10-Q 1 abington_1q08.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q

 

 

(Mark One)

x

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

 

 

 

     For the quarterly period ended March 31, 2008

 

 

 

OR

 

 

o

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: 0-52705


 

Abington Bancorp, Inc.


(Exact Name of Registrant as Specified in Its Charter)


 

 

 

 

Pennsylvania

 

20-8613037


 


(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

180 Old York Road

 

 

Jenkintown, Pennsylvania

 

19046


 


(Address of Principal Executive Offices)

 

 

(Zip Code)


 

(215) 886-8280


(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable


(Former name, former address or former fiscal year if changed since last report)

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

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

 

 

 

 

Large accelerated filer o

Accelerated filer x

 

 

 

 

Non-accelerated filer o

Smaller reporting company o

          (Do not check if a smaller reporting company)

 

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

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 5, 2008, 24,449,972 shares of the Registrant’s common stock were outstanding.


 

ABINGTON BANCORP, INC.

 

TABLE OF CONTENTS



 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.    FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition as of March 31, 2008 and
December 31, 2007

 

1

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Income for the Three Months Ended March 31,
2008 and 2007

 

2

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Stockholders’ Equity for the Three Months Ended
March 31, 2008 and 2007

 

3

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2008 and 2007

 

4

 

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

5

 

 

 

 

 

 

 

 

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

 

29

 

 

 

 

 

 

 

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

41

 

 

 

 

 

 

 

 

ITEM 4.  CONTROLS AND PROCEDURES

 

45

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

ITEM 1.  Legal Proceedings

 

45

 

 

 

 

 

 

 

 

ITEM 1A.  Risk Factors

 

45

 

 

 

 

 

 

 

 

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

 

45

 

 

 

 

 

 

 

 

ITEM 3.  Defaults upon Senior Securities

 

46

 

 

 

 

 

 

 

 

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

 

46

 

 

 

 

 

 

 

 

ITEM 5.  Other Information

 

46

 

 

 

 

 

 

 

 

ITEM 6.  Exhibits

 

46

 

 

 

 

 

 

 

 

SIGNATURES

 

47

 

 

 

 

 

 

 

 

CERTIFICATIONS

 

 

 



 

ABINGTON BANCORP, INC.

 

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

December 31, 2007

 

 

 




 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

23,325,047

 

$

22,342,499

 

Interest-bearing bank balances

 

 

45,530,912

 

 

45,712,962

 

 

 



 



 

Total cash and cash equivalents

 

 

68,855,959

 

 

68,055,461

 

Investment securities held to maturity (estimated fair value—2008, $20,810,251; 2007, $20,656,427)

 

 

20,390,728

 

 

20,391,268

 

Investment securities available for sale (amortized cost—2008, $91,243,603; 2007, $98,202,711)

 

 

92,730,585

 

 

98,780,774

 

Mortgage-backed securities held to maturity (estimated fair value—2008, $54,210,350; 2007, $45,627,107)

 

 

55,078,813

 

 

46,891,843

 

Mortgage-backed securities available for sale (amortized cost—2008, $106,032,446; 2007, $94,400,607)

 

 

107,244,647

 

 

94,124,123

 

Loans receivable, net of allowance for loan losses (2008, $1,850,101; 2007, $1,811,121)

 

 

693,615,876

 

 

682,038,113

 

Accrued interest receivable

 

 

5,017,220

 

 

4,977,909

 

Federal Home Loan Bank stock—at cost

 

 

10,892,400

 

 

10,958,700

 

Cash surrender value - bank owned life insurance

 

 

37,774,178

 

 

37,298,126

 

Property and equipment, net

 

 

10,850,652

 

 

10,759,799

 

Real estate owned

 

 

2,630,603

 

 

1,558,000

 

Deferred tax asset

 

 

1,256,026

 

 

1,892,051

 

Prepaid expenses and other assets

 

 

1,674,460

 

 

1,942,454

 

 

 



 



 

TOTAL ASSETS

 

$

1,108,012,147

 

$

1,079,668,621

 

 

 



 



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

41,559,242

 

$

37,027,767

 

Interest-bearing

 

 

592,560,628

 

 

572,584,934

 

 

 



 



 

Total deposits

 

 

634,119,870

 

 

609,612,701

 

Advances from Federal Home Loan Bank

 

 

187,853,499

 

 

189,557,572

 

Other borrowed money

 

 

20,480,887

 

 

17,453,060

 

Accrued interest payable

 

 

4,749,787

 

 

3,498,235

 

Advances from borrowers for taxes and insurance

 

 

3,428,455

 

 

2,978,650

 

Accounts payable and accrued expenses

 

 

7,368,461

 

 

6,653,343

 

 

 



 



 

Total liabilities

 

 

858,000,959

 

 

829,753,561

 

 

 



 



 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued

 

 

 

 

 

Common stock, $0.01 par value, 80,000,000 shares authorized, issued: 24,460,240 shares, outstanding: 24,449,526 shares

 

 

244,602

 

 

244,602

 

Additional paid-in capital

 

 

200,826,953

 

 

200,634,467

 

Treasury stock—at cost, 10,714 shares

 

 

(104,997

)

 

(104,997

)

Unallocated common stock held by:

 

 

 

 

 

 

 

Employee Stock Ownership Plan (ESOP)

 

 

(15,767,698

)

 

(15,977,458

)

Recognition & Retention Plan Trust (RRP)

 

 

(4,545,495

)

 

(1,867,065

)

Deferred compensation plans trust

 

 

(1,162,491

)

 

(1,149,610

)

Retained earnings

 

 

69,143,177

 

 

68,360,520

 

Accumulated other comprehensive income (loss)

 

 

1,377,137

 

 

(225,399

)

 

 



 



 

Total stockholders’ equity

 

 

250,011,188

 

 

249,915,060

 

 

 



 



 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,108,012,147

 

$

1,079,668,621

 

 

 



 



 

See notes to unaudited consolidated financial statements.

1


 

ABINGTON BANCORP, INC.

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME



 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 




 

INTEREST INCOME:

 

 

 

 

 

 

 

Interest on loans

 

$

10,711,406

 

$

10,368,479

 

Interest and dividends on investment and mortgage-backed securities:

 

 

 

 

 

 

 

Taxable

 

 

2,658,306

 

 

2,309,349

 

Tax-exempt

 

 

296,775

 

 

212,727

 

Interest and dividends on other interest-earning assets

 

 

530,883

 

 

329,448

 

 

 



 



 

Total interest income

 

 

14,197,370

 

 

13,220,003

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Interest on deposits

 

 

4,922,109

 

 

5,178,577

 

Interest on Federal Home Loan Bank advances

 

 

2,247,438

 

 

2,354,977

 

Interest on other borrowed money

 

 

135,302

 

 

184,560

 

 

 



 



 

Total interest expense

 

 

7,304,849

 

 

7,718,114

 

 

 



 



 

NET INTEREST INCOME

 

 

6,892,521

 

 

5,501,889

 

PROVISION FOR LOAN LOSSES

 

 

49,140

 

 

3,607

 

 

 



 



 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

6,843,381

 

 

5,498,282

 

 

 



 



 

NON-INTEREST INCOME

 

 

 

 

 

 

 

Service charges

 

 

381,909

 

 

397,716

 

Income on bank owned life insurance

 

 

476,052

 

 

178,467

 

Loss on sale of securities

 

 

(11,758

)

 

 

Other income

 

 

107,081

 

 

111,267

 

 

 



 



 

Total non-interest income

 

 

953,284

 

 

687,450

 

 

 



 



 

NON-INTEREST EXPENSES

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,865,186

 

 

2,327,544

 

Occupancy

 

 

533,941

 

 

436,810

 

Depreciation

 

 

196,993

 

 

184,182

 

Professional services

 

 

275,948

 

 

161,614

 

Data processing

 

 

382,590

 

 

350,676

 

Advertising and promotions

 

 

102,452

 

 

95,762

 

Other

 

 

829,110

 

 

640,234

 

 

 



 



 

Total non-interest expenses

 

 

5,186,220

 

 

4,196,822

 

 

 



 



 

INCOME BEFORE INCOME TAXES

 

 

2,610,445

 

 

1,988,910

 

PROVISION FOR INCOME TAXES

 

 

692,276

 

 

526,478

 

 

 



 



 

NET INCOME

 

$

1,918,169

 

$

1,462,432

 

 

 



 



 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE

 

$

0.09

 

$

0.06

*

DILUTED EARNINGS PER COMMON SHARE

 

$

0.08

 

$

0.06

*

BASIC AVERAGE COMMON SHARES OUTSTANDING:

 

 

22,352,051

 

 

23,361,014

*

DILUTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

22,858,601

 

 

23,956,386

*



* Earnings per share and average common shares outstanding for the prior period have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on June 27, 2007.

See notes to unaudited consolidated financial statements.

2



 

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Common
Stock

 

Additional
Paid-in
Capital

 

Treasury
Stock

 

Common
Stock
Acquired by
Benefit
Plans

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Total
Stockholders’
Equity

 

 

 


 


 


 


 


 


 


 


 

BALANCE—JANUARY 1, 2008

 

 

24,460,240

 

$

244,602

 

$

200,634,467

 

$

(104,997

)

$

(18,994,133

)

$

68,360,520

 

$

(225,399

)

$

249,915,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

1,918,169

 

 

 

 

1,918,169

 

Net unrealized holding gain on available for sale securities arising during the period, net of tax expense of $815,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,582,419

 

 

1,582,419

 

Amortization of unrecognized prior service costs on defined benefit pension plan, net of tax expense of $10,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,117

 

 

20,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,520,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cash dividends declared, ($0.05 per share)

 

 

 

 

 

 

 

 

 

 

 

 

(1,135,512

)

 

 

 

(1,135,512

)

Stock options expense

 

 

 

 

 

 

197,283

 

 

 

 

 

 

 

 

 

 

197,283

 

Common stock released from benefit plans

 

 

 

 

 

 

(4,797

)

 

 

 

569,193

 

 

 

 

 

 

564,396

 

Common stock acquired by benefit plans

 

 

 

 

 

 

 

 

 

 

(3,050,744

)

 

 

 

 

 

(3,050,744

)

 

 



 



 



 



 



 



 



 



 

BALANCE—MARCH 31, 2008

 

 

24,460,240

 

$

244,602

 

$

200,826,953

 

$

(104,997

)

$

(21,475,684

)

$

69,143,177

 

$

1,377,137

 

$

250,011,188

 

 

 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Common
Stock

 

Additional
Paid-in
Capital

 

Treasury
Stock

 

Common
Stock
Acquired by
Benefit
Plans

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Stockholders’
Equity

 

 

 


 


 


 


 


 


 


 


 

BALANCE—JANUARY 1, 2007

 

 

15,870,000

 

$

158,700

 

$

69,674,243

 

$

(8,317,848

)

$

(10,054,685

)

$

65,252,214

 

$

(2,610,400

)

$

114,102,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

1,462,432

 

 

 

 

1,462,432

 

Net unrealized holding gain on available for sale securities arising during the period, net of tax expense of $235,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

456,407

 

 

456,407

 

Amortization of unrecognized prior service costs on defined benefit pension plan, net of tax expense of $10,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,117

 

 

20,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,938,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cash dividends declared, ($0.04 per share)*

 

 

 

 

 

 

 

 

 

 

 

 

(889,866

)

 

 

 

(889,866

)

Stock options expense

 

 

 

 

 

 

97,740

 

 

 

 

 

 

 

 

 

 

97,740

 

Common stock released from benefit plans

 

 

 

 

 

 

48,470

 

 

 

 

310,391

 

 

 

 

 

 

358,861

 

Common stock acquired by benefit plans

 

 

 

 

 

 

 

 

 

 

(5,711

)

 

 

 

 

 

(5,711

)

 

 



 



 



 



 



 



 



 



 

BALANCE—MARCH 31, 2007

 

 

15,870,000

 

$

158,700

 

$

69,820,453

 

$

(8,317,848

)

$

(9,750,005

)

$

65,824,780

 

$

(2,133,876

)

$

115,602,204

 

 

 



 



 



 



 



 



 



 



 


 

 


*  Dividends per share for the prior period has been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on June 27, 2007.

