UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
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þ
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Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended
December 31, 2010
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OR
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o
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
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Commission File Number 0-52705
Abington Bancorp, Inc.
(Exact name of Registrant as specified in its charter)
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Pennsylvania
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20-8613037
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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180 Old York Road, Jenkintown, Pennsylvania
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19046
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
215-886-8280
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock (par value $0.01 per share)
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The Nasdaq Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the Exchange Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
o
Yes
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No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
o
Yes
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No
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act 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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
þ
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
large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
o
No
þ
The aggregate market value of the shares of common stock of the Registrant issued
and outstanding on June 30, 2010, which excludes 3,291,945 shares held by all directors, officers
and affiliates of the Registrant as a group, was approximately $148.8 million. This figure is based
on the closing price of $8.72 per share of the Registrants common stock on June 30, 2010, the last
business day of the Registrants second fiscal quarter.
The number of shares of the Issuers common stock, par value $0.01 per share,
outstanding as of March 1, 2011 was 20,227,570.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
ABINGTON BANCORP, INC.
TABLE OF CONTENTS
PART I
General
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 Banks 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 Companys results of operations are primarily dependent on the results of the Bank
and the Banks wholly owned subsidiaries, ASB Investment Co. and certain limited purpose LLCs. As
of December 31, 2010, the Company, on a consolidated basis, had total assets of $1.25 billion,
total deposits of $900.1 million, and total stockholders equity of $211.9 million.
On January 26, 2011, the Company and Susquehanna Bancshares, Inc., (Susquehanna) entered into an
Agreement and Plan of Merger (the Merger Agreement) pursuant to which Abington will merge with
and into Susquehanna (the Merger). Promptly following consummation of the Merger, it is expected
that Abington Bank will merge with and into Susquehanna Bank (the Bank Merger). Under the terms
of the Merger Agreement, shareholders of Abington will receive 1.32 shares (the Exchange Ratio)
of Susquehanna common stock for each share of common stock they own. Consummation of the Merger is
subject to certain conditions, including, among others, approval of the Merger by shareholders of
both Abington and Susquehanna, governmental filings and regulatory approvals and expiration of
applicable waiting periods, accuracy of specified representations and warranties of the other
party, effectiveness of the registration statement to be filed with the SEC to register shares of
Susquehanna common stock to be offered to Abington shareholders, absence of a material adverse
effect, receipt of tax opinions, and obtaining material permits and authorizations for the lawful
consummation of the Merger. The proposed transaction is expected to be completed during the third
quarter of 2011. For further information on this transaction see Note 18 in the Notes to the
Consolidated Financial Statements included in Item 8 herein.
Abington Bank is a community-oriented savings bank, which was originally organized in 1867 and is
headquartered in Jenkintown, Pennsylvania, approximately eight miles north of center city
Philadelphia. Our banking office network currently consists of our headquarters and main office,
twelve other full-service branch offices and seven limited service branch offices. In addition, we
maintain a loan processing office in Jenkintown, Pennsylvania. Thirteen of our banking offices are
located in Montgomery County, Pennsylvania, four are in neighboring Bucks County, Pennsylvania and
one is in Delaware County, Pennsylvania. Our limited service offices have limited hours of
operation and/or are limited to serving customers who live or work in the community in which the
limited service office is located. Four of our limited service offices are located in retirement
or age restricted communities. We maintain ATMs at all of our banking offices and we also have two
off-site ATMs, located at a local grocery store and a local college. We also provide on-line
banking and telephone banking services.
We are primarily engaged in attracting deposits from the general public and using those funds to
invest in loans and securities. Our principal sources of funds are deposits, repayments of loans
and mortgage-backed securities, maturities of investments and interest-bearing deposits, funds
provided from operations and funds borrowed from outside sources such as the Federal Home Loan Bank
(FHLB) of Pittsburgh. These funds are primarily used for the origination of various loan types
in our market area including single-family residential mortgage loans, construction loans,
non-residential or commercial real estate mortgage loans, home equity loans, commercial business
loans and consumer loans. In addition to offering loans and deposits, we also offer securities and
annuities to our customers through an affiliation with a third-party broker-dealer.
The Companys website address is
www.abingtonbank.com
. The Companys annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and other documents filed by the
Company with the Securities and Exchange Commission (SEC) are available free of charge on the
Companys website under the Investor Relations menu. Such documents are available on the Companys
website as soon as reasonably practicable after they have been filed electronically with the SEC.
Forward Looking Statements
This document contains forward-looking statements, which can be identified by reference to a future
period or periods or by the use of words such as would be, will, estimate, project,
believe, intend, anticipate, plan, seek, expect and similar expressions or the negative
thereof. These forward-looking statements include:
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statements of goals, intentions and expectations;
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statements regarding prospects and business strategy;
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statements regarding asset quality and market risk; and
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estimates of future costs, benefits and results.
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These forward-looking statements are subject to significant risks, assumptions and uncertainties,
including, among other things, the factors discussed under the heading Risk Factors in Item 1A
herein that could affect the actual outcome of future events and the following factors:
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general economic conditions, either nationally or in our market area, that
are worse than expected;
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changes in the interest rate environment that reduce our interest margins or
reduce the fair value of financial instruments;
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increased competitive pressures among financial services companies;
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changes in consumer spending, borrowing and savings habits;
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legislative or regulatory changes that adversely affect our business;
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adverse changes in the securities markets;
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our ability to successfully manage our growth; and
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changes in accounting policies and practices, as may be adopted by the bank regulatory
agencies, the SEC or the Financial Accounting Standards Board.
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Any of the forward-looking statements that we make in this Form 10-K and other public statements we
make may turn out to be wrong because of inaccurate assumptions we might make, because of the
factors illustrated above or because of other factors that we cannot foresee.
Because of these and other uncertainties, our actual future results may be materially different
from the results indicated by these forward-looking statements and you should not rely on such
statements. The Company undertakes no obligation to update those forward-looking statements.
2
Market Area and Competition
Our market area is located in Montgomery, Bucks and Delaware Counties, Pennsylvania, which are
suburbs of Philadelphia. In addition, particularly with respect to commercial and construction
lending, we also make loans in Philadelphia and Chester Counties, Pennsylvania and contiguous
counties in New Jersey and Delaware. This area is referred to as the Delaware Valley region.
We face significant competition in originating loans and attracting deposits. This competition
stems primarily from commercial banks, other savings banks and savings associations and
mortgage-banking companies. Within our market area, more than 50 other banks, savings institutions
and credit unions are operating. Many of the financial service providers operating in our market
area are significantly larger and have greater financial resources than us. We face additional
competition for deposits from short-term money market funds and other corporate and government
securities funds, mutual funds and from other non-depository financial institutions such as
brokerage firms and insurance companies.
Lending Activities
General.
At December 31, 2010, our net loan portfolio totaled $696.4 million or 55.8% of total
assets. Historically, our principal lending activity has been the origination of loans
collateralized by one- to four-family, also known as single-family, residential real estate loans
located in our market area. We also originate home equity lines of credit, commercial business
loans and consumer loans. In addition, we have been making construction loans to homebuilders and
others for more than 30 years, and we originate commercial real estate and multi-family (over four
units) residential mortgage loans. While we had increased our emphasis on originating construction
and commercial real estate and multi-family residential mortgage loans in recent years, we reduced
the amount of new construction loans originated during 2010. Given the increased risk involved in
making construction loans and the relatively high amount of non-performing assets that we are
continuing to manage, we have limited our originations of new construction loans.
The types of loans that we may originate are subject to federal and state law and regulations.
Interest rates charged by us on loans are affected principally by the demand for such loans and the
supply of money available for lending purposes and the rates offered by our competitors. These
factors are, in turn, affected by general and economic conditions, the monetary policy of the
federal government, including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
3
Loan Portfolio Composition
. The following table shows the composition of our loan
portfolio by type of loan at the dates indicated.
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December 31,
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2010
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2009
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2008
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2007
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2006
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Amount
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%
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Amount
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%
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Amount
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%
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Amount
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%
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Amount
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%
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(Dollars in Thousands)
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Real estate loans:
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One- to four-family residential
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$
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393,435
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53.79
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%
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$
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432,004
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52.13
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%
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$
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452,923
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55.00
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%
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$
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424,141
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57.28
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%
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$
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375,744
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57.55
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%
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Commercial real estate and
multi-family residential
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141,091
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19.29
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135,483
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16.35
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102,089
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12.40
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77,138
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10.42
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92,428
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14.16
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Construction
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138,558
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18.94
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203,642
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24.58
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219,542
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26.66
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168,711
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22.79
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134,976
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20.67
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Home equity lines of credit
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41,213
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5.63
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36,274
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4.38
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27,119
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3.30
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33,091
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4.47
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33,953
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5.20
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Total real estate loans
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714,297
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97.65
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807,403
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97.44
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801,673
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97.36
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703,081
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94.96
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637,101
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97.58
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Non-real estate loans:
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Commercial business
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16,327
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2.23
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18,877
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2.28
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18,967
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2.30
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29,374
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3.97
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11,416
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1.75
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Consumer non-real estate
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870
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0.12
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2,358
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0.28
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2,811
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0.34
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7,914
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1.07
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4,400
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0.67
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Total non-real estate loans
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17,197
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2.35
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21,235
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2.56
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21,778
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2.64
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37,288
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5.04
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15,816
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2.42
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Total loans
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731,494
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100.00
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%
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828,638
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100.00
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%
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823,451
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100.00
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%
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740,369
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100.00
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%
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652,917
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100.00
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%
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Less:
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Undisbursed portion of
construction
loans in process
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30,065
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54,199
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54,798
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55,799
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45,338
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Deferred loan fees, net
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714
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789
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504
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721
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913
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Allowance for loan losses
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4,272
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9,090
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11,597
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1,811
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1,603
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Net loans
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$
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696,444
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$
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764,560
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$
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756,552
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$
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682,038
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$
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605,063
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4
Contractual Terms to Final Maturities
. The following table shows the scheduled contractual
maturities of our loans as of December 31, 2010, before giving effect to net items, including the
undisbursed portion of loans in process. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one year or less. The
amounts shown below do not take into account loan prepayments.
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Commercial
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One- to
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Real Estate and
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Home Equity
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Consumer
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Four-Family
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Multi-Family
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Lines of
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Commercial
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non-real
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Residential
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Residential
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Construction
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Credit
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Business
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estate
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Total
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(In Thousands)
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Amounts due after December 31, 2010
in:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
910
|
|
|
$
|
48,507
|
|
|
$
|
111,360
|
|
|
$
|
32,261
|
|
|
$
|
6,380
|
|
|
$
|
432
|
|
|
$
|
199,850
|
|
After one year through two years
|
|
|
1,150
|
|
|
|
297
|
|
|
|
17,365
|
|
|
|
|
|
|
|
1,455
|
|
|
|
51
|
|
|
|
20,318
|
|
After two years through three years
|
|
|
1,916
|
|
|
|
2,612
|
|
|
|
4,858
|
|
|
|
|
|
|
|
4,107
|
|
|
|
100
|
|
|
|
13,593
|
|
After three years through five years
|
|
|
5,578
|
|
|
|
11,711
|
|
|
|
4,975
|
|
|
|
|
|
|
|
900
|
|
|
|
96
|
|
|
|
23,260
|
|
After five years through ten years
|
|
|
40,396
|
|
|
|
17,417
|
|
|
|
|
|
|
|
8,952
|
|
|
|
2,230
|
|
|
|
191
|
|
|
|
69,186
|
|
After ten years through fifteen years
|
|
|
59,864
|
|
|
|
13,032
|
|
|
|
|
|
|
|
|
|
|
|
1,255
|
|
|
|
|
|
|
|
74,151
|
|
After fifteen years
|
|
|
283,621
|
|
|
|
47,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
393,435
|
|
|
$
|
141,091
|
|
|
$
|
138,558
|
|
|
$
|
41,213
|
|
|
$
|
16,327
|
|
|
$
|
870
|
|
|
$
|
731,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the amount of our loans at December 31, 2010, which are due after
December 31, 2011, and indicates whether they have fixed-rates of interest or rates which are
floating or adjustable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating or
|
|
|
Total at
|
|
|
|
Fixed-Rate
|
|
|
Adjustable-Rate
|
|
|
December 31, 2010
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
353,140
|
|
|
$
|
39,385
|
|
|
$
|
392,525
|
|
Commercial real estate and
multi-family residential
|
|
|
80,543
|
|
|
|
12,041
|
|
|
|
92,584
|
|
Construction
|
|
|
2,387
|
|
|
|
24,811
|
|
|
|
27,198
|
|
Home equity lines of credit
|
|
|
|
|
|
|
8,952
|
|
|
|
8,952
|
|
Commercial business
|
|
|
9,323
|
|
|
|
624
|
|
|
|
9,947
|
|
Consumer non-real estate
|
|
|
146
|
|
|
|
292
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
445,539
|
|
|
$
|
86,105
|
|
|
$
|
531,644
|
|
|
|
|
|
|
|
|
|
|
|
Loan Originations.
Our lending activities are subject to underwriting standards and loan
origination procedures established by our board of directors and management. Loan originations are
obtained through a variety of sources, primarily existing customers as well as new customers
obtained from referrals and local advertising and promotional efforts. In addition, our commercial
and construction loan officers actively solicit new loans throughout our market area.
Single-family residential mortgage loan applications and consumer loan applications are taken at
any of Abington Banks banking offices and on-line. Applications for other loans typically are
taken personally by our commercial or construction lending officers, although they may be received
by a branch office initially and then referred to a construction or commercial lender. All loan
applications are processed and underwritten centrally at our loan processing office and main office
in Jenkintown, Pennsylvania.
Our single-family residential mortgage loans are written on standardized documents used by the
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and Federal National Mortgage
Association (FNMA or Fannie Mae). We also utilize automated loan processing and underwriting
software systems developed by Freddie Mac for our new single-family residential mortgage loans.
Property valuations of loans secured by real estate are undertaken by our in-house appraiser or by
an independent third-party appraiser approved by our board of directors.
5
Specified loan officers of Abington Bank have limited authority to approve automobile loans up to
$10,000 and home equity loans and home equity lines of credit up to $200,000. Home equity loans and
lines of credit may be approved jointly by two authorized Vice Presidents for amounts greater than
$200,000 up to $250,000. Our loan policy generally requires that all other consumer loans up to
$2.0 million must be approved by the Consumer Loan Committee (which is comprised of the Banks
President, Senior Vice President Lending and certain other officers). Commercial loans up to
$500,000 may be approved jointly by the Commercial Loan Officer and the Head of Commercial Lending.
Our loan policy generally requires that all other commercial loans up to $2.0 million must be
approved by Commercial Loan Committee (comprised of the Banks President, Senior Vice President -
Lending and certain other officers). All of such loans are reported to our board of directors on a
monthly basis. Loans exceeding $2.0 million, including loans that cause the total balance of all
loans to one borrower to exceed $2.0 million, must be approved by the full board of directors.
In addition to originating loans, we occasionally purchase participation interests in larger
balance loans, typically commercial real estate and multi-family residential mortgage loans and
construction loans, from other financial institutions in our market area. Such participations are
reviewed for compliance with our underwriting criteria before they are purchased. Generally, we
have purchased such loans without recourse to the seller. However, we actively monitor the
performance of such loans through the receipt of regular reports from the lead lender regarding the
loans performance, physically inspecting the loan security property on a periodic basis,
discussing the loan with the lead lender on a regular basis and receiving copies of updated
financial statements from the borrower. We did not purchase any loan participation interests from
other financial institutions during the year ended December 31, 2010. We purchased an aggregate of
$14.5 million of loan participation interests from other financial institutions during the year
ended December 31, 2009.
On occasion, we have sold residential mortgage loans into the market, but we did not sell any
residential mortgage loans during 2010, 2009 or 2008. Depending on market conditions, we may
consider such sales in the future. In addition, we have sold participation interests in loans
originated by us to other institutions. When we have sold participation interests or whole loans,
it generally has been done on the basis of very limited recourse. As of December 31, 2010, our
total exposure to recourse arrangements with respect to our sales of whole loans and participation
interests in loans was $185,000. We generally have sold participation interests in loans only when
a loan would exceed our loans-to-one borrower limit, although we have also sold participation
interests to mitigate our risk in certain situations. The Banks loans-to-one borrower limit, with
certain exceptions, generally is 15% of our unimpaired capital and surplus, or $26.4 million at
December 31, 2010. During the years ended December 31, 2010 and 2009, we sold $1.6 million and $7.5
million, respectively, in loan participation interests to other institutions.
6
The following table shows our total loans originated, purchased, sold and repaid during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands)
|
|
Loan originations:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
45,550
|
|
|
$
|
75,539
|
|
|
$
|
81,055
|
|
Commercial real estate and
multi-family residential
|
|
|
4,081
|
|
|
|
42,712
|
|
|
|
7,102
|
|
Construction
|
|
|
482
|
|
|
|
29,550
|
|
|
|
67,792
|
|
Home equity lines of credit
|
|
|
17,652
|
|
|
|
21,200
|
|
|
|
11,068
|
|
Commercial business
|
|
|
7,964
|
|
|
|
6,640
|
|
|
|
36,536
|
|
Consumer non-real estate
|
|
|
546
|
|
|
|
304
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
Total loan originations
|
|
|
76,275
|
|
|
|
175,945
|
|
|
|
203,816
|
|
Loans purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
Whole loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation interests
|
|
|
|
|
|
|
14,467
|
|
|
|
50,387
|
|
|
|
|
|
|
|
|
|
|
|
Total loans purchased
|
|
|
|
|
|
|
14,467
|
|
|
|
50,387
|
|
|
|
|
|
|
|
|
|
|
|
Loans sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Whole loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation interests
|
|
|
(1,625
|
)
|
|
|
(7,500
|
)
|
|
|
(10,725
|
)
|
|
|
|
|
|
|
|
|
|
|
Total loans sold
|
|
|
(1,625
|
)
|
|
|
(7,500
|
)
|
|
|
(10,725
|
)
|
Loan principal repayments
|
|
|
(161,153
|
)
|
|
|
(152,141
|
)
|
|
|
(159,237
|
)
|
|
|
|
|
|
|
|
|
|
|
Total loans sold and principal repayments
|
|
|
(162,778
|
)
|
|
|
(159,641
|
)
|
|
|
(169,962
|
)
|
Increase (decrease) due to other items,
net (1)
|
|
|
18,387
|
|
|
|
(22,763
|
)
|
|
|
(9,727
|
)
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in loan portfolio
|
|
$
|
(68,116
|
)
|
|
$
|
8,008
|
|
|
$
|
74,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other items consist of loans in process, deferred fees, the allowance for loan losses and
the transfer of loans to real estate owned.
|
One- to Four-Family Residential Mortgage Lending.
One of our primary lending activities
continues to be the origination of loans secured by first mortgages on one- to four-family
residences in our market area. At December 31, 2010, $393.4 million or 53.8% of our total loan
portfolio consisted of single-family residential mortgage loans.
Our single-family residential mortgage loans generally are underwritten on terms and documentation
conforming with guidelines issued by Freddie Mac and Fannie Mae. We utilize proprietary software
developed by Freddie Mac in processing and underwriting our single-family residential mortgage
loans. Applications for one- to four-family residential mortgage loans are accepted at any of our
banking offices and are then referred to the Residential Lending Department at our main office and
our Loan Processing Center in order to process the loan, which consists primarily of obtaining all
documents required by Freddie Mac and Fannie Mae underwriting standards, and complete the
underwriting, which includes making a determination whether the loan meets our underwriting
standards such that the Bank can extend a loan commitment to the customer. We generally have
retained for our portfolio a substantial portion of the single-family residential mortgage loans
that we originate. We service all loans that we have originated through our in-house loan
servicing department. We currently originate fixed-rate, fully amortizing mortgage loans with
maturities of 15, 20, 30 or 40 years. We also currently offer adjustable rate mortgage (ARM)
loans. At December 31, 2010, $6.8 million, or 1.7%, of our one- to four-family residential loan
portfolio consisted of ARM loans.
We underwrite one- to four-family residential first mortgage loans with loan-to-value ratios of up
to 95%, provided that the borrower obtains private mortgage insurance on loans that exceed 80% of
the appraised value or sales price, whichever is less, of the secured property. We also will
concurrently originate first mortgage loans with loan-to-value ratios of up to 80% together with a
home equity loan, resulting in a combined loan-to-value ratio of up to 90%, which relieves our
borrower from the cost of obtaining private mortgage insurance. We also require that title
insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties
securing real estate loans. Our in-house appraiser or another licensed appraiser approved by our
board appraises all properties securing one- to four-family first mortgage loans. Our mortgage
loans include
due-on-sale clauses which provide us with the contractual right to deem the loan immediately due
and payable in the event the borrower transfers ownership of the property. Due-on-sale clauses are
an important means of adjusting the yields of fixed-rate mortgage loans in our portfolio, and we
generally exercise our rights under these clauses.
7
Our single-family residential mortgage loans also include home equity loans, which amounted to
$22.9 million at December 31, 2010. We offer fixed-rate home equity loans in amounts up to
$250,000. Our home equity loans are fully amortizing and have terms to maturity of up to 20 years.
While home equity loans also are secured by the borrowers residence, we generally obtain a second
mortgage position on these loans. Our lending policy provides that our home equity loans have
loan-to-value ratios, when combined with any first mortgage, of 80% or less, unless we are
extending a home equity loan in conjunction with a purchase of a residence, in which case the
combined loan-to-value cannot exceed 90%. The preponderance of our home equity loans have combined
loan-to-value ratios of 80% or less. Our single-family residential mortgage loans also include some
loans to local businessmen for a commercial purpose, but which are secured by liens on the
borrowers residence as well as fixed-rate consumer loans which are secured by liens on the
borrowers residence.
Commercial Real Estate and Multi-Family Residential Real Estate Loans.
At December 31, 2010, our
commercial real estate and multi-family residential loans amounted to $141.1 million or 19.3% of
our total loan portfolio. In addition to commercial real estate loans, we offer lines of credit for
commercial uses. In most cases, our commercial lines of credit are secured by commercial real
estate. At December 31, 2010, the unused portion of our commercial lines of credit was $51.8
million.
Our commercial real estate and multi-family residential real estate loan portfolio consists
primarily of loans secured by office buildings, retail and industrial use buildings, strip shopping
centers, residential properties with five or more units and other properties used for commercial
and multi-family purposes located in our market area. We currently employ five commercial lenders
who actively solicit commercial real estate and multi-family residential mortgage loans in our
market area.
Although terms for commercial real estate and multi-family loans vary, our underwriting standards
generally allow for terms up to 30 years with monthly amortization over the life of the loan and
loan-to-value ratios of not more than 80%. Interest rates are either fixed or adjustable, based
upon designated market indices such as the 5-year Treasury CMT plus a margin. Other fees, which
vary depending on the specific terms of the loan, may also be charged to the borrower at the
origination of the loan. Generally, we obtain personal guarantees of the principals as additional
collateral for commercial real estate and multi-family real estate loans.
Commercial real estate and multi-family real estate lending involves different risks than
single-family residential lending. These risks include larger loans to individual borrowers and
loan payments that are dependent upon the successful operation of the project or the borrowers
business. These risks can be affected by supply and demand conditions in the projects market area
of rental housing units, office and retail space, warehouses, and other commercial space. In
addition, many of our commercial real estate loans are not fully amortizing and require significant
balloon payments upon maturity. Such balloon payments may require the borrower to either sell or
refinance the underlying property in order to make the balloon payment. Our loan portfolio at
December 31, 2010 included three non-performing commercial real estate loans, with an aggregate
balance of $2.1 million at such date. Of the three loans, one loan, with an outstanding principal
balance of $1.3 million at December 31, 2010, was on non-accrual status at such date, and the other
two loans were more than 90 days past due but still accruing interest at such date. No significant
portion of our allowance for loan losses was allocated to these loans at December 31, 2010. An
aggregate of $1.3 million of commercial real estate and multi-family residential real estate loans
were charged-off in 2010. Our loan portfolio at December 31, 2009 included three non-performing
commercial real estate loans, with an aggregate balance of $4.8 million at such date. The $4.8
million balance primarily relates to two commercial real estate loans to two separate borrowers
with an aggregate outstanding balance of $4.5 million at December 31, 2009, that were placed on
non-accrual
status during 2009. At December 31, 2009, $1.1 million of our allowance for loan losses was
allocated to these two loans. An aggregate of $178,000 of commercial real estate and multi-family
residential real estate loans were charged-off in 2009. For additional information, see Asset
Quality Non-Performing Loans and Real Estate Owned.
8
Various aspects of a commercial and multi-family loan transactions are evaluated in an effort to
mitigate the additional risk in these types of loans. We generally originate these types of loans
to borrowers with whom we are familiar and who have demonstrated historical results. In our
underwriting procedures, consideration is given to the stability of the propertys cash flow
history, future operating projections, current and projected occupancy levels, location and
physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from
operations before the payment of debt service to debt service) of not less than 110% in the case of
multi-family residential real estate loans and 120% in the case of commercial real estate loans. We
also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor.
Appraisal reports prepared by independent appraisers or, in some cases, Abington Banks staff
appraiser are obtained on each loan to substantiate the propertys market value, and are reviewed
by us prior to the closing of the loan. After the loan is made, we periodically monitor the
operation of the business or project and the physical condition of the property.
Construction Lending.
We have been an active originator of construction loans since the mid-1990s.
Although we had increased our construction lending activities substantially since that time, our
construction loan activity slowed significantly in 2010 and 2009 as a result of, among other
factors, the current economic environment. Our total construction loans decreased by $65.1
million, or 32.0%, at December 31, 2010 compared to December 31, 2009 after having decreased by
$15.9 million, or 7.2%, at December 31, 2009 compared to December 31, 2008. While we will continue
to originate construction loans, we expect that lending opportunities may be limited as a result of
increased caution on the part of management in our originations of new construction loans in light
of the economy and the increased level of delinquent and non-performing loans in our construction
loan portfolio. As a result, it is likely that the overall balance of our construction loans will
continue to decline in 2011. In prior years, we had targeted construction loans as a growth area
for the Bank because they have shorter terms to maturity and generally have floating or adjustable
interest rates. Until recently, we had typically focused our construction lending on making loans
to homebuilders in the Delaware Valley area to acquire, develop and build single-family residences.
In recent years, however, our construction lending had grown to also include more loans for the
construction and development of commercial and industrial use properties such as office buildings,
retail shops and warehouses. Many of our larger construction loans are for these types of projects.
At December 31, 2010, our construction loans amounted to $138.6 million, or 18.9% of our total loan
portfolio. This amount included $30.1 million of undisbursed loans in process.
We originate construction loans for the construction and development of various types of projects
as well as acquisitions of various types of properties for development. In addition to loans to
finance the construction and development of single family homes and subdivisions, our construction
loans also include loans to acquire and hold unimproved land, loans to acquire land and develop the
basic infrastructure, such as roads and sewers, and construction loans for commercial uses. Our
construction and development loans are typically offered with terms of up to 36 months. Additional
extensions may be provided for at our option. The maximum loan-to-value limit applicable to these
loans range from 50% to 80% of the appraised post construction value, depending on the type of
property being developed. We often establish interest reserves, which provide for the payment of
interest from the loan proceeds, and obtain personal and/or corporate guarantees as additional
security on our construction loans. Construction loan proceeds are disbursed periodically in
increments as construction progresses and as inspection by our approved appraisers or loan
inspectors warrants. Our construction loans are negotiated on an individual basis but typically
have floating rates of interest based upon
The Wall Street Journal
prime rate or, in some
cases, LIBOR. Additional fees may be charged as funds are disbursed. In addition to interest
payments during the term of the construction loan, we typically require that payments to principal
be made as units are completed and released. Generally such principal payments must be equal to
110% of the amount attributable to acquisition and development of the lot plus 100% of the amount
attributable to
construction of the individual home. For residential construction and development loans, we permit
a limited, pre-determined number of model homes to be constructed on an unsold or speculative
basis. All other units must be pre-sold before we will disburse funds for construction. The
majority of our construction loans are secured by properties located in Bucks and Montgomery
Counties, Pennsylvania. However, we also make construction loans throughout the Delaware Valley
region.
9
Construction financing is generally considered to involve a higher degree of credit risk than
long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan
depends largely upon the accuracy of the initial estimate of the propertys value at completion of
construction compared to the estimated costs, including interest, of construction and other
assumptions. Additionally, if the estimate of value proves to be inaccurate, we may be confronted
with a project, when completed, having a value less than the loan amount. Our construction loans
require us to advance funds based upon our security interest in the project, which is of uncertain
value until the construction is completed. In addition, at the time we commit to make a
construction loan, it is uncertain whether the costs estimated for the project will be sufficient
to cover actual construction costs. If there are cost overruns, additional financing may be
necessary to complete the project. Compared to single-family residential mortgage loans, it is
significantly more difficult to evaluate accurately the total funds necessary to complete the
project and the ultimate loan-to-value ratio.
At December 31, 2010, we had $5.7 million of non-performing construction loans (which include land
acquisition and development loans). While a portion of our non-performing construction loans showed
improvement during 2010, we charged-off approximately $5.7 million of construction loans during the
year, while transferring an additional $8.7 million to real estate owned (REO). The balance of
non-performing construction loans at December 31, 2010 consisted primarily of six loans with an
aggregate outstanding balance of $5.7 million, net of $4.0 million in aggregate charge-offs that
had been taken over the lives of the loans. All of these loans were on non-accrual status at
December 31, 2010, and approximately $306,000 of our allowance for loan losses was allocated to
these loans at such date. At December 31, 2009, we had $29.3 million of non-performing construction
loans, net of $9.6 million of charge-offs on those loans during 2009. Of these loans, $26.0 million
became non-performing during 2009. Among the additions to our balance of non-performing
construction loans during 2009 were the Companys participation interests in three shared national
credit loans, with an aggregate outstanding balance of $9.0 million at December 31, 2009, net of
$7.6 million in charge-offs. No additional valuation allowance was recorded for these loans at
December 31, 2009. Two of these shared national credit loans were settled during 2010 resulting in
a recovery of $1.2 million, although additional charge-offs of $268,000 were taken on the third
shared national credit loan during 2010. Also among the additions to our non-performing loan
balance during 2009 were four construction loans to two borrowers, with an aggregate outstanding
balance of $10.7 million at December 31, 2009, net of $1.8 million in charge-offs. At December 31,
2009, $2.4 million of our allowance for loan losses was allocated to these loans. During 2009,
seven construction loans, with an aggregate outstanding balance of $24.7 million, net of $7.8
million of charge-offs, were transferred to REO. As of December 31, 2010, 5.2% of our $108.5
million of total outstanding construction loans were non-performing, and at such date, $2.7
million, or 64.1%, of our allowance for loan losses was allocated to construction loans. As of
December 31, 2009, 19.6% of our $149.4 million of total outstanding construction loans were
non-performing, and at such date, $6.7 million, or 73.3%, of our allowance for loan losses was
allocated to construction loans. For additional information, see Asset Quality Non-Performing
Loans and Real Estate Owned.
10
The following table shows the composition of our construction loan portfolio by type and size of
the loan, as well as the composition of the classification and allowance for loan losses for the
loans within the construction loan portfolio at December 31, 2010. For additional information,
see Asset Quality Non-Performing Loans and Real Estate Owned.
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Accruing
|
|
|
for Loan
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
|
Loan Classification
|
|
|
|
|
|
|
Loans 90
|
|
|
Losses
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
One- to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days or
|
|
|
Allocated to
|
|
|
|
No. of
|
|
|
Balance
|
|
|
Land
|
|
|
Four-
|
|
|
Multi-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
More Past
|
|
|
Construction
|
|
Range
|
|
Loans
|
|
|
Outstanding
|
|
|
Only
|
|
|
Family
|
|
|
Family
|
|
|
Commercial
|
|
|
Doubtful
|
|
|
Substandard
|
|
|
Mention
|
|
|
Non-Accrual(1)
|
|
|
Due
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans over $10.0 million
|
|
|
1
|
|
|
$
|
19,703
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,703
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,703
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Loans $5.0 million to $10.0
million
|
|
|
4
|
|
|
|
27,496
|
|
|
|
|
|
|
|
13,057
|
|
|
|
|
|
|
|
14,439
|
|
|
|
|
|
|
|
8,664
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
Loans $2.5 million to $5.0 million
|
|
|
10
|
|
|
|
36,094
|
|
|
|
3,446
|
|
|
|
15,550
|
|
|
|
4,975
|
|
|
|
12,123
|
|
|
|
|
|
|
|
3,445
|
|
|
|
9,232
|
|
|
|
|
|
|
|
|
|
|
|
770
|
|
Loans $1.0 million to $2.5 million
|
|
|
13
|
|
|
|
20,959
|
|
|
|
4,466
|
|
|
|
11,611
|
|
|
|
|
|
|
|
4,882
|
|
|
|
|
|
|
|
11,351
|
|
|
|
1,255
|
|
|
|
4,344
|
|
|
|
|
|
|
|
865
|
|
Loans under $1.0 million
|
|
|
12
|
|
|
|
4,241
|
|
|
|
1,155
|
|
|
|
1,967
|
|
|
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
1,773
|
|
|
|
910
|
|
|
|
1,320
|
|
|
|
14
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction loans
|
|
|
40
|
|
|
$
|
108,493
|
|
|
$
|
9,067
|
|
|
$
|
42,185
|
|
|
$
|
25,797
|
|
|
$
|
31,444
|
|
|
$
|
|
|
|
$
|
25,233
|
|
|
$
|
36,533
|
|
|
$
|
5,664
|
|
|
$
|
14
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All of the $5.7 million of non-accrual construction loans at December 31, 2010 were classified
substandard at such date.
|
11
Home Equity Lines.
