the annual meeting held on May 23, 2006, stockholders of ABNJ approved the American Bancorp of New Jersey, Inc. 2006 Equity Incentive Plan. Under this plan, 722,633 options on shares of common stock and 358,484 restricted shares of common stock were made available. All options and restricted shares relating to this plan were awarded on May 23, 2006. As of that date, 358,484 shares of ABNJ common stock were issued by the Company to fund the restricted stock portion of the 2006 Equity Incentive Plan. On June 6, 2006 the Company announced the completion of its repurchase of the 208,295 shares relating to its 2005 Restricted Stock Plan and its intent to repurchase up to 358,484 shares of its outstanding common stock relating to the funding of the restricted stock portion of its 2006 Equity Incentive Plan. Share repurchases to fund the restricted stock portion of the 2006 Equity Incentive Plan were completed in the fourth quarter of fiscal 2006. The Company intends to reissue treasury shares to fund the exercise of stock options in future periods.

Shares of common stock issuable pursuant to outstanding options under the 2005 Stock Option Plan and 2006 Equity Incentive Plan are considered outstanding for purposes of calculating earnings per share on a diluted basis. The Financial Accounting Standards Board announced a change in the required accounting methods applicable to stock options that became effective during the first quarter of fiscal 2006. Under such accounting requirements, the Company is now required to recognize compensation expense related to stock options outstanding based upon the fair value of such awards at the date of grant over the period that such awards are earned. For the year ended September 30, 2006, the Company recognized approximately $384,000 of compensation expense relating stock options awarded through the 2005 Stock Option Plan and 2006 Equity Incentive Plan ("SOP" options). The Company recognized approximately $96,000 of income tax benefit resulting from this expense for that period.

For accounting purposes, the Company continues to recognize compensation expense for restricted shares of common stock awarded under the 2005 Restricted Stock Plan and 2006 Equity Incentive Plan over the vesting period at the fair market value of the shares on the date they are awarded. For the year ended September 30, 2006 and 2005, the Company recognized

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 12 - OTHER STOCK-BASED COMPENSATION (Continued)

approximately $637,000 and $207,000 respectively, of compensation expense relating to restricted stock plan shares awarded through the 2005 Restricted Stock Plan and 2006 Equity Incentive Plan ("RSP" shares). The Company recognized approximately $254,000 and $83,000 of income tax benefit in fiscal 2006 and 2005 respectively, resulting from this expense.

During the year ended September 30, 2006, 6,249 RSP shares and 19,094 SOP options that had been previously awarded were forfeited by a participant due to the participant's discontinued employment by the Bank. The Company reversed approximately $6,400 of accrued RSP compensation expense in the year ended September 30, 2006 resulting from that forfeiture. The Company may consider awarding such shares and options at a later date.

As of September 30, 2006, there were approximately $2.2 million and $4.7 million, respectively of total unrecognized compensation costs related to nonvested stock options and nonvested restricted stock plan shares. Those costs are expected to be recognized over a weighted-average period of 4.1 and 4.3 years respectively.

The fair value of options granted and actual effects are computed using the Black-Scholes option pricing model, using the following weighted-average assumptions as of the grant dates.

	January 20, 2005	May 6, 2005	May 23, 2006
Options Awarded

Risk free interest rate	3.67%	3.95%	4.91%

Expected option life	5.00	5.00	5.00

Expected stock price volatility	22.00%	22.00%	11.00%

Dividend yield	0.00%	0.00%	1.39%

Weighted average fair value of options granted during year	$4.75	$5.00	$2.11

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 12 - OTHER STOCK-BASED COMPENSATION (Continued)

A summary of the activity in the Company's stock option plans for the years ended September 30, 2006 and 2005 is as follows.