 

 

See notes to unaudited consolidated financial statements.

3


 

ABINGTON BANCORP, INC.

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 




 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

1,918,169

 

$

1,462,432

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

49,140

 

 

3,607

 

Depreciation

 

 

196,993

 

 

184,182

 

Share-based compensation expense

 

 

759,079

 

 

454,001

 

Loss on sale of investment securities

 

 

11,758

 

 

 

Deferred income tax benefit

 

 

(189,524

)

 

(103,981

)

Amortization of:

 

 

 

 

 

 

 

Deferred loan fees

 

 

(173,102

)

 

(174,832

)

Premiums and discounts, net

 

 

34,299

 

 

14,070

 

Income from bank owned life insurance

 

 

(476,052

)

 

(178,467

)

Changes in assets and liabilities which (used) provided cash:

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(39,311

)

 

(338,742

)

Prepaid expenses and other assets

 

 

267,994

 

 

2,024,956

 

Accrued interest payable

 

 

1,251,552

 

 

2,547,469

 

Accounts payable and accrued expenses

 

 

732,718

 

 

558,334

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

4,343,713

 

 

6,453,029

 

 

 



 



 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Principal collected on loans

 

 

34,592,073

 

 

29,835,261

 

Disbursements for loans

 

 

(47,023,260

)

 

(53,554,134

)

Purchases of:

 

 

 

 

 

 

 

Mortgage-backed securities held to maturity

 

 

(9,861,264

)

 

 

Mortgage-backed securities available for sale

 

 

(18,278,032

)

 

 

 

Investments available for sale

 

 

(11,139,335

)

 

(9,037,976

)

Federal Home Loan Bank stock

 

 

(496,400

)

 

(205,400

)

Property and equipment

 

 

(287,846

)

 

(850,399

)

Proceeds from:

 

 

 

 

 

 

 

Sales and maturities of mortgage-backed securities available for sale

 

 

1,960,836

 

 

 

Maturities of investments available for sale

 

 

18,099,000

 

 

4,000,000

 

Principal repayments of mortgage-backed securities held to maturity

 

 

1,658,314

 

 

1,978,898

 

Principal repayments of mortgage-backed securities available for sale

 

 

4,655,263

 

 

3,119,893

 

Redemption of Federal Home Loan Bank stock

 

 

562,700

 

 

579,000

 

Additions to real estate owned

 

 

(95,217

)

 

 

 

 



 



 

Net cash used in investing activities

 

 

(25,653,168

)

 

(24,134,857

)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net increase in demand deposits and savings accounts

 

 

10,345,868

 

 

11,375,937

 

Net increase in certificate accounts

 

 

14,161,301

 

 

17,476,920

 

Net increase in other borrowed money

 

 

3,027,827

 

 

2,043,498

 

Advances from Federal Home Loan Bank

 

 

32,805,000

 

 

260,305,000

 

Repayments of advances from Federal Home Loan Bank

 

 

(34,509,073

)

 

(270,124,125

)

Net increase in advances from borrowers for taxes and insurance

 

 

449,805

 

 

317,609

 

Acquisition of stock for benefit plans

 

 

(3,035,263

)

 

 

Payment of cash dividend

 

 

(1,135,512

)

 

(889,866

)

 

 



 



 

Net cash provided by financing activities

 

 

22,109,953

 

 

20,504,973

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

800,498

 

 

2,823,145

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

68,055,461

 

 

44,565,252

 

 

 



 



 

CASH AND CASH EQUIVALENTS—End of period

 

$

68,855,959

 

$

47,388,397

 

 

 



 



 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest on deposits and other borrowings

 

$

6,053,297

 

$

5,170,645

 

 

 



 



 

Income taxes

 

$

130,000

 

$

 

 

 



 



 

Non-cash transfer of loans to real estate owned

 

$

977,386

 

$

 

 

 



 



 

See notes to unaudited consolidated financial statements.

4


ABINGTON BANCORP, INC.

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


 

 

1.

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

 

 

Basis of Financial Statement Presentation— Abington Bancorp, Inc. (the “Company”) is a Pennsylvania corporation which was organized to be the stock holding company for Abington Savings Bank in connection with our second-step conversion and reorganization completed on June 27, 2007, which is discussed further below. Abington Savings Bank is a Pennsylvania-chartered, FDIC-insured savings bank, which conducts business under the name “Abington Bank” (the “Bank” or “Abington Bank”). As a result of the Bank’s election pursuant to Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Office of Thrift Supervision (the “OTS”). The Bank is a wholly owned subsidiary of the Company. The Company’s results of operations are primarily dependent on the results of the Bank and the Bank’s wholly owned subsidiary, ASB Investment Co. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

 

 

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

 

 

 

Abington Community Bancorp, Inc., a Pennsylvania corporation, was the former mid-tier holding company for the Bank. Abington Community Bancorp was organized in conjunction with the Bank’s reorganization from the mutual savings bank to the mutual holding company structure in December 2004. Abington Mutual Holding Company, a Pennsylvania corporation, was the mutual holding company parent of Abington Community Bancorp, Inc. and originally owned 55% of Abington Community Bancorp’s outstanding stock. As a result of treasury stock purchases, this stake increased to approximately 57% of Abington Community Bancorp’s outstanding stock at the time of the Bank’s second-step conversion.

 

 

 

On June 27, 2007, a second-step conversion was completed after which Abington Mutual Holding Company and Abington Community Bancorp, Inc. ceased to exist and Abington Bancorp, Inc. was organized as the new stock-form holding company for the Bank and successor to Abington Community Bancorp. A total of 13,965,600 new shares of the Company were sold at $10 per share in the subscription, community and syndicated community offerings through which the Company received proceeds of approximately $134.7 million, net of offering costs of approximately $5.0 million. As part of the conversion, each outstanding public share of Abington Community Bancorp, Inc. (that is, shares owned by stockholders other than Abington Mutual Holding Company) was exchanged for 1.6 shares of Company Common Stock. The exchange resulted in an additional 10,494,640 outstanding shares of common stock of the Company for a total of 24,460,240 outstanding shares as of the closing of the second-step conversion. Treasury stock held was cancelled.

5


 

 

 

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in equity and comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements of Abington Bancorp, Inc. and the accompanying notes thereto for the year ended December 31, 2007, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008, or any other period.

 

 

 

Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant estimates are the allowance for loan losses, the assessment of other-than-temporary impairment of investment and mortgage-backed securities and deferred income taxes.

 

 

 

Other-Than-Temporary Impairment of Securities—Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. No impairment charge was recognized during the three months ended March 31, 2008 or 2007.

 

 

 

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

 

 

 

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

6


 

 

 

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

 

 

 

Comprehensive Income—The Company presents as a component of comprehensive income the amounts from transactions and other events which currently are excluded from the consolidated statements of income and are recorded directly to stockholders’ equity. These amounts consist of unrealized holding gains on available for sale securities and amortization of unrecognized deferred costs of the Company’s defined benefit pension plan.

 

 

 

The components of other comprehensive income are as follows:


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

Net unrealized gain on securities arising during the period

 

$

1,574,659

 

$

456,407

 

Plus: reclassification adjustment for net losses included in net income, net of tax

 

 

7,760

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Net unrealized gain on securities

 

$

1,582,419

 

$

456,407

 

 

 

 

 

 

 

 

 

Amortization of unrecognized prior service cost on defined benefit pension plan, net of tax

 

 

20,117

 

 

20,117

 

 

 



 



 

 

Total other comprehensive income

 

$

1,602,536

 

$

476,524

 

 

 



 



 


 

 

 

The components of accumulated other comprehensive income (loss) are as follows:


 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Net unrealized gain on securities

 

$

1,781,460

 

$

199,041

 

Unrecognized deferred costs of defined benefit plan

 

 

(404,323

)

 

(424,440

)

 

 



 



 

 

 

 

 

 

 

 

 

Total accumulated other comprehensive income (loss)

 

$

1,377,137

 

$

(225,399

)

 

 



 



 


 

 

 

Share-Based CompensationThe Company accounts for its share-based compensation awards in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R (revised 2004), Share-Based Payment. This statement requires an entity to recognize the cost of employee services received in share-based payment transactions and measures the cost on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award.

7


 

 

 

At March 31, 2008, the Company has four share-based compensation plans, the 2005 and the 2007 Recognition and Retention Plans and the 2005 and 2007 Stock Option Plans. Share awards were first issued under the 2005 plans in July 2005. Share awards were issued under the 2007 plans in January 2008. These plans are more fully described in Note 6.

 

 

 

The Company also has an employee stock ownership plan (“ESOP”). This plan is more fully described in Note 6. Shares held under the ESOP are accounted for in accordance with AICPA Statement of Position (“SOP”) 93-6, Employers’ Accounting for Employee Stock Ownership Plans. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

 

 

 

Earnings per share—Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested common stock awards. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three months ended March 31, 2008, there were 1,357,240 antidilutive CSEs. For the three months ended March 31, 2007, there were no antidilutive CSEs. Earnings per share and average common shares outstanding for the prior period have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on June 27, 2007. Earnings per share were calculated as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

Basic

 

Diluted

 

Basic

 

Diluted

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,918,169

 

$

1,918,169

 

$

1,462,432

 

$

1,462,432

 

 

 



 



 



 



 

Weighted average shares outstanding

 

 

22,352,051

 

 

22,352,051

 

 

23,361,014

 

 

23,361,014

 

Effect of common stock equivalents

 

 

 

 

506,550

 

 

 

 

595,372

 

 

 



 



 



 



 

Adjusted weighted average shares used in earnings per share computation

 

 

22,352,051

 

 

22,858,601

 

 

23,361,014

 

 

23,956,386

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

0.09

 

$

0.08

 

$

0.06

 

$

0.06

 

 

 



 



 



 



 


 

 

 

Recent Accounting PronouncementsIn September 2006, the Financial Accounting Statndards Board (“FASB”) ratified the consensus reached by the Emerging Issues Task Force (“EITF”) in Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 applies to life insurance arrangements that provide an employee with a specified benefit that is not limited to the employee’s active service period, including certain bank-owned life insurance (“BOLI”) policies. EITF 06-4 requires an employer to recognize a liability and related compensation costs for future benefits that extend to postretirement periods. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. The Company adopted this consensus effective January 1, 2008. During 2007, the Company amended its split dollar insurance agreements with employees to increase the benefits paid to those employees during their period of employment, but to discontinue any postretirement benefits. As a result of the amendments to those agreements, the adoption of this consensus did not have any effect on our consolidated financial position or results of operations.

8


 

 

 

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, Effective Date of FASB Statement No. 157, that permits a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company adopted this statement as of January 1, 2008. This adoption did not have any effect on our consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No.157. We elected not to early adopt the provisions of this statement. We adopted this statement as of January 1, 2008, however, we have not elected to measure any assets or liabilities at fair value under the provisions of this statement. The adoption of this statement did not have any effect on the Company’s financial position or results of operations.