At December 31, 2010, the outstanding balance of our home equity lines of
credit amounted to $41.2 million or 5.6% of our net loan portfolio. The unused portion of home
equity lines was $30.2 million at such date. We generally offer home equity lines in amounts up to
$300,000 on a revolving line of credit basis with interest tied to the prime rate. It is our policy
to have a first or second mortgage on the borrowers residence as collateral on its home equity
lines, although we may make exceptions to this policy. Generally, our home equity lines have
loan-to-value ratios (combined with any loan secured by a first mortgage) of 80% or less. Our
customers may apply for home equity lines as well as home equity loans at any banking office or
on-line through our website.
Commercial Business Loans.
Our commercial business loans amounted to $16.3 million or 2.2% of the
total loan portfolio at December 31, 2010. Our commercial business loans typically are to small to
mid-sized businesses in our market area and may be for working capital, inventory financing or
accounts receivable financing. Small business loans may have adjustable or fixed rates of interest
and generally have terms of three years or less but may go up to 10 years. Our commercial business
loans generally are secured by equipment, machinery or other corporate assets. In addition, we
generally obtain personal guarantees from the principals of the borrower with respect to all
commercial business loans.
Our commercial lenders actively solicit commercial business loans in our market area. Commercial
business loans generally are deemed to involve a greater degree of risk than single-family
residential mortgage loans. Repayment of our commercial business loans is often dependent on the
cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may
fluctuate in value. Credit support provided by the borrower for most of these loans and the
probability of repayment is based on the liquidation of the pledged collateral and enforcement of a
personal guarantee, if any exists. As a result, in the case of loans secured by accounts
receivable, the availability of funds for the repayment of these loans may be substantially
dependent on the ability of the borrower to collect amounts due from its customers. The collateral
securing other loans, such as inventory or equipment, may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Consumer Lending Activities.
In our efforts to provide a full range of financial services to our
customers, we offer various types of consumer loans such as loans secured by deposit accounts,
automobile loans and unsecured personal loans. These loans are originated primarily through
existing and walk-in customers and direct advertising. At December 31, 2010, $870,000, or 0.1% of
the total loan portfolio consisted of these types of loans.
Consumer loans generally have higher interest rates and shorter terms than residential loans,
however, they have additional credit risk due to the type of collateral securing the loan or in
some cases the absence of collateral. In the years ended December 31, 2010, 2009 and 2008 we
charged-off $29,000, $71,000 and $64,000 of consumer loans, respectively, of which $26,000, $60,000
and $62,000, respectively, were charge-offs of overdrawn deposit balances, which are classified as
loans for reporting purposes.
Loan Approval Procedures and Authority.
Our Board of Directors establishes the Banks lending
policies and procedures. Our Lending Policy Manual is reviewed on an annual basis by our management
team in order to propose modifications as a result of market conditions, regulatory changes and
other factors. All modifications must be approved by our Board of Directors.
Various officers or combinations of officers of Abington Bank have the authority within
specifically identified limits to approve new loans. The largest individual lending authority is
$2.0 million. Amounts in excess of the individual lending limits must be approved by the Loan
Committee, which is comprised of members of senior management. Loans in excess of $2.0 million,
including loans that cause the total balance of all loans to one borrower to exceed $2.0 million,
must be approved by the Board of Directors of Abington Bank.
12
Asset Quality
General.
One of our key objectives has been, and continues to be, maintaining a high level of
asset quality. We believe that the majority of the loans in our portfolio remain high quality
loans. During 2010, the balance of our non-performing assets showed substantial improvement after
increasing significantly during 2009 and 2008. The asset quality of our loan portfolio,
particularly our construction loan portfolio, has been, and continues to be, adversely affected by,
among other factors, the economic recession in the Companys market area. As a result, review of
the Companys loan portfolio, particularly our construction loans
,
and resolution efforts with
respect to non-performing assets continued to be a central focus of our management team in 2010. To
this end, we are actively managing our non-performing loans and REO.
When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making
personal contact with the borrower. Initial contacts are generally made 15 days after the date the
payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues,
late charges are assessed and additional efforts are made to collect the deficiency. All loans
delinquent 30 days or more are reported to the Board of Directors of Abington Bank.
On loans where the collection of principal or interest payments is doubtful, the accrual of
interest income ceases (non-accrual loans). On single-family residential mortgage loans 120 days
or more past due and all other loans 90 days or more past due, as to principal and interest
payments, our policy, is to discontinue accruing additional interest income and reverse any
interest currently accrued unless the loan is well secured and in the process of collection. On
occasion, this action may be taken earlier if the financial condition of the borrower raises
significant concern with regard to his/her ability to service the debt in accordance with the terms
of the loan agreement. Interest income is not accrued on these loans until the borrowers financial
condition and payment record demonstrate an ability to service the debt. Loans are charged off when
the loan is deemed uncollectible.
Real estate which is acquired as a result of foreclosure is classified as real estate owned until
sold. Real estate properties acquired through foreclosure are initially recorded at the fair value
of the property at the date of foreclosure, establishing a new cost basis. Losses arising from
foreclosure transactions are charged against the allowance for loan losses. 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. Costs associated with acquiring and improving a
foreclosed property are usually capitalized to the extent that the carrying value does not exceed
fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on
the sale of real estate owned are charged to operations, as incurred.
A loan is classified as a troubled debt restructuring (TDR) if the Company, for economic or legal
reasons related to a debtors financial difficulties, grants a concession to the debtor that it
would not otherwise consider. Concessions granted under a TDR typically involve a temporary or
permanent reduction in payments or interest rate or an extension of a loans stated maturity date
at less than a current market rate of interest. Loans classified as TDRs are designated as
impaired.
We account for our impaired loans under generally accepted accounting principles. An impaired loan
generally is one for which it is probable, based on current information, that we will not collect
all the amounts due under the contractual terms of the loan. Impairment is measured on a loan by
loan basis for all construction loans and most commercial real estate loans, including all such
loans that are classified or criticized. Large groups of smaller balance, homogeneous loans are
collectively evaluated for impairment, except for those loans restructured under a troubled debt
restructuring and certain classified or criticized loans. Loans collectively evaluated for
impairment include smaller balance commercial real estate loans, residential real estate loans and
consumer loans. These loans are evaluated as a group because they have similar characteristics and
performance experience. At December 31, 2010 and 2009, the Company had $16.0 million and $28.3
million of loans, respectively, that were determined to be impaired. Our balance of
13
impaired loans
at December 31, 2010 consisted of 12 loans including four multi-family residential and commercial real estate loans with
an aggregate outstanding balance of $9.8 million at such date and six construction loans (which
include land acquisition and development loans) with an aggregate outstanding balance of $5.7
million at such date. Our impaired loans at December 31, 2010 also included two one-to four family
residential real estate loans with an aggregate outstanding balance of 583,000 at such date. At
December 31, 2010, three of our impaired multi-family residential and commercial real estate loans
with an aggregate outstanding balance of $8.4 million at such date as well as both impaired one-to
four family residential real estate loans were continuing to accrue interest. The remaining
impaired loans were on non-accrual status at December 31, 2010. At December 31, 2010, $306,000 of
our allowance for loan losses was allocated to these loans as significant portions of the original
balances for certain impaired loans have already been charged-off.
Federal regulations and our policies require that we utilize an internal asset classification
system as a means of reporting problem and potential problem assets. We have incorporated an
internal asset classification system, consistent with federal banking regulations, as a part of our
credit monitoring system. We currently designate problem and potential problem assets as special
mention, substandard, doubtful or loss assets. An asset is considered special mention if
it does not yet warrant adverse classification such as substandard or doubtful, but nonetheless
possesses credit deficiencies or potential weaknesses deserving managements close attention. An
asset is classified as substandard if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include
those characterized by the distinct possibility that the insured institution will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable. Assets classified as loss
are those considered uncollectible and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When we classify one or more assets, or portions thereof, as loss, it is required either to
establish a specific allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount. When we designate one or more assets, or portions thereof, as special
mention, substandard or doubtful, we establish a general valuation allowance for the loans in
each category. General valuation allowances represent loan loss allowances which have been
established to recognize the higher risk of loss inherent in the loans within each risk category.
Although the classification of a loan within a given category assists us in our analysis of the
risk of loss, the actual allowance percentage assigned to each loan within a category is adjusted
for the specific circumstances of each classified loan, including an evaluation of the appraised
value of the specific collateral for the loan, and will often differ from the general rate for the
category.
We review and classify assets on a monthly basis and the Board of Directors is provided with
monthly reports on our classified assets. We classify assets in accordance with the Federal
guidelines described above. The following table shows the aggregate amounts of our classified
assets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands)
|
|
Substandard assets
|
|
$
|
46,969
|
|
|
$
|
49,762
|
|
|
$
|
22,272
|
|
Doubtful assets
|
|
|
|
|
|
|
8,653
|
|
|
|
23,569
|
|
Loss assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,969
|
|
|
$
|
58,415
|
|
|
$
|
45,841
|
|
|
|
|
|
|
|
|
|
|
|
Of the $47.0 million of total classified loans at December 31, 2010, $9.0 million were also
considered non-performing loans. See Non-Performing Loans and Real Estate Owned.
14
A savings institutions determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by federal and state bank regulators which can order the
establishment of additional general or specific loss allowances. The federal banking agencies,
have adopted an interagency policy statement on the allowance for loan and lease losses. The
policy statement provides guidance for financial institutions on both the responsibilities of
management for the assessment and establishment of allowances and guidance for banking agency
examiners to use in determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management analyze all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and that management establish
acceptable allowance evaluation processes that meet the objectives set forth in the policy
statement. In July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102, Selected Loan
Loss Allowance Methodology and Documentation Issues. The guidance contained in SAB No. 102
focuses on the documentation the SEC staff normally expects registrants to prepare and maintain in
support of the allowance for loan and lease losses. Concurrent with the SECs issuance of SAB No.
102, the federal banking agencies, represented by the Federal Financial Institutions Examination
Council (FFIEC), issued an interagency policy statement entitled Allowance for Loan and Lease
Losses Methodologies and Documentation for Banks and Savings Institutions (the Policy
Statement). SAB No. 102 and the Policy Statement were the result of an agreement between the SEC
and the federal banking agencies in March 1999 to provide guidance on allowance for loan and lease
losses methodologies and supporting documentation. Our allowance for loan losses includes a
portion which is allocated to non-classified loans by type of loan, based primarily upon our
periodic reviews of the risk elements within the various categories of loans. Our management
believes that, based on information currently available, its allowance for loan losses is
maintained at a level which covers all known and inherent losses that are both probable and
reasonably estimable at each reporting date. However, actual losses are dependent upon future
events and, as such, further additions to the level of allowances for loan losses may become
necessary.
15
Delinquent Loans.
The following table shows the delinquencies in our loan portfolio as
of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
30-89
|
|
|
90 or More Days
|
|
|
30-89
|
|
|
90 or More Days
|
|
|
30-89
|
|
|
90 or More Days
|
|
|
|
Days Overdue
|
|
|
Overdue
|
|
|
Days Overdue
|
|
|
Overdue
|
|
|
Days Overdue
|
|
|
Overdue
|
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
residential
|
|
|
18
|
|
|
$
|
2,983
|
|
|
|
6
|
|
|
$
|
1,211
|
|
|
|
23
|
|
|
$
|
3,623
|
|
|
|
4
|
|
|
$
|
347
|
|
|
|
12
|
|
|
$
|
1,431
|
|
|
|
4
|
|
|
$
|
311
|
|
Commercial real estate and
multi-family residential
|
|
|
5
|
|
|
|
986
|
|
|
|
2
|
|
|
|
|
|
|
|
725
|
|
|
|
4
|
|
|
|
3,394
|
|
|
|
1
|
|
|
|
261
|
|
|
|
4
|
|
|
|
2,691
|
|
|
|
6 2,597
|
|
Construction
|
|
|
1
|
|
|
|
2,230
|
|
|
|
7
|
|
|
|
5,678
|
|
|
|
2
|
|
|
|
1,278
|
|
|
|
10
|
|
|
|
21,796
|
|
|
|
2
|
|
|
|
6,634
|
|
|
|
5
|
|
|
|
20,594
|
|
Home equity lines of credit
|
|
|
4
|
|
|
|
44
|
|
|
|
3
|
|
|
|
76
|
|
|
|
2
|
|
|
|
75
|
|
|
|
4
|
|
|
|
141
|
|
|
|
3
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquent loans
|
|
|
28
|
|
|
$
|
6,243
|
|
|
|
18
|
|
|
$
|
7,690
|
|
|
|
32
|
|
|
$
|
10,630
|
|
|
|
19
|
|
|
$
|
22,545
|
|
|
|
23
|
|
|
$
|
10,832
|
|
|
|
15
|
|
|
$
|
23,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent loans to total
net loans
|
|
|
|
|
|
|
0.90
|
%
|
|
|
|
|
|
|
1.10
|
%
|
|
|
|
|
|
|
1.39
|
%
|
|
|
|
|
|
|
2.95
|
%
|
|
|
|
|
|
|
1.43
|
%
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent loans to total
loans
|
|
|
|
|
|
|
0.85
|
%
|
|
|
|
|
|
|
1.05
|
%
|
|
|
|
|
|
|
1.28
|
%
|
|
|
|
|
|
|
2.72
|
%
|
|
|
|
|
|
|
1.32
|
%
|
|
|
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Non-Performing Loans and Real Estate Owned.
The following table sets forth information
regarding our non-performing loans and real estate owned. Our general policy is to cease accruing
interest on single-family residential mortgage loans which are 120 days or more past due and all
other loans which are 90 days or more past due and to charge-off all accrued interest. We may also
cease accruing or charge-off interest at an earlier date if collection is considered doubtful.
Our non-accrual loans decreased $21.3 million or 75.3% during 2010 to $7.0 million at December 31,
2010 compared to $28.3 million at December 31, 2009. The decrease was attributable to the
resolution of certain of our non-accrual loans, including the settlement of our participation
interests in two shared national credit loans with an aggregate outstanding balance of $7.2 million
at December 31, 2009. Additionally, three other loans that were classified as non-accrual at
December 31, 2009, were transferred to real estate owned (REO) during 2010. The three loans
included two construction loans, with an aggregate outstanding balance of $8.6 million at December
31, 2009 and one commercial real estate loan with an outstanding balance of $2.1 million at
December 31, 2009. The remainder of the decrease was due primarily to the charge-off of certain
loan balances during 2010. Our total non-performing loans, which consist of non-accruing loans plus
accruing loans 90 days or more past due, decreased $25.6 million or 73.9% to $9.0 million at
December 31, 2010 from $34.6 million at December 31, 2009. The decrease was primarily attributable to the
resolution of certain of our non-accrual loans, as discussed previously. Despite the aforementioned transfers of property to REO, the balance of our REO increased only
$769,000 to $23.6 million at December 31, 2010 from $22.8 million at December 31, 2009, as these
transfers were substantially offset by the sale of six REO properties during the year. Among the
REO properties sold was a 40-unit high rise condominium project in Center City, Philadelphia, with
a carrying value of $8.4 million at December 31, 2009. At December 31, 2010 and 2009, our
non-performing loans amounted to 1.29% and 4.47%, respectively, of loans receivable, and our
allowance for loan losses amounted to 47.27% and 26.28%, respectively, of non-performing loans. At
December 31, 2010 and 2009, our non-performing assets amounted to 2.62% and 4.64% of total assets,
respectively.
For the years ended December 31, 2010, 2009 and 2008, the amount of additional interest income that
would have been recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $783,000, $489,000 and $561,000, respectively.
17
The following table shows the amounts of our non-performing assets (defined as non-accruing loans,
accruing loans 90 days or more past due and real estate owned) and our performing troubled debt
restructurings at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
Non-accruing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
|
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate and
multi-family residential(1)
|
|
|
1,348
|
|
|
|
4,801
|
|
|
|
2,597
|
|
|
|
1,277
|
|
|
|
1,270
|
|
Construction
|
|
|
5,664
|
|
|
|
23,303
|
|
|
|
20,594
|
|
|
|
168
|
|
|
|
1,077
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans
|
|
|
7,012
|
|
|
|
28,341
|
|
|
|
23,191
|
|
|
|
1,445
|
|
|
|
2,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans 90 days or more past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
1,211
|
|
|
|
110
|
|
|
|
311
|
|
|
|
105
|
|
|
|
210
|
|
Multi-family residential and
commercial real estate
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
14
|
|
|
|
5,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans 90 days or more
past due
|
|
|
2,026
|
|
|
|
6,249
|
|
|
|
311
|
|
|
|
105
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans(2)
|
|
|
9,038
|
|
|
|
34,590
|
|
|
|
23,502
|
|
|
|
1,550
|
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned, net
|
|
|
23,588
|
|
|
|
22,819
|
|
|
|
1,740
|
|
|
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
|
32,626
|
|
|
|
57,409
|
|
|
|
25,242
|
|
|
|
3,108
|
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family residential and
commercial real estate
|
|
|
8,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total performing troubled debt
restructurings
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets and
performing troubled debt
restructurings
|
|
$
|
41,626
|
|
|
$
|
57,409
|
|
|
$
|
25,242
|
|
|
$
|
3,108
|
|
|
$
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percentage
of loans
|
|
|
1.29
|
%
|
|
|
4.47
|
%
|
|
|
3.06
|
%
|
|
|
0.23
|
%
|
|
|
0.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percentage
of total assets
|
|
|
0.72
|
%
|
|
|
2.79
|
%
|
|
|
1.98
|
%
|
|
|
0.14
|
%
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets as a percentage
of total assets
|
|
|
2.62
|
%
|
|
|
4.64
|
%
|
|
|
2.12
|
%
|
|
|
0.29
|
%
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in this category of non-accruing loans at December 31, 2010 and 2009 was one
troubled debt restructuring with a balance of $1.3 million and $2.5 million, respectively.
See Note 6 in the Notes to the Consolidate Financial Statements included in Item 8 herein.
|
|
(2)
|
|
Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more
past due.
|
Property acquired by Abington Bank through foreclosure is initially recorded at the fair value
of the related assets at the date of foreclosure, less estimated costs to sell. Thereafter, if
there is a further deterioration in value, we charge earnings for the diminution in value. Our
policy is to obtain an appraisal on all real estate subject to foreclosure proceedings prior to the
time of foreclosure and to require appraisals on a periodic basis on foreclosed properties and
conduct inspections on foreclosed properties.
18
The balance of our real estate owned consists of the following types of properties as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
No. of
|
|
|
Carrying
|
|
|
No. of
|
|
|
Carrying
|
|
|
No. of
|
|
|
Carrying
|
|
Type of Property
|
|
Properties
|
|
|
Value
|
|
|
Properties
|
|
|
Value
|
|
|
Properties
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Land
|
|
|
5
|
|
|
$
|
13,216
|
|
|
|
4
|
|
|
$
|
9,982
|
|
|
|
1
|
|
|
$
|
182
|
|
One- to four-family residential
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,240
|
|
|
|
3
|
|
|
|
1,558
|
|
Multi-family residential
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
8,405
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3
|
|
|
|
10,372
|
|
|
|
1
|
|
|
|
3,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate owned
|
|
|
8
|
|
|
$
|
23,588
|
|
|
|
10
|
|
|
$
|
22,819
|
|
|
|
4
|
|
|
$
|
1,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the eight properties in REO at December 31, 2010, seven properties with an aggregate
carrying value of $21.6 million at such date, were acquired upon the foreclosure or acceptance of a
deed-in-lieu of foreclosure on loans within our construction loan portfolio.
Allowance for Loan Losses.
The allowance for loan losses is established through a provision for
loan losses. We maintain the allowance at a level believed to cover all known and inherent losses
in the portfolio that are both probable and reasonable to estimate at each reporting date.
Management reviews the allowance for loan losses on no less than a quarterly basis in order to
identify those inherent losses and to assess the overall collection probability for the loan
portfolio. Our evaluation process includes, among other things, an analysis of delinquency trends,
non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total
loans outstanding, the volume of loan originations, the type, size and geographic concentration of
our loans, the value of collateral securing the loan, the borrowers ability to repay and repayment
performance, the number of loans requiring heightened management oversight, local economic
conditions and industry experience. In addition, in establishing the allowance for loan losses, we
have implemented a nine point internal rating system for all loans originated by the Commercial
Lending Department. At the time of origination, each loan, other than single-family residential
mortgage loans, home equity lines and consumer loans, is assigned a rating based on the assumed
risk elements of the loan. Such risk ratings are periodically reviewed by management and revised
as deemed appropriate. The establishment of the allowance for loan losses is significantly
affected by management judgment and uncertainties and there is a likelihood that different amounts
would be reported under different conditions or assumptions. Various regulatory agencies, as an
integral part of their examination process, periodically review our allowance for loan losses.
Such agencies may require us to make additional provisions for estimated loan losses based upon
judgments different from those of management.
During 2010, we charged-off an aggregate of $7.1 million of our outstanding loans, including $5.7
million of construction loans. During 2009, we charged-off an aggregate of $21.4 million of our
outstanding loans, including $21.1 million of construction loans. Our charge-offs net of recoveries
were $5.8 million and $21.2 million, respectively, for 2010 and 2009. As of December 31, 2010, our
allowance for loan losses amounted to $4.3 million, or 0.61% of total loans receivable, compared to
$9.1 million, or 1.17% of total loans receivable, at December 31, 2009. At December 31, 2010 and
December 31, 2009, our allowance for loan losses amounted to 47.27% and 26.28% of non-performing
loans, respectively. The fluctuations in these ratios year-over-year is due primarily to the
aforementioned net charge-offs.
We will continue to monitor and modify our allowance for loan losses as conditions dictate. No
assurances can be given that our level of allowance for loan losses will cover all of the inherent
losses on our loans or that future adjustments to the allowance for loan losses will not be
necessary if economic and other conditions differ substantially from the economic and other
conditions used by management to determine the current level of the allowance for loan losses.
19
The following table shows changes in our allowance for loan losses during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans outstanding at end of period
|
|
$
|
700,715
|
|
|
$
|
773,650
|
|
|
$
|
768,149
|
|
|
$
|
683,849
|
|
|
$
|
606,666
|
|
Average loans outstanding
|
|
|
719,172
|
|
|
|
755,279
|
|
|
|
703,496
|
|
|
|
646,467
|
|
|
|
570,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, beginning of period
|
|
$
|
9,090
|
|
|
$
|
11,597
|
|
|
$
|
1,811
|
|
|
$
|
1,603
|
|
|
$
|
1,455
|
|
Provision for loan losses
|
|
|
977
|
|
|
|
18,737
|
|
|
|
9,760
|
|
|
|
457
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and
multi-family residential
|
|
|
1,314
|
|
|
|
178
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
Construction
|
|
|
5,733
|
|
|
|
21,146
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate
|
|
|
29
|
|
|
|
71
|
|
|
|
64
|
|
|
|
79
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
7,076
|
|
|
|
21,395
|
|
|
|
64
|
|
|
|
276
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries on loans previously charged-off
|
|
|
1,281
|
|
|
|
151
|
|
|
|
90
|
|
|
|
27
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of period
|
|
$
|
4,272
|
|
|
$
|
9,090
|
|
|
$
|
11,597
|
|
|
$
|
1,811
|
|
|
$
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of
non-performing loans
|
|
|
47.27
|
%
|
|
|
26.28
|
%
|
|
|
49.35
|
%
|
|
|
116.84
|
%
|
|
|
62.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the
period to average loans outstanding during
the
period
|
|
|
0.81
|
%
|
|
|
2.81
|
%
|
|
|
n/m
|
*
|
|
|
0.04
|
%
|
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
The following table shows how our allowance for loan losses is allocated by type of loan at
each of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
Category
|
|
|
|
Amount
|
|
|
as a %
|
|
|
Amount
|
|
|
as a %
|
|
|
Amount
|
|
|
as a %
|
|
|
Amount
|
|
|
as a %
|
|
|
Amount
|
|
|
as a %
|
|
|
|
of
|
|
|
of Total
|
|
|
of
|
|
|
of Total
|
|
|
of
|
|
|
of Total
|
|
|
of
|
|
|
of Total
|
|
|
of
|
|
|
of Total
|
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
Allowance
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One- to four-family residential
|
|
$
|
528
|
|
|
|
53.79
|
%
|
|
$
|
433
|
|
|
|
52.13
|
%
|
|
$
|
455
|
|
|
|
55.00
|
%
|
|
$
|
425
|
|
|
|
57.28
|
%
|
|
$
|
378
|
|
|
|
57.55
|
%
|
Commercial real estate and
multi-family residential
|
|
|
841
|
|
|
|
19.29
|
|
|
|
1,809
|
|
|
|
16.35
|
|
|
|
969
|
|
|
|
12.40
|
|
|
|
379
|
|
|
|
10.42
|
|
|
|
507
|
|
|
|
14.16
|
|
Construction
|
|
|
2,740
|
|
|
|
18.94
|
|
|
|
6,664
|
|
|
|
24.58
|
|
|
|
9,882
|
|
|
|
26.66
|
|
|
|
564
|
|
|
|
22.79
|
|
|
|
486
|
|
|
|
20.67
|
|
Home equity lines of credit
|
|
|
82
|
|
|
|
5.63
|
|
|
|
74
|
|
|
|
4.38
|
|
|
|
54
|
|
|
|
3.30
|
|
|
|
66
|
|
|
|
4.47
|
|
|
|
68
|
|
|
|
5.20
|
|
Commercial business
|
|
|
75
|
|
|
|
2.23
|
|
|
|
95
|
|
|
|
2.28
|
|
|
|
205
|
|
|
|
2.30
|
|
|
|
294
|
|
|
|
3.97
|
|
|
|
114
|
|
|
|
1.75
|
|
Consumer non-real estate
|
|
|
6
|
|
|
|
0.12
|
|
|
|
15
|
|
|
|
0.28
|
|
|
|
32
|
|
|
|
0.34
|
|
|
|
83
|
|
|
|
1.07
|
|
|
|
48
|
|
|
|
0.67
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,272
|
|
|
|
100.00
|
%
|
|
$
|
9,090
|
|
|
|
100.00
|
%
|
|
$
|
11,597
|
|
|
|
100.00
|
%
|
|
$
|
1,811
|
|
|
|
100.00
|
%
|
|
$
|
1,603
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance consists of specific and general components. The specific component relates to
loans that have been individually evaluated for loss, including many of our classified and
criticized loans that are designated as either doubtful, substandard or special mention. The
general component covers the remaining loans that are designated as either doubtful, substandard or
special mention that have not been individually evaluated for loss, as well as non-classified or
non-criticized loans. The general component is based on historical loss experience adjusted for
qualitative factors.
21
Investment Activities
General
. We invest in securities pursuant to our Investment Policy, which has been approved by our
board of directors. The Investment Policy designates our President and three Senior Vice
Presidents as the Investment Committee. The Investment Committee is authorized by the board to make
the Banks investments consistent with the Investment Policy. The board of directors of Abington
Bank reviews all investment activity on a monthly basis.
Our investment policy is designed primarily to manage the interest rate sensitivity of our assets
and liabilities, to generate a favorable return without incurring undue interest rate and credit
risk, to complement our lending activities and to provide and maintain liquidity. We also use a
leveraged investment strategy for the purpose of enhancing returns. Pursuant to this strategy, we
have utilized borrowings from the FHLB of Pittsburgh to purchase additional investment securities.
We attempt to match the advances with the securities purchased in order to obtain a favorable
difference, or spread, between the interest paid on the advance against the yield received on the
security purchased.
At December 31, 2010, our investment and mortgage-backed securities amounted to $370.3 million in
the aggregate or 29.7% of total assets at such date. The largest component of our securities
portfolio in recent periods has been mortgage-backed securities, which had a carrying value of
$225.0 million or 60.8% of the securities portfolio at December 31, 2010. In addition, we invest
in U.S. government and agency obligations, municipal securities, corporate debt obligations and
other securities. The majority of our agency debt securities have call provisions which provide the
agency with the ability to call the securities at specified dates.
Pursuant to Accounting Standards Codification Topic 320,
Investments Debt and Equity Securities
(ASC 320), our securities are classified as available for sale, held to maturity, or trading, at
the time of acquisition. Securities classified as held to maturity must be purchased with the
intent and ability to hold that security until its final maturity and can be sold prior to maturity
only under rare circumstances. Held to maturity securities are accounted for based upon the
amortized cost of the security. Available for sale securities can be sold at any time based upon
needs or market conditions. Available for sale securities are accounted for at fair value, with
unrealized gains and losses on these securities, net of income tax provisions, reflected in
retained earnings as accumulated other comprehensive income. At December 31, 2010, we had $293.1
million of securities classified as available for sale, $77.3 million of securities classified as
held to maturity and no securities classified as trading account.
Also pursuant to ASC 320, 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 whether or not management intends to sell or expects that it is more likely than
not that it will be required to sell the security prior to an anticipated recovery of 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 for a debt security is determined to be
other-than-temporary, the other-than-temporary impairment is separated into (a) the amount of the
total other-than-temporary impairment related to a decrease in cash flows expected to be collected
from the debt security (the credit loss) and (b) the amount of the total other-than-temporary
impairment related to all other factors. The amount of the total other-than-temporary impairment
related to the credit loss is recognized in earnings. The amount of the total other-than-temporary
impairment related to all other factors is recognized in other comprehensive income. For equity
securities, the full amount of the other-than-temporary impairment is recognized in earnings. No
impairment charges were recognized during the
years ended December 31, 2010 or 2009. During the year ended December 31, 2008, the Company
recognized impairment charges aggregating approximately $869,000 to write-down the book value of an
investment in a mortgage-backed security based mutual fund (described further below) to its fair
value of $2.5 million at December 31, 2008.
22
We do not purchase mortgage-backed derivative instruments that would be characterized high-risk
under Federal banking regulations at the time of purchase, nor do we purchase corporate obligations
which are not rated investment grade or better.
Our mortgage-backed securities consist primarily of mortgage pass-through certificates issued by
the Government National Mortgage Association (GNMA or Ginnie Mae), Fannie Mae or Freddie Mac.
Our mortgage-backed securities also include collateralized mortgage obligations (CMOs) issued by
such agencies and certain AAA rated private issuers. During 2010 and 2009, we increased our
investment in CMOs based on the returns available on these securities relative to other securities
in the current interest rate environment. At December 31, 2010, $120.9 million of our
mortgage-backed securities were CMOs, of which $114.3 million were issued by FNMA, FNMA or FHLMC.
At December 31, 2010, $218.4 million or 97.1% of our total mortgage-backed securities were issued
by the GNMA, FNMA or FHLMC. The remaining $6.6 million of our mortgage-backed securities, all of
which were CMOs, were issued by certain AAA-rated private issuers.
Investments in mortgage-backed securities involve a risk that actual prepayments will be greater
than estimated prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such instruments thereby
changing the net yield on such securities. There is also reinvestment risk associated with the
cash flows from such securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by changes in interest
rates.
Ginnie Mae is a government agency within the Department of Housing and Urban Development which was
created to help finance government-assisted housing programs. Ginnie Mae securities are backed by
loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration.
The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae
and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private
corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed
principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest
and the ultimate return of principal on participation certificates. Fannie Mae is a private
corporation chartered by the U.S. Congress with a mandate to establish a secondary market for
mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae
securities. In September 2008, Freddie Mac and Fannie Mae were placed under the conservatorship of
the U.S. Government through the Federal Housing Finance Agency (the FHFA). Although Freddie Mac
and Fannie Mae securities were not backed by the full faith and credit of the U.S. Government,
because Freddie Mac and Fannie Mae were U.S. Government-sponsored enterprises (GSEs), these
securities were considered to be among the highest quality investments with minimal credit risks.
In conservatorship, the U.S. Treasury has put in place a set of financing agreements to ensure that
the GSEs continue to meet their debt obligations.
Collateralized mortgage obligations are typically issued by a special-purpose entity, in our case,
government agencies or selected AAA-rated private issuers, which may be organized in a variety of
legal forms, such as a trust, a corporation, or a partnership. Substantially all of the
collateralized mortgage obligations held in our portfolio consist of senior sequential tranches. By
purchasing senior sequential tranches, management attempts to ensure the cash flow associated with
such an investment.
23
Our agency bonds are notes with federal agencies such as Fannie Mae and Freddie Mac (described
above) and the FHLB. Our agency bonds may be callable and have included structured notes such as
step-up bonds, which provide the agency with the right, but not the obligation, to call the bonds
on the step-up date. Our municipal bonds are all bank-qualified municipal bonds. In order for bonds
to be bank-qualified the bonds must be (i) issued by a qualified small issuer, (ii) issued for
public purposes, and (iii) designated as qualified tax-exempt obligations. Our municipal bonds are
generally in amounts less than $500,000 and are issued by municipalities covering a broad
geographic region nationally.