	For the years ended
	September 30, 2006		September 30, 2005
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding at beginning of period	694,315	$ 6.81	-
Granted	722,633	$11.49	694,315	$6.81
Exercised	-	$ -	-
Forfeited of expired	(19,094)	$ 6.80	-	-
Outstanding at end of period	1,397,854	$ 9.23	694,315	$ 6.81

Options exercisable at period end	135,036	$ 6.81	-	-
Weighted average remaining contractual life		8.3 years		9.3 years

The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2006 was approximately $681,000. There were no stock options outstanding and exercisable at September 30, 2005.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 12 - OTHER STOCK-BASED COMPENSATION (Continued)

A summary of the status of the Company's nonvested restricted stock plan shares as of September 30, 2006 and 2005 and changes during the year ended September 30, 2006 and 2005 are as follows.

	For the years ended
	September 30, 2006		September 30, 2005
	Shares	Weighted Average Grant Date Fair Value	Shares	Weighted Average Grant Date Fair Value
Outstanding at beginning of period	208,295	$ 6.81	-
Granted	358,484	$11.49	208,295	$6.81
Vested	(40,404)	$ 6.81	-	-
Forfeited of expired	(6,249)	$ 6.80	-	-
Outstanding at end of period	520,106	$10.04	208,295	$ 6.81

The fair value at the vesting date of the restricted stock plan shares vested during the year ended September 30, 2006 was $413,700. No restricted stock plan shares vested in fiscal 2005.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to fund loans and previously approved unused lines of credit. The Bank's exposure to credit loss in the event of nonperformance by the parties to these financial instruments is represented by the contractual amount of the instruments. The Bank uses the same credit policy for commitments as it uses for on-balance-sheet items.

The contract amounts of these financial instruments are summarized as follows:

	2006	2005
Commitments to extend credit	$ 19,045	$ 21,284
Unused lines of credit	23,541	15,956
Construction loans in process	16,917	350

Fixed rate loan commitments totaled $6,965,000 at September 30, 2006 and have interest rates ranging from 5.375% to 14.95%.

Since many commitments expire without being used, the amounts above do not necessarily represent future cash commitments. Collateral may be obtained upon exercise of a commitment. The amount of collateral is determined by management and may include commercial and residential real estate and other business and consumer assets.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 14 - EARNINGS PER SHARE (EPS)

Amounts reported as basic earnings per share of common stock reflect earnings available to common stockholders for the period divided by the weighted average number of common shares outstanding during the period less unearned ESOP shares. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed by dividing income by the weighted-average number of shares outstanding for the period plus common-equivalent shares computed using the treasury stock method. Weighted average shares for 2005 and 2004 have been adjusted to reflect the exchange of shares in the second step conversion.

The factors used in the earnings per share computation follow.

	2006	2005	2004
Basic
Net income	$ 2,133	$ 2,043	$ 2,162

Weighted average common shares outstanding	13,021,667	13,892,396	13,846,697

Basic earnings per common share	$ 0.16	$ 0.15	$ 0.16

Diluted
Net income	$ 2,133	$ 2,043	$ 2,162

Weighted average common shares outstanding for basic earnings per common share	13,021,667	13,892,396	13,846,697

Add: Dilutive effects of assumed exercises of stock options	111,925	60,418	-

Add: Dilutive effects of full vesting of stock awards	35,868	11,781	-

Average shares and dilutive potential common shares	13,169,460	13,964,595	13,846,697

Diluted earnings per common share	$ 0.16	$ 0.15	$ 0.16

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 15 - REGULATORY CAPITAL REQUIREMENTS

ASB Holding Company as a unitary thrift holding company is not subject to specific regulatory capital guidelines. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. 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 Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

The Bank's actual and required capital amounts and ratios are presented below.