In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 states that an entity should recognize a realized tax benefit associated with dividends on nonvested equity shares, nonvested equity share units and outstanding equity share options charged to retained earnings as an increase in additional paid in capital. The amount recognized in additional paid in capital should be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The Company adopted this consensus effective January 1, 2008. The adoption did not have a material effect on our consolidated financial position or results of operations.

In November 2007, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings. SAB No. 109 expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the staff’s views consistent with current authoritative accounting guidance, SAB 109 revises and rescinds portions of SAB No. 105, Application of Accounting Principles to Loan Commitments. Specifically, SAB 109 revises the SEC staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB 109 retains the staff’s views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company adopted this statement as of January 1, 2008. The adoption did not have a material effect on the Company’s financial position or results of operations.

9


In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company is continuing to evaluate the impact of this statement, but does not expect that the guidance will have a material effect on our consolidated financial position or results of operations.

 

 

 

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company is continuing to evaluate the impact of this statement, but does not expect that the guidance will have a material effect on our consolidated financial position or results of operations.

 

 

 

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statements No. 133. This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial positions, financial performance, and cash flows. This statement is effective for financial statements issued for periods beginning after November 15, 2008. The Company is continuing to evaluate the impact of this statement, but does not expect that the guidance will have any effect on our consolidated financial position or results of operations.

 

 

 

ReclassificationsCertain items in the 2007 consolidated financial statements have been reclassified to conform to the presentation in the 2008 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.

10


 

 

2.

INVESTMENT SECURITIES

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity
March 31, 2008

 

 

 


 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

20,390,728

 

$

421,244

 

$

(1,721

)

$

20,810,251

 

 

 



 



 



 



 

Total debt securities

 

$

20,390,728

 

$

421,244

 

$

(1,721

)

$

20,810,251

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale
March 31, 2008

 

 

 


 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency bonds

 

$

70,881,925

 

$

1,439,603

 

$

 

$

72,321,528

 

Corporate bonds and commercial paper

 

 

4,455,337

 

 

3,315

 

 

(35,717

)

 

4,422,935

 

Municipal bonds

 

 

12,168,012

 

 

226,066

 

 

(20,188

)

 

12,373,890

 

Certificates of deposit

 

 

486,000

 

 

 

 

 

 

486,000

 

 

 



 



 



 



 

Total debt securities

 

 

87,991,274

 

 

1,668,984

 

 

(55,905

)

 

89,604,353

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

10

 

 

242

 

 

 

 

252

 

Mutual funds

 

 

3,252,319

 

 

 

 

(126,339

)

 

3,125,980

 

 

 



 



 



 



 

Total equity securities

 

 

3,252,329

 

 

242

 

 

(126,339

)

 

3,126,232

 

 

 



 



 



 



 

Total

 

$

91,243,603

 

$

1,669,226

 

$

(182,244

)

$

92,730,585

 

 

 



 



 



 



 

11


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity
December 31, 2007

 

 

 


 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

20,391,268

 

$

265,159

 

$

 

$

20,656,427

 

 

 



 



 



 



 

Total debt securities

 

$

20,391,268

 

$

265,159

 

$

 

$

20,656,427

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale
December 31, 2007

 

 

 


 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency bonds

 

$

84,882,467

 

$

675,585

 

$

(70,210

)

$

85,487,842

 

Corporate bonds and commercial paper

 

 

3,483,768

 

 

6,446

 

 

(11,449

)

 

3,478,765

 

Municipal bonds

 

 

6,035,410

 

 

71,374

 

 

(280

)

 

6,106,504

 

Certificates of deposit

 

 

585,000

 

 

 

 

 

 

585,000

 

 

 



 



 



 



 

Total debt securities

 

 

94,986,645

 

 

753,405

 

 

(81,939

)

 

95,658,111

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

10

 

 

310

 

 

 

 

320

 

Mutual funds

 

 

3,216,056

 

 

 

 

(93,713

)

 

3,122,343

 

 

 



 



 



 



 

Total equity securities

 

 

3,216,066

 

 

310

 

 

(93,713

)

 

3,122,663

 

 

 



 



 



 



 

Total

 

$

98,202,711

 

$

753,715

 

$

(175,652

)

$

98,780,774

 

 

 



 



 



 



 


 

 

 

There were no sales of debt or equity securities during the three months ended March 31, 2008 or 2007.

 

 

 

No impairment charge was recognized on investment securities during the three months ended March 31, 2008 or 2007.

 

 

 

Included in debt securities are structured notes with federal agencies. These structured notes consist of step-up bonds which provide the agency with the right, but not the obligation, to call the bonds on the step-up date.

12


 

 

 

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


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

 

 


 

 

 

Available for Sale

 

Held to Maturity

 

 

 


 


 

 

 

Amortized
Cost

 

Estimated
Fair
Value

 

Amortized
Cost

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Due in one year or less

 

$

5,478,241

 

$

5,480,605

 

$

 

$

 

Due after one year through five years

 

 

60,952,585

 

 

62,151,006

 

 

 

 

 

Due after five years through ten years

 

 

21,560,448

 

 

21,972,742

 

 

 

 

 

Due after ten years

 

 

 

 

 

 

20,390,728

 

 

20,810,251

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

87,991,274

 

$

89,604,353

 

$

20,390,728

 

$

20,810,251

 

 

 



 



 



 



 

          The table below sets forth investment securities which had an unrealized loss position as of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

More than 12 months

 

 

 


 


 

 

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

(1,721

)

$

403,279

 

$

 

$

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

 

 

(1,721

)

 

403,279

 

 

 

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

(20,188

)

$

2,019,166

 

$

 

$

 

Other securities

 

 

(34,594

)

 

2,925,280

 

 

(127,462

)

 

3,624,815

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

 

(54,782

)

 

4,944,446

 

 

(127,462

)

 

3,624,815

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(56,503

)

$

5,347,725

 

$

(127,462

)

$

3,624,815

 

 

 



 



 



 



 

13



 

 

 

The table below sets forth investment securities which had an unrealized loss position as of December 31, 2007:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

More than 12 months

 

 

 


 



 

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency bonds

 

$

 

$

 

$

(70,210

)

$

14,429,790

 

Municipal bonds

 

 

(280

)

 

254,535

 

 

 

 

 

Other securities

 

 

(7,218

)

 

987,130

 

 

(97,944

)

 

3,618,008

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

(7,498

)

$

1,241,665

 

$

(168,154

)

$

18,047,798

 

 

 



 



 



 



 


 

 

 

On a quarterly basis, management of the Company reviews the securities in its investment portfolio to identify any securities that might have an other-than-temporary impairment. At March 31, 2008, investment securities in a gross unrealized loss position for twelve months or longer consisted of three securities having an aggregate depreciation of 3.4% from the Company’s amortized cost basis. Investment securities in a gross unrealized loss position for less than twelve months at March 31, 2008, consisted of four securities having an aggregate depreciation of 1.1% from the Company’s amortized cost basis. Management has concluded that the unrealized losses above are temporary in nature. They are not related to the underlying credit quality of the issuers, and (with the exception of equity securities) they are on securities that have contractual maturity dates. The principal and interest payments on our debt securities have been made as scheduled, and there is no evidence that the issuer will not continue to do so. The future principal payments will be sufficient to recover the current amortized cost of the securities. The unrealized losses above are primarily related to market interest rates. The current declines in market value are not significant, and management of the Company believes that these values will recover as market interest rates decline. The unrealized losses on the equity securities that do not have maturities or principal payments are also primarily related to market interest rates, as well as to the current market environment surrounding these securities. Management of the Company believes that the value of these securities will also recover over time as long-term market interest rates move and as the market environment improves. The current decline in these equity securities is less than 4.0% below the Company’s cost basis. The Company has the intent and ability to hold each of these investments for the time necessary to recover its cost.

14



 

 

3.

MORTGAGE-BACKED SECURITIES

 

 

 

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


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity
March 31, 2008

 

 

 



 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



FNMA pass-through certificates

 

$

29,185,256

 

$

128,877

 

$

(268,542

)

$

29,045,591

 

FHLMC pass-through certificates

 

 

13,870,330

 

 

 

 

(290,265

)

 

13,580,065

 

Collateralized mortgage obligations

 

 

12,023,227

 

 

5,233

 

 

(443,766

)

 

11,584,694

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

55,078,813

 

$

134,110

 

$

(1,002,573

)

$

54,210,350

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale
March 31, 2008

 

 

 



 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



GNMA pass-through certificates

 

$

3,291

 

$

421

 

$

 

$

3,712

 

FNMA pass-through certificates

 

 

35,975,615

 

 

449,082

 

 

(5,385

)

 

36,419,312

 

FHLMC pass-through certificates

 

 

58,809,345

 

 

709,688

 

 

(159,765

)

 

59,359,268

 

Collateralized mortgage obligations

 

 

11,244,195

 

 

227,589

 

 

(9,429

)

 

11,462,355

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

106,032,446

 

$

1,386,780

 

$

(174,579

)

$

107,244,647

 

 

 



 



 



 



 

15



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity
December 31, 2007

 

 

 



 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



FNMA pass-through certificates

 

$

20,236,408

 

$

 

$

(479,332

)

$

19,757,076

 

FHLMC pass-through certificates

 

 

14,284,056

 

 

 

 

(431,116

)

 

13,852,940

 

Collateralized mortgage obligations

 

 

12,371,379

 

 

19,205

 

 

(373,493

)

 

12,017,091

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

46,891,843

 

$

19,205

 

$

(1,283,941

)

$

45,627,107

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale
December 31, 2007

 

 

 



 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



GNMA pass-through certificates

 

$

318,366

 

$

12,954

 

$

(239

)

$

331,081

 

FNMA pass-through certificates

 

 

21,441,471

 

 

155,943

 

 

(105,997

)

 

21,491,417

 

FHLMC pass-through certificates

 

 

60,765,390

 

 

239,573

 

 

(637,497

)

 

60,367,466

 

Collateralized mortgage obligations

 

 

11,875,380

 

 

112,742

 

 

(53,963

)

 

11,934,159

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

94,400,607

 

$

521,212

 

$

(797,696

)

$

94,124,123

 

 

 



 



 



 



 


 

 

 

During the three months ended March 31, 2008 a gross loss of approximately $12,000 was recognized on the sale of certain mortgage-backed securities. Proceeds from these sales were approximately $753,000. There were no sales of mortgage-backed securities during the three months ended March 31, 2007.

 

 

 

No impairment charge was recognized on mortgage-backed securities during the three months ended March 31, 2008 and 2007.