No impairment charges were recognized on investment securities during the years ended December 31,
2010 or 2009. Our investments in other securities include investments in a certain mortgage-backed
securities based mutual fund. This fund, the AMF Ultra Short Mortgage Fund, was determined to be
impaired during 2008. The determination of impairment for the fund in 2008 was made, in part, based
on credit rating downgrades in certain of the private label mortgage-backed securities held by the
fund, as well as an analysis of the overall status of the fund. As a result of this determination,
impairment charges aggregating approximately $869,000 were recognized during the year ended
December 31, 2008. As of December 31, 2010, our investment in the fund is in an unrealized gain
position based on our new cost basis. We intend to continue to hold this fund.
FHLB stock is a restricted investment security, carried at cost and evaluated for impairment. When
evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability
of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each period.
No impairment charges were recognized on FHLB stock during the years ended December 31, 2010, 2009
or 2008. The purchase of FHLB stock provides banks with the right to be a member of the FHLB and to
receive the products and services that the FHLB provides to member banking institutions. Unlike
other types of stock, FHLB stock is acquired primarily for the right to receive advances from the
FHLB, rather than for the purpose of maximizing dividends or stock growth. FHLB stock is an
activity based stock that is directly proportional to the volume of advances taken by a member
institution. During the fourth quarter of 2008, the FHLB of Pittsburgh announced a decision to
suspend the dividend on, and restrict the redemption of, FHLB stock. Although during 2010 the FHLB
allowed a limited number of shares of stock to be redeemed, the FHLBs suspension of dividends and
restrictions on redemptions is continuing. As a result, we must continue to hold these securities,
although we are not currently receiving a return for this investment.
The following table sets forth certain information relating to our investment and mortgage-backed
securities portfolios and our investment in FHLB stock at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Mortgage-backed securities
|
|
$
|
221,505
|
|
|
$
|
226,511
|
|
|
$
|
211,067
|
|
|
$
|
215,926
|
|
|
$
|
231,694
|
|
|
$
|
233,331
|
|
U.S. government and agency
obligations
|
|
|
99,365
|
|
|
|
99,313
|
|
|
|
55,864
|
|
|
|
56,460
|
|
|
|
41,962
|
|
|
|
43,122
|
|
Corporate bonds
|
|
|
3,535
|
|
|
|
3,558
|
|
|
|
3,123
|
|
|
|
3,121
|
|
|
|
1,979
|
|
|
|
1,882
|
|
Municipal obligations
|
|
|
39,065
|
|
|
|
40,127
|
|
|
|
41,625
|
|
|
|
42,842
|
|
|
|
41,463
|
|
|
|
42,143
|
|
Investment certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
99
|
|
|
|
288
|
|
|
|
288
|
|
Mutual funds
|
|
|
2,664
|
|
|
|
2,712
|
|
|
|
2,580
|
|
|
|
2,582
|
|
|
|
2,479
|
|
|
|
2,479
|
|
FHLB stock
|
|
|
13,877
|
|
|
|
13,877
|
|
|
|
14,608
|
|
|
|
14,608
|
|
|
|
14,608
|
|
|
|
14,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and
mortgage-backed securities
and FHLB stock
|
|
$
|
380,011
|
|
|
$
|
386,098
|
|
|
$
|
328,966
|
|
|
$
|
335,638
|
|
|
$
|
334,473
|
|
|
$
|
337,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table sets forth the amount of investment and mortgage-backed securities which
mature during each of the periods indicated and the weighted average yields for each range of
maturities at December 31, 2010. No tax-exempt yields have been adjusted to a tax-equivalent
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts at December 31, 2010 Which Mature In
|
|
|
|
|
|
|
|
|
|
|
|
Over One
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Year
|
|
|
Weighted
|
|
|
Over Five
|
|
|
Weighted
|
|
|
Over
|
|
|
Weighted
|
|
|
|
One Year
|
|
|
Average
|
|
|
Through
|
|
|
Average
|
|
|
Through
|
|
|
Average
|
|
|
Ten
|
|
|
Average
|
|
|
|
or Less
|
|
|
Yield
|
|
|
Five Years
|
|
|
Yield
|
|
|
Ten Years
|
|
|
Yield
|
|
|
Years
|
|
|
Yield
|
|
|
|
(Dollars in Thousands)
|
|
Bonds and other debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and
agency obligations
|
|
$
|
|
|
|
|
|
%
|
|
$
|
99,365
|
|
|
|
1.86
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
Corporate bonds
|
|
|
997
|
|
|
|
0.39
|
|
|
|
2,538
|
|
|
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
|
2,373
|
|
|
|
3.34
|
|
|
|
10,653
|
|
|
|
3.65
|
|
|
|
21,954
|
|
|
|
4.02
|
|
|
|
4,085
|
|
|
|
4.12
|
|
Mortgage-backed
securities
|
|
|
1,619
|
|
|
|
4.75
|
|
|
|
10,745
|
|
|
|
1.83
|
|
|
|
63,577
|
|
|
|
3.02
|
|
|
|
145,564
|
|
|
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,989
|
|
|
|
3.21
|
%
|
|
$
|
123,301
|
|
|
|
2.05
|
%
|
|
$
|
85,531
|
|
|
|
3.28
|
%
|
|
$
|
149,649
|
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds
General.
Deposits, loan repayments and prepayments, proceeds from sales of loans, cash flows
generated from operations and FHLB advances are the primary sources of our funds for use in
lending, investing and for other general purposes.
Deposits
. We offer a variety of deposit accounts with a range of interest rates and terms. Our
deposits consist of checking, both interest-bearing and non-interest-bearing, money market, savings
and certificate of deposit accounts. At December 31, 2010, 52.0% of the funds deposited with
Abington Bank were in core deposits, which are deposits other than certificates of deposit.
The flow of deposits is influenced significantly by general economic conditions, changes in money
market rates, prevailing interest rates and competition. Our deposits are obtained predominantly
from the areas where our branch offices are located. We have historically relied primarily on
customer service and long-standing relationships with customers to attract and retain these
deposits; however, market interest rates and rates offered by competing financial institutions
significantly affect our ability to attract and retain deposits. Abington Bank uses traditional
means of advertising its deposit products, including broadcast and print media and generally does
not solicit deposits from outside its market area.
Typically, we do not actively solicit certificate accounts in excess of $100,000, known as jumbo
CDs. At December 31, 2010 and 2009, none of our deposits were brokered deposits, although in prior
years, we had previously obtained a limited amount of jumbo CDs through the use of a broker. Our
jumbo CDs amounted to $220.5 million and $246.0 million, respectively, at December 31, 2010 and
2009, of which $127.9 million and $186.9 million, respectively, were scheduled to mature within 12
months of such dates. At December 31, 2010, the weighted average remaining maturity of our
certificate of deposit accounts was approximately 27.2 months.
25
The following table shows the distribution of, and certain other information relating to, our
deposits by type of deposit, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Certificate accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00% - 1.99%
|
|
$
|
224,984
|
|
|
|
25.00
|
%
|
|
$
|
254,067
|
|
|
|
29.88
|
%
|
|
$
|
66,315
|
|
|
|
9.97
|
%
|
2.00% - 2.99%
|
|
|
53,188
|
|
|
|
5.91
|
|
|
|
59,465
|
|
|
|
6.99
|
|
|
|
12,178
|
|
|
|
1.83
|
|
3.00% - 3.99%
|
|
|
63,456
|
|
|
|
7.05
|
|
|
|
50,585
|
|
|
|
5.95
|
|
|
|
253,162
|
|
|
|
38.07
|
|
4.00% - 4.99%
|
|
|
84,945
|
|
|
|
9.44
|
|
|
|
82,835
|
|
|
|
9.74
|
|
|
|
68,025
|
|
|
|
10.23
|
|
5.00% - 5.99%
|
|
|
5,360
|
|
|
|
0.59
|
|
|
|
9,741
|
|
|
|
1.15
|
|
|
|
11,567
|
|
|
|
1.74
|
|
6.00% - 6.99%
|
|
|
77
|
|
|
|
0.01
|
|
|
|
81
|
|
|
|
0.01
|
|
|
|
77
|
|
|
|
0.01
|
|
7.00% or more
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificate accounts
|
|
|
432,016
|
|
|
|
48.00
|
|
|
|
456,774
|
|
|
|
53.72
|
|
|
|
411,324
|
|
|
|
61.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and money market
|
|
|
326,060
|
|
|
|
36.23
|
|
|
|
265,488
|
|
|
|
31.23
|
|
|
|
148,089
|
|
|
|
22.27
|
|
Checking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
|
92,175
|
|
|
|
10.24
|
|
|
|
82,792
|
|
|
|
9.74
|
|
|
|
68,343
|
|
|
|
10.28
|
|
Non-interest bearing
|
|
|
49,808
|
|
|
|
5.53
|
|
|
|
45,146
|
|
|
|
5.31
|
|
|
|
37,194
|
|
|
|
5.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts
|
|
|
468,043
|
|
|
|
52.00
|
|
|
|
393,426
|
|
|
|
46.28
|
|
|
|
253,626
|
|
|
|
38.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
900,059
|
|
|
|
100.00
|
%
|
|
$
|
850,200
|
|
|
|
100.00
|
%
|
|
$
|
664,950
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the average balance of each type of deposit and the average rate
paid on each type of deposit for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average Rate
|
|
|
Average
|
|
|
Interest
|
|
|
Average Rate
|
|
|
Average
|
|
|
Interest
|
|
|
Average Rate
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
|
(Dollars in Thousands)
|
|
Savings and money
market
|
|
$
|
295,800
|
|
|
$
|
2,495
|
|
|
|
0.84
|
%
|
|
$
|
200,576
|
|
|
$
|
2,547
|
|
|
|
1.27
|
%
|
|
$
|
119,082
|
|
|
$
|
1,913
|
|
|
|
1.61
|
%
|
Checking
|
|
|
83,975
|
|
|
|
36
|
|
|
|
0.04
|
|
|
|
73,708
|
|
|
|
38
|
|
|
|
0.05
|
|
|
|
63,310
|
|
|
|
20
|
|
|
|
0.03
|
|
Certificates of deposit
|
|
|
457,412
|
|
|
|
10,143
|
|
|
|
2.22
|
|
|
|
449,508
|
|
|
|
12,855
|
|
|
|
2.86
|
|
|
|
414,086
|
|
|
|
15,092
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
deposits
|
|
|
837,187
|
|
|
|
12,674
|
|
|
|
1.51
|
|
|
|
723,792
|
|
|
|
15,440
|
|
|
|
2.13
|
|
|
|
596,478
|
|
|
|
17,025
|
|
|
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
881,594
|
|
|
$
|
12,674
|
|
|
|
1.44
|
%
|
|
$
|
765,924
|
|
|
$
|
15,440
|
|
|
|
2.02
|
%
|
|
$
|
636,759
|
|
|
$
|
17,025
|
|
|
|
2.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows our savings flows during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands)
|
|
Total deposits
|
|
$
|
4,237,090
|
|
|
$
|
4,258,616
|
|
|
$
|
4,170,653
|
|
Total withdrawals
|
|
|
4,200,609
|
|
|
|
4,089,463
|
|
|
|
4,133,143
|
|
Interest credited
|
|
|
13,377
|
|
|
|
16,097
|
|
|
|
17,828
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in deposits
|
|
$
|
49,858
|
|
|
$
|
185,250
|
|
|
$
|
55,338
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table presents, by various interest rate categories and maturities, the amount
of our certificates of deposit at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
Maturing in the 12 Months Ending December 31,
|
|
Certificates of Deposit
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Less than 2.00%
|
|
$
|
195,588
|
|
|
$
|
27,588
|
|
|
$
|
1,663
|
|
|
$
|
145
|
|
|
$
|
224,984
|
|
2.00% - 2.99%
|
|
|
25,264
|
|
|
|
10,384
|
|
|
|
9,836
|
|
|
|
7,704
|
|
|
|
53,188
|
|
3.00% - 3.99%
|
|
|
4,647
|
|
|
|
3,761
|
|
|
|
434
|
|
|
|
54,614
|
|
|
|
63.456
|
|
4.00% - 4.99%
|
|
|
11,757
|
|
|
|
3,408
|
|
|
|
10,767
|
|
|
|
59.013
|
|
|
|
84,945
|
|
5.00% - 5.99%
|
|
|
1,241
|
|
|
|
236
|
|
|
|
|
|
|
|
3,883
|
|
|
|
5,360
|
|
6.00% - 6.99%
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
7.00% or more
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificate accounts
|
|
$
|
238,503
|
|
|
$
|
45,377
|
|
|
$
|
22,777
|
|
|
$
|
125,359
|
|
|
$
|
432,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the maturities of our certificates of deposit of $100,000 or more at
December 31, 2010, by time remaining to maturity.
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
Weighted
|
|
Quarter Ending:
|
|
Amount
|
|
|
Average Rate
|
|
|
|
(Dollars in Thousands)
|
|
March 31, 2011
|
|
$
|
52,608
|
|
|
|
1.53
|
%
|
June 30, 2011
|
|
|
20,034
|
|
|
|
1.25
|
|
September 30, 2011
|
|
|
40,509
|
|
|
|
1.51
|
|
December 31, 2011
|
|
|
14,791
|
|
|
|
1.25
|
|
After December 31, 2011
|
|
|
92,540
|
|
|
|
3.47
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit with
balances of $100,000 or more
|
|
$
|
220,482
|
|
|
|
2.30
|
%
|
|
|
|
|
|
|
|
Borrowings.
We utilize advances from the Federal Home Loan Bank of Pittsburgh as an
alternative to retail deposits to fund our operations as part of our operating strategy. These
FHLB advances are collateralized primarily by certain of our mortgage loans and mortgage-backed
securities and secondarily by our investment in capital stock of the Federal Home Loan Bank of
Pittsburgh. FHLB advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the Federal Home Loan
Bank of Pittsburgh will advance to member institutions, including Abington Bank, fluctuates from
time to time in accordance with the policies of the Federal Home Loan Bank. At December 31, 2010,
we had $109.9 million in outstanding FHLB advances and approximately $408.8 million of additional
FHLB advances available to us. Approximately $59.9 million of our FHLB advances at December 31,
2010 were part of our matched funding program whereby we use such advances to purchase securities.
Our current policy permits us to utilize up to $150.0 million of advances to match-fund securities.
Given the proper interest rate environment, it is likely that we would increase this limit to
permit additional FHLB advances for such match-funding purposes. During 2010, however, we continued
to reduce our overall outstanding balance of advances from the FHLB. We determined to repay a
portion of our FHLB advances in 2010 due to a number of factors, including an evaluation of our
overall liquidity and leverage positions, as well as our collateral position with the FHLB. Should
we decide to utilize sources of funding other than advances from the FHLB, we believe that
additional funding is available in the form of advances or repurchase agreements through various
other sources.
27
In addition to FHLB advances, our borrowings include securities sold under agreements to repurchase
(repurchase agreements). Repurchase agreements are contracts for the sale of securities owned or
borrowed by Abington Bank, with an agreement to repurchase those securities at an agreed upon price
and date. We use repurchase agreements as an investment vehicle for our commercial sweep checking
product. We enter into securities repurchase agreements with our commercial checking account
customers under a sweep account arrangement. Account balances are swept on a daily basis into
mortgage-backed securities purchases from us, which we agree to repurchase as the checking account
is drawn upon by the customer. At December 31, 2010, our securities repurchase agreements amounted
to $15.9 million and all of such borrowings were short-term, having maturities of one year or less.
The average balance of our securities sold under repurchase agreements for the year ended December
31, 2010 was $22.6 million.
The following table shows certain information regarding our borrowings at or for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Year
|
|
|
|
Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in Thousands)
|
|
FHLB advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding
|
|
$
|
126,626
|
|
|
$
|
180,939
|
|
|
$
|
209,498
|
|
Maximum amount outstanding at any
month-end during the period
|
|
|
144,744
|
|
|
|
255,516
|
|
|
|
257,051
|
|
Balance outstanding at end of period
|
|
|
109,875
|
|
|
|
146,739
|
|
|
|
257,051
|
|
Average interest rate during the period
|
|
|
4.16
|
%
|
|
|
4.10
|
%
|
|
|
4.35
|
%
|
Weighted average interest rate at end
of period
|
|
|
2.67
|
%
|
|
|
4.28
|
%
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowed money:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding
|
|
$
|
22,561
|
|
|
$
|
23,271
|
|
|
$
|
19,887
|
|
Maximum amount outstanding at any
month-end during the period
|
|
|
29,023
|
|
|
|
30,631
|
|
|
|
25,888
|
|
Balance outstanding at end of period
|
|
|
15,881
|
|
|
|
16,673
|
|
|
|
17,610
|
|
Average interest rate during the period
|
|
|
0.32
|
%
|
|
|
0.31
|
%
|
|
|
1.80
|
%
|
Weighted average interest rate at end
of period
|
|
|
0.42
|
%
|
|
|
0.34
|
%
|
|
|
0.31
|
%
|
At December 31, 2010, $40.8 million of our borrowings were short-term (maturities of one year
or less). Such short-term borrowings had a weighted average interest rate of 2.11% at December 31,
2010.
Employees
At December 31, 2010, we had 137 full-time employees, and 31 part-time employees. None of such
employees are represented by a collective bargaining group, and we believe that our relationship
with our employees is excellent.
SUPERVISION AND REGULATION
General
Abington Bank, as a Pennsylvania-chartered savings bank with deposits insured by the Deposit
Insurance Fund administered by the FDIC, is subject to extensive regulation and examination by the
Pennsylvania Department of Banking and by the FDIC. The federal and state laws and regulations
applicable to banks regulate, among other things, the scope of their business, their investments,
the reserves required to be kept against deposits, the timing of the availability of deposited
funds and the nature and amount of and collateral for certain loans. This regulatory structure
also gives the federal and state banking agencies
extensive discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. The laws and regulations
governing Abington Bank generally have been promulgated to protect depositors and not for the
purpose of protecting shareholders.
28
Federal law provides the federal banking regulators, including the FDIC and the OTS, with
substantial enforcement powers. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal orders, and to
initiate injunctive actions against banking organizations and institution-affiliated parties, as
defined. In general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with regulatory authorities. Any
change in such regulation, whether by the Pennsylvania Department of Banking, the FDIC, the OTS or
the United States Congress, could have a material impact on us and our operations.
Abington Bancorp is subject to regulation as a savings and loan holding company under the Home
Owners Loan Act, as amended, because Abington Bank made an election under Section 10(l) of the
Home Owners Loan Act to be treated as a savings association for purposes of Section 10 of the
Home Owners Loan Act. As a result, Abington Bancorp is registered with the OTS and is subject to
OTS regulations, examinations, supervision and reporting requirements relating to savings and loan
holding companies. Abington Bancorp is required to file certain reports with, and otherwise comply
with the rules and regulations of, the Pennsylvania Department of Banking and the SEC. As a
subsidiary of a savings and loan holding company, Abington Bank is subject to certain restrictions
in its dealings with Abington Bancorp and affiliates thereof.
Recently Enacted Regulatory Reform
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer
Protection Act. The financial reform and consumer protection act imposes new restrictions and an
expanded framework of regulatory oversight for financial institutions, including depository
institutions. In addition, the new law changes the jurisdictions of existing bank regulatory
agencies and in particular transfers the regulation of savings and loan holding companies, such as
the Company, from the OTS to the Federal Reserve Board, effective one year from the effective date
of the legislation, with a potential extension up to six months. The new law also establishes an
independent federal consumer protection bureau within the Federal Reserve Board. The following
discussion summarizes significant aspects of the new law that may affect the Company and the Bank.
Regulations implementing these changes have not been promulgated, so we cannot determine the full
impact on our business and operations at this time.
The following aspects of the financial reform and consumer protection act are related to the
operations of the Bank:
|
|
|
A new independent consumer financial protection bureau will be established
within the Federal Reserve Board, empowered to exercise broad regulatory, supervisory
and enforcement authority with respect to both new and existing consumer financial
protection laws. Smaller financial institutions, like the Bank, will be subject to the
supervision and enforcement of their primary federal banking regulator with respect to
the federal consumer financial protection laws.
|
|
|
|
Tier 1 capital treatment for hybrid capital items like trust preferred
securities is eliminated subject to various grandfathering and transition rules.
|
29
|
|
|
The current prohibition on payment of interest on demand deposits was repealed,
effective July 21, 2011.
|
|
|
|
Deposit insurance is permanently increased to $250,000 and unlimited deposit
insurance for noninterest-bearing transaction accounts is provided through the end of
2012.
|
|
|
|
The deposit insurance assessment base calculation will equal the depository
institutions total assets minus the sum of its average tangible equity during the
assessment period.
|
|
|
|
The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35
percent of estimated annual insured deposits or assessment base; however, the Federal
Deposit Insurance Corporation is directed to offset the effect of the increased
reserve ratio for insured depository institutions with total consolidated assets of
less than $10 billion.
|
The following aspects of the financial reform and consumer protection act are related to the
operations of the Company:
|
|
|
Authority over savings and loan holding companies will transfer to the Federal
Reserve Board.
|
|
|
|
Leverage capital requirements and risk based capital requirements applicable to
depository institutions and bank holding companies will be extended to thrift holding
companies.
|
|
|
|
The Federal Deposit Insurance Act was amended to direct federal regulators to
require depository institution holding companies to serve as a source of strength for
their depository institution subsidiaries.
|
|
|
|
The Securities and Exchange Commission is authorized to adopt rules requiring
public companies to make their proxy materials available to shareholders for nomination
of their own candidates for election to the board of directors.
|
|
|
|
Public companies will be required to provide their shareholders with a
non-binding vote: (i) at least once every three years on the compensation paid to
executive officers, and (ii) at least once every six years on whether they should have
a say on pay vote every one, two or three years.
|
|
|
|
A separate, non-binding shareholder vote will be required regarding golden
parachutes for named executive officers when a shareholder vote takes place on mergers,
acquisitions, dispositions or other transactions that would trigger the parachute
payments.
|
|
|
|
Securities exchanges will be required to prohibit brokers from using their own
discretion to vote shares not beneficially owned by them for certain significant
matters, which include votes on the election of directors, executive compensation
matters, and any other matter determined to be significant.
|
|
|
|
Stock exchanges will be prohibited from listing the securities of any issuer
that does not have a policy providing for (i) disclosure of its policy on incentive
compensation payable on the basis of financial information reportable under the
securities laws, and (ii) the recovery from current or former executive officers,
following an accounting restatement triggered by material noncompliance with securities
law reporting requirements, of any incentive compensation paid erroneously during the
three-year period preceding the date on which the restatement was
required that exceeds the amount that would have been paid on the basis of the restated
financial information.
|
30
|
|
|
Disclosure in annual proxy materials will be required concerning the
relationship between the executive compensation paid and the financial performance of
the issuer.
|
|
|
|
Item 402 of Regulation S-K will be amended to require companies to disclose the
ratio of the Chief Executive Officers annual total compensation to the median annual
total compensation of all other employees.
|
|
|
|
Smaller reporting companies are exempt from complying with the internal control
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.
|
The Dodd-Frank Act included an amendment to the Home Owners Loan Act that authorizes the Federal
Reserve Board to issue regulations and orders related to the capital levels of savings and loan
holding companies. This authorization takes effect on the date that the jurisdiction of the OTS
over savings and loan holding companies transfers to the Federal Reserve Board (July 21, 2011,
unless extended for six months). Also included as part of the Dodd-Frank Act was a provision
(generally referred to as the Collins Amendment) that directs the federal banking regulators to
establish minimum leverage and risk-based capital requirements for various types of financial
institutions, including savings and loan holding companies. The Collins Amendment includes several
provisions that delay its application or exempt certain types of institutions from its
requirements. Among those provisions is one that postpones for five years the effective date of
capital requirements established under the Collins Amendment for holding companies, such as the
Company, that were not supervised by the Federal Reserve Board as of May 19, 2010.
Regulation of Abington Bancorp
Home Owners Loan Act Activities and Other Limitations.
Abington Bancorp is a nondiversified
unitary savings and loan holding company within the meaning of federal law. Generally, companies
that become savings and loan holding companies following the May 4, 1999 grandfather date in the
Gramm-Leach-Bliley Act of 1999 may engage only in the activities permitted for financial
institution holding companies or for multiple savings and loan holding companies.
Although savings and loan holding companies are not currently subject to specific capital
requirements or specific restrictions on the payment of dividends or other capital distributions,
federal regulations do prescribe such restrictions on subsidiary savings institutions as described
below. Abington Bank must notify the OTS 30 days before declaring any dividend to Abington
Bancorp. In addition, the financial impact of a holding company on its subsidiary institution is a
matter that is evaluated by the OTS and the agency has authority to order cessation of activities
or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the
institution.
Acquisition of Control.
Any person (including a company), or group acting in concert, seeking to
acquire control of a savings and loan holding company or savings association is subject to the
nonobjection of the OTS under the Federal Change in Bank Control Act or the approval of the OTS
under the federal Savings and Loan Holding Company Act. An acquisition of control can occur upon
the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings
institution or as otherwise defined by the OTS. The OTS review of the notices and applications
required under those Acts includes taking into consideration certain factors, including the
financial and managerial resources of the acquirer and the anti-trust effects of the acquisition.
Any company that so acquires control would then be subject to regulation as a savings and loan
holding company.
31
Qualified Thrift Lender Test.
A savings association which is a subsidiary of a savings and loan
holding company is required to comply with the Qualified Thrift Lender test by either meeting the
Qualified Thrift Lender test set forth in the Home Owners Loan Act and implementing regulations or
qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the
Internal Revenue Code of 1986, as amended. A savings bank subsidiary of a savings and loan holding
company that does not comply with the Qualified Thrift Lender test must comply with the following
restrictions on its operations:
|
|
|
the institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for a
national bank;
|
|
|
|
the branching powers of the institution shall be restricted to those of a national
bank; and
|
|
|
|
payment of dividends by the institution shall be subject to the rules regarding
payment of dividends by a national bank.
|
Upon the expiration of three years from the date the institution ceases to meet the Qualified
Thrift Lender test, it must cease any activity and not retain any investment not permissible for a
national bank (subject to safety and soundness considerations).
Abington Bank believes that it meets the provisions of the Qualified Thrift Lender test.
Limitations on Transactions with Affiliates.
Transactions between savings institutions and any
affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
savings institution is any company or entity which controls, is controlled by or is under common
control with the savings institution. In the holding company context, the holding company of a
savings institution (such as Abington Bancorp) and any companies which are controlled by such
holding company are affiliates of the savings institution. Generally, Section 23A limits the
extent to which the savings institution or its subsidiaries may engage in covered transactions
with any one affiliate to an amount equal to 10% of such institutions capital stock and surplus,
and contain an aggregate limit on all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus. Section 23B applies to covered transactions as well as
certain other transactions and requires that all transactions be on terms substantially the same,
or at least as favorable, to the savings institution as those provided to a non-affiliate. The
term covered transaction includes the making of loans to, purchase of assets from and issuance of
a guarantee to an affiliate and similar transactions. Section 23B transactions also include the
provision of services and the sale of assets by a savings institution to an affiliate. In addition
to the restrictions imposed by Sections 23A and 23B, Section 11 of the Home Owners Loan Act
prohibits a savings institution from (i) making a loan or other extension of credit to an
affiliate, except for any affiliate which engages only in certain activities which are permissible
for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes
or similar obligations of any affiliate, except for affiliates which are subsidiaries of the
savings institution.
In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to
executive officers, directors and principal stockholders. Under Section 22(h), loans to a
director, an executive officer and to a greater than 10% stockholder of a savings institution, and
certain affiliated interests of either, may not exceed, together with all other outstanding loans
to such person and affiliated interests, the savings institutions loans to one borrower limit
(generally equal to 15% of the institutions unimpaired capital and surplus). Section 22(h) also
requires that loans to directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons unless the loans are
made pursuant to a benefit or compensation program that (i) is widely
available to employees of the institution and (ii) does not give preference to any director,
executive officer or principal stockholder, or certain affiliated interests of either, over other
employees of the savings institution. Section 22(h) also requires prior board approval for certain
loans. In addition, the aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institutions unimpaired capital and surplus. Furthermore, Section
22(g) places additional restrictions on loans to executive officers. At December 31, 2010,
Abington Bank was in compliance with the above restrictions.
32
Restrictions on Acquisitions.
Except under limited circumstances, savings and loan holding
companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i)
control of any other savings institution or savings and loan holding company or substantially all
the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding
company thereof which is not a subsidiary. Except with the prior approval of the Director, no
director or officer of a savings and loan holding company or person owning or controlling by proxy
or otherwise more than 25% of such companys stock, may acquire control of any savings institution,
other than a subsidiary savings institution, or of any other savings and loan holding company.
The Director of the Office of Thrift Supervision may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings institutions in
more than one state if (i) the multiple savings and loan holding company involved controls a
savings institution which operated a home or branch office located in the state of the institution
to be acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control of the
savings institution pursuant to the emergency acquisition provisions of the Federal Deposit
Insurance Act ; or (iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by the state-chartered institutions or
savings and loan holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).
Federal Securities Laws.
Abington Bancorps common stock is registered with the Securities and
Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934, as amended. We are
subject to information, proxy solicitation, insider trading restrictions, and other requirements
under the Securities Exchange Act of 1934.
The Sarbanes-Oxley Act of 2002
. As a public company, Abington Bancorp is subject to the
Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and
accounting, executive compensation, and enhanced and timely disclosure of corporate information. As
directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer
are required to certify that our quarterly and annual reports do not contain any untrue statement
of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several
requirements, including having these officers certify that: they are responsible for establishing,
maintaining and regularly evaluating the effectiveness of our internal control over financial
reporting; they have made certain disclosures to our auditors and the audit committee of the Board
of Directors about our internal control over financial reporting; and they have included
information in our quarterly and annual reports about their evaluation and whether there have been
changes in our internal control over financial reporting or in other factors that could materially
affect internal control over financial reporting.
33
Regulation of Abington Bank
Pennsylvania Savings Bank Law.
The Pennsylvania Banking Code contains detailed provisions
governing the organization, location of offices, rights and responsibilities of directors,
officers, and employees, as well as corporate powers, savings and investment operations and other
aspects of Abington Bank and its affairs. The code delegates extensive rule-making power and
administrative discretion to the Pennsylvania Department of Banking so that the supervision and
regulation of state-chartered savings banks may be flexible and readily responsive to changes in
economic conditions and in savings and lending practices.
The Pennsylvania Banking Code also provides that state-chartered savings banks may engage in any
activity permissible for a federal savings association, subject to regulation by the Pennsylvania
Department of Banking. The Federal Deposit Insurance Act, however, prohibits Abington Bank from
making new investments, loans, or becoming involved in activities as principal and equity
investments which are not permitted for national banks unless:
|
|
|
the Federal Deposit Insurance Corporation determines the activity or investment does
not pose a significant risk of loss to the Deposit Insurance Fund; and
|
|
|
|
Abington Bank meets all applicable capital requirements.
|
Accordingly, the additional operating authority provided to Abington Bank by the Pennsylvania
Banking Code is significantly restricted by the Federal Deposit Insurance Act.
Insurance of Accounts
. The deposits of Abington Bank are insured to the maximum extent permitted
by the Deposit Insurance Fund, which is administered by the FDIC, and is backed by the full faith
and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of,
and to require reporting by, insured institutions. It also may prohibit any insured institution
from engaging in any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings
institutions.
The recently enacted financial institution reform legislation permanently increased deposit
insurance on most accounts to $250,000. In addition, pursuant to Section 13(c)(4)(G) of the Federal
Deposit Insurance Act, the Federal Deposit Insurance Corporation has implemented two temporary
programs to provide deposit insurance for the full amount of most non-interest bearing transaction
deposit accounts and to guarantee certain unsecured debt of financial institutions and their
holding companies. Under the unsecured debt program, the FDICs guarantee expires on the earlier
of the maturity date of the debt or December 31, 2012. The unlimited deposit insurance for
noninterest-bearing transaction accounts was extended by the Dodd-Frank Act through the end of 2012
for all insured institutions without a separate insurance assessment (but the cost of the
additional insurance coverage will be considered under the risk-based assessment system).
The Federal Deposit Insurance Corporations risk-based premium system provides for quarterly
assessments. Each insured institution is placed in one of four risk categories depending on
supervisory and capital considerations. Within its risk category, an institution is assigned to an
initial base assessment rate which is then adjusted to determine its final assessment rate based on
its brokered deposits, secured liabilities and unsecured debt. Assessment rates range from seven
to 77.5 basis points, with less risky institutions paying lower assessments. The Federal Deposit
Insurance Corporation recently amended its deposit insurance regulations (1) to change the
assessment base for insurance from domestic deposits to average assets minus average tangible
equity and (2) to lower overall assessment rates. The revised
assessments rates are between 2.5 to 9 basis points for banks in the lowest risk category and
between 30 to 45 basis points for banks in the highest risk category. The amendments will become
effective for the quarter beginning April 1, 2011 with the new assessment methodology being
reflected in the premium invoices due September 30, 2011.
34
In addition, all institutions with deposits insured by the FDIC are required to pay assessments to
fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government
corporation established to recapitalize a predecessor to the Deposit Insurance Fund. These
assessments will continue until the Financing Corporation bonds mature in 2019.