	Actual		For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action
	Amount	Ratio	Amount	Ratio	Amount	Ratio
As of September 30, 2006
Total capital (to risk-weighted assets)	$ 84,658	28.52%	$ 23,750	8.00%	$ 29,687	10.00%
Tier I capital (to risk-weighted) assets)	82,621	27.83	11,875	4.00	17,812	6.00
Tier I (core) capital (to adjusted total assets)	82,621	16.86	19,597	4.00	24,497	5.00
As of September 30, 2005
Total capital (to risk-weighted assets)	$ 37,639	14.13%	$ 21,308	8.00%	$ 26,635	10.00%
Tier I capital (to risk-weighted) assets)	36,068	13.54	10,654	4.00	15,981	6.00
Tier I (core) capital (to adjusted total assets)	36,068	6.49	22,221	4.00	27,776	5.00

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 15 - REGULATORY CAPITAL REQUIREMENTS (Continued)

As of September 30, 2006, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category.

Upon the closing of the second step conversion on October 5, 2005, approximately $48.8 million - representing 50% of stock offering proceeds, net of offering costs - were added to the Bank's capital. This growth in capital was partially offset by the additional unearned ESOP which reduced capital by approximately $7.9 million. In total, the second step conversion resulted in a net increase to the Bank's capital totaling approximately $40.8 million. Had this additional capital been recorded at September 30, 2005, the Bank's pro forma capital amounts and ratios would have been as follows:

	Amount	Ratio
Total capital (to risk-weighted assets)	$ 78,466	30.58%
Tier 1 capital (to risk-weighted assets)	76,895	29.97
Tier 1 capital (to adjusted total assets)	76,895	13.84

The following is a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory capital as of the dates indicated:

	2006	2005
GAAP equity	$ 81,825	$ 35,123
Accumulated other comprehensive loss	796	945
Tier I capital	82,621	36,068
General regulatory allowance for loan losses	2,037	1,571
Total capital	$ 84,658	$ 37,639

Other than the funds held at the holding company level, the Company's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year's net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. At fiscal year-end 2006, approximately $5.0 million was available to pay dividends to the holding company.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair value of financial instruments were as follows:

	2006		2005
	Carrying Amount	Estimated Fair Value	Carrying Amount	Estimated Fair Value
Financial assets
Cash and cash equivalents	$ 7,165	$ 7,165	$ 125,773	$ 125,773
Securities available-for-sale	74,523	74,523	62,337	62,337
Securities held-to-maturity	10,547	10,423	7,824	7,694
Loans receivable, net	398,624	394,496	341,006	340,176
Loans held for sale	-	-	280	278
Federal Home Loan Bank stock	3,356	3,356	3,119	3,119
Accrued interest receivable	1,979	1,979	1,468	1,468

Financial liabilities
Deposits	327,147	326,781	340,925	340,654
Stock subscriptions received	-	-	115,201	115,201
Advance payments by borrowers for taxes and insurance	2,466	2,466	2,443	2,443
Federal Home Loan Bank advances	56,075	56,011	53,734	54,307
Accrued interest payable	254	254	266	266

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, stock subscriptions received, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes and, if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt, including Federal Home Loan Bank advances, is based on current rates for similar financing. The fair value of off- balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The fair value of these off-balance-sheet items is not material.

NOTE 17 - OTHER COMPREHENSIVE LOSS

Other comprehensive loss components and related taxes were as follows.

	2006	2005	2004
Unrealized holding losses on available-for-sale Securities	$ (133)	$ (747)	$ (129)
Reclassification adjustments for losses later recognized in income	271	16	-
Net unrealized gains and (losses)	138	(731)	(129)
Tax effect	(60)	254	52
Other comprehensive income (loss)	$ 78	$ (477)	(77)

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)

				Earnings per Share
	Interest Income	Net Interest Income	Net Income	Basic	Fully Diluted
2006
First quarter	$ 6,081	$ 3,379	$ 663	$ 0.05	$ 0.05
Second quarter	6,239	3,466	688	0.05	0.05
Third quarter	6,432	3,399	464	0.04	0.04
Fourth quarter	6,592	3,298	318	0.02	0.02

2005
First quarter	$ 4,904	$ 2,724	$ 610	$ 0.04	$ 0.04
Second quarter	5,089	2,846	584	0.05	0.05
Third quarter(1)	5,223	2,744	325	0.02	0.02
Fourth quarter	5,385	2,741	524	0.04	0.04

⁽¹⁾Net income in the third quarter of fiscal 2005 included an after tax charge of approximately $267,000 resulting from restructuring the Bank's director retirement plan.