16



 

 

 

The table below sets forth mortgage-backed securities which had an unrealized loss position as of March 31, 2008:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

More than 12 months

 

 

 


 



 

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 



Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA pass-through certificates

 

$

 

$

 

$

(268,542

)

$

12,668,293

 

FHLMC pass-through certificates

 

 

 

 

 

 

(290,265

)

 

13,580,065

 

Real estate mortgage investment conduits

 

 

 

 

 

 

(443,766

)

 

10,641,640

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

 

 

 

 

 

 

(1,002,573

)

 

36,889,998

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA pass-through certificates

 

$

(1,834

)

$

165,844

 

$

(3,551

)

$

115,678

 

FHLMC pass-through certificates

 

 

 

 

 

 

(159,765

)

 

11,500,192

 

Real estate mortgage investment conduits

 

 

 

 

 

 

(9,429

)

 

728,615

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

 

(1,834

)

 

165,844

 

 

(172,745

)

 

12,344,485

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(1,834

)

$

165,844

 

$

(1,175,318

)

$

49,234,483

 

 

 



 



 



 



 

17


The table below sets forth mortgage-backed securities which had an unrealized loss position as of December 31, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

More than 12 months

 

 

 


 


 

 

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 


 


 


 


 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

FNMA pass-through certificates

 

$

 

$

 

$

(479,332

)

$

19,757,076

 

FHLMC pass-through certificates

 

 

 

 

 

 

(431,116

)

 

13,852,940

 

Collateralized mortgage obligations

 

 

 

 

 

 

(373,493

)

 

11,060,065

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

 

 

 

 

 

 

(1,283,941

)

 

44,670,081

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

GNMA pass-through certificates

 

 

(239

)

 

48,119

 

 

 

 

 

FNMA pass-through certificates

 

 

(71,928

)

 

7,898,284

 

 

(34,069

)

 

5,342,063

 

FHLMC pass-through certificates

 

 

(9,753

)

 

5,321,623

 

 

(627,744

)

 

37,492,936

 

Collateralized mortgage obligations

 

 

 

 

 

 

(53,963

)

 

4,140,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

 

(81,920

)

 

13,268,026

 

 

(715,776

)

 

46,975,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

(81,920

)

$

13,268,026

 

$

(1,999,717

)

$

91,645,432

 

 

 



 



 



 



 

On a quarterly basis, management of the Company reviews the securities in its investment portfolio to identify any securities that might have an other-than-temporary impairment. At March 31, 2008, mortgage-backed securities in a gross unrealized loss position for twelve months or longer consisted of 24 securities having an aggregate depreciation of 4.3% from the Company’s amortized cost basis. Mortgage-backed securities in a gross unrealized loss position for less than twelve months at March 31, 2008, consisted of one security having an aggregate depreciation of 1.1% from the Company’s amortized cost basis. Management has concluded that the unrealized losses above are temporary in nature. There is no exposure to subprime loans in our mortgage-backed securities portfolio. The losses are not related to the underlying credit quality of the issuers, and they are on securities that have contractual maturity dates. The principal and interest payments on our mortgage-backed securities have been made as scheduled, and there is no evidence that the issuer will not continue to do so. The future principal payments will be sufficient to recover the current amortized cost of the securities. The unrealized losses above are primarily related to market interest rates. The current declines in market value are not significant, and management of the Company believes that these values will recover as market interest rates decline. The Company has the intent and ability to hold each of these investments for the time necessary to recover its cost.

18


 

 

4.

LOANS RECEIVABLE - NET

 

 

 

Loans receivable consist of the following:


 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

December 31, 2007

 

 

 


 


 

 

 

 

 

 

 

 

 

One-to four-family residential

 

$

435,882,262

 

$

424,141,281

 

Multi-family residential and commercial

 

 

72,063,057

 

 

77,137,944

 

Construction

 

 

174,572,027

 

 

168,711,266

 

Home equity lines of credit

 

 

26,979,266

 

 

33,091,306

 

Commercial business loans

 

 

32,272,202

 

 

29,373,909

 

Consumer non-real estate loans

 

 

6,287,616

 

 

7,913,758

 

 

 



 



 

 

 

 

 

 

 

 

 

Total loans

 

 

748,056,430

 

 

740,369,464

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

Construction loans in process

 

 

(51,978,111

)

 

(55,798,973

)

Deferred loan fees, net

 

 

(612,342

)

 

(721,257

)

Allowance for loan losses

 

 

(1,850,101

)

 

(1,811,121

)

 

 



 



 

 

 

 

 

 

 

 

 

Loans receivable—net

 

$

693,615,876

 

$

682,038,113

 

 

 



 



 


 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31, 2008

 

Year Ended
December 31, 2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Balance—beginning of year

 

$

1,811,121

 

$

1,602,613

 

Provision for loan losses

 

 

49,140

 

 

457,192

 

Charge-offs

 

 

(16,469

)

 

(275,321

)

Recoveries

 

 

6,309

 

 

26,637

 

 

 



 



 

(Charge-offs)/recoveries—net

 

 

(10,160

)

 

(248,684

)

 

 



 



 

 

 

 

 

 

 

 

 

Balance—end of period

 

$

1,850,101

 

$

1,811,121

 

 

 



 



 


 

 

 

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

19


As of March 31, 2008 and December 31, 2007, the recorded investment in loans that were considered to be impaired was as follows.

 

 

 

 

 

 

 

 

 

 

March 31
2008

 

December 31,
2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Impaired collateral-dependent loans

 

$

467,869

 

$

1,445,255

 

 

 

 

 

 

 

 

 

Average balance of impaired loans

 

$

1,305,346

 

$

3,996,347

 

 

 

 

 

 

 

 

 

Interest income recognized on impaired loans

 

$

 

$

175,950

 


 

 

 

As a result of the Company’s measurement of impaired loans, no allowance for loan losses was established for the impaired loans recorded at March 31, 2008 or December 31, 2007. No reserve was considered necessary based on the appraised values of the properties collateralizing these loans, as well as the value of additional collateral available.

 

 

 

Non-accrual loans at March 31, 2008 and December 31, 2007, amounted to approximately $468,000 and $1.4 million, respectively. Commercial loans and commercial real estate loans are placed on non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Commercial loans are charged off when the loan is deemed uncollectible. Residential real estate loans are typically placed on non-accrual only when the loan is 120 days delinquent and not well secured and in the process of collection. Other consumer loans are typically charged off at 90 days delinquent. In all cases, loans must be placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, at March 31, 2008 and December 31, 2007, amounted to approximately $561,000 and $1.6 million, respectively. Real estate owned at March 31, 2008 and December 31, 2007 amounted to approximately $2.6 million and $1.6 million, respectively. During the first quarter of 2008, the collateral property underlying three commercial real estate loans to one borrower was acquired as real estate owned at a value of approximately $977,000. These loans had previously been classified as non-accrual. No loss was recognized in conjunction with these acquisitions.

Interest payments on impaired loans and non-accrual loans are typically applied to principal unless the ability to collect the principal amount is fully assured, in which case interest is recognized on the cash basis. For the three months ended March 31, 2008 and 2007 no cash basis interest income was recognized. Interest income foregone on non-accrual loans for the three months ended March 31, 2008 and 2007 was approximately $24,000 and $54,000, respectively.

20


 

 

5.

DEFERRED INCOME TAXES

 

 

 

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


 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

December 31, 2007

 

 

 




 

 

 

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

 

Allowance for loan losses

 

$

629,034

 

$

615,781

 

Deferred compensation

 

 

1,776,037

 

 

1,624,419

 

Property and equipment

 

 

101,933

 

 

90,375

 

 

 



 



 

 

 

 

 

 

 

 

 

Total deferred tax assets

 

 

2,507,004

 

 

2,330,575

 

 

 



 



 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Unrealized gain on securities available-for-sale

 

 

(917,723

)

 

(102,538

)

Deferred loan fees, net

 

 

(316,700

)

 

(319,199

)

Other

 

 

(16,555

)

 

(16,787

)

 

 



 



 

 

 

 

 

 

 

 

 

Total deferred tax liabilities

 

 

(1,250,978

)

 

(438,524

)

 

 



 



 

 

 

 

 

 

 

 

 

Net deferred tax asset

 

$

1,256,026

 

$

1,892,051

 

 

 



 



 


 

 

6.

PENSION, PROFIT SHARING AND STOCK COMPENSATION PLANS

 

 

 

In addition to the plans disclosed below, the Company also maintains an executive deferred compensation plan for selected executive officers, which was frozen retroactive to January 1, 2005, a board of directors deferred compensation plan for directors, and a 401(k) retirement plan for substantially all of its employees. Further detail of these plans can be obtained from the Company’s Annual Report on Form 10-K for the period ended December 31, 2007.

21



 

 

 

Supplemental Retirement Plan

 

 

 

The Company maintains a nonqualified, unfunded, defined benefit pension plan for the Board of Directors and certain officers. The components of net periodic pension cost and other changes in the amounts recognized in accumulated other comprehensive income (loss) are as follows:


 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Components of net periodic pension cost:

 

 

 

 

 

 

 

Service cost

 

$

35,623

 

$

35,586

 

Interest cost

 

 

38,896

 

 

35,933

 

Expected return on assets

 

 

 

 

 

Amortization of prior service cost

 

 

30,481

 

 

30,481

 

 

 



 



 

Net periodic pension cost

 

$

105,000

 

$

102,000

 

 

 

 

 

 

 

 

 

Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

(20,117

)

 

(20,117

)

 

 



 



 

Total recognized in accumulated other comprehensive income (loss)

 

 

(20,117

)

 

(20,117

)

 

 



 



 

Total recognized in net periodic pension cost and accumulated other comprehensive income (loss)

 

$

84,883

 

$

81,883

 

 

 



 



 


 

 

 

 

 

 

 

 

The following weighted average assumptions were used in calculating the net periodic pension cost:

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Discount rate

 

 

5.89

%

 

5.75

%

Rate of return on assets

 

 

n/a

 

 

n/a

 

Rate of increase in future board fees/salary levels

 

 

4.00

%

 

4.00

%

 

 

 

 

 

 

 

 

Amounts related to the plan have been recognized in the balance sheet in accumulated other comprehensive income (loss), net of tax, as follows:

 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Amount recognized in accumulated other comprehensive income (loss) for:

 

 

 

 

 

 

 

Net actuarial loss

 

$

(47,326

)

$

(47,326

)

Prior service cost

 

 

(356,997

)

 

(377,114

)

 

 



 



 

Total recognized in accumulated other comprehensive income (loss)

 

$

(404,323

)

$

(424,440

)

 

 



 



 

22


 

 

 

Employee Stock Ownership Plan

 

 

In 2004, the Bank established an employee stock ownership plan (“ESOP”) for substantially all of its full-time employees. Certain senior officers of the Bank have been designated as Trustees of the ESOP. Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. Shares released are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of all eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares. Under this plan, during 2004 and 2005 the ESOP acquired 914,112 shares (as adjusted for the exchange ratio as part of the June 2007 second-step conversion) of common stock for approximately $7.4 million, an average price of $8.06 per share (as adjusted). These shares are expected to be released over a 15-year period. In June 2007, the ESOP acquired an additional 1,042,771 shares of the Company’s common stock for approximately $10.4 million, an average price of $10.00 per share. These shares are expected to be released over a 30-year period. No additional purchases are expected to be made by the ESOP. At March 31, 2008, the ESOP held approximately 1.8 million unallocated shares of Company common stock with a fair value of $17.9 million and approximately 122,000 allocated shares with a fair value of $1.3 million. During the three-month periods ended March 31, 2008 and 2007 approximately 24,000 and 15,000 shares, respectively, were committed to be released to participants, resulting in recognition of approximately $233,000 and $184,000 in compensation expense, respectively.