The FDIC may terminate the deposit insurance of any insured depository institution, including
Abington Bank, if it determines after a hearing that the institution has engaged or is engaging in
unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed by an agreement with the
FDIC. It also may suspend deposit insurance temporarily during the hearing process for the
permanent termination of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of the termination, less
subsequent withdrawals, shall continue to be insured for a period of six months to two years, as
determined by the FDIC. Management is aware of no existing circumstances which would result in
termination of Abington Banks deposit insurance.
On May 22, 2009, the FDIC announced a five basis point special assessment on each insured
depository institutions assets minus its Tier 1 capital as of June 30, 2009. The FDIC collected
the special assessment on September 30, 2009. Based on our assets and Tier 1 capital at June 30,
2009, the impact of the special assessment was approximately $500,000, which was expensed in the
second quarter of fiscal 2009.
On November 12, 2009, the FDIC adopted regulations that required insured depository institutions to
prepay on December 30, 2009 their estimated assessments for the fourth calendar quarter of 2009
through the fourth quarter of 2012. The new regulations base the assessment rate for the fourth
calendar quarter of 2009 and for 2010 on each institutions total base assessment rate for the
third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009
had been in effect for the entire third quarter. Under the prepaid assessment rule, we made a
payment of $4.6 million to the Federal Deposit Insurance Corporation on December 30, 2009, and
recorded $4.3 million of this payment as a prepaid expense. The prepaid balance has been and will
continue to be reduced by the actual expense for our quarterly assessments, until the balance is
exhausted. Depending on how our actual assessments compare to the estimated assessments, the
prepaid balance may be exhausted earlier than or later than the planned three year time period.
On February 7, 2011, the FDIC approved a final rule that changes the assessment base from domestic
deposits to average assets minus average tangible equity, adopts a new large-bank pricing
assessment scheme, and sets a target size for the Deposit Insurance Fund. The changes will go into
effect beginning with the second quarter of 2011 and will be payable at the end of September 2011.
The rule as mandated by the Dodd-Frank Act finalizes a target size for the Deposit Insurance
Fund at 2 percent of insured deposits. It also implements a lower assessment rate schedule when the
fund reaches 1.15 percent and, in lieu of dividends, provides for a lower rate schedule when the
reserve ratio reaches 2 percent and 2.5 percent. Also as mandated by the Dodd-Frank Act, the rule
changes the assessment base from adjusted domestic deposits to a banks average consolidated total
assets minus average tangible equity. The rule defines tangible equity as Tier 1 capital. The rule
lowers overall assessment rates in order to generate the same approximate amount of revenue under
the new larger base as was raised under the old base. The assessment rates in total would be
between 2.5 and 9 basis points on the broader base for banks in the lowest risk category, and 30 to
45 basis points for banks in the highest risk category. The rule eliminates the adjustment to the
rate paid for secured liabilities, including Federal Home Loan Bank
advances, since these will be part of the new assessment base. The proposal also creates a new
depository institution debt adjustment that increases the assessment rate of an institution that
holds long-term unsecured debt issued by another insured depository institution. The rule also
changes the amount of, and cap on, the unsecured debt adjustment to the assessment base and
eliminates Tier 1 capital from the definition of unsecured debt. The final rule also creates a
scorecard-based assessment system for banks with more than $10 billion in assets. The scorecards
include financial measures that the FDIC believes are predictive of long-term performance.
35
Regulatory Capital Requirements.
The FDIC has promulgated capital adequacy requirements for
state-chartered banks that, like Abington Bank, are not members of the Federal Reserve Board
System. The capital regulations establish a minimum 3% Tier 1 leverage capital requirement for the
most highly rated state-chartered, non-member banks, with an additional cushion of at least 100 to
200 basis points for all other state-chartered, non-member banks, which effectively increases the
minimum Tier 1 leverage ratio for such other banks to 4% to 5% or more. Under the FDICs
regulations, the highest-rated banks are those that the FDIC determines are not anticipating or
experiencing significant growth and have well diversified risk, including no undue interest rate
risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are
considered a strong banking organization, rated composite 1 under the Uniform Financial
Institutions Rating System. Tier 1, or leverage capital, is defined as the sum of common
shareholders equity, including retained earnings, noncumulative perpetual preferred stock and
related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain purchased mortgage servicing rights and purchased credit card relationships.
The Federal Deposit Insurance Corporations regulations also require that state-chartered,
non-member banks meet a risk-based capital standard. The risk-based capital standard requires the
maintenance of total capital, defined as Tier 1 capital and supplementary (Tier 2) capital, to risk
weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain
off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
Federal Deposit Insurance Corporation believes are inherent in the type of asset or item. The
components of Tier 1 capital for the risk-based standards are the same as those for the leverage
capital requirement. The components of supplementary (Tier 2) capital include cumulative perpetual
preferred stock, mandatory subordinated debt, perpetual subordinated debt, intermediate-term
preferred stock, up to 45% of unrealized gains on equity securities and a portion of a banks
allowance for loan losses. Allowance for loan losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of supplementary
capital that may be included in total capital is limited to 100% of Tier 1 capital.
A bank that has less than the minimum leverage capital requirement is subject to various capital
plan and activities restriction requirements. The FDICs regulations also provide that any insured
depository institution with a ratio of Tier 1 capital to total assets that is less than 2.0% is
deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the Federal
Deposit Insurance Act and could be subject to potential termination of deposit insurance.
Abington Bank is also subject to minimum capital requirements imposed by the Pennsylvania
Department of Banking on Pennsylvania chartered depository institutions. Under the Pennsylvania
Department of Bankings capital regulations, a Pennsylvania bank or savings association must
maintain a minimum leverage ratio of Tier 1 capital, as defined under the FDICs capital
regulations, to total assets of 4%. In addition, the Pennsylvania Department of Banking has the
supervisory discretion to require a higher leverage ratio for any institution or association based
on inadequate or substandard performance in any of a number of areas. The Pennsylvania Department
of Banking incorporates the same FDIC risk-based capital requirements in its regulations. As of
December 31, 2010, Abington Bank was in compliance with all applicable regulatory capital
requirements and was deemed to be a well-capitalized institution.
36
Federal Home Loan Bank System.
Abington Bank is a member of the Federal Home Loan Bank of
Pittsburgh, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank
serves as a reserve or central bank for its members within its assigned region. It is funded
primarily from funds deposited by member institutions and proceeds from the sale of consolidated
obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors of the Federal Home
Loan Bank.
As a member, Abington Bank is required to purchase and maintain stock in the Federal Home Loan Bank
of Pittsburgh in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage
loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its
outstanding advances from the Federal Home Loan Bank. At December 31, 2010, Abington Bank was in
compliance with this requirement.
Federal Reserve Board System.
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their transaction accounts,
which are primarily checking and NOW accounts, and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to
satisfy the liquidity requirements that are imposed by the Pennsylvania Department of Banking. At
December 31, 2010, Abington Bank was in compliance with these reserve requirements.
TAXATION
Federal Taxation
General
. Abington Bancorp and Abington Bank are subject to federal income taxation in the same
general manner as other corporations with some exceptions listed below. The following discussion
of federal, state and local income taxation is only intended to summarize certain pertinent income
tax matters and is not a comprehensive description of the applicable tax rules.
Method of Accounting
. For federal income tax purposes, Abington Bank reports income and expenses
on the accrual method of accounting and files its federal income tax return on a calendar year
basis.
Bad Debt Reserves
. The Small Business Job Protection Act of 1996 eliminated the use of the reserve
method of accounting for bad debt reserves by savings associations, effective for taxable years
beginning after 1995. Prior to that time, Abington Bank was permitted to establish a reserve for
bad debts and to make additions to the reserve. These additions could, within specified formula
limits, be deducted in arriving at taxable income. As a result of the Small Business Job
Protection Act of 1996, savings associations must use the specific charge-off method in computing
their bad debt deduction beginning with their 1996 federal tax return. In addition, federal
legislation required the recapture over a six year period of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987.
Taxable Distributions and Recapture
. Prior to the Small Business Job Protection Act of 1996, bad
debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if
Abington Bank failed to meet certain thrift asset and definitional tests. New federal legislation
eliminated these savings association related recapture rules. However, under current law, pre-1988
reserves remain subject to recapture should Abington Bank make certain non-dividend distributions
or cease to maintain a bank charter.
37
At December 31, 2010, Abington Banks total federal pre-1988 reserve was approximately $3.2
million. The reserve reflects the cumulative effects of federal tax deductions by Abington Bank for
which no federal income tax provisions have been made.
Alternative Minimum Tax
. The Internal Revenue Code imposes an alternative minimum tax at a rate of
20% on a base of regular taxable income plus certain tax preferences. The alternative minimum tax
is payable to the extent such alternative minimum tax income is in excess of the regular income
tax. Net operating losses, of which Abington Bank has none, can offset no more than 90% of
alternative minimum taxable income. Certain payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years. Abington Bank has not been subject to the
alternative minimum tax or any such amounts available as credits for carryover.
Corporate Dividends-Received Deduction
. Abington Bancorp may exclude from its income 100% of
dividends received from Abington Bank as a member of the same affiliated group of corporations.
The corporate dividends received deduction is 80% in the case of dividends received from
corporations which a corporate recipient owns less than 80%, but at least 20% of the distributing
corporation. Corporations which own less than 20% of the stock of a corporation distributing a
dividend may deduct only 70% of dividends received.
State and Local Taxation
Pennsylvania Taxation
. Abington Bancorp is subject to the Pennsylvania Corporate Net Income Tax,
Capital Stock and Franchise Tax. The Corporation Net Income Tax rate for 2010 is 9.99% and is
imposed on unconsolidated taxable income for federal purposes with certain adjustments. In
general, the Capital Stock and Franchise Tax is a property tax imposed on a corporations capital
stock value at a statutorily defined rate, such value being determined in accordance with a fixed
formula based upon average net income and net worth.
Abington Bank is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax Act, as
amended to include thrift institutions having capital stock. Pursuant to the Mutual Thrift
Institutions Tax, the tax rate for 2010 is 11.5%. The Mutual Thrift Institutions Tax exempts
Abington Bank from other taxes imposed by the Commonwealth of Pennsylvania for state income tax
purposes and from all local taxation imposed by political subdivisions, except taxes on real estate
and real estate transfers. The Mutual Thrift Institutions Tax is a tax upon net earnings,
determined in accordance with generally accepted accounting principles with certain adjustments.
The Mutual Thrift Institutions Tax, in computing income according to generally accepted accounting
principles, allows for the deduction of interest earned on state and federal obligations, while
disallowing a percentage of a thrifts interest expense deduction in the proportion of interest
income on those securities to the overall interest income of Abington Bank. Net operating losses,
if any, thereafter can be carried forward three years for Mutual Thrift Institutions Tax purposes.
If the Merger with Susquehanna is not completed, the Company will continue to face certain risk
factors related to its on-going operations
In the event that the proposed Merger with Susquehanna is not completed, the Company will continue
its operations as an independent entity and, as such, would continue to face certain risks in its
on-going operations, as described below. Even if the Merger is completed as expected in the third
calendar quarter of 2011, the Company will face these risks on an independent basis until the time
of the Merger.
38
If the Merger is not completed, the Company will have incurred substantial expenses without
realizing the expected benefits of the Merger
The Company has incurred substantial expenses in connection with the Merger. The completion of the
Merger depends on the satisfaction of specified conditions and the receipt of regulatory approvals
and the approval of the Companys shareholders. The Company cannot guarantee that these conditions
will be met. If the Merger is not completed, these expenses could have a material adverse impact on
the Companys financial condition and results of operations on a stand-alone basis. In addition,
the market price of the Companys common stock would likely decline in the event that the Merger is
not consummated as the current market price likely reflects an assumption that the Merger will be
completed.
Our Results of Operations are Significantly Dependent on Economic Conditions and Related
Uncertainties
Banking is affected, directly and indirectly, by domestic and international economic and political
conditions and by governmental monetary and fiscal policies. Conditions such as inflation,
recession, unemployment, volatile interest rates, real estate values, government monetary policy,
international conflicts, the actions of terrorists and other factors beyond our control may
adversely affect our results of operations. As a result of the downturn in the economy accompanying
the national recession, among other factors, much of managements efforts during 2010 was focused
on resolving our delinquent and non-performing loans, which increased significantly during 2009 and
2008. Additionally, we have continued to see declines in property values of the collateral securing
loans we have made. The negative economic factors being experienced in our market area could
continue to have adverse effects upon our operations. We are particularly sensitive to changes in
economic conditions and related uncertainties in the Delaware Valley because we derive
substantially all of our loans, deposits and other business from the greater Philadelphia region in
eastern Pennsylvania and contiguous counties in New Jersey and Delaware. Accordingly, we remain
subject to the risks associated with a continuing and prolonged decline in the national or local
economies. Changes in interest rates also could adversely affect our net interest income and have a
number of other adverse effects on our operations, as discussed further in the risk factors below.
Our Allowance for Losses on Loans May Not Be Adequate to Cover Probable Losses
We have established an allowance for loan losses based upon various assumptions and judgments about
the collectibility of our loan portfolio which we believe is adequate to offset probable losses on
our existing loans. Since we must use assumptions regarding individual loans and the economy, our
current allowance for loan losses may not be sufficient to cover actual loan losses, and increases
in the allowance may become necessary in the future. There can be no assurance that any future
declines in real estate market conditions, general economic conditions or changes in regulatory
policies will not require us to increase our allowance for loan losses, which would adversely
affect our results of operations. We may also need to significantly increase our provision for loan
losses, particularly if one or more of our larger loans or credit relationships becomes delinquent.
In addition, federal regulators periodically review our allowance for loan losses and may require
us to increase our provision for loan losses or recognize loan charge-offs. During the year ended
December 31, 2010, our provision for loan losses was $977,000 after net charge-offs of $5.8 million
during the year. During the year ended December 31, 2009 and 2008, our provision for loan losses
was $18.7 million and $9.8 million, respectively. The provision during 2010 was made upon
consideration of, among other factors, managements ongoing review of certain delinquent and
impaired construction and commercial real estate loans as well as upon consideration of the
significant provisions taken during 2009 and 2008. Our allowance for loan losses amounted to 47.27%
of non-performing loans and 0.61% of total loans at December 31, 2010.
39
Our Loans are Concentrated to Borrowers In Our Market Area
At December 31, 2010, the preponderance of our total loans were to individuals and/or secured by
properties located in our market area of the Delaware Valley region. We have relatively few loans
outside of our market. As a result, we have a greater risk of loan defaults and losses in the
event of an economic downturn in our market area as adverse economic changes may have a negative
effect on the ability of our borrowers to make timely repayment of their loans. Beginning in 2008
and continuing into 2011, the Delaware Valley region has experienced a rise in unemployment as well
as certain declines in real estate values, both residential and commercial. The decline in real
estate values has adversely affected the value of certain collateral securing loans in our
portfolio. Continuing increases in unemployment or declines in collateral values could be a factor
requiring us to make additional provisions to the allowance for loan losses, which would have a
negative impact on net income. Additionally, if we are required to liquidate a significant amount
of collateral during a period of reduced real estate values to satisfy the debt, our earnings and
capital could be adversely affected.
Competition for Core Deposits Is Increasing
At December 31, 2010, $432.0 million, or 48.0% of our total deposits were certificates of deposit,
also known as time deposits, and of that amount $220.5 million or 51.0% of our total certificates
of deposit, were jumbo certificates of $100,000 or more. At December 31, 2010, low-cost core
deposits comprised 52.0% of our average total deposits compared to 46.2% and 38.2% for the years
ended December 31, 2009 and 2008, respectively. Our success in raising core deposits during 2010
was partially a result of the historically low rates of interest during the year, which caused the
return available on time deposits relative to other deposit products, such as core deposits, or
other investments to decrease. However, as interest rates rise from their present levels, it is
likely that a portion of our customers will transfer significant amounts of their deposits from
core deposits to time deposits. In addition, as competition for core deposits continues to
increase, it is possible that the percentage of our total deposits that are core deposits will
shrink. In todays economic landscape, banks face competition for core deposits not only from
traditional competitors such as other banks and credit unions, but also from investment companies
that have reorganized as bank holding companies in the wake of the recent turmoil on Wall Street.
If more of our customers invest in time deposits, or if core deposits are lost to competition, the
average rate Abington Bank pays on its deposits will be relatively higher. This will have the
effect of narrowing our net interest spread and net interest margin relative to the levels at which
they might have been had a higher percentage of our deposits been in core deposits. This could
adversely affect our profitability. The average rate we paid on our interest-bearing deposits was
1.51% for the year ended December 31, 2010 compared to 2.13% and 2.85% for the years ended December
31, 2009 and 2008, respectively.
Our Portfolio of Loans With a Higher Risk of Loss Has Increased in Recent Years
In recent years, we had increased our originations of construction loans and commercial real estate
and multi-family residential real estate loans. These loans have a higher risk of default and loss
than single-family residential mortgage loans. The aggregate of construction loans and commercial
real estate and multi-family residential loans has increased from $227.4 million or 34.8% of our
total loan portfolio at December 31, 2006 to $279.6 million or 38.2% of our loan portfolio at
December 31, 2010 after reaching $339.1 million or 40.9% of the total loan portfolio at December
31, 2009. While we had increased our emphasis on originating construction and commercial real
estate and multi-family residential mortgage loans in recent years, we originated a reduced amount
of construction loans during 2010, and it is likely that we will again originate a reduced amount
of construction loans in 2011. We
40
expect that lending opportunities for construction loans may be
limited as a result of increased caution on the part of management in our originations of these loans in light of the economy and the increased level of
delinquent and non-performing loans in our construction loan portfolio. Construction loans and
commercial real estate and multi-family residential real estate loans all generally have a higher
risk of loss than single-family residential mortgage loans because repayment of the loans often
depends on the successful operation of a business or the underlying property. At December 31, 2010,
$5.7 million or 5.2% of our total outstanding construction loans (which include land acquisition
and development loans) were non-performing, and at such date, $2.7 million, or 64.1%, of our
allowance for loan losses was allocated to construction loans. At December 31, 2009, the Company
had $29.3 million of construction loans that were considered non-performing. The significant
reduction in the balance of our non-performing construction loans during 2010 was primarily the
result of the charge-off of certain loan balances and the transfer of certain loans to REO, in
addition to improvement in a portion of our non-performing construction loans. At December 31, 2010
and 2009, $2.1 million and $4.8 million, respectively, of our total outstanding commercial real
estate and multi-family residential loans were considered non-performing.
We are Dependent Upon the Services of Our Management Team
Our future success and profitability depend upon the management and banking abilities of our senior
executives. We believe that our future results will also depend in part upon our attracting and
retaining highly skilled and qualified management. We are especially dependent on a limited number
of key management personnel. The loss of our chief executive officer or other senior executive
officers, even for a limited period, could have a material adverse impact on our operations because
other officers may not have the experience and expertise to readily replace these individuals.
Competition for such personnel is intense, and we cannot assure you that we will be successful in
attracting or retaining such personnel. Changes in key personnel and their responsibilities may be
disruptive to our business and could have a material adverse effect on our business, financial
condition and results of operations.
Strong Competition Within Our Market Area May Limit Our Growth and Profitability
Competition in the banking and financial services industry is intense. In our market area, we
compete with numerous commercial banks, savings institutions, mortgage brokerage firms, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking
firms operating locally and elsewhere.
Increased and/or Special Federal Deposit Insurance Corporation Assessments Will Hurt Our Earnings
The recent economic recession has caused a high level of bank failures, which has dramatically
increased Federal Deposit Insurance Corporation resolution costs and led to a significant reduction
in the balance of the Deposit Insurance Fund. As a result, the Federal Deposit Insurance
Corporation has significantly increased the initial base assessment rates paid by financial
institutions for deposit insurance. Increases in the base assessment rate have increased our
deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the Federal
Deposit Insurance Corporation imposed a special assessment on all insured institutions. Our special
assessment, which was reflected in earnings for the year ended December 31, 2009, was approximately
$500,000. In lieu of imposing an additional special assessment, the Federal Deposit Insurance
Corporation required all institutions to prepay their assessments for the fourth quarter of 2009
and all of 2010, 2011 and 2012. Additional increases in the base assessment rate or special
assessments would negatively impact our earnings.
41
We Operate In a Highly Regulated Environment and We May Be Adversely Affected By Changes in Laws
and Regulations
We are subject to extensive regulation, supervision and examination by the Office of Thrift
Supervision, our primary federal regulator, and by the Federal Deposit Insurance Corporation, as
insurer of our deposits. Such regulation and supervision governs the activities in which an
institution and its holding company may engage and are intended primarily for the protection of the
insurance fund and the depositors and borrowers of the Bank rather than for holders of our common
stock. Regulatory authorities have extensive discretion in their supervisory and enforcement
activities, including the imposition of restrictions on our operations, the classification of our
assets and determination of the level of our allowance for loan losses. Any change in such
regulation and oversight, whether in the form of regulatory policy, regulations, legislation or
supervisory action, may have a material impact on our operations.
Recently Enacted Regulatory Reform May Have a Material Impact on Our Operations
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer
Protection Act that, among other things, imposes new restrictions and an expanded framework of
regulatory oversight for financial institutions and their holding companies, including the Bank and
the Company. Under the new law, the Companys and the Banks primary regulator, the Office of
Thrift Supervision, will be eliminated and existing federal thrifts will be subject to regulation
and supervision by the Office of Comptroller of the Currency, which currently supervises and
regulates all national banks. Savings and loan holding companies will be regulated by the Federal
Reserve Board, which will have the authority to promulgate new regulations governing the Company
that will impose additional capital requirements and may result in additional restrictions on
investments and other holding company activities. The law also creates a new consumer financial
protection bureau that will have the authority to promulgate rules intended to protect consumers in
the financial products and services market. The creation of this independent bureau could result
in new regulatory requirements and raise the cost of regulatory compliance. The federal preemption
of state laws currently accorded federally chartered financial institutions will be reduced. In
addition, regulation mandated by the new law could require changes in regulatory capital
requirements, loan loss provisioning practices, and compensation practices which may have a
material impact on our operations. Because the regulations under the new law have not been
promulgated, we cannot determine the full impact on our business and operations at this time. See
Regulation Recently Enacted Regulatory Reform.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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Not applicable.
42
We currently conduct business from our main office, twelve additional full-service banking offices
and seven limited service offices. We also maintain a loan processing office. The following table
sets forth the net book value of the land, building and leasehold improvements and certain other
information with respect to our offices at December 31, 2010.
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Date of Lease
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Net Book Value
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Amount of
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Description/Address
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Leased/Owned
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Expiration
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of Property
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Deposits
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(In Thousands)
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Main Office
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Owned
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N/A
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$
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1,038
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$
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173,194
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180 Old York Road
Jenkintown, PA 19046
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Loan Processing Office
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Owned
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N/A
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902
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N/A
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179 Washington Lane
Jenkintown, PA 19046
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Glenside Branch
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Bldg. Owned
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12/31/19
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406
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90,577
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273 Keswick Avenue
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Ground Leased
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Glenside, PA 19038
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Abington Branch
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Leased
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1/31/19
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148
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41,132
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990 Old York Road
Abington, PA 19001
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Willow Grove Branch
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Owned
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N/A
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1,375
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99,908
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275 Moreland Road
Willow Grove, PA 19090
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Horsham Branch
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Leased
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5/31/13
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85
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33,032
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Rt 611 & County Line Road
Horsham, PA 19044
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Huntingdon Valley Branch
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Leased
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12/31/13
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38
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55,892
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667 Welsh Road
Huntingdon Valley, PA 19006
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Fort Washington Branch
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Leased
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8/15/13
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75
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52,296
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101 Fort Washington Avenue
Fort Washington, PA 19034
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Montgomeryville Branch
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Leased
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3/31/16
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3
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26,370
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521 Stump Road
North Wales, PA 19454
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Warrington Branch
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Leased
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6/30/15
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843
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54,167
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1111 Easton Road
Warrington, PA 18976
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Lansdale Branch
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Leased
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1/31/17
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60
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21,994
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407 S. Broad Street
Lansdale, PA 19446
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Chalfont Branch
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Leased
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6/14/14
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1,086
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17,106
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|
329 N. Main Street
Chalfont, PA 18914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Lease
|
|
|
Net Book Value
|
|
|
Amount of
|
|
Description/Address
|
|
Leased/Owned
|
|
|
Expiration
|
|
|
of Property
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Spring House Branch
|
|
Owned
|
|
|
N/A
|
|
|
$
|
2,318
|
|
|
$
|
42,048
|
|
800 N. Bethlehem Pike
Spring House, PA 19477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hatboro Branch
|
|
Leased
|
|
|
N/A
|
|
|
|
341
|
|
|
|
34,356
|
|
420 S. York Road
Hatboro, PA 19040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rydal Park Limited Service Office
|
|
Leased
|
|
|
5/21/11
|
|
|
|
|
|
|
|
15,299
|
|
1515 The Fairway
Rydal, PA 19046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centennial Station Limited Service Office
|
|
Leased
|
|
|
7/31/11
|
|
|
|
|
|
|
|
6,829
|
|
12106-B Centennial Station
Warminster, PA 18974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regency Towers Limited Service Office
|
|
Leased
|
|
|
10/31/13
|
|
|
|
|
|
|
|
10,877
|
|
1003 Easton Road
Willow Grove, PA 19090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anns Choice Limited Service Office
|
|
Leased
|
|
|
5/31/12
|
|
|
|
9
|
|
|
|
69,037
|
|
10000 Anns Choice Way
Warminster, PA 18974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anns Choice Limited Service Office #2
|
|
Leased
|
|
|
5/31/12
|
|
|
|
|
|
|
|
16,022
|
|
3000 Anns Choice Way
Warminster, PA 18974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maris Grove Limited Service Office
|
|
Leased
|
|
|
9/30/16
|
|
|
|
1
|
|
|
|
32,616
|
|
100 Maris Grove Way
Glen Mills, PA 19342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whitemarsh Limited Service Office
|
|
Leased
|
|
|
3/31/12
|
|
|
|
16
|
|
|
|
7,307
|
|
4000 Fox Hound Drive
Lafayette Hill, PA 19444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3.
|
|
LEGAL PROCEEDINGS
|
As of December 31, 2010, we were not, and we presently are not, involved in any legal proceedings
of a material nature. From time to time, we are a party to legal proceedings incidental to our
business to enforce our security interest in collateral pledged to secure loans made by Abington
Bank. However, in connection with the Merger, the Company has received three letters from three
separate alleged shareholders demanding that the Board remedy alleged breaches of fiduciary duties
in connection with the merger (the Demand Letters). The Demand Letters assert that the Companys
directors breached their fiduciary duties by causing the Company to enter into the Merger
Agreement. Among other things, the Demand Letters allege that the Merger is unfair to the Companys
shareholders. The Demand Letters request that the Companys board take action to, among other
things, ensure that the consideration paid to the Companys shareholders is fair and to recover
alleged damages on behalf of the Company. The Companys board of directors intends to respond to
the Demand Letters.
|
|
|
ITEM 4.
|
|
(REMOVED AND RESERVED)
|
44
PART II
|
|
|
ITEM 5.
|
|
MARKET FOR REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
|
(a)
|
|
Abington Bancorp, Inc. common stock trades on the Nasdaq Global Market under the trading
symbol ABBC. At the close of business on December 31, 2010, there were 4,551 shareholders
of record.
|
|
|
The following table sets forth the high and low sales prices of the Companys common stock
as reported by the Nasdaq Global Market during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.50
|
|
|
$
|
6.60
|
|
|
$
|
9.33
|
|
|
$
|
5.88
|
|
Second Quarter
|
|
$
|
10.20
|
|
|
$
|
7.90
|
|
|
$
|
9.40
|
|
|
$
|
7.52
|
|
Third Quarter
|
|
$
|
10.59
|
|
|
$
|
8.63
|
|
|
$
|
9.00
|
|
|
$
|
7.50
|
|
Fourth Quarter
|
|
$
|
12.41
|
|
|
$
|
10.32
|
|
|
$
|
8.00
|
|
|
$
|
6.28
|
|
|
|
The following table summarizes the cash dividends per share of common stock paid by the
Company during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
First Quarter
|
|
$
|
0.050
|
|
|
$
|
0.050
|
|
Second Quarter
|
|
$
|
0.050
|
|
|
$
|
0.050
|
|
Third Quarter
|
|
$
|
0.050
|
|
|
$
|
0.050
|
|
Fourth Quarter
|
|
$
|
0.060
|
|
|
$
|
0.050
|
|
45
|
|
The following graph demonstrates comparison of the cumulative total returns for the
common stock of Abington Bancorp, the NASDAQ Composite Index and the SNL Securities Thrift
Index for the periods indicated. The graph includes adjustments to reflect the
reorganization we completed on June 27, 2007 and assumes that an investor originally
purchased shares of our predecessor mid-tier company on December 31, 2005 and exchanged his
or her shares in June 2007 pursuant to the exchange ratio for our second step conversion.