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 19 - PARENT COMPANY FINANCIAL STATMENTS

American Bancorp of New Jersey, Inc. Condensed Statement of Financial Condition (In thousands, except share data)	At September 30,
	2006	2005
ASSETS
Cash and cash equivalents	$ 8,944	$ 2,434
Securities available-for-sale	25,123	1,247
Investment in subsidiaries	81,824	35,122
ESOP note receivable from bank subsidiary	8,778	1,064
Accrued interest receivable	140	4
Other assets	71	120
Total assets	$ 124,880	$ 39,991
LIABILITIES AND EQUITY
Accrued expenses and other liabilities	$ 19	$ 12
Common stock in ESOP subject to contingent repurchase obligation	-	473
Total liabilities	19	485

Stockholders equity
Preferred stock, $.10 par value, 10,000,000 and 5,000,000 shares authorized at September 30, 2006 and 2005;	-
Common stock, $.10 par value, 20,000,000 shares authorized, 14,527,953 and 5,554,500 shares issued and outstanding at September 30, 2006 and 2005	1,453	555
Additional paid in capital	111,780	16,030
Unearned ESOP shares	(8,549)	(1,064)
Retained earnings	25,438	25,417
Treasury Stock; 364,733 shares	(4,380)	-
Accumulated other comprehensive loss	(881)	(959)
Amount reclassified on ESOP shares	-	(473)
Total equity	124,861	39,506
Total liabilities and equity	$ 124,880	$ 39,991

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

American Bancorp of New Jersey, Inc. Condensed Statement of Income (In thousands, except share data)	For the years ended September 30,
	2006	2005	2004

Interest and dividend income	$ 2,081	$ 153	$ 151
Interest expense	-	-	-
Net interest income	2,081	153	151

Noninterest income
Income from subsidiary operations	1,109	2,191	2,137
Loss on sales of securities available-for-sale	-	(16)	-
Other	1	-	-
Total noninterest income	1,110	2,175	2,137

Noninterest expense
Operating expense	377	362	110
Total noninterest expense	377	362	110

Income before provision for income taxes	2,814	1,966	2,178
Provision (benefit) for income taxes	681	(77)	16

Net income	$ 2,133	$ 2,043	$ 2,162
Earnings per share:
Basic	$ 0.16	$ 0.15	$ 0.16
Diluted	$ 0.16	$ 0.15	$ 0.16

(Continued)

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AMERICAN BANCORP OF NEW JERSEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006, 2005, and 2004
(Tables in Thousands)

NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (continued)

American Bancorp of New Jersey, Inc. Condensed Statement Cash Flows (In thousands, except share data)	For the years ended September 30,
	2006	2005	2004

Cash flows from operating activities
Net Income	$ 2,133	$ 2,043	$ 2,162
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of subsidiary	(1,110)	(2,191)	(2,137)
Net amortization of premiums and discounts	(156)	3	3
Losses on securities available-for-sale	-	16	-
Decrease (increase) in accrued interest receivable	(140)	52	(56)
Decrease (increase) in other assets	(15)	(111)	-
Increase (decrease) in other liabilities	(4)	12	-
Net cash provided by operating activities	708	(176)	(28)

Cash flows from investing activities
Net increase in loans receivable	221	236	33
Purchases of securities available-for-sale	(33,795)	-	(4,011)
Sales of securities available-for-sale	-	1,984	-
Maturities of securities available-for-sale	6,000	-	-
Principal paydowns on securities available-for-sale	2,687	457	277
Net cash used in investing activities	(24,887)	2,677	(3,701)