 

 

 

Recognition and Retention Plan

 

 

In June 2005, the shareholders of Abington Community Bancorp approved the adoption of the 2005 Recognition and Retention Plan (the “2005 RRP”). As a result of the second-step conversion, the 2005 RRP became a stock benefit plan of the Company and the shares of Abington Community Bancorp held by the 2005 RRP were converted to shares of Company common stock. Certain senior officers of the Bank have been designated as Trustees of the 2005 RRP. The 2005 RRP provides for the grant of shares of common stock of the Company to certain officers, employees and directors of the Company. In order to fund the 2005 RRP, the 2005 Recognition Plan Trust (the “2005 Trust”) acquired 457,056 shares (adjusted for the second-step conversion exchange ratio) of common stock in the open market for approximately $3.7 million, an average price of $8.09 per share (as adjusted). The Company made sufficient contributions to the 2005 Trust to fund the purchase of these shares. No additional purchases are expected to be made by the 2005 Trust under this plan. Pursuant to the terms of the plan, all 457,056 shares acquired by the 2005 Trust have been granted to certain officers, employees and directors of the Company. 2005 RRP shares generally vest at the rate of 20% per year over five years.

 

 

 

In January 2008, the shareholders of the Company approved the adoption of the 2007 Recognition and Retention Plan (the “2007 RRP”). In order to fund the 2007 RRP, the 2007 Recognition Plan Trust (the “2007 Trust”) will acquire 520,916 shares of the Company’s common stock in the open market. The Company will make sufficient contributions to the 2007 Trust to fund the purchase of these shares. As of March 31, 2008, the 2007 Trust had acquired 304,401 shares for approximately $3.0 million, an average price of $9.97 per share. Pursuant to the terms of the plan, 517,200 shares acquired by the 2007 Trust were granted to certain officers, employees and directors of the Company in January 2008, with 3,716 shares remaining available for future grant. 2007 RRP shares generally vest at the rate of 20% per year over five years.

23


 

 

 

A summary of the status of the shares under the 2005 and 2007 RRP as of March 31, 2008 and 2007, and changes during the three months ended March 31, 2008 and 2007 are presented below. The number of shares and weighted average grant date fair value for the prior period have been adjusted for the exchange ratio as a result of our second-step conversion:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

Number of
shares

 

Weighted
average grant
date fair value

 

Number of
shares

 

Weighted
average grant
date fair value

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested at the beginning of the year

 

 

274,874

 

$

7.54

 

 

366,285

 

$

7.54

 

Granted

 

 

517,200

 

 

9.11

 

 

 

 

 

Vested

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

Nonvested at the end of the period

 

 

792,074

 

$

8.57

 

 

366,285

 

$

7.54

 

 

 



 

 

 

 



 

 

 

 


 

 

 

Compensation expense on RRP shares granted is recognized ratably over the five year vesting period in an amount which totals the market price of the common stock at the date of grant. During the three-month periods ended March 31, 2008 and 2007, approximately 40,000 and 23,000 shares, respectively, were amortized to expense, based on the proportional vesting of the awarded shares, resulting in recognition of approximately $329,000 and $172,000 in compensation expense, respectively. A tax benefit of approximately $112,000 and $59,000, respectively, was recognized during these periods. As of March 31, 2008, approximately $6.1 million in additional compensation expense will be recognized over the remaining lives of the RRP awards. At March 31, 2008, the weighted average remaining lives of the RRP awards was approximately 3.9 years.

 

 

 

Stock Options

 

 

In June 2005, the shareholders of Abington Community Bancorp also approved the adoption of the 2005 Stock Option Plan (the “2005 Option Plan”). As a result of the second-step conversion, the 2005 Option Plan became a stock benefit plan of the Company. Unexercised options which were previously granted under the 2005 Option Plan were adjusted by the 1.6 exchange ratio as a result of the second-step conversion and have been converted into options to acquire Company common stock. The 2005 Option Plan authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price equal to the fair market value of the common stock on the grant date. Options will generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. As of March 31, 2008, a total of 1,142,640 shares of common stock have been reserved for future issuance pursuant to the 2005 Option Plan of which 7,460 shares remain available for grant.

 

 

 

In January 2008, the shareholders of the Company also approved the adoption of the 2007 Stock Option Plan (the “2007 Option Plan”). Options will generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. As of March 31, 2008, a total of 1,302,990 shares of common stock have been reserved for future issuance pursuant to the 2007 Option Plan of which 1,247,500 shares were granted in January 2008 and of which 55,490 shares remain available for future grant.

 

 

 

A summary of the status of the Company’s stock options under the 2005 and 2007 Option Plans as of March 31, 2008 and 2007, and changes during the three months ended March 31, 2008 and 2007 are presented below. The number of options and weighted average exercise price for the prior period have been adjusted for the exchange ratio as a result of our second-step conversion:

24


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

Number of
shares

 

Weighted
average
exercise price

 

Number of
shares

 

Weighted
average
exercise price

 

 

 


 


 


 


 

 

Outstanding at the beginning of the year

 

 

1,135,180

 

$

7.74

 

 

1,065,680

 

$

7.62

 

Granted

 

 

1,247,500

 

 

9.11

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Outstanding at the end of the period

 

 

2,382,680

 

$

8.46

 

 

1,065,680

 

$

7.62

 

 

 



 

 

 

 



 

 

 

 

Exercisable at the end of the period

 

 

418,224

 

$

7.57

 

 

205,088

 

$

7.52

 

 

 



 

 

 

 



 

 

 

 


 

 

 

The following table summarizes all stock options outstanding (as adjusted for the exchange ratio) under the Option Plan as of March 31, 2008:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 


 


 

Exercise Price

 

Number of
Shares

 

Weighted
Average
Exercise Price

 

Weighted Average
Remaining
Contractual Life

 

Number of
Shares

 

Weighted
Average
Exercise Price

 


 


 


 


 


 


 

 

 

 

 

 

 

(in years)

 

 

 

 

 

 

$7.51

 

 

1,018,240

 

$

7.51

 

 

7.3

 

 

407,296

 

$

7.51

 

  8.35

 

 

7,200

 

 

8.35

 

 

7.7

 

 

2,880

 

 

8.35

 

  9.11

 

 

1,247,500

 

 

9.11

 

 

9.8

 

 

 

 

 

  9.63

 

 

69,500

 

 

9.63

 

 

9.4

 

 

 

 

 

10.18

 

 

40,240

 

 

10.18

 

 

8.6

 

 

8,048

 

 

10.18

 

 

 



 

 

 

 

 

 

 



 

 

 

 

Total

 

 

2,382,680

 

$

8.46

 

 

8.7

 

 

418,224

 

$

7.57

 

 

 



 



 



 



 



 

Intrinsic value

 

$

4,438,502

 

 

 

 

 

 

 

$

1,151,302

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 


 

 

 

The estimated fair value of options granted in January 2008 was $2.13 per share. The fair value was estimated on the date of grant in accordance with SFAS No. 123R using the Black-Scholes Single Option Pricing Model with the following weighted average assumptions used:


 

 

 

 

 

Dividend yield

 

 

1.88

%

Expected volatility

 

 

23.25

%

Risk-free interest rate

 

 

3.13 - 3.49

%

Expected life of options

 

 

4 - 7 years

 


 

 

 

The dividend yield was calculated based on the dividend amount and stock price existing at the grant date taking into consideration expected increases in the dividend and stock price over the lives of the options. The actual dividend yield may differ from this assumption. The risk-free interest rate used was based on the rates of treasury securities with maturities equal to the expected lives of the options.

25


 

 

 

As the Company has a limited history of granting option awards, management made certain assumptions regarding the exercise behavior of recipients without the use of any prior exercise behavior as a basis. Assumptions of exercise behavior were made on an individual basis for directors and executive officers and general assumptions were made for the remainder of employees. In making these assumptions, management considered the age and financial status of recipients in addition to other qualitative factors.

 

 

 

The expected volatility was based on and calculated from the historical volatility of our stock, as it was determined that this would be the most reliable estimate of future stock volatility. The actual future volatility may differ from our historical volatility.

 

 

 

During the three months ended March 31, 2008 and 2007, approximately $197,000 and $98,000, respectively, was recognized in compensation expense for the Option Plans. A tax benefit of approximately $18,000 and $9,000, respectively, was recognized during each of these periods. At March 31, 2008, approximately $3.7 million in additional compensation expense for awarded options remained unrecognized. The weighted average period over which this expense will be recognized is approximately 4.0 years.

 

 

7.

COMMITMENTS AND CONTINGENCIES

 

 

 

The Bank had approximately $8.8 million in outstanding mortgage loan commitments at March 31, 2008. The commitments are expected to be funded within 90 days with approximately $8.8 million in fixed rate loans with interest rates ranging from 5.375% to 6.5%. The Bank had approximately $5.0 million in outstanding mortgage loan commitments at December 31, 2007. These loans were not originated for resale. Also outstanding at March 31, 2008 and December 31, 2007, were unused lines of credit totaling approximately $66.2 million and $65.2 million, respectively.

 

 

 

Letters of credit are conditional commitments issued by the Bank guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financings and similar transactions. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is substantially the same as that involved in extending loan facilities to customers. Most of the Bank’s letters of credit expire within one year. At March 31, 2008 and December 31, 2007, the Bank had letters of credit outstanding of approximately $17.0 million and $17.2 million, respectively, of which $15.6 million and $15.8 million, respectively, were standby letters of credit. At March 31, 2008 and December 31, 2007, the uncollateralized portion of the letters of credit extended by the Bank was approximately $99,000 and $97,000, respectively. At March 31, 2008 and December 31, 2007, all of the uncollateralized letters of credit were for standby letters of credit.

 

 

 

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

 

 

 

Among the Company’s contingent liabilities, are exposures to limited recourse arrangements with respect to the Bank’s sales of whole loans and participation interests. At March 31, 2008, the exposure, which represents a portion of credit risk associated with the sold interests, amounted to $185,000. The exposure is for the life of the related loans and payable, on our proportional share, as losses are incurred.

26


 

 

8.

FAIR VALUE MEASUREMENTS

 

 

 

The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Investment and mortgage-backed securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, real estate owned and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

 

 

 

Under SFAS No. 157, Fair Value Measurements, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:


 

 

 

 

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

 

 

 

 

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

 

 

 

 

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.


 

 

 

Under SFAS No. 157, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in SFAS No. 157.

 

 

 

Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the Company’s or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations. At March 31, 2008, the Company did not have any assets that were measured at fair value on a recurring basis that use Level 3 measurements.

 

 

 

Following is a description of valuation methodologies used for assets recorded at fair value.

 

 

 

Investment and Mortgage-backed Securities Available for Sale—Investment and mortgage-backed securities available for sale are recorded at fair value on a recurring basis. Fair value measurements for these securities are typically obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, our independent pricing service’s applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. For each asset class, pricing applications and models are based on information from market sources and integrate relevant credit information. All of our securities available for sale are valued using either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. Level 1 securities include equity securities such as common stock and mutual funds traded on active exchanges. Level 2 securities include corporate bonds, agency bonds, municipal bonds, certificates of deposit, mortgage-backed securities, and collateralized mortgage obligations.

27



 

 

 

Real Estate OwnedReal estate owned includes foreclosed properties securing commercial and construction loans. Real estate properties acquired through foreclosure are initially recorded at the fair value of the property at the date of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell. Fair value is generally based upon independent market prices or appraised value of the collateral. Our appraisals are typically performed by independent third party appraisers. For appraisals of commercial and construction properties, comparable properties within the area may not be available. In such circumstances, our appraisers will rely on certain judgments in determining how a specific property compares in value to other properties that are not identical in design or in geographic area. Our current portfolio of real estate owned is comprised of such properties and, accordingly, we classify real estate owned as Level 3. Our increase in real estate owned during the quarter was due solely to additions to that category of asset. No valuation allowances or changes in value were recognized during the quarter.