The graph below represents $100 invested in our common stock at its closing price on
December 31, 2005. The cumulative total returns include the payment of dividends by
Abington Bancorp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
|
Index
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
|
|
12/31/09
|
|
|
12/31/10
|
|
Abington Bancorp, Inc.
|
|
$
|
100.00
|
|
|
$
|
150.10
|
|
|
$
|
119.68
|
|
|
$
|
120.16
|
|
|
$
|
91.95
|
|
|
$
|
162.73
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
110.39
|
|
|
|
122.15
|
|
|
|
73.32
|
|
|
|
106.57
|
|
|
|
125.91
|
|
SNL Thrift Index
|
|
|
100.00
|
|
|
|
116.57
|
|
|
|
69.93
|
|
|
|
44.50
|
|
|
|
41.50
|
|
|
|
43.37
|
|
|
|
|
*
|
|
Source: SNL Financial LC
|
|
|
The Company did not sell any of its equity securities during 2010 that were not
registered under the Securities Act of 1933.
|
|
|
For information regarding the Companys equity compensation plans see Item 12.
|
46
(c)
|
|
Purchases of Equity Securities
|
|
|
The Companys repurchases of its common stock made during the quarter are set forth in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
|
|
Total
|
|
|
|
|
|
|
Shares Purchased
|
|
|
of Shares that May
|
|
|
|
Number of
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plan or
|
|
Period
|
|
Purchased(1)
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, October 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
265,824
|
|
November 1, November 30, 2010
|
|
|
266
|
|
|
|
11.91
|
|
|
|
|
|
|
|
265,824
|
|
December 1, December 31, 2010
|
|
|
1,000
|
|
|
|
11.92
|
|
|
|
|
|
|
|
265,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,266
|
|
|
$
|
11.92
|
|
|
|
|
|
|
|
265,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All 1,266 shares purchased during the quarter were purchased as permitted by the tax
withholding provisions of the Companys recognition and retention plan. In conjunction
with the plan, participants may elect to have a portion of their awarded shares withheld
upon vesting solely to pay for any related tax liabilities on these awards.
|
|
(2)
|
|
On January 14, 2010, the Company announced a stock repurchase program to repurchase
up to 5% of its outstanding shares, or 1,048,603 shares. This purchase program terminated
January 14, 2011 with no additional purchases made.
|
|
|
|
ITEM 6.
|
|
SELECTED FINANCIAL DATA
|
The selected consolidated financial and other data of Abington Bancorp, Inc. set forth below does
not purport to be complete and should be read in conjunction with, and is qualified in its entirety
by, the more detailed information, including the Consolidated Financial Statements and related
Notes, appearing elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
Selected Financial and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,247,098
|
|
|
$
|
1,238,112
|
|
|
$
|
1,189,753
|
|
|
$
|
1,079,669
|
|
|
$
|
925,186
|
|
Cash and cash equivalents
|
|
|
77,687
|
|
|
|
44,714
|
|
|
|
31,863
|
|
|
|
68,055
|
|
|
|
44,565
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
20,385
|
|
|
|
20,387
|
|
|
|
20,389
|
|
|
|
20,391
|
|
|
|
20,393
|
|
Available-for-sale
|
|
|
124,904
|
|
|
|
84,317
|
|
|
|
69,324
|
|
|
|
98,781
|
|
|
|
74,489
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
56,872
|
|
|
|
77,150
|
|
|
|
83,093
|
|
|
|
46,892
|
|
|
|
56,144
|
|
Available-for-sale
|
|
|
168,173
|
|
|
|
138,629
|
|
|
|
151,629
|
|
|
|
94,124
|
|
|
|
78,023
|
|
Loans receivable, net
|
|
|
696,444
|
|
|
|
764,560
|
|
|
|
756,552
|
|
|
|
682,038
|
|
|
|
605,063
|
|
FHLB stock
|
|
|
13,877
|
|
|
|
14,608
|
|
|
|
14,608
|
|
|
|
10,959
|
|
|
|
11,241
|
|
Deposits
|
|
|
900,059
|
|
|
|
850,200
|
|
|
|
664,950
|
|
|
|
609,613
|
|
|
|
587,002
|
|
FHLB advances
|
|
|
109,875
|
|
|
|
146,739
|
|
|
|
257,051
|
|
|
|
189,558
|
|
|
|
196,293
|
|
Other borrowed money
|
|
|
15,881
|
|
|
|
16,673
|
|
|
|
17,610
|
|
|
|
17,453
|
|
|
|
17,781
|
|
Stockholders equity
|
|
|
211,910
|
|
|
|
214,182
|
|
|
|
238,101
|
|
|
|
249,915
|
|
|
|
114,102
|
|
Banking offices
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
18
|
|
|
|
14
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands, except per share data)
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
51,318
|
|
|
$
|
53,745
|
|
|
$
|
56,262
|
|
|
$
|
56,811
|
|
|
$
|
49,818
|
|
Total interest expense
|
|
|
18,009
|
|
|
|
22,936
|
|
|
|
26,498
|
|
|
|
31,064
|
|
|
|
27,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
33,309
|
|
|
|
30,809
|
|
|
|
29,764
|
|
|
|
25,747
|
|
|
|
22,550
|
|
Provision for loan losses
|
|
|
977
|
|
|
|
18,737
|
|
|
|
9,760
|
|
|
|
457
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses
|
|
|
32,332
|
|
|
|
12,072
|
|
|
|
20,004
|
|
|
|
25,290
|
|
|
|
22,364
|
|
Total non-interest income (loss)
|
|
|
2,640
|
|
|
|
(1,495
|
)
|
|
|
3,055
|
|
|
|
3,177
|
|
|
|
2,876
|
|
Total non-interest expense
|
|
|
24,737
|
|
|
|
23,069
|
|
|
|
21,218
|
|
|
|
18,685
|
|
|
|
15,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
10,235
|
|
|
|
(12,492
|
)
|
|
|
1,841
|
|
|
|
9,782
|
|
|
|
9,494
|
|
Income taxes (benefit)
|
|
|
2,545
|
|
|
|
(5,299
|
)
|
|
|
(278
|
)
|
|
|
2,715
|
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,690
|
|
|
$
|
(7,193
|
)
|
|
$
|
2,119
|
|
|
$
|
7,067
|
|
|
$
|
6,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share (1)
|
|
$
|
0.41
|
|
|
$
|
(0.36
|
)
|
|
$
|
0.10
|
|
|
$
|
0.31
|
|
|
$
|
0.29
|
|
Diluted earnings (loss) per share (1)
|
|
$
|
0.39
|
|
|
$
|
(0.36
|
)
|
|
$
|
0.09
|
|
|
$
|
0.30
|
|
|
$
|
0.28
|
|
Cash dividends per share (1)
|
|
$
|
0.21
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.17
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Selected Operating Ratios
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average yield on interest-earning assets
|
|
|
4.55
|
%
|
|
|
4.90
|
%
|
|
|
5.42
|
%
|
|
|
6.02
|
%
|
|
|
5.93
|
%
|
Average rate on interest-bearing liabilities
|
|
|
1.83
|
|
|
|
2.47
|
|
|
|
3.21
|
|
|
|
4.08
|
|
|
|
3.80
|
|
Average interest rate spread(3)
|
|
|
2.72
|
|
|
|
2.43
|
|
|
|
2.21
|
|
|
|
1.94
|
|
|
|
2.13
|
|
Net interest margin(3)
|
|
|
2.95
|
|
|
|
2.81
|
|
|
|
2.87
|
|
|
|
2.73
|
|
|
|
2.68
|
|
Average interest-earning assets to average
interest-bearing liabilities
|
|
|
114.32
|
|
|
|
118.21
|
|
|
|
125.66
|
|
|
|
123.84
|
|
|
|
117.21
|
|
Net interest income after provision
for loan losses to non-interest expense
|
|
|
130.70
|
|
|
|
52.33
|
|
|
|
94.28
|
|
|
|
135.35
|
|
|
|
142.03
|
|
Total non-interest expense to average assets
|
|
|
1.97
|
|
|
|
1.91
|
|
|
|
1.88
|
|
|
|
1.86
|
|
|
|
1.78
|
|
Efficiency ratio(4)
|
|
|
68.81
|
|
|
|
78.70
|
|
|
|
64.65
|
|
|
|
64.60
|
|
|
|
61.93
|
|
Return on average assets
|
|
|
0.61
|
|
|
|
(0.59
|
)
|
|
|
0.19
|
|
|
|
0.70
|
|
|
|
0.77
|
|
Return on average equity
|
|
|
3.60
|
|
|
|
(3.15
|
)
|
|
|
0.86
|
|
|
|
3.79
|
|
|
|
5.94
|
|
Average equity to average assets
|
|
|
17.00
|
|
|
|
18.85
|
|
|
|
21.86
|
|
|
|
18.56
|
|
|
|
12.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Asset Quality Ratios
(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percent of
total loans receivable(6)
|
|
|
1.29
|
%
|
|
|
4.47
|
%
|
|
|
3.06
|
%
|
|
|
0.23
|
%
|
|
|
0.42
|
%
|
Non-performing assets as a percent of
total assets(6)
|
|
|
2.62
|
|
|
|
4.64
|
|
|
|
2.12
|
|
|
|
0.14
|
|
|
|
0.28
|
|
Allowance for loan losses as a percent of
non-performing loans
|
|
|
47.27
|
|
|
|
26.28
|
|
|
|
49.35
|
|
|
|
116.84
|
|
|
|
62.69
|
|
Net charge-offs/(recoveries) to average
loans receivable
|
|
|
0.81
|
|
|
|
2.81
|
|
|
|
(0.00
|
)
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios
(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
|
13.84
|
%
|
|
|
13.14
|
%
|
|
|
14.20
|
%
|
|
|
15.45
|
%
|
|
|
10.54
|
%
|
Tier 1 risk-based capital ratio
|
|
|
23.31
|
|
|
|
20.04
|
|
|
|
22.06
|
|
|
|
24.22
|
|
|
|
16.49
|
|
Total risk-based capital ratio
|
|
|
23.89
|
|
|
|
21.16
|
|
|
|
24.49
|
|
|
|
24.49
|
|
|
|
16.77
|
|
48
|
|
|
(1)
|
|
Earnings per share and cash dividends per share for the prior periods have been adjusted
to reflect the impact of the second-step conversion and reorganization of the Company, which
occurred on June 27, 2007.
|
|
(2)
|
|
With the exception of end of period ratios, all ratios are based on average monthly balances
during the indicated periods.
|
|
(3)
|
|
Average interest rate spread represents the difference between the average yield on
interest-earning assets and the average rate paid on interest-bearing liabilities, and net
interest margin represents net interest income as a percentage of average interest-earning
assets.
|
|
(4)
|
|
The efficiency ratio represents the ratio of non-interest expense divided by the sum of net
interest income and non-interest income.
|
|
(5)
|
|
Asset quality ratios are end of period ratios, except for net charge-offs to average loans
receivable.
|
|
(6)
|
|
Non-performing assets consist of non-performing loans and real estate owned. Non-performing
loans consist of all accruing loans 90 days or more past due and all non-accruing loans. It is
our policy, with certain limited exceptions, to cease accruing interest on single-family
residential mortgage loans 120 days or more past due and all other loans 90 days or more past
due. Real estate owned consists of real estate acquired through foreclosure and real estate
acquired by acceptance of a deed-in-lieu of foreclosure.
|
|
(7)
|
|
Capital ratios are end of period ratios and are calculated for Abington Bank per regulatory
requirements.
|
|
|
|
ITEM 7.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
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
which was completed on June 27, 2007. On January 26, 2011, the Company announced the signing of a
definitive Agreement and Plan of Merger with Susquehanna under which Susquehanna will acquire all
outstanding shares of common stock of the Company in a stock-for-stock transaction. For further
information on the Companys proposed merger with Susquehanna, see Note 18 in the Notes to the
Consolidated Financial Statements included in Item 8 herein The Companys results of operations are
primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company.
The Banks 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 expense,
office occupancy and equipment expense, professional services expense, data processing expense,
deposit insurance premium expense, advertising and promotions expense, director compensation
expense, and other expenses. 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 FDIC and the Pennsylvania Department of Banking. The Banks executive
offices and loan processing office are in Jenkintown, Pennsylvania, with twelve other branches and
seven limited service facilities located in nearby Montgomery, Bucks and Delaware County
neighborhoods. The Bank is principally engaged in the business of accepting customer deposits and
investing these funds in loans.
49
We reported net income of $7.7 million for the year ended December 31, 2010, compared to a net loss
of $7.2 million for the year ended December 31, 2009. Basic and diluted earnings per share were
$0.41 and $0.39, respectively, for 2010 compared to basic and diluted loss per share of $0.36 for
2009. Our net interest income was $33.3 million for the year ended December 31, 2010, representing
an increase of $2.5 million or 8.1% over 2009. The increase in our net interest income for 2010
compared to 2009 occurred as lower interest expense more than offset a reduction in interest
income. Our average interest rate spread and net interest margin increased to 2.72% and 2.95%,
respectively, for 2010 from 2.43% and 2.81%, respectively, for 2009. We recorded a provision for
loan losses of $977,000 for the year ended December 31, 2010 compared to a provision of $18.7
million for the year ended December 31, 2009, due primarily to the resolution of certain
non-performing loans. Our total non-interest income increased to $2.6 million for the year 2010
from a loss of $1.5 million for 2009. The increase was due primarily to a $4.5 million improvement
in our net loss on REO year-over-year. Our total non-interest expenses for the year 2010 amounted
to $24.7 million, representing an increase of $1.7 million or 7.2% from 2009. Our total assets
increased $9.0 million, or 0.7%, to $1.25 billion at December 31, 2010 compared to $1.24 billion at
December 31, 2009. Our deposits increased $49.9 million or 5.9% to $900.1 million at December 31,
2010 compared to $850.2 million at December 31, 2009, due primarily to growth in our core deposits.
Our total stockholders equity decreased to $211.9 million at December 31, 2010 from $214.2 million
at December 31, 2009. The decrease was due primarily to our purchases of treasury stock and the
payment of our quarterly dividends, partially offset by our net income for the period.
Critical Accounting Policies, Judgments and Estimates
In reviewing and understanding financial
information for Abington Bancorp, Inc., you are encouraged to read and understand the significant
accounting policies used in preparing our consolidated financial statements. These policies are
described in Note 2 in the Notes to the Consolidated Financial Statements included in Item 8
herein. The accounting and financial reporting policies of Abington Bancorp, Inc. conform to
accounting principles generally accepted in the United States of America (U.S. GAAP) and to
general practices within the banking industry. The Financial Accounting Standards Board (the
FASB) established the Accounting Standards Codification (the Codification or the ASC) as the
authoritative source for U.S. GAAP. The
preparation of the Companys 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,
other-than-temporary impairment of securities, 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 basis for making judgments on the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Allowance for Loan Losses
The allowance for loan losses is increased by charges to income through
the provision for loan losses and decreased by charge-offs (net of recoveries). The allowance is
maintained at a level that management considers adequate to provide for losses based upon
evaluation of the known and inherent risks in the loan portfolio. Managements periodic evaluation
of the adequacy of the allowance is based on the Companys past loan loss experience, the volume
and composition of lending conducted by the Company, adverse situations that may affect a
borrowers ability to repay, the estimated value of any underlying collateral, current economic
conditions and other factors affecting the known and inherent losses 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 loan portfolio. All of these estimates may be susceptible
to significant change.
50
The allowance consists of specifically identified amounts for impaired loans, a general allowance,
or in some cases a specific 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.
A loan is classified as a troubled debt restructuring (TDR) if the Company, for economic or legal
reasons related to a debtors financial difficulties, grants a concession to the debtor that it
would not otherwise consider. Concessions granted under a TDR typically involve a temporary or
permanent reduction in payments or interest rate or an extension of a loans stated maturity date
at less than a current market rate of interest. Loans classified as TDRs are designated as
impaired.
We establish an allowance on impaired loans for the amount by which the present value of expected
future cash flows discounted at the loans effective interest rate, observable market price or fair
value of collateral, if the loan is collateral dependent, is lower than the carrying value of the
loan. Impairment losses are included in the provision for loan losses. 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. Factors
considered by management in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due. 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 generally considered
to be insignificant, although management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding
the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record and the amount of the shortfall in relation to the principal and
interest owed. Impairment is measured on a loan by loan basis for all construction loans and most
commercial real estate loans, including all such loans that are classified or criticized. Large
groups of smaller balance, homogeneous loans are collectively evaluated for impairment, except for
those loans restructured under a troubled debt restructuring and certain classified or criticized
loans. Loans
collectively evaluated for impairment include smaller balance commercial real estate loans,
residential real estate loans and consumer loans. The determination of fair value for the
collateral underlying a loan is more fully described in Note 16 in the Notes to the Consolidated
Financial Statements included in Item 8 herein.
We typically establish a general valuation allowance on classified and criticized loans which are
not impaired. In establishing the general valuation allowance, we segregate these loans by
category. The categories used by the Company include doubtful, substandard and special
mention. For commercial and construction loans, the determination of the category for each loan
is based on periodic reviews of each loan by our lending officers as well as an independent,
third-party consultant. The reviews include a consideration of such factors as recent payment
history, current financial data and cash flow projections, collateral evaluations, and current
economic and business conditions. Categories for mortgage and consumer loans are determined through
a similar review. Placement of a loan within a category is based on identified weaknesses that
increase the credit risk of loss on the loan. Each category carries a general rate for the
allowance percentage to be assigned to the loans within that category. The general allowance
percentage is determined based on inherent losses associated with each type of lending as
determined through consideration of our loss history with each type of loan, trends in credit
quality and collateral values, and an evaluation of current economic and business conditions.
Although the placement of a loan within a given category assists us in our analysis of the risk of
loss, the actual allowance percentage assigned to each loan within a category is adjusted for the
specific circumstances of each loan, including an evaluation of the appraised value of the specific
collateral for the loan, and will often differ from the general rate for the category. These
classified and criticized loans, in the aggregate, represent an above-average credit risk and it is
expected that more of these loans will prove to be uncollectible compared to loans in the general
portfolio.
51
We establish a general allowance on non-classified and non-criticized loans to recognize the
inherent losses associated with lending activities, but which, unlike amounts which have been
specifically identified with respect to particular classified and criticized loans, is not
established on an individual loan-by-loan basis. This general valuation allowance is determined by
segregating the loans by portfolio segments and assigning allowance percentages to each segment. An
evaluation of each segment is made to determine the need to further segregate the loans by a more
focused class of financing receivable. For our residential mortgage and consumer loan portfolios,
we identified similar characteristics throughout the portfolio including credit scores,
loan-to-value ratios and collateral. These portfolios generally have high credit scores and strong
loan-to-value ratios (typically below 80% at origination), and have not been significantly impacted
by recent housing price depreciation. For our commercial real estate loan portfolio, although the
loans are less uniform than with our residential mortgage and consumer loan portfolios, a review of
our loss history does not suggest significant benefits from further segregation of the segment.
With our construction loan portfolio, however, a further analysis is made in which we segregate the
loans by class based on the purpose of the loan and the collateral properties securing the loan.
Various risk factors are then considered for each class of loan, including the impact of general
economic and business conditions, collateral value trends, credit quality trends and historical
loss experience. Based on a consideration of our loss history in recent periods in comparison to
the aging of our loan portfolio, we evaluated our loss experience using a time period of three
years. In choosing this time period, our goal was to select a period that was sufficiently short so
as to capture the recent economic environment, but long enough to fairly reflect the age of our
loans at the time when losses began to occur. We believe that a three-year period appropriately
reflects the life cycle of a loan that is indicative of the risk of loss.
The allowance is adjusted for significant other factors that, in managements judgment, affect the
collectibility of the portfolio as of the evaluation date. These significant factors, many of which
have been previously discussed, 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. Although we review key ratios, such as the allowance
for loan losses as a percentage of non-performing loans and total loans receivable, in order to
help us understand the trends in our loan portfolio, we do not try to maintain any specific target
range with respect to such ratios.
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, as has occurred in recent periods, 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. 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
managements estimates, additional provisions to the allowance for loan losses may be required that
would adversely impact earnings in future periods.
52
Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain
assets and to determine fair value disclosures. Investment and mortgage-backed securities available
for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may
be required to record at fair value other assets on a nonrecurring basis, such as impaired loans,
real estate owned and certain other assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
In accordance with Accounting Standards Codification Topic 820,
Fair Value Measurements and
Disclosures
(ASC 820), 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
Companys own estimates of assumptions that market participants would use in pricing the
asset.
|
In accordance with ASC 820, 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 ASC 820. 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 December 31, 2010 and 2009, while we did not have any assets that were measured at fair value on
a recurring basis using Level 3 measurements, we did have assets that were measured at fair value
on a nonrecurring basis using Level 3 measurements. See Note 16 in the Notes to the Consolidated
Financial Statements included in Item 8 herein for a further description of our fair value
measurements.
53
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 whether or not management intends to sell or expects that
it is more likely than not that it will be required to sell the security prior to an anticipated
recovery of 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 for a debt security
is determined to be other-than-temporary, the other-than-temporary impairment is separated into (a)
the amount of the total other-than-temporary impairment related to a decrease in cash flows
expected to be collected from the debt security (the credit loss) and (b) the amount of the total
other-than-temporary impairment related to all other factors. The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of
the total other-than-temporary impairment related to all other factors is recognized in other
comprehensive income, except for equity securities, where the full amount of the
other-than-temporary impairment is recognized in earnings.
Income Taxes
Management makes estimates and judgments to calculate some of our tax liabilities and
determine the recoverability of some of our deferred tax assets, which arise from temporary
differences between the tax and financial statement recognition of revenues and expenses.
Management also estimates a reserve for deferred tax assets if, based on the available evidence, it
is more likely than not that some portion or all of the recorded deferred tax assets will not be
realized in future periods. These estimates and judgments are inherently subjective. Historically,
our estimates and judgments to calculate our deferred tax accounts have not required significant
revision from managements 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.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update
(ASU) 2010-06,
Improving Disclosures about Fair Value Measurements
, which updates ASC 820,
Fair
Value Measurements and Disclosures
. The updated guidance added new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. It also clarified existing fair value
disclosures about the level of disaggregation and about inputs and valuation techniques used to
measure fair value. The amended guidance in ASU 2010-06 was effective for the first interim or
annual reporting period beginning after December 15, 2009, except for the requirement to provide
the Level 3 activity of purchase, sales, issuances, and settlements on a gross basis, which will be
effective for fiscal years beginning after December 15, 2010. The Company adopted the amended
guidance, except for the requirement effective for fiscal years beginning after December 15, 2010,
on January 1, 2010. The Company adopted the additional requirement on January 1, 2011. The
adoptions did not have any impact on our financial position or results of operations.
54
In July 2010, the FASB issued ASU 2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
, which updated ASC 310
, Receivables
. The updated
guidance requires more robust and disaggregated disclosures about the credit quality of an entitys
financing receivables and its allowance for credit losses, including a rollforward schedule of the
allowance for credit losses for the period on a portfolio segment basis, as well as additional
information about the aging and credit quality of receivables by class of financing receivables as
of the end of the period. The new and amended disclosures that relate to information as of the end
of a reporting period were effective for the Company as of December 31, 2010, except for
disclosures relating to Troubled Debt Restructurings (TDRs) as discussed further below. The
disclosures that include information for activity that occurs during a reporting period will be
effective for the first interim reporting period beginning after December 31, 2010. The Company
adopted the required disclosures as of December 31, 2010. The adoptions did not have any impact on
our financial position or results of operations. The Company is continuing to evaluate the guidance
relating to disclosures that include information for activity that occurs during a reporting
period. While the guidance will impact the presentation of certain disclosures within our financial
statements, we do not expect that this guidance will have any impact on our financial position or
results of operations.
In January of 2011, the FASB issued ASU 2011-01,
Deferral of the Effective Date of Disclosures
about Troubled Debt Restructurings in Update No. 2010-20
. This update temporarily delays the
effective date of additional disclosures relating to TDRs required by ASU 2010-20. The delay is
intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt
restructuring. The effective date of the new disclosures about TDRs for public entities and the
guidance for determining what constitutes a TDR will then be coordinated. Currently, that guidance
is anticipated to be effective for interim and annual periods ending after June 15, 2011. The
Company is continuing to evaluate this guidance.
In December 2010, the FASB issued ASU 2010-29,
Disclosure of Supplementary Pro Forma Information
for Business Combinations
, which updates ASC 805,
Business Combinations
. ASC 805 requires a public
entity to disclose pro forma information for business combinations that occurred in the current
reporting period. The updated guidance specifies that if a public entity presents comparative
financial statements, the entity should disclose revenue and earnings of the combined entity as
though the business
combination(s) that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. The amendments in this ASU also expand the
supplemental pro forma disclosures under ASC 805 to include a description of the nature and amount
of material, nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. The amendments in this ASU are effective
prospectively for business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 31, 2010. The Company is
continuing to evaluate this guidance.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2010 AND DECEMBER 31, 2009
Our total assets increased $9.0 million, or 0.7%, to $1.25 billion at December 31, 2010 compared to
$1.24 billion at December 31, 2009. The most significant increases were in our cash and cash
equivalents, which grew by $33.0 million, and our investment and mortgage-backed securities, which
grew by $49.9 million during 2010. Our investment securities grew by $41.0 million during 2010, due
primarily to purchases of agency bonds aggregating approximately $177.2 million, partially offset
by the calls and maturities of agency bonds of $133.7 million in the aggregate. Our mortgage-backed
securities grew by $9.3 million during 2010, due primarily to aggregate purchases of $91.5 million
of CMOs, substantially offset by calls, maturities and repayments on mortgage-backed securities of
$81.4 million in the aggregate. The increases in our cash and cash equivalents and our investment
and mortgage-backed securities
55
were largely funded by our deposit growth and our loan repayments.
Our net loans receivable decreased $68.1 million or 8.9% to $696.4 million at December 31, 2010
from $764.6 million at December 31, 2009. The largest decrease was in our construction loans. New
originations of construction loans remained limited as a result of the current economic environment
combined with managements increased scrutiny of this portion of the loan portfolio. Our gross
construction loans decreased $65.1 million during 2010, however, this was partially offset by a
$24.1 million decrease in the balance of our loans-in-process. Our one- to four-family residential
loans also decreased significantly during 2010 to $393.4 million at December 31, 2010 from $432.0
million at December 31, 2009. The decrease in this portion of the loan portfolio of 8.9% was due
largely to a decreased demand for loans in the current market environment. Our multi-family
residential and commercial real estate loans and our home equity lines of credit increased $5.6
million and $4.9 million, respectively, during 2010.
Our deposits increased $49.9 million or 5.9% to $900.1 million at December 31, 2010 compared to
$850.2 million at December 31, 2009. The increase during 2010 was due primarily to growth in our
core deposits. During 2010, our core deposits increased $74.6 million or 19.0% driven by an
increase in our savings and money market accounts of $60.6 million, or 22.8%. A significant portion
of the funds from our deposit growth were used to pay down our advances from the FHLB. Our advances
from the FHLB decreased $36.9 million or 25.1% to $109.9 million at December 31, 2010 from $146.7
million at December 31, 2009. The repayment of a portion of our advances was based on a number of
factors including an evaluation of our overall liquidity and leverage positions, as well as our
collateral position with the FHLB.
Our total stockholders equity decreased to $211.9 million at December 31, 2010 from $214.2 million
at December 31, 2009. The decrease was due primarily to our purchases of treasury stock and the
payment of our quarterly dividends, partially offset by our net income for the period. During 2010
we repurchased approximately 860,000 shares of the Companys common stock for an aggregate cost of
approximately $7.4 million as part of our stock repurchase plans. We paid an aggregate of $4.0
million in cash dividends during 2010, which included an $0.01 increase in the per share dividend
amount to $0.06 per share commencing with the fourth quarter of 2010. The Banks regulatory capital
levels continue to far exceed requirements for well capitalized institutions.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are from deposits, amortization of loans, loan prepayments and
pay-offs, cash flows from mortgage-backed securities and other investments, and other funds
provided from operations. While scheduled payments from the amortization of loans and
mortgage-backed securities and maturing investment securities are relatively predictable sources of
funds, deposit flows and loan prepayments can be greatly influenced by general interest rates,
economic conditions and competition. We also maintain excess funds in short-term, interest-bearing
assets that provide additional liquidity. At December 31, 2010, our cash and cash equivalents
amounted to $77.7 million. In addition, at that date we had $3.4 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 $293.1 million at December 31, 2010.
We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet
operating expenses. At December 31, 2010, we had certificates of deposit maturing within the next
12 months of $238.5 million. Based upon historical experience, we anticipate that a significant
portion of the maturing certificates of deposit will be redeposited with us.
56
In addition to cash flow from loans and securities as well as from sales of available for sale
securities, we have significant borrowing capacity available to fund liquidity needs. Our
borrowings consist primarily of advances from the FHLB of Pittsburgh, of which we are a member.
Under terms of the collateral agreement with the FHLB, we pledge substantially all of our
residential mortgage loans and mortgage-backed securities as well as all of our stock in the FHLB
as collateral for such advances. As of December 31, 2010, we had $109.9 million in outstanding FHLB
advances, and we had $408.8 million in additional FHLB advances available to us. During 2010, as in
2009, we significantly reduced our outstanding balance of advances from the FHLB. We determined to
continue to repay a portion of our FHLB advances due to a number of factors, including an
evaluation of our overall liquidity and leverage positions, as well as our collateral position with
the FHLB. Should we decide to utilize sources of funding other than advances from the FHLB, we
believe that additional funding is readily available in the form of advances or repurchase
agreements through various other sources.
Our total stockholders equity decreased to $211.9 million at December 31, 2010 from $214.2 million
at December 31, 2009. The decrease was due primarily to our purchases of treasury stock and the
payment of our quarterly dividends, partially offset by our net income for the period. We continue
to maintain a strong capital base due largely to the $134.7 million in net proceeds received from
our second-step conversion and stock offering completed in June 2007. Half of these net proceeds,
approximately $67.3 million, were invested in Abington Bank. The net proceeds received by the Bank
further strengthened its capital position, which already exceeded all regulatory requirements (see
table below).
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
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Regulatory
|
|
|
To Be Well
|
|
|
|
2010
|
|
|
2009
|
|
|
Minimum
|
|
|
Capitalized
|
|
Capital Ratios
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
|
13.84
|
%
|
|
|
13.14
|
%
|
|
|
4.00
|
|
|
|
5.00
|
%
|
Tier 1 risk-based capital ratio
|
|
|
23.31
|
|
|
|
20.04
|
|
|
|
4.00
|
|
|
|
6.00
|
|
Total risk-based capital ratio
|
|
|
23.89
|
|
|
|
21.16
|
|
|
|
8.00
|
|
|
|
10.00
|
|
SHARE-BASED COMPENSATION
The Company accounts for its share-based compensation awards in accordance with the stock
compensation topic of the ASC. Under ASC Topic 718,
Compensation Stock Compensation
(ASC
718), the Company recognizes the cost of employee services received in share-based payment
transactions and measures the cost based 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 December 31, 2010, the Company has four share-based compensation plans, the 2005 and the 2007
Recognition and Retention Plans (the 2005 RRP and 2007 RRP, respectively) and the 2005 and 2007
Stock Option Plans (the 2005 Option Plan and 2007 Option Plan, respectively). Share awards were
first issued under the 2005 plans in July 2005. Share awards were issued under the 2007 plans in
January 2008.
The Company also has an employee stock ownership plan (ESOP). Shares held under the ESOP are also
accounted for under ASC 718. As ESOP shares are committed to be released and allocated among
participants, the Company recognizes compensation expense equal to the average market price of the
shares over the period earned.
For a further discussion of these plans, see Note 13 in the Notes to the Consolidated Financial
Statements included in Item 8 herein.
57
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
December 31, 2010 and 2009, 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 agreement. 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 customers 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 managements credit evaluation of the customer. The amount and
type of collateral required varies, but may include accounts receivable, inventory, equipment, real
estate and income-producing commercial properties. At December 31, 2010 and 2009, commitments to
originate loans and commitments under unused lines of credit, including undisbursed portions of
construction loans in process, for which the Bank was obligated amounted to approximately $114.9
million and $125.9 million, respectively, in the aggregate.
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 managements evaluation
of the creditworthiness of each customer. The credit risk involved in issuing letters of credit is
substantially the same as that involved in extending loan facilities to customers. Most letters of
credit expire within one year. At December 31, 2010 and December 31, 2009, the Bank had letters of
credit outstanding of approximately $48.3 million and $48.5 million, respectively, of which $47.5
million and $47.6 million, respectively, were standby letters of credit. At December 31, 2010 and
2009, the uncollateralized portion of the letters of credit extended by the Bank was approximately
$7,000 and $219,000, respectively, all of which was for standby letters of credit in both years.
The current amount of the liability for guarantees under letters of credit was not material as of
December 31, 2010 and 2009.
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 Companys contingent liabilities are exposures to limited recourse arrangements with
respect to the Banks sales of whole loans and participation interests. At December 31, 2010, such
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.
58
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 December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration - Per Period
|
|
|
|
|
|
|
|
|
|
|
|
After One to
|
|
|
After Three
|
|
|
|
|
|
|
Total Amounts
|
|
|
Within
|
|
|
Three
|
|
|
to Five
|
|
|
After Five
|
|
|
|
Committed
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In Thousands)
|
|
Letters of credit
|
|
$
|
48,322
|
|
|
$
|
22,005
|
|
|
$
|
26,161
|
|
|
$
|
|
|
|
$
|
156
|
|
Recourse obligations on loans
sold
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185
|
|
Commitments to originate loans
|
|
|
2,855
|
|
|
|
2,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused portion of home equity
lines of credit
|
|
|
30,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,177
|
|
Unused portion of commercial
lines of credit
|
|
|
51,822
|
|
|
|
51,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portion of
construction loans in process
|
|
|
30,065
|
|
|
|
22,107
|
|
|
|
7,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
163,426
|
|
|
$
|
98,789
|
|
|
$
|
34,119
|
|
|
$
|
|
|
|
$
|
30,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our contractual cash obligations at December 31, 2010. The
balances included in the table do not reflect the interest due on these obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Within
|
|
|
After One to Three
|
|
|
After Three to Five
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In Thousands)
|
|
Certificates of deposit
|
|
$
|
432,016
|
|
|
$
|
238,504
|
|
|
$
|
68,153
|
|
|
$
|
60,393
|
|
|
$
|
64,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
109,875
|
|
|
|
24,885
|
|
|
|
35,077
|
|
|
|
40,463
|
|
|
|
9,450
|
|
Repurchase agreements
|
|
|
15,881
|
|
|
|
15,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
125,756
|
|
|
|
40,766
|
|
|
|
35,077
|
|
|
|
40,463
|
|
|
|
9,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
4,546
|
|
|
|
901
|
|
|
|
1,675
|
|
|
|
1,044
|
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
562,318
|
|
|
$
|
280,171
|
|
|
$
|
104,905
|
|
|
$
|
101,900
|
|
|
$
|
75,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
General.
We reported net income of $7.7 million for the year ended December 31, 2010, compared to
a net loss of $7.2 million for the year ended December 31, 2009. Basic and diluted earnings per
share were $0.41 and $0.39, respectively, for 2010 compared to basic and diluted loss per share of
$0.36 for 2009. Our net interest income was $33.3 million for the year ended December 31, 2010,
representing an increase of $2.5 million or 8.1% over 2009. The increase in our net interest income
for 2010 compared to 2009 occurred as lower interest expense more than offset a reduction in
interest income. Our average interest rate spread and net interest margin increased to 2.72% and
2.95%, respectively, for 2010 from 2.43% and 2.81%, respectively, for 2009. Our total non-interest
income increased to $2.6 million for the year 2010 from a loss of $1.5 million for 2009. Our total
non-interest expenses for the year ended December 31, 2010 amounted to $24.7 million, representing
an increase of $1.7 million or 7.2% from 2009.
59
Interest Income.
Interest income for the year ended December 31, 2010 decreased $2.4 million or
4.5% over 2009 to $51.3 million. The decrease occurred as growth in the average balance of our
total interest-earning assets was more than offset by a decrease in the average yield earned on
those assets. The average balance of our total interest-earning assets increased $30.6 million or
2.8% to $1.13 billion for 2010 from $1.10 billion for 2009. The increase was driven by a $40.3
million, or 45.2%, increase in the average balance of our investment securities and a $27.5
million, or 72.3%, increase in the average balance of our other interest-earning assets that were
partially offset by a decrease of $36.1 million, or 4.8%, in the average balance of our loans
receivable. The average balance of our mortgage-backed securities also decreased slightly to $213.7
million for 2010 from $214.7 million for 2009. The average yield earned on our total
interest-earning assets decreased 35 basis points to 4.55% for 2010 from 4.90% for 2009. Although
the average yield earned on our loans receivable increased 11 basis points year-over-year, these
assets decreased as a percentage of our total interest-earning assets. As a result, decreases in
the average yields earned on our investment and mortgage-backed securities of 96 basis points and
71 basis points, respectively, drove our overall decline in yield. The average yield on our other
interest-earning assets increased slightly year-over-year, but remained low at 12 basis points.
Included in our other interest-earning assets is FHLB stock on which we are not currently earning a
dividend. The decrease in the average yield earned on our interest-earning assets was primarily the
result of the current interest rate environment.
Interest Expense.