Cash flows from financing activities
Net proceeds from stock issuance	89,588	-	14,728
MHC Capital infusion	99	-	-
RSP share purchases	(4,380)	-	-
Capital contribution to subsidiary	(52,506)	(118)	(9,616)
Cash dividends paid	(2,112)	(1,432)	-
Net cash provided by (used in) financing activities	30,689	(1,550)	5,112


Net change in cash and cash equivalents	6,510	951	1,383
Cash and cash equivalents at beginning of year	2,434	1,483	100
Cash and cash equivalents at end of year	8,944	2,434	1,483

(Continued)

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DIRECTORS AND OFFICERS


Directors of American Bancorp of New Jersey and American Bank of New Jersey Joseph Kliminski Chief Executive Officer Fred G. Kowal President and Chief Operating Officer W. George Parker Chairman of the Board President and Chief Executive Officer of Adco Chemical Company James H. Ward III Vice Chairman, Retired Investor Robert A. Gaccione Partner of the law firm Gaccione, Pomaco & Malanga P.C. H. Joseph North Retired Town Administrator of Bloomfield, NJ Stanley Obal Retired owner of Obal's Inn tavern and restaurant Vincent S. Rospond Attorney and majority stockholder of the law firm Rospond, Rospond & Conte, P.A.	Officers of American Bancorp of New Jersey Joseph Kliminski Chief Executive Officer Fred G. Kowal President and Chief Operating Officer Richard M. Bzdek Executive Vice President, Corporate Secretary Eric B. Heyer Sr. Vice President, Treasurer and Chief Financial Officer	Officers of American Bank of New Jersey Joseph Kliminski Chief Executive Officer Fred G. Kowal President and Chief Operating Officer Richard M. Bzdek Executive Vice President, Corporate Secretary Eric B. Heyer Sr. Vice President, Treasurer and Chief Financial Officer Catherine M. Bringuier Sr. Vice President and Chief Lending Officer Glenn Miller III Sr. Vice President Commercial Real Estate Lending Josephine Castaldo Vice President Deposit Operations/BSA Officer Lois Anderson Vice President Branch Administration John Scognamiglio Vice President Controller Steve Petropoulos Vice President MIS Robert A. Gaccione, Jr. Vice President Jack Clifton Vice President

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INVESTOR AND CORPORATE INFORMATION

Annual Meeting

The Annual Meeting of Stock holders will be held at 8:00 a.m. local time, on February 27, 2007, at The Wilshire Grand Hotel, 350 Pleasant Valley Way, West Orange, New Jersey.

Stock Listing

American Bancorp of New Jersey common stock is listed on the Nasdaq Global Market under the symbol "ABNJ."

Price Range of Common Stock

Shares of American Bancorp of New Jersey, Inc. ("ABNJ") began trading on October 6, 2005 following the completion of the Company's second step conversion. The high and low closing prices for the common stock as reported on the NASDAQ Global Market, as well as the dividends declare per share, are reflected in the table below. Such information reflects inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

Fiscal Year 2006	High	Low	Dividends
First Quarter	$10.88	$ 9.75	$0.04
Second Quarter	$10.99	$ 9.90	$0.04
Third Quarter	$11.89	$10.80	$0.04
Fourth Quarter	$12.09	$11.57	$0.04

The combination of our regular quarterly dividends resulted in total cash dividends of $0.16 per share paid to public shareholders in fiscal 2006.

At December 8, 2006, there were 13,101,220 shares of American Bancorp of New Jersey, Inc. common stock issued and outstanding and approximately 884 stockholders of record.

Stockholder and General Inquiries	Transfer Agent
American Bancorp of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 (973) 748-3600 Attention: Eric B. Heyer Investor Relations	Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 (800) 525-7686

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Annual Reports

A copy of the Annual Report on Form 10-K without exhibits for the year ended September 30, 2006, as filed with the Securities and Exchange Commission, may be obtained without charge by contacting Eric B. Heyer, Investor Relations, American Bancorp of New Jersey, 365 Broad Street, Bloomfield, New Jersey, 07003.