 

 

 

The table below presents the balances of asset measured at fair value on a recurring basis:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

 

 


 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments securities available for sale

 

$

92,730,585

 

$

3,126,232

 

$

89,604,353

 

$

 

Mortgage-backed securities available for sale

 

 

107,244,647

 

 

 

 

107,244,647

 

 

 

 

 



 



 



 



 

 

Total

 

$

199,975,232

 

$

3,126,232

 

$

196,849,000

 

$

 

 

 



 



 



 



 

28



 

 

 

For assets measured at fair value on a nonrecurring basis in 2008 that were still held at the end of the period, the following table provides the level of valuation assumptions used to determine each adjustment an the carrying value of the related individual assets or portfolios at March 31, 2008:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

 

 


 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total
Gains
(Losses)

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

$

2,630,603

 

$

 

$

 

$

2,630,603

 

$

 

 

 



 



 



 



 



 

 

Total

 

$

2,630,603

 

$

 

$

 

$

2,630,603

 

$

 

 

 



 



 



 



 



 

ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OverviewThe Company was formed by the Bank in connection with the Bank’s second-step conversion and reorganization, completed on June 27, 2007. Previously, Abington Community Bancorp was the mid-tier holding company for the Bank, and Abington Mutual Holding Company owned approximately 57% of Abington Community Bancorp’s outstanding stock. Upon completion of the second-step reorganization, Abington Community Bancorp, Inc. and Abington Mutual Holding Company ceased to exist and the Company became the holding company for the Bank. The Bank is now a wholly owned subsidiary of the Company.

The Company’s results of operations are primarily dependent on the results of the Bank. The Bank’s results of operations depend to a large extent on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, which is the interest paid on deposits and borrowings. Results of operations are also affected by our provisions for loan losses, service charges and other non-interest income and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy and equipment expense, professional services expense, data processing expense, advertising and promotions and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking. The Bank’s executive offices and loan processing office are in Jenkintown, Pennsylvania, with eleven other full service branches and six limited service facilities located in Montgomery, Bucks and Delaware Counties, Pennsylvania. The Bank is principally engaged in the business of accepting customer deposits and investing these funds in loans, primarily residential mortgages.

We earned net income of $1.9 million for the quarter ended March 31, 2008, representing an increase of $456,000 or 31.2% over the comparable 2007 period. Basic and diluted earnings per share increased to $0.09 and $0.08, respectively, for the quarter compared to $0.06 and $0.06, respectively, for the first quarter of 2007. Earnings per share for the 2007 period have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on June 27, 2007.

Net interest income was $6.9 million for the three months ended March 31, 2008, representing an increase of $1.4 million or 25.3% over the comparable 2007 period. Although our average interest rate spread decreased slightly to 1.90% for the first quarter of 2008 from 1.93% for the first quarter of 2007, our net interest margin increased 22 basis points to 2.72% for the first quarter of 2008 from 2.50% for the first quarter of 2007. Our total interest income for the three months ended March 31, 2008 increased $977,000 or 7.4% over the comparable 2007 period. Our total interest expense for the three months ended March 31, 2008 decreased $413,000 or 5.4% over the comparable 2007 period to $7.3 million, further increasing our net interest income quarter-over-quarter.

29


Our total non-interest income for the first quarter of 2008 amounted to $953,000, representing an increase of $266,000 or 38.7% from the first quarter of 2007. Our total non-interest expenses for the first quarter of 2008 amounted to $5.2 million, representing an increase of $989,000 or 23.6% from the first quarter of 2007.

The Company’s total assets increased $28.3 million, or 2.6%, to $1.1 billion at March 31, 2008 compared to $1.1 billion at December 31, 2007, due primarily to increases in the aggregate balance of investment and mortgage-backed securities and loans receivable. Our total deposits increased $24.5 million or 4.0% to $634.1 million at March 31, 2008 compared to $609.6 million at December 31, 2007 with growth in all types of deposit accounts. Our total stockholders’ equity increased slightly to $250.0 million at March 31, 2008 from $249.9 million at December 31, 2007.

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

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

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

30


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

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

We establish a general allowance on non-classified loans to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem loans. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends, and management’s evaluation of the collectibility of the loan portfolio.

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

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

Fair Value MeasurementsWe use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Investment and mortgage-backed securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, real estate owned and certain other assets. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

31


Under SFAS No. 157, Fair Value Measurements, we group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

 

 

 

 

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

 

 

 

 

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

 

 

 

 

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

Under SFAS No. 157, we base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in SFAS No. 157. Fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information. Substantially all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. In certain cases, however, when market observable inputs for model-based valuation techniques may not be readily available, we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations. At March 31, 2008, we did not have any assets that were measured at fair value on a recurring basis that use Level 3 measurements.

Other-Than-Temporary Impairment of SecuritiesSecurities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

32


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

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

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2008 AND DECEMBER 31, 2007

The Company’s total assets increased $28.3 million, or 2.6%, to $1.1 billion at March 31, 2008 compared to $1.1 billion at December 31, 2007. Net loans receivable increased $11.6 million or 1.7% during the first quarter of 2008. The largest loan growth occurred in one- to four-family residential loans, which increased $11.7 million, and construction loans, which increased $5.9 million. Additionally, commercial business loans increased $2.9 million. These increases were partially offset by a $6.1 million decrease in home equity lines of credit, a $5.1 million decrease in multi-family residential and commercial real estate loans, and a $1.6 million decrease in consumer non-real estate loans. Our mortgage-backed securities increased $21.3 million as purchases of $28.1 million outpaced repayments, maturities and sales aggregating $8.3 million during the quarter. Our investment securities decreased $6.1 million in the aggregate due primarily to $18.0 million in calls and maturities of agency bonds partially offset by $4.0 million in purchases of additional agency bonds and $6.1 million of municipal bonds.

Our total deposits increased $24.5 million or 4.0% to $634.1 million at March 31, 2008 compared to $609.6 million at December 31, 2007. The increase was due to growth in all types of deposit accounts. Although the largest increase in absolute dollars was in certificate of deposit accounts, which grew $14.1 million during the quarter, savings and money market accounts grew $6.2 million and checking accounts grew $4.1 million, resulting in an increase of $10.3 million in core deposits. Our other borrowed money, which is comprised of securities repurchase agreements entered into with certain commercial checking account customers, increased $3.0 million during the first quarter of 2008. Advances from the Federal Home Loan Bank decreased $1.7 million to $187.9 million at March 31, 2008.

Our total stockholders’ equity increased slightly to $250.0 million at March 31, 2008 from $249.9 million at December 31, 2007. Our retained earnings increased $783,000 during the first quarter of 2008 as our net income of $1.9 million was partially offset by a reduction of $1.1 million resulting from the payment of our first quarter dividend of $0.05 per share. Our accumulated other comprehensive income improved to $1.4 million at March 31, 2008 from a loss of $225,000 at December 31, 2007 as a result of increased fair values of our available for sale investment and mortgage-backed securities. These increases to stockholders’ equity were partially offset by the purchase of approximately 304,000 shares of the Company’s common stock by the 2007 RRP trust for approximately $3.0 million in the aggregate, as part of the Company’s previously announced plans to fund the 2007 Recognition and Retention Plan.

33


LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are from deposits, amortization of loans, loan prepayments and pay-offs, mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity. At March 31, 2008, our cash and cash equivalents amounted to $68.9 million. In addition, at such date we had $5.5 million in investment securities scheduled to mature within the next 12 months. Our available for sale investment and mortgage-backed securities amounted to an aggregate of $200.0 million at March 31, 2008.

We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At March 31, 2008, we had certificates of deposit maturing within the next 12 months amounting to $336.3 million. Based upon historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us. For the three months ended March 31, 2008, and the year ended December 31, 2007, the average balance of our outstanding FHLB advances was $188.7 million and $183.4 million, respectively. At March 31, 2008, we had $187.9 million in outstanding FHLB advances and we had $433.9 million in additional FHLB advances available to us.

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

Our stockholders’ equity amounted to $250.0 million at March 31, 2008, a slight increase from stockholders’ equity of $249.9 million at December 31, 2007. During 2007, however, we raised $134.7 million in net proceeds received from our second-step conversion and stock offering. Half of these net proceeds, approximately $67.3 million, were invested in Abington Bank. The net proceeds received by the Bank have further strengthened its capital position, which already exceeded all regulatory requirements (see table below). While these proceeds have been initially invested in short-term, liquid investments to earn a market rate of return, our long-term plan continues to be to leverage our capital through retail deposit and loan growth. Specifically, we plan to use the net proceeds received by the Bank to fund new loans, to invest in mortgage-backed securities, to finance the expansion of our business activities, including developing new branch locations and for general corporate purposes. Towards this goal, we have plans to open a new branch in Hatboro, Pennsylvania in the second quarter of 2008 after opening four new branches in 2007. Although these branches will require a period of time to generate sufficient revenues to offset their costs, our ongoing branch expansion is a key component of our long-term business strategy. The net proceeds held by the Company are on deposit with the Bank. In the long term, these proceeds may be used to invest in securities, to pay dividends to shareholders, to repurchase shares of the Company’s common stock, subject to regulatory restrictions, and to finance the possible acquisition of financial institutions or branch offices or other businesses that are related to banking. Although we currently have no plans, understandings or agreements with respect to any specific acquisitions, we are constantly considering potential opportunities to increase long-term shareholder value.

34


The following table summarizes regulatory capital ratios for the Bank as of the dates indicated and compares them to current regulatory requirements. As a savings and loan holding company, the Company is not subject to any regulatory capital requirements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual Ratios At

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

Regulatory
Minimum

 

To Be Well
Capitalized

 

 

 


 


 


 


 

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio

 

15.18

%

 

15.45

%

 

4.00

%

 

5.00

%

 

Tier 1 risk-based capital ratio

 

23.90

 

 

24.22

 

 

4.00

 

 

6.00

 

 

Total risk-based capital ratio

 

24.16

 

 

24.49

 

 

8.00

 

 

10.00

 

 

SHARE-BASED COMPENSATION

The Company accounts for its share-based compensation awards in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R (revised 2004), Share-Based Payment. This statement requires an entity to recognize the cost of employee services received in share-based payment transactions and measures the cost on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award.

At March 31, 2008, the Company has four share-based compensation plans, the 2005 and the 2007 Recognition and Retention Plans (the “2005 RRP” and “2007 RRP”) and the 2005 and 2007 Stock Option Plans (the “2005 Option Plan” and “2007 Option Plan”). Share awards were first issued under the 2005 plans in July 2005. Share awards were issued under the 2007 plans in January 2008. See Note 6 in the Notes to the Unaudited Consolidated Financial Statements herein for a further description of these plans.

Compensation expense on Recognition and Retention Plan shares granted is recognized ratably over the five year vesting period in an amount which totals the market price of the common stock at the date of grant. During the three-month periods ended March 31, 2008 and 2007, approximately 40,000 and 23,000 shares, respectively, were amortized to expense, based on the proportional vesting of the awarded shares, resulting in recognition of approximately $329,000 and $172,000 in compensation expense, respectively. A tax benefit of approximately $112,000 and $59,000, respectively, was recognized during these periods. As of March 31, 2008, approximately $6.1 million in additional compensation expense will be recognized over the remaining lives of the RRP awards. At March 31, 2008, the weighted average remaining lives of the RRP awards was approximately 3.9 years.