Interest expense for the year ended December 31, 2010 decreased $4.9 million or
21.5% from 2009 to $18.0 million. The decrease in our interest expense occurred as a reduction in
the average rate paid on our total interest-bearing liabilities more than offset an increase in the
average
balance of those liabilities. The average rate we paid on our total interest-bearing liabilities
decreased 64 basis points to 1.83% for 2010 from 2.47% for 2009. The average rate we paid on our
total deposits decreased 62 basis points year-over-year, driven by a 64 basis point decrease in the
average rate paid on our certificates of deposit and a 43 basis point decrease in the average rate
paid on our savings and money market accounts. The average balance of our total deposits increased
$113.4 million or 15.7% to $837.2 million for 2010 from $723.8 million for 2009 due primarily to
growth in our core deposits. The average balance of our core deposits increased $105.5 million or
38.5% to $379.8 million for 2010 from $274.3 million for 2009. Although the average rate we paid on
our advances from the FHLB increased six basis points for 2010 compared to 2009, this increase was
more than offset by a decrease of $54.3 million or 30.0% in the average balance of those advances
year-over-year. The average rate of our FHLB advances increased in 2010, as we relied less on
overnight advances than we did during 2009. The average rate paid on overnight advances is
substantially below the average rate paid on our other, longer-term advances from the FHLB. The
average balance of, and the average rate paid on, our other borrowings remained relatively
consistent year-over-year and did not significantly contribute to the change in interest expense.
60
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 earned from average interest-earning
assets and the resulting average yields, as well as the interest expense incurred on average
interest-bearing liabilities and the resulting average rates, and the average interest rate spread
and 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(1)
|
|
$
|
129.297
|
|
|
$
|
3,435
|
|
|
|
2.66
|
%
|
|
$
|
89,026
|
|
|
$
|
3,226
|
|
|
|
3.62
|
%
|
Mortgage-backed securities
|
|
|
213,729
|
|
|
|
8,599
|
|
|
|
4.02
|
|
|
|
214,716
|
|
|
|
10,158
|
|
|
|
4.73
|
|
Loans receivable(2)
|
|
|
719,172
|
|
|
|
39,203
|
|
|
|
5.45
|
|
|
|
755,279
|
|
|
|
40,320
|
|
|
|
5.34
|
|
Other interest-earning assets
|
|
|
65,406
|
|
|
|
81
|
|
|
|
0.12
|
|
|
|
37,956
|
|
|
|
41
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,127,604
|
|
|
|
51,318
|
|
|
|
4.55
|
|
|
|
1,096,977
|
|
|
|
53,745
|
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and non-interest bearing
balances
|
|
|
21,556
|
|
|
|
|
|
|
|
|
|
|
|
23,046
|
|
|
|
|
|
|
|
|
|
Other non-interest-earning assets
|
|
|
108,539
|
|
|
|
|
|
|
|
|
|
|
|
90,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,257.699
|
|
|
|
|
|
|
|
|
|
|
$
|
1,210,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and money market accounts
|
|
$
|
295,800
|
|
|
|
2,495
|
|
|
|
0.84
|
|
|
$
|
200,576
|
|
|
|
2,547
|
|
|
|
1.27
|
|
Checking accounts
|
|
|
83,975
|
|
|
|
36
|
|
|
|
0.04
|
|
|
|
73,708
|
|
|
|
38
|
|
|
|
0.05
|
|
Certificate accounts
|
|
|
457,412
|
|
|
|
10,143
|
|
|
|
2.22
|
|
|
|
449,508
|
|
|
|
12,855
|
|
|
|
2.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
837,187
|
|
|
|
12,674
|
|
|
|
1.51
|
|
|
|
723,792
|
|
|
|
15,440
|
|
|
|
2.13
|
|
FHLB advances
|
|
|
126,626
|
|
|
|
5,262
|
|
|
|
4.16
|
|
|
|
180,939
|
|
|
|
7,423
|
|
|
|
4.10
|
|
Other borrowings
|
|
|
22,561
|
|
|
|
73
|
|
|
|
0.32
|
|
|
|
23,271
|
|
|
|
73
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
986,374
|
|
|
|
18,009
|
|
|
|
1.83
|
|
|
|
928,002
|
|
|
|
22,936
|
|
|
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand
accounts
|
|
|
44,407
|
|
|
|
|
|
|
|
|
|
|
|
42,132
|
|
|
|
|
|
|
|
|
|
Real estate tax escrow accounts
|
|
|
3,118
|
|
|
|
|
|
|
|
|
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
9,951
|
|
|
|
|
|
|
|
|
|
|
|
8,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,043,850
|
|
|
|
|
|
|
|
|
|
|
|
982,355
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
213,849
|
|
|
|
|
|
|
|
|
|
|
|
228,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity
|
|
$
|
1,257,699
|
|
|
|
|
|
|
|
|
|
|
$
|
1,210,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
141,230
|
|
|
|
|
|
|
|
|
|
|
$
|
168,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income; average
interest rate spread
|
|
|
|
|
|
$
|
33,309
|
|
|
|
2.72
|
%
|
|
|
|
|
|
$
|
30,809
|
|
|
|
2.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.95
|
%
|
|
|
|
|
|
|
|
|
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Investment securities for the 2010 period include 133 tax-exempt municipal bonds with an
aggregate average balance of $40.1 million and an average yield of 4.0%. Investment securities
for the 2009 period include 134 tax-exempt municipal bonds with an aggregate average balance
of $41.8 million and an average yield of 3.9%. The tax-exempt income from such securities has
not been calculated on a tax equivalent basis.
|
|
(2)
|
|
Includes non-accrual loans during the respective periods. Calculated net of deferred fees
and discounts, loans in process and allowance for loan losses. The impact of loan fee income
has an immaterial effect on this analysis.
|
|
(3)
|
|
Equals net interest income divided by average interest-earning assets.
|
61
Rate/Volume Analysis.
The following table shows the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing liabilities affected our
interest income and expense during the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes attributable to (1)
changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in
volume, which is the change in volume multiplied by prior year rate. The combined effect of
changes in both rate and volume has been allocated proportionately to the change due to rate and
the change due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009
|
|
|
|
Increase (Decrease) Due to
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Rate/
|
|
|
Increase
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
|
(Dollars in Thousands)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(1)
|
|
$
|
(861
|
)
|
|
$
|
1,459
|
|
|
$
|
(389
|
)
|
|
$
|
209
|
|
Mortgage-backed
securities
|
|
|
(1,519
|
)
|
|
|
(47
|
)
|
|
|
7
|
|
|
|
(1,559
|
)
|
Loans receivable, net
|
|
|
851
|
|
|
|
(1,927
|
)
|
|
|
(41
|
)
|
|
|
(1,117
|
)
|
Other interest-
earning assets
|
|
|
6
|
|
|
|
30
|
|
|
|
4
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-
earning assets
|
|
|
(1,523
|
)
|
|
|
(485
|
)
|
|
|
(419
|
)
|
|
|
(2,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
(855
|
)
|
|
|
1,209
|
|
|
|
(406
|
)
|
|
|
(52
|
)
|
Checking accounts
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Certificate accounts
|
|
|
(2,887
|
)
|
|
|
226
|
|
|
|
(51
|
)
|
|
|
(2,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
(3,748
|
)
|
|
|
1,440
|
|
|
|
(458
|
)
|
|
|
(2,766
|
)
|
FHLB advances
|
|
|
96
|
|
|
|
(2,228
|
)
|
|
|
(29
|
)
|
|
|
(2,161
|
)
|
Other borrowed money
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-
bearing liabilities
|
|
|
(3,650
|
)
|
|
|
(790
|
)
|
|
|
(487
|
)
|
|
|
(4,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net interest
income
|
|
$
|
2,127
|
|
|
$
|
305
|
|
|
$
|
68
|
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Investment securities for the 2010 period include 133 tax-exempt municipal bonds with an
aggregate average balance of $40.1 million and an average yield of 4.0%. Investment
securities for the 2009 period include 134 tax-exempt municipal bonds with an aggregate
average balance of $41.8 million and an average yield of 3.9%. The tax-exempt income from such
securities has not been calculated on a tax equivalent basis.
|
Provision for Loan Losses.
We recorded a provision for loan losses of $977,000 for the year
ended December 31, 2010 compared to a provision of $18.7 million for the year ended December 31,
2009. The provision for loan losses is charged to expense as necessary to bring our allowance for
loan losses to a sufficient level to cover known and inherent losses in the loan portfolio. The
decrease in our provision for loan losses year-over-year was the result of the resolution of
certain non-performing loans and the improvement in the overall credit quality of our remaining
loan portfolio, as well as the recognition of a recovery to the allowance for loan losses during
the year of $1.2 million in the aggregate.
62
Our non-accrual loans decreased $21.3 million or 75.3% during 2010 to $7.0 million at December 31,
2010 compared to $28.3 million at December 31, 2009. The decrease was attributable to the
resolution of certain of our non-accrual loans, including the settlement of our participation
interests in two shared national credit loans with an aggregate outstanding balance of $7.2 million
at December 31, 2009. Additionally, three other loans that were classified as non-accrual at
December 31, 2009, were transferred to real estate owned (REO) during 2010. The three loans
included two construction loans, with an aggregate outstanding balance of $8.6 million at December
31, 2009 and one commercial real estate loan
with an outstanding balance of $2.1 million at December 31, 2009. The remainder of the decrease was
due primarily to the charge-off of certain loan balances during 2010. Our total non-performing
loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, decreased
$25.6 million or 73.9% to $9.0 million at December 31, 2010 from $34.6 million at December 31,
2009. Despite the aforementioned transfers of property to REO, the balance of our REO increased
$769,000 year-over-year as these transfers were substantially offset by the sale of six REO
properties during the year, including the sale of a 40-unit high rise condominium project in Center
City, Philadelphia, with a carrying value of $8.4 million at December 31, 2009. At December 31,
2010 and 2009, our non-performing loans amounted to 1.29% and 4.47%, respectively, of loans
receivable, and our allowance for loan losses amounted to 47.27% and 26.28%, respectively, of
non-performing loans. At December 31, 2010 and 2009, our non-performing assets amounted to 2.62%
and 4.64% of total assets, respectively.
Non-interest Income.
Our total non-interest income increased to $2.6 million for the year 2010
from a loss of $1.5 million for 2009. The increase was due primarily to a $4.5 million improvement
in our net loss on REO year-over-year that was partially offset by a $386,000 decrease in our
service charge income. The improvement in loss on REO was primarily due to a decrease to our
expense to write-down REO properties to $351,000 in 2010 compared to an expense of $4.5 million in
the aggregate to write-down the value of certain REO properties in 2009. The decrease in our
service charge income was primarily due to a decrease in fees recognized for overdraft charges.
Non-interest Expenses.
Our total non-interest expenses for the year 2010 amounted to $24.7
million, representing an increase of $1.7 million or 7.2% from 2009. Our largest increases were in
our salaries and employee benefits, occupancy, and professional services expenses, which increased
$628,000, $330,000 and $579,000, respectively. The increase in salaries and employee benefits
expenses was due primarily to an increase in our employee profit sharing expense, which amounted to
$672,000 for 2010. We had no expense for employee profit sharing during 2009 as a result of our net
loss for the year. Also contributing to the year-over-year increase was a $151,000 or 20.2%
increase in the expense for our ESOP and a $96,000 increase in our expense for salaries. Our ESOP
expense is based on the average market value of our stock during the year and increased as a result
of an increase in the average market value of our stock for 2010 compared to 2009. The increase in
our salaries expense was the result of normal merit increases in salaries. Partially offsetting
these increases was a decrease in our expense for our 2005 RRP and 2005 Option Plan, as the
majority of shares awarded under these plans became fully vested in July 2010. The increase in
occupancy expense was due largely to higher real estate taxes, as well as increases in certain
expenses related to our computer network. The increase in professional services expenses was due
primarily to legal fees incurred in relation to the resolution of certain non-performing loans and
real estate owned. We expect our legal fees to remain elevated in 2011 as a result of the ongoing
resolution of non-performing assets as well fees incurred in relation to our announced merger with
Susquehanna.
Income Tax Expense.
We recorded an income tax expense of approximately $2.5 million for the year
2010 compared to an income tax benefit of approximately $5.3 million for 2009. The fluctuation in
our income tax expense was primarily a result of a shift to pre-tax income in 2010 from a pre-tax
loss in 2009, and was significantly impacted by the deferred benefit of expenses incurred in prior
periods to write-down certain REO properties, most notably our 40-unit high rise in Center City,
Philadelphia. While the portion of our total income that is generated from tax-exempt municipal
securities and BOLI contributed to our overall tax benefit in 2009, it was a more significant
factor than in 2010, due to the proportion of this income to our overall pre-tax income in 2010
compared to the proportion of this income to our overall pre-tax loss in 2009.
63
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
General.
We reported a net loss of $7.2 million for the year ended December 31, 2009, compared to
net income of $2.1 million for the year ended December 31, 2008. The Companys basic and diluted
loss per share were both $0.36 for 2009 compared to basic and diluted earnings per share of $0.10
and $0.09, respectively, for 2008. The net loss for 2009 was due primarily to our provision for
loan losses, which amounted to $18.7 million for 2009, as well as a net loss on real estate owned
of $5.5 million. Our net interest income was $30.8 million for the year ended December 31, 2009,
representing an increase of $1.0 million or 3.5% over 2008. The increase in our net interest income
for 2009 compared to 2008 occurred as a decrease in our interest expense year-over-year exceeded
the decrease in our interest income. Our average interest rate spread increased to 2.43% for 2009
from 2.21% for 2008. Our net interest margin decreased year-over-year to 2.81% for 2009 from 2.87%
for 2008 as a result of our deposit growth, which outpaced the growth in our interest-earning
assets. Our total non-interest income decreased $4.5 million to a loss of $1.5 million for the year
ended December 31, 2009 from income of $3.1 million for the year ended December 31, 2008, due
primarily to a $5.4 million increase in net loss on real estate owned year-over-year. Our total
non-interest expenses for the year ended December 31, 2009 amounted to $23.1 million compared to
$21.2 million for 2008.
Interest Income.
Interest income for the year ended December 31, 2009 decreased $2.5 million or
4.5% over the comparable 2008 period to $53.7 million. The decrease occurred as growth in the
average balance of our total interest-earning assets was more than offset by a decrease in the
average yield earned on those assets. The average balance of our total interest-earning assets
increased $59.2 million or 5.7% to $1.10 billion for 2009 from $1.04 billion for 2008. The increase
was driven by a $51.8 million increase in the average balance of our loans receivable and a $31.1
million increase in the average balance of our mortgage-backed securities that were partially
offset by decreases in the average balances of our investment securities and other interest-earning
assets. The average yield earned on our total interest-earning assets decreased 52 basis points to
4.90% for 2009 from 5.42% for 2008. Decreases in the average yields earned on our investment
securities, loans receivable and other interest-earning assets of 87 basis points, 62 basis points
and 225 basis points, respectively, more than offset an 8 basis point increase in the average yield
earned on our mortgage-backed securities. The decreases in the average yields earned on our
interest-earning assets were primarily the result of the then current interest rate environment, as
reflected by the actions of the Federal Reserve Boards Open Market Committee in significantly
cutting the federal funds rate throughout 2008 and maintaining a rate of near zero throughout 2009.
The decrease in the yield on our other interest-earning assets was also impacted by the decision of
the FHLB to suspend the dividend on their stock during the fourth quarter of 2008. As of December
31, 2009 and 2008, we held approximately 146,000 shares of FHLB capital stock with a book value of
$14.6 million. We earned no dividend income on our FHLB stock during 2009 compared to dividend
income of $261,000 in 2008.
Interest Expense.
Interest expense for the year ended December 31, 2009 decreased $3.6 million or
13.4% over 2008 to $22.9 million. The decrease in our interest expense occurred as a decrease in
the average rate paid on our total interest-bearing liabilities offset an increase in the average
balance of those liabilities. The average rate we paid on our total interest-bearing liabilities
decreased 74 basis points to 2.47% for 2009 from 3.21% for 2008. The average rate we paid on our
total deposits decreased 72 basis points year-over-year, driven by a 78 basis point decrease in the
average rate paid on our certificates of deposit. The average balance of our total deposits
increased $127.3 million or 21.3% to $723.8 million for 2009 from $596.5 million for 2008 due
primarily to growth in our core deposits. The average balance of our core deposits increased $91.9
million or 50.4% to $274.3 million for 2009 from $182.4 million for 2008. The average balance of
our advances from the FHLB decreased $28.6 million or 13.6% to $180.9 million for 2009 from $209.5
million for 2008 as we decreased our utilization of this source of funding
during 2009. The average rate paid on our advances in 2009 decreased 25 basis points
year-over-year. Although the average balance of our other borrowings increased $3.5 million or 17%
in 2009 compared to 2008, the increase in the balance was more than offset by decrease in the
average rate paid on our other borrowings of 149 basis points year-over-year.
64
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 earned from average interest-earning
assets and the resulting average yields, as well as the interest expense incurred on average
interest-bearing liabilities and the resulting average rates, and the average interest rate spread
and 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(1)
|
|
$
|
89,026
|
|
|
$
|
3,226
|
|
|
|
3.62
|
%
|
|
$
|
104,685
|
|
|
$
|
4,698
|
|
|
|
4.49
|
%
|
Mortgage-backed securities
|
|
|
214,716
|
|
|
|
10,158
|
|
|
|
4.73
|
|
|
|
183,589
|
|
|
|
8,538
|
|
|
|
4.65
|
|
Loans receivable(2)
|
|
|
755,279
|
|
|
|
40,320
|
|
|
|
5.34
|
|
|
|
703,496
|
|
|
|
41,941
|
|
|
|
5.96
|
|
Other interest-earning assets
|
|
|
37,956
|
|
|
|
41
|
|
|
|
0.11
|
|
|
|
46,039
|
|
|
|
1,085
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,096,977
|
|
|
|
53,745
|
|
|
|
4.90
|
|
|
|
1,037,809
|
|
|
|
56,262
|
|
|
|
5.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and non-interest bearing
balances
|
|
|
23,046
|
|
|
|
|
|
|
|
|
|
|
|
22,293
|
|
|
|
|
|
|
|
|
|
Other non-interest-earning assets
|
|
|
90,445
|
|
|
|
|
|
|
|
|
|
|
|
66,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,210,468
|
|
|
|
|
|
|
|
|
|
|
$
|
1,126,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and money market accounts
|
|
$
|
200,576
|
|
|
|
2,547
|
|
|
|
1.27
|
|
|
$
|
119,082
|
|
|
|
1,913
|
|
|
|
1.61
|
|
Checking accounts
|
|
|
73,708
|
|
|
|
38
|
|
|
|
0.05
|
|
|
|
63,310
|
|
|
|
20
|
|
|
|
0.03
|
|
Certificate accounts
|
|
|
449,508
|
|
|
|
12,855
|
|
|
|
2.86
|
|
|
|
414,086
|
|
|
|
15,092
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
723,792
|
|
|
|
15,440
|
|
|
|
2.13
|
|
|
|
596,478
|
|
|
|
17,025
|
|
|
|
2.85
|
|
FHLB advances
|
|
|
180,939
|
|
|
|
7,423
|
|
|
|
4.10
|
|
|
|
209,498
|
|
|
|
9,115
|
|
|
|
4.35
|
|
Other borrowings
|
|
|
23,271
|
|
|
|
73
|
|
|
|
0.31
|
|
|
|
19,887
|
|
|
|
358
|
|
|
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
928,002
|
|
|
|
22,936
|
|
|
|
2.47
|
|
|
|
825,863
|
|
|
|
26,498
|
|
|
|
3.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand
accounts
|
|
|
42,132
|
|
|
|
|
|
|
|
|
|
|
|
40,281
|
|
|
|
|
|
|
|
|
|
Real estate tax escrow accounts
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
|
|
3,247
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
8,938
|
|
|
|
|
|
|
|
|
|
|
|
10,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
982,355
|
|
|
|
|
|
|
|
|
|
|
|
880,202
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
228,113
|
|
|
|
|
|
|
|
|
|
|
|
246,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity
|
|
$
|
1,210,468
|
|
|
|
|
|
|
|
|
|
|
$
|
1,126,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
168,975
|
|
|
|
|
|
|
|
|
|
|
$
|
211,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income; average
interest rate spread
|
|
|
|
|
|
$
|
30,809
|
|
|
|
2.43
|
%
|
|
|
|
|
|
$
|
29,764
|
|
|
|
2.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Investment securities for the 2009 period include 134 tax-exempt municipal bonds with an
aggregate average balance of $41.8 million and an average yield of 3.9%. Investment securities
for the 2008 period include 132 tax-exempt municipal bonds with an aggregate average balance
of $35.8 million and an average yield of 3.9%. The tax-exempt income from such securities has
not been calculated on a tax equivalent basis.
|
|
(2)
|
|
Includes non-accrual loans during the respective periods. Calculated net of deferred fees
and discounts, loans in process and allowance for loan losses. The impact of loan fee income
has an immaterial effect on this analysis.
|
|
(3)
|
|
Equals net interest income divided by average interest-earning assets.
|
65
Rate/Volume Analysis.
The following table shows the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing liabilities affected our
interest income and expense during the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes attributable to (1)
changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in
volume, which is the change in volume multiplied by prior year rate. The combined effect of
changes in both rate and volume has been allocated proportionately to the change due to rate and
the change due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
|
Increase (Decrease) Due to
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Rate/
|
|
|
Increase
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
|
(Dollars in Thousands)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(1)
|
|
$
|
(905
|
)
|
|
$
|
(703
|
)
|
|
$
|
136
|
|
|
$
|
(1,472
|
)
|
Mortgage-backed
securities
|
|
|
147
|
|
|
|
1,448
|
|
|
|
25
|
|
|
|
1,620
|
|
Loans receivable, net
|
|
|
(4,385
|
)
|
|
|
3,087
|
|
|
|
(323
|
)
|
|
|
(1,621
|
)
|
Other interest-
earning assets
|
|
|
(1,035
|
)
|
|
|
(190
|
)
|
|
|
181
|
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-
earning assets
|
|
|
(6,178
|
)
|
|
|
3,642
|
|
|
|
19
|
|
|
|
(2,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
(401
|
)
|
|
|
1,309
|
|
|
|
(274
|
)
|
|
|
634
|
|
Checking accounts
|
|
|
13
|
|
|
|
3
|
|
|
|
2
|
|
|
|
18
|
|
Certificate accounts
|
|
|
(3,250
|
)
|
|
|
1,291
|
|
|
|
(278
|
)
|
|
|
(2,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
(3,638
|
)
|
|
|
2,603
|
|
|
|
(550
|
)
|
|
|
(1,585
|
)
|
FHLB advances
|
|
|
(520
|
)
|
|
|
(1,243
|
)
|
|
|
71
|
|
|
|
(1,692
|
)
|
Other borrowed money
|
|
|
(296
|
)
|
|
|
61
|
|
|
|
(50
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-
bearing liabilities
|
|
|
(4,454
|
)
|
|
|
1,421
|
|
|
|
(529
|
)
|
|
|
(3,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net interest
income
|
|
$
|
(1,724
|
)
|
|
$
|
2,221
|
|
|
$
|
548
|
|
|
$
|
1,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Investment securities for the 2009 period include 134 tax-exempt municipal bonds with an
aggregate average balance of $41.8 million and an average yield of 3.9%. Investment securities
for the 2008 period include 132 tax-exempt municipal bonds with an aggregate average balance
of $35.8 million and an average yield of 3.9%. The tax-exempt income from such securities has
not been calculated on a tax equivalent basis.
|
Provision for Loan Losses.
We recorded a provision for loan losses of $18.7 million for the
year ended December 31, 2009, compared to a provision of $9.8 million for the year ended December
31, 2008. Our provision for loan losses during 2009 was due primarily to provisions with respect to
our construction loan portfolio (which includes land acquisition and development loans). Our loan
portfolio at December 31, 2009 included an aggregate of $34.6 million of non-performing loans, net
of $9.6 million of charge-offs on those loans during 2009. At December 31, 2009, $29.3 million of
our non-performing loans were construction loans, of which $26.0 million became non-performing
during 2009. All of the $9.6 million in charge-offs on non-performing loans during 2009 were on
construction loans. Among the additions to our balance of non-performing loans during 2009 were the
Companys participation interests in three shared national credit loans, with an aggregate
outstanding balance of $9.0 million at December 31, 2009, net of
66
$7.6 million in charge-offs. Based
on our analysis of the circumstances surrounding these loans, which were included in our construction loan portfolio, and having considered the $7.6 million that was
already charged-off during 2009, no additional valuation allowance was considered necessary on
these loans at December 31, 2009. Also among the additions to our non-performing loan balance
during 2009 were four construction loans and two commercial real estate loans to three borrowers,
with an aggregate outstanding balance of $15.3 million at December 31, 2009, net of $1.8 million in
charge-offs. At December 31, 2009, $3.6 million of our allowance for loan losses was allocated to
these loans. The balance of our non-performing loans at December 31, 2009 was lower than it would
have otherwise been due to the aforementioned charge-offs of $9.6 million, as well as the transfer
of certain loans to REO. During 2009, 13 loans, with an aggregate outstanding balance of $25.6
million, net of $7.9 million of charge-offs, were transferred to REO. Of these loans, seven loans
with an aggregate outstanding balance of $24.7 million, net of $7.8 million of charge-offs, were
construction loans (which include land acquisition and development loans). As of December 31, 2009,
19.6% of our $149.4 million of total outstanding construction loans were non-performing, and at
such date, $6.7 million, or 73.3%, of our allowance for loan losses was allocated to construction
loans. At December 31, 2009 and December 31, 2008, our non-performing loans amounted to 4.47% and
3.06%, respectively, of loans receivable, and our non-performing assets amounted to 4.64% and 2.12%
of total assets, respectively. At December 31, 2009 and December 31, 2008, our allowance for loan
losses amounted to 26.28% and 49.35%, respectively, of non-performing loans. Our allowance for loan
losses decreased as a percentage of non-performing loans year-over-year, despite an increase in our
non-performing loans over the same period, due primarily to our high level of net charge-offs in
2009.
Non-interest Income.
Our total non-interest income decreased $4.5 million to a loss of $1.5
million for the year ended December 31, 2009 from income of $3.1 million for the year ended
December 31, 2008. The decrease was due primarily to a $5.4 million increase in net loss on REO
year-over-year. The $5.5 million net loss on REO recognized during 2009 was due primarily to an
expense of $4.5 million in the aggregate to write-down the value of certain REO properties, as well
as to additional expenses to maintain our REO properties throughout the year. Our net loss on REO
was partially offset as no securities impairment charge was recognized during 2009 compared to an
impairment charge on investment securities of $869,000 recognized during 2008. Decreases in our
service charge income and income on bank owned life insurance (BOLI) of $58,000 and $88,000,
respectively, as well as a $141,000 decrease in our gain on sale of securities were mostly offset
by a $262,000 increase in our other non-interest income year-over-year. The most significant factor
contributing to the increase in other non-interest income was a $112,000 increase in rental income
as a result of rent received on certain REO properties.
Non-interest Expenses.
Our total non-interest expenses for the year ended December 31, 2009
amounted to $23.1 million, representing an increase of $1.9 million or 8.7% from the year ended
December 31, 2008. The most significant increase was in our deposit insurance premium expense,
which increased $1.3 million or 260.1% to $1.8 million for 2009. The increase in the insurance
premium was due to an increase in our regular quarterly premium as a result of a new fee structure
implemented by the FDIC, as well as a special assessment by the FDIC on all insured institutions
during the second quarter of 2009. Our occupancy, data processing and professional services
expenses experienced the next largest increases year-over-year. Our occupancy expense increased
$245,000 or 11.4% year-over-year, primarily as a result of higher real estate taxes on certain of
our branches, as well as higher expenses related to maintenance of certain equipment, primarily
certain computer equipment. Our data processing expense increased $111,000 or 7.4% year-over-year,
due in part to a higher number of transactions as a result of our deposit growth. Our professional
services expense increased $108,000 or 8.9% due primarily to additional legal expenses incurred in
connection with the resolution of certain non-performing loans.
67
Income Tax Expense.
We recorded an income tax benefit of approximately $5.3 million for the year
2009 compared to a benefit of approximately $278,000 for the year 2008. The benefit recognized in
2009
was a result of our overall net loss, and was significantly impacted by the immediate tax benefit
of certain expense incurred during the year in relation to our loan charge-offs. While the portion
of our total income that is generated from tax-exempt municipal securities and BOLI contributed to
our overall tax benefit in 2009, it was a less significant factor than in 2008, due to the
proportion of this income to our overall pre-tax loss in 2009 compared to the proportion of this
income to our overall pre-tax income in 2008.
|
|
|
ITEM 7A.
|
|
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 at Abington Bank, which is comprised of our President and
Chief Executive Officer, three Senior Vice Presidents, one Vice Presidents of Lending and our
Controller, 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.
Gap Analysis.
The matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are interest rate sensitive and by monitoring a banks 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 0.50%
at December 31, 2010, compared to a negative 1.30% at December 31, 2009.
68
The following table sets forth the amounts of our interest-earning assets and interest-bearing
liabilities outstanding at December 31, 2010, which we expect, based upon certain assumptions, to
reprice or mature in each of the future time periods shown (the GAP Table). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or the contractual
maturity of the asset or liability. The table sets forth an approximation of the projected
repricing of assets and liabilities at December 31, 2010, 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 15% to 25%. The annual prepayment rate
for mortgage-backed securities is assumed to range from 24% to 41%. Money market deposit accounts,
savings accounts and interest-bearing checking accounts are assumed to have annual rates of
withdrawal, or decay rates, ranging from 0% to 45%.
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
6 Months
|
|
|
6 Months
|
|
|
1 Year
|
|
|
3 Years
|
|
|
More than
|
|
|
Total
|
|
|
|
or Less
|
|
|
to 1 Year
|
|
|
to 3 Years
|
|
|
to 5 Years
|
|
|
5 Years
|
|
|
Amount
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (2)
|
|
$
|
235,196
|
|
|
$
|
41,965
|
|
|
$
|
127,922
|
|
|
$
|
105,980
|
|
|
$
|
178,369
|
|
|
$
|
689,432
|
|
Mortgage-backed
securities
|
|
|
45,184
|
|
|
|
34,417
|
|
|
|
82,639
|
|
|
|
48,588
|
|
|
|
10,677
|
|
|
|
221,505
|
|
Investment securities
|
|
|
6,745
|
|
|
|
1,180
|
|
|
|
59,555
|
|
|
|
75,300
|
|
|
|
1,850
|
|
|
|
144,630
|
|
Other interest-earning
assets
|
|
|
73,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
360,772
|
|
|
|
77,562
|
|
|
|
270,116
|
|
|
|
229,868
|
|
|
|
190,896
|
|
|
|
1,129,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and money market
accounts
|
|
$
|
76,969
|
|
|
$
|
60,666
|
|
|
$
|
85,152
|
|
|
$
|
56,340
|
|
|
$
|
46,933
|
|
|
$
|
326,060
|
|
Checking accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,175
|
|
|
|
92,175
|
|
Certificate accounts
|
|
|
141,254
|
|
|
|
99,148
|
|
|
|
66,257
|
|
|
|
60,392
|
|
|
|
64,965
|
|
|
|
432,016
|
|
FHLB advances
|
|
|
38,850
|
|
|
|
11,798
|
|
|
|
27,888
|
|
|
|
27,916
|
|
|
|
3,423
|
|
|
|
109,875
|
|
Other borrowed money
|
|
|
15,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
|
272,954
|
|
|
|
171,612
|
|
|
|
179,297
|
|
|
|
144,648
|
|
|
|
207,496
|
|
|
|
976,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets less
interest-bearing liabilities
|
|
$
|
87,818
|
|
|
$
|
(94,050
|
)
|
|
$
|
90,819
|
|
|
$
|
85,220
|
|
|
$
|
(16,600
|
)
|
|
$
|
153,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate
sensitivity gap (3)
|
|
$
|
87,818
|
|
|
$
|
(6,232
|
)
|
|
$
|
84,587
|
|
|
$
|
169,807
|
|
|
$
|
153,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate
gap
as a percentage of total
assets at December 31, 2010
|
|
|
7.04
|
%
|
|
|
(0.50
|
)%
|
|
|
6.78
|
%
|
|
|
13.62
|
%
|
|
|
12.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities at December 31,
2010
|
|
|
132.17
|
%
|
|
|
98.60
|
%
|
|
|
113.56
|
%
|
|
|
122.10
|
%
|
|
|
115.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Interest-earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated prepayments,
scheduled rate adjustments and contractual maturities.
|
|
(2)
|
|
For purposes of the gap analysis, loans receivable includes non-performing
loans net of the allowance for loan losses, undisbursed loan funds, unamortized
discounts and deferred loan fees.
|
|
(3)
|
|
Interest-rate sensitivity gap represents the difference between net interest-earning assets and
interest-bearing liabilities.
|
70
Certain shortcomings are inherent in the method of analysis presented in the foregoing table.
For example, although certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes
in interest rates both on a short-term basis and over the life of the asset. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest rate increase.
Net Portfolio Value and Net Interest Income Analysis.