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OFFICE LOCATIONS

Main Office

     365 Broad Street
     Bloomfield, New Jersey 07003
     (973) 748-3600

          Main Office Drive Up Facility
          16 Pitt Street
          Bloomfield, New Jersey 07003

Cedar Grove Branch

     310 Pompton Avenue
     Cedar Grove, New Jersey 07009
     (973) 239-6450

Verona Branch

     725 Bloomfield Avenue
     Verona, New Jersey 07044
     (973) 857-0856

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EX-23.1 3 ex23-1.htm

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

American Bancorp of New Jersey, Inc.
365 Broad Street
Bloomfield, NJ 07003

We consent to the incorporation by reference in Registration Statement #333-131398, #333-131397 and #333-137801 on Form S-8 filed by American Bancorp of New Jersey, Inc., of our reports dated December 8, 2006, with respect to the consolidated financial statements of American Bancorp of New Jersey, Inc. and management's assessment of the effectiveness of internal controls over financial reporting and the effectiveness of internal control over financial reporting, included in this Annual Report on Form 10-K of American Bancorp of New Jersey, Inc. for the year ended September 30, 2006 filed with the Securities and Exchange Commission.

/s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
December 8, 2006

EX-31.1 4 ex31-1.htm

EXHIBIT 31.1

CERTIFICATIONS


	I, Joseph Kliminski, Chief Executive Officer of American Bancorp of New Jersey, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of American Bancorp of New Jersey, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial statement reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
	5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
		a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 14, 2006

/s/ Joseph Kliminski

Joseph Kliminski
Chief Executive Officer

EX-31.2 5 ex31-2.htm

EXHIBIT 31.2

CERTIFICATIONS


	I, Eric B. Heyer, Senior Vice President, Treasurer and Chief Financial Officer of American Bancorp of New Jersey, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of American Bancorp of New Jersey, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial statement reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
	5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
		a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 14, 2006

/s/ Eric B. Heyer

Eric B. Heyer
Chief Financial Officer

EX-32 6 ex32.htm

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. [] 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Bancorp of New Jersey, Inc. (the "Company") on Form 10-K for the year ended September 30, 2005 as filed with the Securities and Exchange Commission (the "Report"), we, Joseph Kliminski, Chief Executive Officer, and Eric B. Heyer, Senior Vice President, Treasurer and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statementes included in the Report.

/s/ Joseph Kliminski Joseph Kliminski Chief Executive Officer (Principal Executive Officer)		/s/ Eric B. Heyer Eric B. Heyer Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)

Date: December 14, 2006		Date: December 14, 2006

-----END PRIVACY-ENHANCED MESSAGE-----

(1)	As of September 30, 2006, the Company had completed its repurchase of shares to fund stock awards previously made under the American Bank of New Jersey 2005 Restricted Stock Plan (208,295 shares) and American Bancorp of New Jersey, Inc. 2006 Equity Incentive Plan (358,484 shares).
(2)	The table above was prepared as of September 30, 2006 and does not reflect shares to be repurchased in accordance with the Company's 10% share repurchase program announced on October 19, 2006.

(1)	Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-125957) filed with the SEC on June 20, 2005.
(2)	Incorporated by reference to the Registration Statement on Form SB-2 (File No. 333-105472) of ASB Holding Company filed with the SEC on May 22, 2003.
(3)	Incorporated by reference to the Form 10-KSB (File No. 000-31789) of ASB Holding Company filed with the SEC on December 24, 2003.
(4)	Incorporated by reference to the Form 8-K (File No. 000-31789) of ASB Holding Company filed with the SEC on April 18, 2005.
(5)	Incorporated by reference to the definitive proxy statement (File No. 000-31789) of ASB Holding Company filed with the SEC on December 28, 2004.