During the three months ended March 31, 2008 and 2007, approximately $197,000 and $98,000, respectively, was recognized in compensation expense for the Option Plans. A tax benefit of approximately $18,000 and $9,000, respectively, was recognized during each of these periods. At March 31, 2008, approximately $3.7 million in additional compensation expense for awarded options remained unrecognized. The weighted average period over which this expense will be recognized is approximately 4.0 years.

The Company also has an employee stock ownership plan (“ESOP”). See Note 6 in the Notes to the Unaudited Consolidated Financial Statements herein for a further description of this plan. Shares awarded under the ESOP are accounted for in accordance with AICPA Statement of Position (“SOP”) 93-6, Employers’ Accounting for Employee Stock Ownership Plans. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned. During the three-month periods ended March 31, 2008 and 2007 approximately 24,000 and 15,000 shares, respectively, were committed to be released to participants, resulting in recognition of approximately $233,000 and $184,000 in compensation expense, respectively.

35


COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and the unused portions of lines of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Commitments to extend credit and lines of credit are not recorded as an asset or liability by us until the instrument is exercised. At March 31, 2008 and December 31, 2007, we had no commitments to originate loans for sale.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan documents. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. The amount and type of collateral required varies, but may include accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At March 31, 2008 and December 31, 2007, commitments to originate loans and commitments under unused lines of credit, including undisbursed portions of construction loans in process, for which the Bank is obligated, amounted to approximately $127.0 million and $126.0 million, respectively.

Letters of credit are conditional commitments issued by the Bank guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financings and similar transactions. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is substantially the same as that involved in extending loan facilities to customers. Most of the Bank’s letters of credit expire within one year. At March 31, 2008 and December 31, 2007, the Bank had letters of credit outstanding of approximately $17.0 million and $17.2 million, respectively, of which $15.6 million and $15.8 million, respectively, were standby letters of credit. At March 31, 2008 and December 31, 2007, the uncollateralized portion of the letters of credit extended by the Bank was approximately $99,000 and $97,000, respectively. At March 31, 2008 and December 31, 2007, all of the uncollateralized letters of credit were for standby letters of credit.

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

Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Bank’s sales of whole loans and participation interests. At March 31, 2008, the exposure, which represents a portion of credit risk associated with the sold interests, amounted to $185,000. The exposure is for the life of the related loans and payable, on our proportional share, as losses are incurred.

36


We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and under our construction loans at March 31, 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Commitment Expiration - Per Period

 

 

 

 

 

 


 

 

 

Total Amounts
Committed

 

To
1 Year

 

Over 1 to
3 Years

 

Over 4 to
5 Years

 

After 5
Years

 

 

 


 


 


 


 


 

 

 

(In Thousands)

 

Letters of credit

 

$

17,024

 

$

15,934

 

$

1,085

 

$

 

$

5

 

Recourse obligations on loans sold

 

 

185

 

 

 

 

 

 

 

 

185

 

Commitments to originate loans

 

 

8,798

 

 

8,798

 

 

 

 

 

 

 

Unused portion of home equity lines of credit

 

 

23,488

 

 

 

 

 

 

 

 

23,488

 

Unused portion of commercial lines of credit

 

 

42,736

 

 

42,736

 

 

 

 

 

 

 

Undisbursed portion of construction loans in process

 

 

51,978

 

 

24,971

 

 

27,007

 

 

 

 

 

 

 



 



 



 



 



 

Total commitments

 

$

144,209

 

$

92,439

 

$

28,092

 

$

 

$

23,678

 

 

 



 



 



 



 



 

The following table summarizes our contractual cash obligations at March 31, 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due By Period

 

 

 

 

 

 


 

 

 

Total

 

To
1 Year

 

Over 1 to
3 Years

 

Over 4 to 5
Years

 

After 5
Years

 

 

 


 


 


 


 


 

 

 

(In Thousands)

 

Certificates of deposit

 

$

428,804

 

$

336,342

 

$

69,941

 

$

9,382

 

$

13,139

 

 

 



 



 



 



 



 

FHLB advances

 

 

187,853

 

 

51,332

 

 

80,336

 

 

20,922

 

 

35,263

 

Repurchase agreements

 

 

20,481

 

 

20,481

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Total debt

 

 

208,334

 

 

71,813

 

 

80,336

 

 

20,922

 

 

35,263

 

 

 



 



 



 



 



 

Operating lease obligations

 

 

7,568

 

 

813

 

 

1,712

 

 

1,568

 

 

3,475

 

 

 



 



 



 



 



 

Total contractual obligations

 

$

644,706

 

$

408,968

 

$

151,989

 

$

31,872

 

$

51,877

 

 

 



 



 



 



 



 

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

General. We earned net income of $1.9 million for the quarter ended March 31, 2008, representing an increase of $456,000 or 31.2% over the comparable 2007 period. Basic and diluted earnings per share increased to $0.09 and $0.08, respectively, for the quarter compared to $0.06 and $0.06, respectively, for the first quarter of 2007. Earnings per share for the 2007 period have been adjusted to reflect the impact of the second-step conversion and reorganization of the Company, which occurred on June 27, 2007. Net interest income was $6.9 million for the three months ended March 31, 2008, representing an increase of $1.4 million or 25.3% over the comparable 2007 period. Although our average interest rate spread decreased slightly to 1.90% for the first quarter of 2008 from 1.93% for the first quarter of 2007, our net interest margin increased 22 basis points to 2.72% for the first quarter of 2008 from 2.50% for the first quarter of 2007.

37


Interest Income. Our total interest income for the three months ended March 31, 2008 increased $977,000 or 7.4% over the comparable 2007 period to $14.2 million, primarily as a result of growth in the average balances of all categories of interest-earning assets. The average balance of our interest-earning assets increased $132.0 million or 15.0% to $1.0 billion for the quarter ended March 31, 2008 from $882.0 million for the quarter ended March 31, 2007. This increase was partially offset by a decrease in the aggregate average yield on those assets of 40 basis points to 5.60% for the first quarter of 2008 from 6.00% for the first quarter of 2007. This decrease in yield was primarily driven by a 51 basis point decrease in the average yield on our loans receivable.

Interest Expense. Our total interest expense for the three months ended March 31, 2008 decreased $413,000 or 5.4% over the comparable 2007 period to $7.3 million, further increasing our net interest income quarter-over-quarter. The decrease in our interest expense occurred as a decrease in the average rate paid on our total interest-bearing liabilities offset an increase in the average balance of those liabilities. The average rate we paid on our total interest-bearing liabilities decreased 37 basis points to 3.70% for the first quarter of 2008 from 4.07% for the first quarter of 2007. The average rate we paid on our total deposits decreased 39 basis points quarter-over-quarter, driven by a 60 basis point decrease in the average rate paid on our certificates of deposit and a 150 basis point decrease in the average rate paid on our other borrowings. The average balance of our total interest-bearing liabilities increased $30.8 million to $789.3 million for the quarter ended March 31, 2008 from $758.5 million for the quarter ended March 31, 2007. Our average deposit balance grew by $32.8 million over this same period as a result of increases in all categories of interest-bearing deposits. The average balance of our advances from the Federal Home Loan Bank (“FHLB”) decreased $4.4 million to $188.7 million for the first quarter of 2008 from $193.1 million for the first quarter of 2007. The average balance of our other borrowings increased $2.5 million or 14.0% quarter-over-quarter.

38


Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

Average
Balance

 

Interest

 

Average
Yield/Rate

 

Average
Balance

 

Interest

 

Average
Yield/Rate

 

 

 


 


 


 


 


 


 

 

 

(Dollars in Thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities(1)

 

$

115,881

 

$

1,334

 

 

4.60

%

$

99,497

 

$

1,113

 

 

4.47

%

Mortgage-backed securities

 

 

149,002

 

 

1,621

 

 

4.35

 

 

133,274

 

 

1,409

 

 

4.23

 

Loans receivable(2)

 

 

688,958

 

 

10,711

 

 

6.22

 

 

615,897

 

 

10,368

 

 

6.73

 

Other interest-earning assets

 

 

60,135

 

 

531

 

 

3.53

 

 

33,291

 

 

330

 

 

3.97

 

 

 



 



 

 

 

 



 



 

 

 

 

Total interest-earning assets

 

 

1,013,976

 

 

14,197

 

 

5.60

 

 

881,959

 

 

13,220

 

 

6.00

 

 

 

 

 

 



 



 

 

 

 



 



 

Cash and non-interest bearing balances

 

 

22,523

 

 

 

 

 

 

 

 

17,319

 

 

 

 

 

 

 

Other non-interest-earning assets

 

 

57,275

 

 

 

 

 

 

 

 

29,668

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total assets

 

$

1,093,774

 

 

 

 

 

 

 

$

928,946

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and money market accounts

 

$

97,723

 

 

345

 

 

1.41

 

$

93,463

 

 

281

 

 

1.20

 

Checking accounts

 

 

60,127

 

 

5

 

 

0.03

 

 

57,116

 

 

4

 

 

0.03

 

Certificate accounts

 

 

422,706

 

 

4,572

 

 

4.33

 

 

397,210

 

 

4,894

 

 

4.93

 

 

 



 



 

 

 

 



 



 

 

 

 

Total deposits

 

 

580,556

 

 

4,922

 

 

3.39

 

 

547,789

 

 

5,179

 

 

3.78

 

FHLB advances

 

 

188,734

 

 

2,248

 

 

4.76

 

 

193,138

 

 

2,355

 

 

4.88

 

Other borrowings

 

 

19,989

 

 

135

 

 

2.70

 

 

17,532

 

 

184

 

 

4.20

 

 

 



 



 

 

 

 



 



 

 

 

 

Total interest-bearing liabilities

 

 

789,279

 

 

7,305

 

 

3.70

 

 

758,459

 

 

7,718

 

 

4.07

 

 

 

 

 

 



 



 

 

 

 



 



 

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing demand accounts

 

 

39,987

 

 

 

 

 

 

 

 

43,482

 

 

 

 

 

 

 

Real estate tax escrow accounts

 

 

3,572

 

 

 

 

 

 

 

 

3,170

 

 

 

 

 

 

 

Other liabilities

 

 

10,791

 

 

 

 

 

 

 

 

8,846

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total liabilities

 

 

843,629

 

 

 

 

 

 

 

 

813,957

 

 

 

 

 

 

 

Stockholders’ equity

 

 

250,145

 

 

 

 

 

 

 

 

114,989

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,093,774

 

 

 

 

 

 

 

$

928,946

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Net interest-earning assets

 

$

224,697

 

 

 

 

 

 

 

 

123,500

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Net interest income; average Interest rate spread

 

 

 

 

$

6,892

 

 

1.90

%

 

 

 

$

5,502

 

 

1.93

%

 

 

 

 

 



 



 

 

 

 



 



 

Net interest margin(3)

 

 

 

 

 

 

 

 

2.72

%

 

 

 

 

 

 

 

2.50

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 


 

 


(1)

Investment securities for the 2008 period include 95 tax-exempt municipal bonds with an aggregate average balance of $29.3 million and an average yield of 4.1%. Investment securities for the 2007 period include 46 tax-exempt municipal bonds with an aggregate average balance of $20.4 million and an average yield of 4.2%. The tax-exempt income from such securities has not been presented on a tax equivalent basis.

 

 

(2)

Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts and loans in process.

 

 

(3)

Equals net interest income divided by average interest-earning assets.