Our interest rate sensitivity also is
monitored by management through the use of models which generate estimates of the change in its net
portfolio value (NPV) and net interest income (NII) over a range of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet
contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario
divided by the market value of assets in the same scenario. The following table sets forth our NPV
as of December 31, 2010 and reflects the changes to NPV as a result of immediate and sustained
changes in interest rates as indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPV as % of Portfolio
|
|
In Basis Points
|
|
Net Portfolio Value
|
|
|
Value of Assets
|
|
(Rate Shock)
|
|
Amount
|
|
|
$ Change
|
|
|
% Change
|
|
|
NPV Ratio
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
200bp
|
|
$
|
174,565
|
|
|
$
|
(19,120
|
)
|
|
|
(9.87
|
)%
|
|
|
14.71
|
%
|
|
|
(73
|
)bp
|
100
|
|
|
185,599
|
|
|
|
(8,086
|
)
|
|
|
(4.17
|
)
|
|
|
15.19
|
|
|
|
(25
|
)
|
Static
|
|
|
193,686
|
|
|
|
|
|
|
|
|
|
|
|
15.44
|
|
|
|
|
|
(100)
|
|
|
196,222
|
|
|
|
2,537
|
|
|
|
1.31
|
|
|
|
15.30
|
|
|
|
(14
|
)
|
(200)
|
|
|
183,153
|
|
|
|
(10,532
|
)
|
|
|
(5.44
|
)
|
|
|
14.18
|
|
|
|
(126
|
)
|
In addition to modeling changes in NPV, we also analyze potential changes to NII for a
twelve-month period under rising and falling interest rate scenarios. The following table shows
our NII model as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Interest Rates in Basis
|
|
|
|
|
|
|
|
|
|
Points (Rate Shock)
|
|
Net Interest Income
|
|
|
$ Change
|
|
|
% Change
|
|
(Dollars in Thousands)
|
|
200bp
|
|
$
|
36,003
|
|
|
$
|
373
|
|
|
|
1.05
|
%
|
100
|
|
|
35,909
|
|
|
|
280
|
|
|
|
0.79
|
|
Static
|
|
|
35,630
|
|
|
|
|
|
|
|
|
|
(100)
|
|
|
34,314
|
|
|
|
(1,316
|
)
|
|
|
(3.69
|
)
|
(200)
|
|
|
31,692
|
|
|
|
(3,938
|
)
|
|
|
(11.05
|
)
|
71
The above table indicates that as of December 31, 2010, in the event of an immediate and
sustained 200 basis point increase in interest rates, Abington Banks net interest income for the
12 months ending December 31, 2011 would be expected to increase by $373,000 or 1.05% to $36.0
million.
As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the
above interest rate risk measurements. Modeling changes in NPV and NII require the making of
certain assumptions which may or may not reflect the manner in which actual yields and costs
respond to changes in market interest rates. In this regard, the models presented assume that the
composition of our
interest sensitive assets and liabilities existing at the beginning of a period remains constant
over the period being measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV measurements and net interest
income models provide an indication of interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of the effect of
changes in market interest rates on net interest income and will differ from actual results.
72
|
|
|
ITEM 8.
|
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Abington Bancorp, Inc. and subsidiaries
Jenkintown, Pennsylvania
We have audited the accompanying consolidated statements of financial condition of Abington
Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2010 and 2009 and the related
consolidated statements of operations, stockholders equity and cash flows for each of the years in
the three-year period ended December 31, 2010. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Abington Bancorp, Inc. and its subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2010, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Abington Bancorp, Inc.s internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 14, 2011 expressed an unqualified opinion.
Malvern, Pennsylvania
March 14, 2011
73
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
17,917,261
|
|
|
$
|
18,941,066
|
|
Interest-bearing deposits in other banks
|
|
|
59,769,447
|
|
|
|
25,773,173
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
77,686,708
|
|
|
|
44,714,239
|
|
Investment securities held to maturity (estimated fair
value2010, $20,806,340; 2009, $20,787,269)
|
|
|
20,384,781
|
|
|
|
20,386,944
|
|
Investment securities available for sale (amortized cost
2010, $124,245,038; 2009, $82,905,101)
|
|
|
124,903,901
|
|
|
|
84,317,271
|
|
Mortgage-backed securities held to maturity (estimated fair
value2010, $58,338,548; 2009, $77,297,497)
|
|
|
56,872,188
|
|
|
|
77,149,936
|
|
Mortgage-backed securities available for sale (amortized cost
2010, $164,632,654; 2009, $133,916,731)
|
|
|
168,172,796
|
|
|
|
138,628,592
|
|
Loans receivable, net of allowance for loan losses
(2010, $4,271,618; 2009, $9,090,353)
|
|
|
696,443,502
|
|
|
|
764,559,941
|
|
Accrued interest receivable
|
|
|
4,102,984
|
|
|
|
4,279,032
|
|
Federal Home Loan Bank stockat cost
|
|
|
13,877,300
|
|
|
|
14,607,700
|
|
Cash surrender value bank owned life insurance
|
|
|
42,744,766
|
|
|
|
40,983,202
|
|
Property and equipment, net
|
|
|
9,751,694
|
|
|
|
10,423,190
|
|
Real estate owned
|
|
|
23,588,139
|
|
|
|
22,818,856
|
|
Deferred tax asset
|
|
|
3,631,218
|
|
|
|
4,711,447
|
|
Prepaid expenses and other assets
|
|
|
4,938,037
|
|
|
|
10,531,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,247,098,014
|
|
|
$
|
1,238,112,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
49,807,778
|
|
|
$
|
45,146,650
|
|
Interest-bearing
|
|
|
850,251,190
|
|
|
|
805,053,843
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
900,058,968
|
|
|
|
850,200,493
|
|
Advances from Federal Home Loan Bank
|
|
|
109,874,674
|
|
|
|
146,739,435
|
|
Other borrowed money
|
|
|
15,881,449
|
|
|
|
16,673,480
|
|
Accrued interest payable
|
|
|
912,321
|
|
|
|
1,807,334
|
|
Advances from borrowers for taxes and insurance
|
|
|
2,956,425
|
|
|
|
3,142,470
|
|
Accounts payable and accrued expenses
|
|
|
5,504,215
|
|
|
|
5,366,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,035,188,052
|
|
|
|
1,023,930,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
24,460,240 shares issued; outstanding: 20,166,742 shares in 2010,
21,049,025 shares in 2009
|
|
|
244,602
|
|
|
|
244,602
|
|
Additional paid-in capital
|
|
|
202,517,175
|
|
|
|
201,922,651
|
|
Treasury stockat cost, 4,293,498 shares in 2010,
3,411,215 shares in 2009
|
|
|
(34,949,051
|
)
|
|
|
(27,446,596
|
)
|
Unallocated common stock held by:
|
|
|
|
|
|
|
|
|
Employee Stock Ownership Plan (ESOP)
|
|
|
(13,460,338
|
)
|
|
|
(14,299,378
|
)
|
Recognition & Retention Plan Trust (RRP)
|
|
|
(2,589,310
|
)
|
|
|
(3,918,784
|
)
|
Deferred compensation plans trust
|
|
|
(1,045,153
|
)
|
|
|
(995,980
|
)
|
Retained earnings
|
|
|
58,519,670
|
|
|
|
54,804,913
|
|
Accumulated other comprehensive income
|
|
|
2,672,367
|
|
|
|
3,870,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
211,909,962
|
|
|
|
214,182,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
1,247,098,014
|
|
|
$
|
1,238,112,121
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
74
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
$
|
39,202,997
|
|
|
$
|
40,320,206
|
|
|
$
|
41,940,531
|
|
Interest and dividends on investment and
mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
10,480,194
|
|
|
|
11,779,255
|
|
|
|
11,833,507
|
|
Tax-exempt
|
|
|
1,554,400
|
|
|
|
1,604,606
|
|
|
|
1,403,069
|
|
Interest and dividends on other interest-earning assets
|
|
|
80,682
|
|
|
|
41,076
|
|
|
|
1,084,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
51,318,273
|
|
|
|
53,745,143
|
|
|
|
56,262,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
12,674,506
|
|
|
|
15,439,913
|
|
|
|
17,024,229
|
|
Interest on Federal Home Loan Bank advances
|
|
|
5,261,704
|
|
|
|
7,422,856
|
|
|
|
9,115,346
|
|
Interest on other borrowed money
|
|
|
72,939
|
|
|
|
73,767
|
|
|
|
358,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
18,009,149
|
|
|
|
22,936,536
|
|
|
|
26,497,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
33,309,124
|
|
|
|
30,808,607
|
|
|
|
29,764,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
|
|
|
976,550
|
|
|
|
18,736,847
|
|
|
|
9,759,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
|
|
|
32,332,574
|
|
|
|
12,071,760
|
|
|
|
20,004,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
1,201,750
|
|
|
|
1,587,440
|
|
|
|
1,645,537
|
|
Income on bank owned life insurance
|
|
|
1,761,564
|
|
|
|
1,798,313
|
|
|
|
1,886,763
|
|
Net loss on real estate owned
|
|
|
(1,033,438
|
)
|
|
|
(5,542,750
|
)
|
|
|
(149,744
|
)
|
Net gain on sale of securities
|
|
|
|
|
|
|
5,102
|
|
|
|
146,375
|
|
Impairment charge on investment securities
|
|
|
|
|
|
|
|
|
|
|
(869,194
|
)
|
Other income
|
|
|
709,787
|
|
|
|
656,754
|
|
|
|
394,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
2,639,663
|
|
|
|
(1,495,141
|
)
|
|
|
3,054,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
11,963,396
|
|
|
|
11,335,543
|
|
|
|
11,295,243
|
|
Occupancy
|
|
|
2,724,441
|
|
|
|
2,394,930
|
|
|
|
2,149,662
|
|
Depreciation
|
|
|
889,851
|
|
|
|
906,581
|
|
|
|
832,779
|
|
Professional services
|
|
|
1,902,382
|
|
|
|
1,323,161
|
|
|
|
1,214,869
|
|
Data processing
|
|
|
1,771,521
|
|
|
|
1,606,529
|
|
|
|
1,495,742
|
|
Deposit insurance premium
|
|
|
1,911,391
|
|
|
|
1,827,672
|
|
|
|
507,587
|
|
Advertising and promotions
|
|
|
545,816
|
|
|
|
442,076
|
|
|
|
496,130
|
|
Director compensation
|
|
|
739,758
|
|
|
|
900,795
|
|
|
|
853,807
|
|
Other
|
|
|
2,288,681
|
|
|
|
2,331,321
|
|
|
|
2,371,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
24,737,237
|
|
|
|
23,068,608
|
|
|
|
21,217,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
10,235,000
|
|
|
|
(12,491,989
|
)
|
|
|
1,841,181
|
|
PROVISION (BENEFIT) FOR INCOME TAXES
|
|
|
2,545,224
|
|
|
|
(5,299,167
|
)
|
|
|
(278,424
|
)
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
7,689,776
|
|
|
$
|
(7,192,822
|
)
|
|
$
|
2,119,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER COMMON SHARE
|
|
$
|
0.41
|
|
|
$
|
(0.36
|
)
|
|
$
|
0.10
|
|
DILUTED EARNINGS (LOSS) PER COMMON SHARE
|
|
$
|
0.39
|
|
|
$
|
(0.36
|
)
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
18,684,819
|
|
|
|
19,805,868
|
|
|
|
21,899,094
|
|
DILUTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
19,929,404
|
|
|
|
19,805,868
|
|
|
|
22,630,136
|
|
See notes to consolidated financial statements.
75
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Acquired by
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Benefit
|
|
|
Retained
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Plans
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Equity
|
|
BALANCEJANUARY 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,119,605
|
|
|
|
|
|
|
|
2,119,605
|
|
Net unrealized holding gain on
available for sale securities
arising during the period, net
of tax expense of $1,450,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,816,276
|
|
|
|
2,816,276
|
|
Amortization of unrecognized
deferred costs on defined
benefit pension plan, net
of tax benefit of $168,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327,699
|
|
|
|
327,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,263,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,953,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,953,623
|
)
|
Cash dividends declared,
($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,472,987
|
)
|
|
|
|
|
|
|
(4,472,987
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(111,758
|
)
|
|
|
533,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,762
|
|
Excess tax benefit on stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
50,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,902
|
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
859,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
859,940
|
|
Common stock released from
benefit plans
|
|
|
|
|
|
|
|
|
|
|
(55,086
|
)
|
|
|
|
|
|
|
2,479,272
|
|
|
|
|
|
|
|
|
|
|
|
2,424,186
|
|
Common stock acquired by
benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,408,235
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,408,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31, 2008
|
|
|
24,460,240
|
|
|
$
|
244,602
|
|
|
$
|
201,378,465
|
|
|
$
|
(10,525,100
|
)
|
|
$
|
(21,923,096
|
)
|
|
$
|
66,007,138
|
|
|
$
|
2,918,576
|
|
|
$
|
238,100,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,192,822
|
)
|
|
|
|
|
|
|
(7,192,822
|
)
|
Net unrealized holding gain on
available for sale securities
arising during the period, net
of tax expense of $528,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,026,542
|
|
|
|
1,026,542
|
|
Amortization of unrecognized
deferred benefits on defined
benefit pension plan, net
of tax expense of $38,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,546
|
)
|
|
|
(74,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,240,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,988,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,988,633
|
)
|
Cash dividends declared,
($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,009,403
|
)
|
|
|
|
|
|
|
(4,009,403
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(16,520
|
)
|
|
|
67,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,617
|
|
Excess tax liability on stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
(58,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,722
|
)
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
879,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
879,623
|
|
Common stock released from
benefit plans
|
|
|
|
|
|
|
|
|
|
|
(260,195
|
)
|
|
|
|
|
|
|
2,761,348
|
|
|
|
|
|
|
|
|
|
|
|
2,501,153
|
|
Common stock acquired by
benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,394
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31, 2009
|
|
|
24,460,240
|
|
|
$
|
244,602
|
|
|
$
|
201,922,651
|
|
|
$
|
(27,446,596
|
)
|
|
$
|
(19,214,142
|
)
|
|
$
|
54,804,913
|
|
|
$
|
3,870,572
|
|
|
$
|
214,182,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
76
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Acquired by
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Benefit
|
|
|
Retained
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Plans
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Equity
|
|
BALANCEJANUARY 1, 2010
|
|
|
24,460,240
|
|
|
$
|
244,602
|
|
|
$
|
201,922,651
|
|
|
$
|
(27,446,596
|
)
|
|
$
|
(19,214,142
|
)
|
|
$
|
54,804,913
|
|
|
$
|
3,870,572
|
|
|
$
|
214,182,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,689,776
|
|
|
|
|
|
|
|
7,689,776
|
|
Net unrealized holding loss on
available for sale securities
arising during the period, net
of tax benefit of $654,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,270,517
|
)
|
|
|
(1,270,517
|
)
|
Amortization of unrecognized
deferred benefits on defined
benefit pension plan, net
of tax expense of $37,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,312
|
|
|
|
72,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,491,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,655,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,655,713
|
)
|
Cash dividends declared,
($0.21 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,975,019
|
)
|
|
|
|
|
|
|
(3,975,019
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(27,842
|
)
|
|
|
153,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,416
|
|
Excess tax liability on stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
(24,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,658
|
)
|
Stock options expense
|
|
|
|
|
|
|
|
|
|
|
712,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712,574
|
|
Common stock released from
benefit plans
|
|
|
|
|
|
|
|
|
|
|
(65,550
|
)
|
|
|
|
|
|
|
2,178,914
|
|
|
|
|
|
|
|
|
|
|
|
2,113,364
|
|
Common stock acquired by
benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,573
|
)
|
|
|
|
|
|
|
|
|
|
|
(59,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
DECEMBER 31, 2010
|
|
|
24,460,240
|
|
|
$
|
244,602
|
|
|
$
|
202,517,175
|
|
|
$
|
(34,949,051
|
)
|
|
$
|
(17,094,801
|
)
|
|
$
|
58,519,670
|
|
|
$
|
2,672,367
|
|
|
$
|
211,909,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
77
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,689,776
|
|
|
$
|
(7,192,822
|
)
|
|
$
|
2,119,605
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
976,550
|
|
|
|
18,736,847
|
|
|
|
9,759,936
|
|
Depreciation
|
|
|
889,851
|
|
|
|
906,581
|
|
|
|
832,779
|
|
Share-based compensation expense
|
|
|
2,815,538
|
|
|
|
3,133,505
|
|
|
|
3,273,726
|
|
Net loss on real estate owned
|
|
|
605,536
|
|
|
|
4,340,710
|
|
|
|
149,744
|
|
Impairment charge on investment securities
|
|
|
|
|
|
|
|
|
|
|
869,194
|
|
Net gain on sale of investment and mortgage-backed securities
|
|
|
|
|
|
|
(5,102
|
)
|
|
|
(146,375
|
)
|
Deferred income tax expense (benefit)
|
|
|
1,697,486
|
|
|
|
(745,767
|
)
|
|
|
(4,183,673
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
(1,515,255
|
)
|
|
|
(1,331,976
|
)
|
|
|
(826,921
|
)
|
Premiums and discounts, net
|
|
|
(220,423
|
)
|
|
|
(209,903
|
)
|
|
|
(63,990
|
)
|
Income from bank owned life insurance
|
|
|
(1,761,564
|
)
|
|
|
(1,798,313
|
)
|
|
|
(1,886,763
|
)
|
Changes in assets and liabilities which (used) provided cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
176,048
|
|
|
|
577,675
|
|
|
|
121,202
|
|
Prepaid expenses and other assets
|
|
|
5,593,734
|
|
|
|
(9,543,711
|
)
|
|
|
954,394
|
|
Accrued interest payable
|
|
|
(895,013
|
)
|
|
|
(810,387
|
)
|
|
|
(880,514
|
)
|
Accounts payable and accrued expenses
|
|
|
197,697
|
|
|
|
(699,775
|
)
|
|
|
(49,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,249,961
|
|
|
|
5,357,562
|
|
|
|
10,042,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan principal repayments (disbursements), net
|
|
|
58,014,144
|
|
|
|
(50,995,278
|
)
|
|
|
(84,606,621
|
)
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities held to maturity
|
|
|
|
|
|
|
(20,309,905
|
)
|
|
|
(44,779,804
|
)
|
Mortgage-backed securities available for sale
|
|
|
(91,606,777
|
)
|
|
|
(31,722,080
|
)
|
|
|
(85,084,087
|
)
|
Investment securities available for sale
|
|
|
(178,682,295
|
)
|
|
|
(57,105,135
|
)
|
|
|
(33,639,071
|
)
|
Federal Home Loan Bank stock
|
|
|
|
|
|
|
|
|
|
|
(6,601,700
|
)
|
Property and equipment
|
|
|
(218,355
|
)
|
|
|
(259,229
|
)
|
|
|
(1,143,522
|
)
|
Additions to real estate owned, net
|
|
|
(575,699
|
)
|
|
|
(1,129,046
|
)
|
|
|
(699,618
|
)
|
Proceeds from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities of mortgage-backed securities held to maturity
|
|
|
266,916
|
|
|
|
|
|
|
|
|
|
Sales and maturities of mortgage-backed securities available for sale
|
|
|
4,143,389
|
|
|
|
4,159,572
|
|
|
|
10,123,775
|
|
Sales and maturities of investment securities available for sale
|
|
|
137,304,000
|
|
|
|
41,999,102
|
|
|
|
63,271,425
|
|
Principal repayments of mortgage-backed securities held to maturity
|
|
|
19,944,618
|
|
|
|
26,163,936
|
|
|
|
8,516,941
|
|
Principal repayments of mortgage-backed securities available for sale
|
|
|
57,074,623
|
|
|
|
42,536,321
|
|
|
|
20,952,903
|
|
Redemption of Federal Home Loan Bank stock
|
|
|
730,400
|
|
|
|
|
|
|
|
2,952,700
|
|
Sales of real estate owned
|
|
|
9,841,880
|
|
|
|
1,291,897
|
|
|
|
1,527,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
16,236,844
|
|
|
|
(45,369,845
|
)
|
|
|
(149,209,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in demand deposits and savings accounts
|
|
|
74,615,975
|
|
|
|
139,799,765
|
|
|
|
58,656,524
|
|
Net (decrease) increase in certificate accounts
|
|
|
(24,757,500
|
)
|
|
|
45,450,294
|
|
|
|
(3,318,791
|
)
|
Net (decrease) increase in other borrowed money
|
|
|
(792,031
|
)
|
|
|
(936,157
|
)
|
|
|
156,577
|
|
Advances from Federal Home Loan Bank
|
|
|
20,935,000
|
|
|
|
33,740,000
|
|
|
|
140,935,000
|
|
Repayments of advances from Federal Home Loan Bank
|
|
|
(57,799,761
|
)
|
|
|
(144,051,768
|
)
|
|
|
(73,441,369
|
)
|
Net (decrease) increase in advances from borrowers for taxes and insurance
|
|
|
(186,045
|
)
|
|
|
(132,815
|
)
|
|
|
296,635
|
|
Excess tax (liability) benefit from stock-based compensation
|
|
|
(24,658
|
)
|
|
|
(58,722
|
)
|
|
|
50,902
|
|
Acquisition of stock for benefit plans
|
|
|
|
|
|
|
|
|
|
|
(5,356,588
|
)
|
Proceeds from exercise of stock options
|
|
|
125,416
|
|
|
|
50,617
|
|
|
|
421,762
|
|
Purchase of treasury stock
|
|
|
(7,655,713
|
)
|
|
|
(16,988,633
|
)
|
|
|
(10,953,623
|
)
|
Payment of cash dividends
|
|
|
(3,975,019
|
)
|
|
|
(4,009,403
|
)
|
|
|
(4,472,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
485,664
|
|
|
|
52,863,178
|
|
|
|
102,974,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
32,972,469
|
|
|
|
12,850,895
|
|
|
|
(36,192,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of year
|
|
|
44,714,239
|
|
|
|
31,863,344
|
|
|
|
68,055,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of year
|
|
$
|
77,686,708
|
|
|
$
|
44,714,239
|
|
|
$
|
31,863,344
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
78
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and other borrowings
|
|
$
|
18,904,162
|
|
|
$
|
23,746,926
|
|
|
$
|
27,378,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,000,000
|
|
|
$
|
805,000
|
|
|
$
|
3,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans receivable to real estate owned
|
|
$
|
10,641,000
|
|
|
$
|
25,582,818
|
|
|
$
|
1,159,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of stock from deferred compensation plans trust
|
|
$
|
10,400
|
|
|
$
|
247,271
|
|
|
$
|
10,400
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
79
ABINGTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
|
|
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
Banks 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 Companys results of operations are primarily
dependent on the results of the Bank and the Banks wholly owned subsidiaries that include ASB
Investment Co. and certain limited purpose LLCs. 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 Banks executive offices are in Jenkintown, Pennsylvania, with twelve additional full
service branch offices and seven limited service banking offices 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. The principal business of the LLCs is
to own and manage certain properties that were acquired as real estate owned. Keswick Services
II, and its wholly owned subsidiaries, and Abington Corp. are currently inactive subsidiaries of
the Bank.
|
|
|
On January 26, 2011, the Company and Susquehanna Bancshares, Inc., (Susquehanna) announced the
signing of a definitive Agreement and Plan of Merger under which Susquehanna will acquire all
outstanding shares of common stock of the Company in a stock-for-stock transaction. Under the
terms of the agreement, shareholders of the Company will receive 1.32 shares of Susquehannas
common stock for each share of common stock of the Company. The proposed transaction is expected
to be completed during the third quarter of 2011. For further information on this transaction,
see Note 18.
|
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
Basis of Financial Statement Presentation
The Company follows accounting standards set by the
Financial Accounting Standards Board (the FASB). The FASB sets generally accepted accounting
principles (GAAP) that we follow to ensure we consistently report our financial condition,
results of operations and cash flows. References to GAAP issued by the FASB in these footnotes
are to the FASB Accounting Standards Codification (the Codification or the ASC). The FASB
established the Codification as the source of authoritative accounting principles effective for
interim and annual periods ended on or after September 15, 2009. The Company adopted the
Codification as of September 30, 2009. The adoption did not have an impact on our financial
position or results of operations.
|
80
|
|
In accordance with the subsequent events topic of the ASC, the Company evaluates events and
transactions that occur after the balance sheet date for potential recognition in the financial
statements. The effect of all subsequent events that provide additional evidence of conditions
that existed at the balance sheet date are recognized in the financial statements as of December
31, 2010.
|
|
|
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
|
|
|
Use of Estimates in the Preparation of Financial Statements
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The Companys 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.
|
|
|
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and interest-bearing deposits with banks, commercial paper and
liquid money market funds with original maturities of three months or less.
|
|
|
Investment and Mortgage-Backed Securities
Debt and equity securities are classified and
accounted for as follows:
|
|
|
Held to Maturity
Debt securities that management has the positive intent and ability to hold
until maturity are classified as held to maturity and are carried at their remaining unpaid
principal balances, net of unamortized premiums or unaccreted discounts. Premiums are amortized
and discounts are accreted using the interest method over the estimated remaining term of the
underlying security.
|
|
|
Available for Sale
Debt and equity securities that will be held for indefinite periods of time,
including securities that may be sold in response to changes in market interest or prepayment
rates, needs for liquidity, and changes in the availability of and in the yield of alternative
investments, are classified as available for sale. These assets are carried at fair value. Fair
value is determined using published quotes as of the close of business. Unrealized gains and
losses are excluded from earnings and are reported net of tax as a separate component of
stockholders equity until realized. Realized gains and losses on the sale of investment and
mortgage-backed securities are reported in the consolidated statements of income and determined
using the adjusted cost of the specific security sold.
|
|
|
Other-Than-Temporary Impairment of Securities
Securities are evaluated on at least a quarterly
basis, and more frequently when market conditions warrant such an evaluation, to determine
whether a decline in their value is other-than-temporary. To determine whether a loss in value
is other-than-temporary, management utilizes criteria such as the reasons underlying the
decline, the magnitude and duration of the decline and whether or not management intends to sell
or expects that it is more likely than not that it will be required to sell the security prior
to an anticipated recovery of 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 for a debt security is determined to be other-than-temporary, the other-than-temporary
impairment is separated into (a) the amount of the total other-than-temporary
impairment related to a decrease in cash flows expected to be collected from the debt security
(the credit loss) and (b) the amount of the total other-than-temporary impairment related to all
other factors. The amount of the total other-than-temporary impairment related to the credit
loss is recognized in earnings. The amount of the total other-than-temporary impairment related
to all other factors is recognized in other comprehensive income. For equity securities, the
full amount of the other-than-temporary impairment is recognized in earnings. No impairment
charges were recognized during the years ended December 31, 2010 or 2009. During the year ended
December 31, 2008, the Company recognized impairment charges aggregating approximately $869,000
to write-down the book value of an investment in a mortgage-backed security based mutual fund to
its fair value of $2.5 million at December 31, 2008.
|
81
|
|
Allowance for Loan Losses
The allowance for loan losses is increased by charges to income
through the provision for loan losses and decreased by charge-offs (net of recoveries). The
allowance is maintained at a level that management considers adequate to provide for losses
based upon evaluation of the known and inherent risks in the loan portfolio. Managements
periodic evaluation of the adequacy of the allowance is based on the Companys past loan loss
experience, the volume and composition of lending conducted by the Company, adverse situations
that may affect a borrowers ability to repay, the estimated value of any underlying collateral,
current economic conditions and other factors affecting the known and inherent losses 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 loan portfolio. All of these estimates
may be susceptible to significant change.
|
|
|
The allowance consists of specifically identified amounts for impaired loans, a general
allowance, or in some cases a specific 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.
|
|
|
A loan is classified as a troubled debt restructuring (TDR) if the Company, for economic or
legal reasons related to a debtors financial difficulties, grants a concession to the debtor
that it would not otherwise consider. Concessions granted under a TDR typically involve a
temporary or permanent reduction in payments or interest rate or an extension of a loans stated
maturity date at less than a current market rate of interest. Loans classified as TDRs are
designated as impaired.
|
|
|
We establish an allowance on impaired loans for the amount by which the present value of
expected future cash flows discounted at the loans effective interest rate, observable market
price or fair value of collateral, if the loan is collateral dependent, is lower than the
carrying value of the loan. Impairment losses are included in the provision for loan losses. 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. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest
payments when due. 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 generally considered to be insignificant, although management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrowers prior payment record and the
amount of the shortfall in relation to the principal and interest owed. Impairment is measured
on a loan by loan basis for all construction loans and most commercial real estate loans,
including all such loans that are classified or criticized. Large groups of smaller balance,
homogeneous loans are collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring and certain classified or criticized loans. Loans
collectively evaluated for impairment include smaller balance commercial real estate loans,
residential real estate loans and consumer loans. Further detail of loans identified as impaired
is included in Note 6. The determination of fair value for the collateral underlying a loan is
more fully described in Note 16.
|
82
|
|
We typically establish a general valuation allowance on classified and criticized loans which
are not impaired. In establishing the general valuation allowance, we segregate these loans by
category. The categories used by the Company include doubtful, substandard and special
mention. For commercial and construction loans, the determination of the category for each
loan is based on periodic reviews of each loan by our lending officers as well as an
independent, third-party consultant. The reviews include a consideration of such factors as
recent payment history, current financial data and cash flow projections, collateral
evaluations, and current economic and business conditions. Categories for mortgage and consumer
loans are determined through a similar review. Placement of a loan within a category is based on
identified weaknesses that increase the credit risk of loss on the loan. Each category carries a
general rate for the allowance percentage to be assigned to the loans within that category. The
general allowance percentage is determined based on inherent losses associated with each type of
lending as determined through consideration of our loss history with each type of loan, trends
in credit quality and collateral values, and an evaluation of current economic and business
conditions. Although the placement of a loan within a given category assists us in our analysis
of the risk of loss, the actual allowance percentage assigned to each loan within a category is
adjusted for the specific circumstances of each loan, including an evaluation of the appraised
value of the specific collateral for the loan, and will often differ from the general rate for
the category. These classified and criticized loans, in the aggregate, represent an
above-average credit risk and it is expected that more of these loans will prove to be
uncollectible compared to loans in the general portfolio.
|
|
|
We establish a general allowance on non-classified and non-criticized loans to recognize the
inherent losses associated with lending activities, but which, unlike amounts which have been
specifically identified with respect to particular classified and criticized loans, is not
established on an individual loan-by-loan basis. This general valuation allowance is determined
by segregating the loans by portfolio segments and assigning allowance percentages to each
segment. An evaluation of each segment is made to determine the need to further segregate the
loans by a more focused class of financing receivable. For our residential mortgage and consumer
loan portfolios, we identified similar characteristics throughout the portfolio including credit
scores, loan-to-value ratios and collateral. These portfolios generally have high credit scores
and strong loan-to-value ratios (typically below 80% at origination), and have not been
significantly impacted by recent housing price depreciation. For our commercial real estate loan
portfolio, although the loans are less uniform than with our residential mortgage and consumer
loan portfolios, a review of our loss history does not suggest significant benefits from further
segregation of the segment. With our construction loan portfolio, however, a further analysis is
made in which we segregate the loans by class based on the purpose of the loan and the
collateral properties securing the loan. Various risk factors are then considered for each class
of loan, including the impact of general economic and business conditions, collateral value
trends, credit quality trends and historical loss experience. Based on a consideration of our
loss history in recent periods in comparison to the aging of our loan portfolio, we evaluated
our loss experience using a time period of three years. In choosing this time period, our goal
was to select a period that was sufficiently short so as to capture the recent economic
environment, but long enough to fairly reflect the age of our loans at the time when losses
began to occur. We believe that a three-year period appropriately reflects the life cycle of a
loan that is indicative of the risk of loss.
|
83
|
|
The allowance is adjusted for significant other factors that, in managements judgment, affect
the collectibility of the portfolio as of the evaluation date. These significant factors, many
of which have
been previously discussed, 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.