39


Provision for Loan Losses. We made a $49,000 provision for loan losses during the first quarter of 2008 compared to a provision of $4,000 during the first quarter of 2007. The provision for loan losses is charged to expense as necessary to bring our allowance for loan losses to a sufficient level to cover known and inherent losses in the loan portfolio. Our loan portfolio at March 31, 2008 included an aggregate of $561,000 of non-performing loans compared to $1.6 million of non-performing loans at December 31, 2007. Our non-performing loans at March 31, 2008 consist primarily of one construction and one commercial real estate loan to one borrower with an aggregate balance of $468,000. During the first quarter of 2008, we foreclosed on the collateral properties underlying three other commercial real estate loans to this borrower. The aggregate balance of these loans, which had been previously placed on non-accrual status, was approximately $977,000 at the time of foreclosure. No loan balances were charged-off in conjunction with the acquisitions of these properties. At March 31, 2008, our non-performing loans amounted to 0.08% of loans receivable and our allowance for loan losses amounted to 329.8% of non-performing loans.

At March 31, 2008, the Bank’s largest construction loan was a $13.0 million loan for the construction of a 40 unit high rise residential condominium project in Center City, Philadelphia. This loan has performed in accordance with its terms since its origination in 2005, and no specific reserve is currently maintained on this loan. However, construction is behind schedule and the Bank recently approved a $1.5 million increase in the authorized loan amount to cover certain cost overruns and permit completion of the project. Management is closely monitoring this loan.

Non-interest Income. Our total non-interest income for the first quarter of 2008 amounted to $953,000, representing an increase of $266,000 or 38.7% from the first quarter of 2007. The increase was due primarily to an increase in income on bank owned life insurance (“BOLI”) of $298,000 that resulted mainly from the purchase of $20.0 million of additional BOLI during the third quarter of 2007. Partially offsetting this increase were decreases in service charge income and other non-interest income for the first quarter of 2008 compared to the first quarter of 2007, as well as a $12,000 aggregate loss on the sales of certain mortgage-backed securities during the first quarter of 2008.

Non-interest Expenses. Our total non-interest expenses for the first quarter of 2008 amounted to $5.2 million, representing an increase of $989,000 or 23.6% from the first quarter of 2007. The largest increases were in salaries and employee benefits, occupancy, professional services and other non-interest expense. Salaries and employee benefits expense increased $538,000 quarter-over-quarter, due largely to growth in the total number of employees, normal merit increases in salaries, and higher health and insurance benefit costs. Salaries and employee benefits expense also increased due to an additional expense of $176,000 recognized during the first quarter of 2008 as the result of the granting of awards to officers and employees under the 2007 Option Plan and the 2007 RRP, which were approved by shareholders in January 2008. Occupancy expense increased by $97,000, quarter-over-quarter, primarily as a result of our additional branches opened in Chalfont and Spring House, Pennsylvania during 2007 as well as additional equipment and computer costs for all of our facilities. The increase in professional services expense was due to increases in both legal and accounting fees. The increase in legal fees was due in part to expenses related to the special meeting of shareholders held in January 2008 as well as expenses incurred in connection with the resolution of certain non-performing loans. The increase in other non-interest expense was due largely to an additional expense of $71,000 for the issuance of awards to directors under the 2007 Option Plan and 2007 RRP. Also contributing to the increase in other non-interest expense were increases in expenses for appraisal fees, office supplies, copying, postage, and deposit premiums as well as a $17,000 expense for real estate owned.

Income Tax Expense. Income tax expense for the first quarter of 2008 amounted to $692,000 compared to $526,000 for the first quarter of 2007. Our effective tax rate held steady at 26.5% for both quarters. This occurred in part due to purchases of additional tax-exempt investments, including municipal bonds and BOLI, that allowed our tax-exempt income to increase as other sources of income were increasing. The increase in our provision for income taxes was a result of the increase in our pre-tax income.

40


FORWARD LOOKING STATEMENTS

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

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

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. We have no obligation to update or revise any forward-looking statements to reflect any changed assumptions, any unanticipated events or any changes in the future.

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee, which is comprised of our President and Chief Executive Officer, three Senior Vice Presidents and two Vice Presidents of Lending, and which is responsible for reviewing our asset/liability policies and interest rate risk position. The Asset/Liability Committee meets on a regular basis. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.

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

 

 

 

 

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

41


 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the interest rate sensitivity “gap.” An asset and liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income. Our current asset/liability policy provides that our one-year interest rate gap as a percentage of total assets should not exceed positive or negative 20%. This policy was adopted by our management and Board based upon their judgment that it established an appropriate benchmark for the level of interest-rate risk, expressed in terms of the one-year gap, for the Bank. In the event our one-year gap position were to approach or exceed the 20% policy limit, we would review the composition of our assets and liabilities in order to determine what steps might appropriately be taken, such as selling certain securities or loans or repaying certain borrowings, in order to maintain our one-year gap in accordance with the policy. Alternatively, depending on the then-current economic scenario, we could determine to make an exception to our policy or we could determine to revise our policy. In recent periods, our one-year gap position was well within our policy. Our one-year cumulative gap was a negative 9.24% at March 31, 2008, compared to a negative 9.04% at December 31, 2007. We have increased our originations of commercial real estate and multi-family residential real estate loans, construction loans, home equity lines and commercial business loans in recent periods. This has been done, in part, because such loans generally have shorter terms to maturity than single-family residential mortgage loans and are more likely to have floating or adjustable rates of interest, thereby increasing the amount of our interest rate sensitive assets in the one- to three-year time horizon. By increasing the amount of our interest rate sensitive assets in the one-to three-year time horizon, we felt that we better positioned ourselves to benefit from a rising interest rate environment because the average interest rates on our loans would increase as general market rates of interest were increasing.

42


The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at March 31, 2008, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at March 31, 2008, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for adjustable-rate and fixed-rate single-family and multi-family mortgage loans are assumed to range from 10% to 26%. The annual prepayment rate for mortgage-backed securities is assumed to range from 9% to 63%. Money market deposit accounts, savings accounts and interest-bearing checking accounts are assumed to have annual rates of withdrawal, or “decay rates,” of 16%, 12.5% and 0%, respectively.

43


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 Months
or Less

 

More than
6 Months
to 1 Year

 

More than
1 Year
to 3 Years

 

More than
3 Years
to 5 Years

 

More than
5 Years

 

Total
Amount

 

 

 


 


 


 


 


 


 

 

 

(Dollars in Thousands)

 

Interest-earning assets(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

277,362

 

$

55,220

 

$

157,058

 

$

87,360

 

$

118,466

 

$

695,466

 

Mortgage-backed securities

 

 

31,772

 

 

19,702

 

 

44,909

 

 

22,431

 

 

42,297

 

 

161,111

 

Investment securities

 

 

10,548

 

 

189

 

 

17,000

 

 

41,945

 

 

41,952

 

 

111,634

 

Other interest-earning assets

 

 

56,423

 

 

 

 

 

 

 

 

 

 

56,423

 

 

 



 



 



 



 



 



 

Total interest-earning assets

 

$

376,105

 

$

75,111

 

$

218,967

 

$

151,736

 

$

202,715

 

$

1,024,634

 

 

 



 



 



 



 



 



 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and money market accounts

 

$

15,282

 

$

15,282

 

$

38,139

 

$

17,546

 

$

15,330

 

$

101,579

 

Checking accounts

 

 

 

 

 

 

 

 

 

 

62,178

 

 

62,178

 

Certificate accounts

 

 

312,028

 

 

73,839

 

 

20,415

 

 

9,382

 

 

13,140

 

 

428,804

 

FHLB advances

 

 

89,727

 

 

26,946

 

 

39,019

 

 

8,346

 

 

23,815

 

 

187,853

 

Other borrowed money

 

 

20,481

 

 

 

 

 

 

 

 

 

 

20,481

 

 

 



 



 



 



 



 



 

Total interest-bearing liabilities

 

$

437,518

 

$

116,067

 

$

97,573

 

$

35,274

 

$

114,463

 

$

800,895

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets less interest-bearing liabilities

 

$

(61,413

)

$

(40,956

)

$

121,394

 

$

116,462

 

$

88,252

 

$

223,739

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative interest-rate sensitivity gap(2)

 

$

(61,413

)

$

(102,369

)

$

19,025

 

$

135,487

 

$

223,739

 

 

 

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative interest-rate gap as a percentage of total assets at March 31, 2008

 

 

(5.54

)%

 

(9.24

)%

 

1.72

%

 

12.23

%

 

20.19

%

 

 

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2008

 

 

85.96

%

 

81.51

%

 

102.92

%

 

119.74

%

 

127.94

%

 

 

 

 

 



 



 



 



 



 

 

 

 


 

 


(1)

Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.

 

 

(2)

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

 

 

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

44


ITEM 4. – CONTROLS AND PROCEDURES

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

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

 

 

 

PART II

OTHER INFORMATION

 


 

 

ITEM 1.

LEGAL PROCEEDINGS

          Not applicable.

 

 

ITEM 1A.

RISK FACTORS

          There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


 

 

(a)

Not applicable.

 

 

(b)

Not applicable.

 

 

(c)

Purchases of Equity Securities

45


The Company’s purchases of its common stock made during the quarter consisted solely of purchases to fund the 2007 Recognition and Retention Plan and Trust, which is an affiliate of the Company, and are set forth in the following table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total
Number of
Shares
Purchased

 

Average
Price Paid
per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

Maximum Number
of Shares that May
Yet be Purchased
Under the Plan or
Programs (1)

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

January 1 – January 31, 2008

 

 

 

 

 

 

 

 

520,916

 

February 1 – February 29, 2008

 

 

196,038

 

 

9.88

 

 

196,038

 

 

324,878

 

March 1 – March 31, 2008

 

 

108,363

 

 

9.99

 

 

108,363

 

 

216,515

 

 

 



 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

304,401

 

$

9.92

 

 

304,401

 

 

216,515

 

 

 



 



 



 



 

(1) On January 30, 2008, shareholders of the Company voted to approve the 2007 Recognition and Retention Plan and Trust Agreement (“2007 RRP”) authorizing the purchase of up to 520,916 shares of the Company’s common stock. Purchases to fund the 2007 RRP are expected to continue until the plan is fully funded.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

          Not applicable.

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          On January 30, 2008, the Company held a Special Meeting of Shareholders to obtain approval for two proxy proposals submitted on behalf of the Company’s Board of Directors. Shareholders of record as of December 17, 2007, received proxy materials and were considered eligible to vote on these proposals. The following is a brief summary of each proposal and the result of the vote.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For

 

Against

 

Abstain

 

Broker Non-Votes

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

1. To adopt the 2007 Stock Option Plan

 

 

13,976,534

 

 

2,950,818

 

 

121,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. To adopt the 2007 Recognition and Retention Plan and Trust Agreement

 

 

14,047,147

 

 

2,875,333

 

 

126,016

 

 

 


 

 

ITEM 5.

OTHER INFORMATION

          Not applicable.

 

 

ITEM 6.

EXHIBITS


 

 

 

 

 

No.

 

Description

 


 


 

31.1

 

Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.

 

 

 

 

 

31.2

 

Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.

 

 

 

 

 

32.1

 

Section 1350 Certification.

 

 

 

 

 

32.2

 

Section 1350 Certification.

46


SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

ABINGTON BANCORP, INC.

 

 

 

Date: May 9, 2008

By:

/s/ Robert W. White

 

 


 

 

Robert W. White

 

 

Chairman, President and

 

 

Chief Executive Officer

 

 

 

Date: May 9, 2008

By:

/s/ Jack J. Sandoski

 

 


 

 

Jack J. Sandoski

 

 

Senior Vice President and

 

 

Chief Financial Officer

47