Although we review key ratios, such as the allowance for loan losses as a percentage of
non-performing loans and total loans receivable, in order to help us understand the trends in
our loan portfolio, we do not try to maintain any specific target range with respect to such
ratios.
|
|
|
Loans Held for Sale and Loans Sold
The Company originates mortgage loans held for investment
and for sale. At origination, the mortgage loan is identified as either held for sale or for
investment. Mortgage loans held for sale are carried at the lower of cost or forward committed
contracts (which approximates market), determined on a net aggregate basis. The Company had no
loans classified as held for sale at December 31, 2010 or 2009.
|
|
|
The Company assesses the retained interest in the servicing asset or liability associated with
the sold loans based on the relative fair values. The servicing asset or liability is amortized
in proportion to and over the period during which estimated net servicing income or net
servicing loss, as appropriate, will be received. Assessment of the fair value of the retained
interest is performed on a continual basis. At December 31, 2010 and 2009, mortgage servicing
rights of $26,000 and $32,000, respectively, were included in other assets. No valuation
allowance was deemed necessary for any of the periods presented.
|
|
|
Amortization of the servicing asset totaled approximately $6,000, $11,000 and $6,000,
respectively, for each of the years ended December 31, 2010, 2009 and 2008.
|
|
|
Federal Home Loan Bank Stock
Federal Home Loan Bank (FHLB) stock is a restricted investment
security that is generally viewed as a long-term investment. FHLB stock is carried at cost and
evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined
based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of
FHLB stock for impairment each period. No impairment charges were recognized on FHLB stock
during the years ended December 31, 2010, 2009 or 2008. Dividends received on FHLB stock are
recognized as interest income, however, during the fourth quarter of 2008, the FHLB of
Pittsburgh announced a decision to suspend the dividend on shares of its stock. As a result of
the FHLBs suspension of dividends, which is continuing, no interest income was recognized on
our FHLB stock during 2010 or 2009.
|
|
|
Real Estate Owned
Real estate properties acquired through foreclosure are initially recorded at
the fair value of the property at the date of foreclosure, establishing a new cost basis. Losses
arising from foreclosure transactions are charged against the allowance for loan losses. 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. Development costs associated
with foreclosed property under construction are capitalized and considered in determining the
fair value of the property. Net revenue and expenses from operations and changes to the
valuation allowance are included in net gain or loss on real estate owned.
|
|
|
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed
using the straight-line method over the expected useful lives of the related assets, which range
from 5 years for software, computer equipment and automobiles to 45 years for buildings. The
costs of maintenance and repairs are expensed as they are incurred, and renewals and betterments are
capitalized.
|
84
|
|
Bank Owned Life Insurance (BOLI)
The Company purchases bank owned life insurance as a
mechanism for funding various employee benefit costs. The Company is the beneficiary of these
policies that insure the lives of certain officers of its subsidiaries. The Company has
recognized the cash surrender value under the insurance policies as an asset in the consolidated
statements of financial condition. Changes in the cash surrender value are recorded in
non-interest income in the consolidated statements of income.
|
|
|
Other Borrowed Money
The Company enters into overnight repurchase agreements with commercial
checking account customers. These agreements are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the consolidated statements of
financial condition. Securities pledged as collateral under agreements to repurchase are
reflected as assets in the consolidated statements of financial condition.
|
|
|
Loan Origination and Commitment Fees
The Company defers loan origination and commitment fees,
net of certain direct loan origination costs. The balance is accreted into income as a yield
adjustment over the life of the loan using the level-yield method.
|
|
|
Interest on Loans
The Company recognizes interest on loans on the accrual basis. Income
recognition is generally discontinued on single-family residential mortgage loans when a loan
becomes 120 days or more delinquent and not well secured and in the process of collection or on
all other loans when a loan becomes 90 days or more delinquent and not well secured and in the
process of collection. 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. Any interest
previously accrued is deducted from interest income. Such interest ultimately collected is
credited to income when collection of principal and interest is no longer in doubt.
|
|
|
Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. Interest and penalties incurred in relation to
payment of income tax liabilities are recognized in the provision for income taxes in the income
statement in the period in which they occur. No interest or penalties for income taxes were
recognized during the years ended December 31, 2010, 2009 or 2008.
|
|
|
In accordance with the income taxes topic of the ASC, the Company analyzes each tax position
taken in its tax returns and determines the likelihood that that position will be realized. Only
tax positions that are more-likely-than-not to be realized are recognized in an entitys
financial statements. For tax positions that do not meet this recognition threshold, we will
record an unrecognized tax benefit for the difference between the position taken on the tax
return and the amount recognized in the financial statements. The Company did not have any
unrecognized tax benefits at December 31, 2010 or 2009 or during the years then ended. No
unrecognized tax benefits are expected to arise within the twelve months ending December 31,
2011.
|
|
|
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 operations and are recorded directly to stockholders equity. These amounts consist of
unrealized holding gains on available for sale securities and unrecognized deferred costs of the
Companys defined benefit pension plan.
|
85
|
|
The components of other comprehensive (loss) income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on securities arising
during the year
|
|
$
|
(1,270,517
|
)
|
|
$
|
1,029,909
|
|
|
$
|
2,339,215
|
|
Plus: reclassification adjustment for net (gains) losses
included in net income, net of tax expense of $1,735 in
2009 and tax benefit of $245,758 in 2008
|
|
|
|
|
|
|
(3,367
|
)
|
|
|
477,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on securities
|
|
$
|
(1,270,517
|
)
|
|
$
|
1,026,542
|
|
|
$
|
2,816,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized deferred costs (benefits)
on supplemental retirement plan, net of tax (benefit)
expense of $(37,252) in 2010, $38,402 in 2009 and
$(168,812) in 2008
|
|
|
72,312
|
|
|
|
(74,546
|
)
|
|
|
327,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income
|
|
$
|
(1,198,205
|
)
|
|
$
|
951,996
|
|
|
$
|
3,143,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities, net of tax
|
|
$
|
2,771,343
|
|
|
$
|
4,041,860
|
|
|
$
|
3,015,317
|
|
Unrecognized deferred costs of supplemental
retirment plan, net of tax
|
|
|
(98,976
|
)
|
|
|
(171,288
|
)
|
|
|
(96,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
2,672,367
|
|
|
$
|
3,870,572
|
|
|
$
|
2,918,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock and Unallocated Common Stock
Stock held in treasury by the Company,
including unallocated stock held by certain benefit plans, is accounted for using the cost
method which treats stock held in treasury as a reduction to total stockholders equity. The
cost basis for subsequent sales of treasury shares is determined using a first-in first-out
method.
|
|
|
Share-Based Compensation
The Company accounts for its share-based compensation awards in
accordance with the stock compensation topic of the ASC. Under ASC Topic 718,
Compensation
Stock Compensation
(ASC 718), the Company recognizes the cost of employee services received in
share-based payment transactions and measures the cost based 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 December 31, 2010, the Company had 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 first issued under the 2007
plans in January 2008. These plans are more fully described in Note 13.
|
86
|
|
The Company also has an employee stock ownership plan (ESOP). This plan is more fully
described in Note 13. Shares held under the ESOP are also accounted for under ASC 718. As ESOP
shares are committed to be released and allocated among participants, the Company recognizes
compensation expense equal to the average market price of the shares over the period earned. For
purposes of computing basic and diluted earnings per share, ESOP shares that have been committed
to be released are considered outstanding. ESOP shares that have not been committed to be
released are not considered outstanding. Dividends paid on unallocated shares are used to pay
debt service.
|
|
|
Earnings per share
Earnings per share (EPS) consists of two separate components, basic EPS
and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common
stock outstanding for each period presented. Diluted EPS is calculated based on the weighted
average number of shares of common stock outstanding plus dilutive common stock equivalents
(CSEs). CSEs consist of shares that are assumed to have been purchased with the proceeds from
the exercise of stock options, as well as unvested common stock awards. CSEs which are
considered antidilutive are not included for the purposes of this calculation. For the years
ended December 31, 2010, 2009 and 2008, there were 1,248,480, 2,198,888 and 1,277,240
antidilutive CSEs, respectively. Due to the net loss recognized for the year ended December 31,
2009, the inclusion of any CSEs would decrease the amount of net loss per share for the year and
be antidilutive. Consequently, basic and diluted weighted average shares outstanding are equal
for the year ended December 31, 2009. Earnings (loss) per share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,689,776
|
|
|
$
|
7,689,776
|
|
|
$
|
(7,192,822
|
)
|
|
$
|
(7,192,822
|
)
|
|
$
|
2,119,605
|
|
|
$
|
2,119,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
18,684,819
|
|
|
|
18,684,819
|
|
|
|
19,805,868
|
|
|
|
19,805,868
|
|
|
|
21,899,094
|
|
|
|
21,899,094
|
|
Effect of CSEs
|
|
|
|
|
|
|
1,244,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted
average shares used
in earnings per share
computation
|
|
|
18,684,819
|
|
|
|
19,929,404
|
|
|
|
19,805,868
|
|
|
|
19,805,868
|
|
|
|
21,899,094
|
|
|
|
22,630,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards
Update (ASU) 2010-06,
Improving Disclosures about Fair Value Measurements
, which updates ASC
820,
Fair Value Measurements and Disclosures
. The updated guidance added new requirements for
disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarified
existing fair value disclosures about the level of disaggregation and about inputs and valuation
techniques
used to measure fair value. The amended guidance in ASU 2010-06 was effective for the first
interim or annual reporting period beginning after December 15, 2009, except for the requirement
to provide the Level 3 activity of purchase, sales, issuances, and settlements on a gross basis,
which will be effective for fiscal years beginning after December 15, 2010. The Company adopted
the amended guidance, except for the requirement effective for fiscal years beginning after
December 15, 2010, on January 1, 2010. The Company adopted the additional requirement on January
1, 2011. The adoptions did not have any impact on our financial position or results of
operations.
|
87
|
|
In July 2010, the FASB issued ASU 2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
, which updated ASC 310
, Receivables
. The updated
guidance requires more robust and disaggregated disclosures about the credit quality of an
entitys financing receivables and its allowance for credit losses, including a rollforward
schedule of the allowance for credit losses for the period on a portfolio segment basis, as well
as additional information about the aging and credit quality of receivables by class of
financing receivables as of the end of the period. The new and amended disclosures that relate
to information as of the end of a reporting period were effective for the Company as of December
31, 2010, except for disclosures relating to TDRs as discussed further below. The disclosures
that include information for activity that occurs during a reporting period will be effective
for the first interim reporting period beginning after December 31, 2010. The Company adopted
the required disclosures as of December 31, 2010. The adoptions did not have any impact on our
financial position or results of operations. The Company is continuing to evaluate the guidance
relating to disclosures that include information for activity that occurs during a reporting
period. While the guidance will impact the presentation of certain disclosures within our
financial statements, we do not expect that this guidance will have any impact on our financial
position or results of operations.
|
|
|
In January of 2011, the FASB issued ASU 2011-01,
Deferral of the Effective Date of Disclosures
about Troubled Debt Restructurings in Update No. 2010-20
. This update temporarily delays the
effective date of additional disclosures relating to TDRs required by ASU 2010-20. The delay is
intended to allow the FASB time to complete its deliberations on what constitutes a troubled
debt restructuring. The effective date of the new disclosures about TDRs for public entities and
the guidance for determining what constitutes a TDR will then be coordinated. Currently, that
guidance is anticipated to be effective for interim and annual periods ending after June 15,
2011. The Company is continuing to evaluate this guidance.
|
|
|
In December 2010, the FASB issues ASU 2010-29,
Disclosure of Supplementary Pro Forma Information
for Business Combinations
, which updates ASC 805,
Business Combinations
. ASC 805 requires a
public entity to disclose pro forma information for business combinations that occurred in the
current reporting period. The updated guidance specifies that if a public entity presents
comparative financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual reporting period only. The
amendments in this ASU also expand the supplemental pro forma disclosures under ASC 805 to
include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. The amendments in this ASU are effective prospectively for business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 31, 2010. The Company is continuing to evaluate this guidance.
|
|
|
Reclassifications
Certain items in the 2009 and 2008 consolidated financial statements have
been reclassified to conform to the presentation in the 2010 consolidated financial statements.
Such reclassifications did not have any impact on our financial position or results of
operations.
|
3.
|
|
RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
|
|
|
The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At
December 31, 2010 and 2009, these reserve balances amounted to $2.7 million and $4.3 million,
respectively.
|
88
|
|
The amortized cost and estimated fair value of investment securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
20,384,781
|
|
|
$
|
436,457
|
|
|
$
|
(14,898
|
)
|
|
$
|
20,806,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities
|
|
$
|
20,384,781
|
|
|
$
|
436,457
|
|
|
$
|
(14,898
|
)
|
|
$
|
20,806,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sal
e
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
$
|
99,365,386
|
|
|
$
|
812,591
|
|
|
$
|
(865,277
|
)
|
|
$
|
99,312,700
|
|
Corporate bonds and
commercial paper
|
|
|
3,535,415
|
|
|
|
24,245
|
|
|
|
(1,365
|
)
|
|
|
3,558,295
|
|
Municipal bonds
|
|
|
18,680,054
|
|
|
|
640,846
|
|
|
|
|
|
|
|
19,320,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
121,580,855
|
|
|
|
1,477,682
|
|
|
|
(866,642
|
)
|
|
|
122,191,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,664,183
|
|
|
|
47,823
|
|
|
|
|
|
|
|
2,712,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
securities
|
|
|
2,664,183
|
|
|
|
47,823
|
|
|
|
|
|
|
|
2,712,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,245,038
|
|
|
$
|
1,525,505
|
|
|
$
|
(866,642
|
)
|
|
$
|
124,903,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
20,386,944
|
|
|
$
|
400,325
|
|
|
$
|
|
|
|
$
|
20,787,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities
|
|
$
|
20,386,944
|
|
|
$
|
400,325
|
|
|
$
|
|
|
|
$
|
20,787,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
$
|
55,863,999
|
|
|
$
|
691,337
|
|
|
$
|
(95,669
|
)
|
|
$
|
56,459,667
|
|
Corporate bonds and
commercial paper
|
|
|
3,123,496
|
|
|
|
6,286
|
|
|
|
(8,342
|
)
|
|
|
3,121,440
|
|
Municipal bonds
|
|
|
21,238,185
|
|
|
|
817,838
|
|
|
|
(848
|
)
|
|
|
22,055,175
|
|
Certificates of deposit
|
|
|
99,000
|
|
|
|
|
|
|
|
|
|
|
|
99,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
80,324,680
|
|
|
|
1,515,461
|
|
|
|
(104,859
|
)
|
|
|
81,735,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
10
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
9
|
|
Mutual funds
|
|
|
2,580,411
|
|
|
|
1,569
|
|
|
|
|
|
|
|
2,581,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
securities
|
|
|
2,580,421
|
|
|
|
1,569
|
|
|
|
(1
|
)
|
|
|
2,581,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,905,101
|
|
|
$
|
1,517,030
|
|
|
$
|
(104,860
|
)
|
|
$
|
84,317,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of debt or equity securities during the year ended December 31, 2010.
During the year ended December 31, 2009, a gross gain of approximately $5,000 was recognized on
the sale of one municipal bond. Proceeds from this sale were approximately $305,000. During the
year ended December 31, 2008, a gross gain of approximately $74,000 was recognized on the sale
of certain agency bonds. Proceeds from these sales were approximately $4.6 million.
|
|
|
No impairment charges were recognized on investment securities during the years ended December
31, 2010 or 2009. Impairment charges aggregating approximately $869,000 were recognized during
the year ended December 31, 2008. These impairment charges were taken to write-down the book
value of our investment in a mortgage-backed security based mutual fund to its fair value of
$2.5 million at December 31, 2008, based on our determination that the investment was
other-than-temporarily impaired. This determination for the fund, the AMF Ultra Short Mortgage
Fund, was made, in part, based on credit rating downgrades in certain of the private label
mortgage-backed securities held by the fund, as well as an analysis of the overall status of the
fund. We continue to hold this fund.
|
|
|
All municipal bonds included in debt securities are bank-qualified municipal bonds.
|
90
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
3,370,139
|
|
|
$
|
3,397,980
|
|
|
$
|
|
|
|
$
|
|
|
Due after one year through
five years
|
|
|
112,556,471
|
|
|
|
112,964,472
|
|
|
|
|
|
|
|
|
|
Due after five years
through ten years
|
|
|
5,654,245
|
|
|
|
5,829,443
|
|
|
|
16,299,717
|
|
|
|
16,697,517
|
|
Due after ten years
|
|
|
|
|
|
|
|
|
|
|
4,085,064
|
|
|
|
4,108,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,580,855
|
|
|
$
|
122,191,895
|
|
|
$
|
20,384,781
|
|
|
$
|
20,806,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth investment securities which had unrealized loss positions as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
(14,898
|
)
|
|
$
|
2,119,768
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
|
(14,898
|
)
|
|
|
2,119,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
|
(865,277
|
)
|
|
|
54,612,715
|
|
|
|
|
|
|
|
|
|
Corporate bonds and
commercial paper
|
|
|
(1,365
|
)
|
|
|
489,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale
|
|
|
(866,642
|
)
|
|
|
55,101,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(881,540
|
)
|
|
$
|
57,221,598
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
The table below sets forth investment securities which had unrealized loss positions as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
$
|
(95,669
|
)
|
|
$
|
18,299,480
|
|
|
$
|
|
|
|
$
|
|
|
Corporate bonds and
commercial paper
|
|
|
(8,342
|
)
|
|
|
1,127,220
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
(848
|
)
|
|
|
251,938
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities available for
sale
|
|
$
|
(104,860
|
)
|
|
$
|
19,678,647
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2010, no investment securities were in a gross unrealized loss position for 12
months or longer. Investment securities in a gross unrealized loss position for less than 12
months at December 31, 2010, consisted of 24 securities having an aggregate depreciation of 1.5%
from the Companys amortized cost basis. The securities included 17 agency bonds, four municipal
bonds and one corporate bond. Management has concluded that, as of December 31, 2010, the
unrealized losses above were temporary in nature. The unrealized losses on these securities are
not related to the underlying credit quality of the issuers, and they are on securities that
have a contractual maturity date. The principal and interest payments on these securities have
been made as scheduled, and there is no evidence that the issuers will not continue to do so. In
managements opinion, the future principal payments will be sufficient to recover the current
amortized cost of the securities. The unrealized losses above are primarily related to the
current interest rate environment. The Company does not currently have plans to sell any these
securities, nor does it anticipate that it will be required to sell any these securities prior
to a recovery of their cost basis.
|
92
5.
|
|
MORTGAGE-BACKED SECURITIES
|
|
|
The amortized cost and estimated fair value of mortgage-backed securities are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
GNMA pass-through
certificates
|
|
$
|
13,854,013
|
|
|
$
|
485,257
|
|
|
$
|
|
|
|
$
|
14,339,270
|
|
FNMA pass-through
certificates
|
|
|
20,044,999
|
|
|
|
1,217,065
|
|
|
|
|
|
|
|
21,262,064
|
|
FHLMC pass-through
certificates
|
|
|
9,665,262
|
|
|
|
354,111
|
|
|
|
|
|
|
|
10,019,373
|
|
Collateralized mortgage
obligations
|
|
|
13,307,914
|
|
|
|
8
|
|
|
|
(590,081
|
)
|
|
|
12,717,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,872,188
|
|
|
$
|
2,056,441
|
|
|
$
|
(590,081
|
)
|
|
$
|
58,338,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
GNMA pass-through
certificates
|
|
$
|
1,929
|
|
|
$
|
77
|
|
|
$
|
|
|
|
$
|
2,006
|
|
FNMA pass-through
certificates
|
|
|
30,005,032
|
|
|
|
1,923,275
|
|
|
|
|
|
|
|
31,928,307
|
|
FHLMC pass-through
certificates
|
|
|
26,843,006
|
|
|
|
1,805,146
|
|
|
|
|
|
|
|
28,648,152
|
|
Collateralized
mortgage
obligations
|
|
|
107,782,687
|
|
|
|
648,305
|
|
|
|
(836,661
|
)
|
|
|
107,594,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164,632,654
|
|
|
$
|
4,376,803
|
|
|
$
|
(836,661
|
)
|
|
$
|
168,172,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
18,607,580
|
|
|
$
|
374,179
|
|
|
$
|
(198,784
|
)
|
|
$
|
18,782,975
|
|
FNMA pass-through
certificates
|
|
|
27,817,665
|
|
|
|
1,031,598
|
|
|
|
|
|
|
|
28,849,263
|
|
FHLMC pass-through
certificates
|
|
|
13,242,317
|
|
|
|
258,707
|
|
|
|
(26,483
|
)
|
|
|
13,474,541
|
|
Collateralized
mortgage
obligations
|
|
|
17,482,374
|
|
|
|
|
|
|
|
(1,291,656
|
)
|
|
|
16,190,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,149,936
|
|
|
$
|
1,664,484
|
|
|
$
|
(1,516,923
|
)
|
|
$
|
77,297,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
GNMA pass-through
certificates
|
|
$
|
2,464
|
|
|
$
|
369
|
|
|
$
|
|
|
|
$
|
2,833
|
|
FNMA pass-through
certificates
|
|
|
45,813,997
|
|
|
|
2,265,098
|
|
|
|
|
|
|
|
48,079,095
|
|
FHLMC pass-through
certificates
|
|
|
48,863,220
|
|
|
|
2,363,183
|
|
|
|
(24,953
|
)
|
|
|
51,201,450
|
|
Collateralized mortgage
obligations
|
|
|
39,237,050
|
|
|
|
354,656
|
|
|
|
(246,492
|
)
|
|
|
39,345,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,916,731
|
|
|
$
|
4,983,306
|
|
|
$
|
(271,445
|
)
|
|
$
|
138,628,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of mortgage-backed securities during the years ended December 31, 2010
or 2009. During the year ended December 31, 2008, a gross gain of approximately $100,000 and a
gross loss of approximately $28,000 were recognized on the sale of certain mortgage-backed
securities. Proceeds from these sales were approximately $5.1 million.
|
|
|
No impairment charge was recognized on mortgage-backed securities during the years ended
December 31, 2010, 2009 or 2008.
|
|
|
Our collateralized mortgage obligations (CMOs) are issued by the FNMA, the FHLMC and the GNMA
as well as certain AAA rated private issuers. At December 31, 2010 and 2009, $6.6 million and
$8.4 million of our CMOs were issued by private issuers.
|
94
|
|
The table below sets forth mortgage-backed securities which had unrealized loss positions as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(590,081
|
)
|
|
$
|
9,529,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held
to maturity
|
|
|
|
|
|
|
|
|
|
|
(590,081
|
)
|
|
|
9,529,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
|
(836,661
|
)
|
|
|
59,786,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale
|
|
|
(836,661
|
)
|
|
|
59,786,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(836,661
|
)
|
|
$
|
59,786,355
|
|
|
$
|
(590,081
|
)
|
|
$
|
9,529,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
The table below sets forth mortgage-backed securities which had unrealized loss positions
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
(198,784
|
)
|
|
$
|
10,122,441
|
|
|
$
|
|
|
|
$
|
|
|
FHLMC pass-through
certificates
|
|
|
(26,483
|
)
|
|
|
4,787,594
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
|
(322,627
|
)
|
|
|
8,755,414
|
|
|
|
(969,029
|
)
|
|
|
7,435,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
|
(547,894
|
)
|
|
|
23,665,449
|
|
|
|
(969,029
|
)
|
|
|
7,435,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC pass-through
certificates
|
|
|
(21,372
|
)
|
|
|
2,060,797
|
|
|
|
(3,581
|
)
|
|
|
1,225,716
|
|
Collateralized mortgage
obligations
|
|
|
(194,886
|
)
|
|
|
13,186,239
|
|
|
|
(51,606
|
)
|
|
|
3,340,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for
sale
|
|
|
(216,258
|
)
|
|
|
15,247,036
|
|
|
|
(55,187
|
)
|
|
|
4,566,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(764,152
|
)
|
|
$
|
38,912,485
|
|
|
$
|
(1,024,216
|
)
|
|
$
|
12,001,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2010, mortgage-backed securities in a gross unrealized loss position for 12 months
or longer consisted of three securities having an aggregate depreciation of 5.8% from the
Companys amortized cost basis. All three securities were CMOs, two of which were issued by
private issuers. The two CMOs from private issuers, which had an aggregate principal balance of
approximately $3.4 million at December 31, 2010, that had declines of approximately 8.8% and
19.5% from their amortized cost basis at such date. The third security, with a principal balance
of approximately $6.7 million at December 31, 2010, had a decline of approximately 0.3% from its
amortized cost basis at such date. Mortgage-backed securities in a gross unrealized loss
position for less than 12 months at December 31, 2010, consisted of 24 securities having an
aggregate depreciation of 1.4% from the Companys amortized cost basis. All of these securities
were CMOs issued by government agencies. Management has concluded that, as of December 31,
2010, the unrealized losses above were temporary in nature. There is no exposure to subprime
loans with these CMOs. The losses are not related to the underlying credit quality of the
issuers, all of whom remain AAA rated, including the private issuers, and they are on securities
that have contractual maturity dates. The principal and interest payments on these CMOs have
been made as scheduled, and there is no evidence that the issuers will not continue to do so. In
managements opinion, the future principal payments will be sufficient to recover the current
amortized cost of the securities. The unrealized losses above are primarily related to the
current market environment. The Company does not currently have plans to
sell any these securities, nor does it anticipate that it will be required to sell any these
securities prior to a recovery of their cost basis.
|
96
6.
|
|
LOANS RECEIVABLE AND REAL ESTATE OWNED
|
|
|
Loans receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
393,434,519
|
|
|
$
|
432,004,572
|
|
Multi-family residential and commercial
|
|
|
141,090,844
|
|
|
|
135,482,758
|
|
Construction
|
|
|
138,558,368
|
|
|
|
203,642,336
|
|
Home equity lines of credit
|
|
|
41,213,274
|
|
|
|
36,273,685
|
|
Commercial business loans
|
|
|
16,326,982
|
|
|
|
18,876,987
|
|
Consumer non-real estate loans
|
|
|
870,406
|
|
|
|
2,358,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
731,494,393
|
|
|
|
828,638,401
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Construction loans in process
|
|
|
(30,065,072
|
)
|
|
|
(54,198,647
|
)
|
Deferred loan fees, net
|
|
|
(714,201
|
)
|
|
|
(789,460
|
)
|
Allowance for loan losses
|
|
|
(4,271,618
|
)
|
|
|
(9,090,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivablenet
|
|
$
|
696,443,502
|
|
|
$
|
764,559,941
|
|
|
|
|
|
|
|
|
|
|
Our one- to four-family residential loans also include some loans to local businessmen for
a commercial purpose, but which are secured by liens on the borrowers residence as well as
fixed-rate consumer loans which are secured by liens on the borrowers residence.
|
|
|
The Bank grants loans primarily to customers in its local market area. The ultimate repayment of
these loans is dependent to a certain degree on the local economy and real estate market.
|
|
|
The Bank has sold and was servicing loans for others in the amounts of approximately $16.0
million and $18.2 million at December 31, 2010 and 2009, respectively. These loan balances are
excluded from the Companys consolidated financial statements. At December 31, 2010 and 2009,
mortgage servicing rights of $26,000 and $32,000, respectively, were included in other assets.
No valuation allowance was deemed necessary for any of the periods presented.
|
97
|
|
Certain officers and directors and their affiliates have loans with the Bank. The aggregate
dollar amount of these loans outstanding to related parties along with an analysis of the
activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balancebeginning of year
|
|
$
|
3,266,307
|
|
|
$
|
3,079,941
|
|
|
$
|
2,210,318
|
|
Additions
|
|
|
121,648
|
|
|
|
377,772
|
|
|
|
1,368,125
|
|
Repayments
|
|
|
(159,048
|
)
|
|
|
(191,406
|
)
|
|
|
(498,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
3,228,907
|
|
|
$
|
3,266,307
|
|
|
$
|
3,079,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Balancebeginning of year
|
|
$
|
9,090,353
|
|
|
$
|
11,596,784
|
|
|
$
|
1,811,121
|
|
Provision for loan losses
|
|
|
976,550
|
|
|
|
18,736,847
|
|
|
|
9,759,936
|
|
Charge-offs
|
|
|
(7,076,332
|
)
|
|
|
(21,394,378
|
)
|
|
|
(63,788
|
)
|
Recoveries
|
|
|
1,281,047
|
|
|
|
151,100
|
|
|
|
89,515
|
|
|
|
|
|
|
|
|
|
|
|
(Charge-offs)/recoveriesnet
|
|
|
(5,795,285
|
)
|
|
|
(21,243,278
|
)
|
|
|
25,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
4,271,618
|
|
|
$
|
9,090,353
|
|
|
$
|
11,596,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for loan losses is charged to expense to maintain the allowance for loan
losses at a level that management considers adequate to provide for losses based upon an
evaluation of the loan portfolio. Factors considered in determining the appropriate level for
the allowance for loan losses are discussed in detail in Note 2.
|
98
|
|
The following table presents the classes of the loan portfolio summarized by the aggregate pass
rating, the criticized rating of special mention and the classified ratings of substandard and
doubtful within the Companys internal risk rating system as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
One-to four-family residential
|
|
$
|
391,903
|
|
|
$
|
12
|
|
|
$
|
1,520
|
|
|
$
|
|
|
|
$
|
393,435
|
|
Multi-family residential and
commercial
|
|
|
113,589
|
|
|
|
7,286
|
|
|
|
20,216
|
|
|
|
|
|
|
|
141,091
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
3,212
|
|
|
|
1,810
|
|
|
|
4,045
|
|
|
|
|
|
|
|
9,067
|
|
One-to four-family residential
|
|
|
18,107
|
|
|
|
15,020
|
|
|
|
9,058
|
|
|
|
|
|
|
|
42,185
|
|
Multi-family residential
|
|
|
5,677
|
|
|
|
19,703
|
|
|
|
417
|
|
|
|
|
|
|
|
25,797
|
|
Commercial
|
|
|
19,731
|
|
|
|
|
|
|
|
11,713
|
|
|
|
|
|
|
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
46,727
|
|
|
|
36,533
|
|
|
|
25,233
|
|
|
|
|
|
|
|
108,493
|
|
Home equity lines of credit
|
|
|
41,198
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
41,213
|
|
Commercial business loans
|
|
|
14,882
|
|
|
|
1,445
|
|
|
|
|
|
|
|
|
|
|
|
16,327
|
|
Consumer non-real estate loans
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
609,169
|
|
|
$
|
45,291
|
|
|
$
|
46,969
|
|
|
$
|
|
|
|
$
|
701,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 generally 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. Impairment is measured on a loan by loan basis for
all construction loans and most commercial real estate loans, including all such loans that are
classified or criticized. Large groups of smaller balance, homogeneous loans are collectively
evaluated for impairment, except for those loans restructured under a troubled debt
restructuring and certain classified or criticized loans. Loans collectively evaluated for
impairment include smaller balance commercial real estate loans, residential real estate loans
and consumer loans. The determination of fair value for the collateral underlying a loan is more
fully described in Note 16.
|
99
|
|
The following table summarizes information in regards to impaired loans by loan portfolio class
as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(In Thousands)
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Multi-family residential and
commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
304
|
|
|
|
452
|
|
|
|
34
|
|
|
|
2,252
|
|
|
|
|
|
Multi-family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,670
|
|
|
|
1,852
|
|
|
|
272
|
|
|
|
5,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
1,974
|
|
|
|
2,304
|
|
|
|
306
|
|
|
|
7,808
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
583
|
|
|
$
|
583
|
|
|
$
|
|
|
|
$
|
506
|
|
|
$
|
29
|
|
Multi-family residential and
commercial
|
|
|
9,765
|
|
|
|
10,840
|
|
|
|
|
|
|
|
6,088
|
|
|
|
114
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
600
|
|
|
|
1,100
|
|
|
|
|
|
|
|
2,879
|
|
|
|
|
|
One-to four-family residential
|
|
|
1,294
|
|
|
|
3,549
|
|
|
|
|
|
|
|
3,881
|
|
|
|
|
|
Multi-family residential
|
|
|
417
|
|
|
|
417
|
|
|
|
|
|
|
|
668
|
|
|
|
|
|
Commercial
|
|
|
1,379
|
|
|
|
1,584
|
|
|
|
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
3,690
|
|
|
|
6,650
|
|
|
|
|
|
|
|
8,746
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
583
|
|
|
$
|
583
|
|
|
$
|
|
|
|
$
|
506
|
|
|
$
|
29
|
|
Multi-family residential and
commercial
|
|
|
9,765
|
|
|
|
10,840
|
|
|
|
|
|
|
|
6,088
|
|
|
|
114
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
600
|
|
|
|
1,100
|
|
|
|
|
|
|
|
2,879
|
|
|
|
|
|
One-to four-family residential
|
|
|
1,598
|
|
|
|
4,001
|
|
|
|
34
|
|
|
|
6,133
|
|
|
|
|
|
Multi-family residential
|
|
|
417
|
|
|
|
417
|
|
|
|
|
|
|
|
668
|
|
|
|
|
|
Commercial
|
|
|
3,049
|
|
|
|
3,436
|
|
|
|
272
|
|
|
|
6,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
5,664
|
|
|
|
8,954
|
|
|
|
306
|
|
|
|
16,554
|
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer non-real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
As of December 31, 2009 and 2008, the recorded investment in loans that are
considered to be impaired was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands)
|
|
Impaired collateral-dependent loans with
an allowance
|
|
$
|
18,111
|
|
|
$
|
22,439
|
|
Impaired collateral-dependent loans with
no allowance
|
|
|
10,237
|
|
|
|
752
|
|
|
|
|
|
|
|
|
Total Impaired collateral-dependent loans
|
|
$
|
28,348
|
|
|
$
|
23,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average impaired loan balance
|
|
$
|
23,575
|
|
|
$
|
11,949
|
|
|
|
|
|
|
|
|
|
|
Allowance on impaired loans
|
|
$
|
3,606
|
|
|
$
|
7,455
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans
|
|
$
|
|
|
|
$
|
279
|
|
|
|
The following table summarizes our recorded investment in financing receivables as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
|
|
|
|
Evaluated
|
|
|
Evaluated
|
|
|
|
|
|
|
|
for
|
|
|
for
|
|
|
|
Total
|
|
|
Impairment
|
|
|
Impairment
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
393,435
|
|
|
$
|
583
|
|
|
$
|
392,852
|
|
Multi-family residential and
commercial
|
|
|
141,091
|
|
|
|
9,765
|
|
|
|
131,326
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
9,067
|
|
|
|
600
|
|
|
|
8,467
|
|
One-to four-family residential
|
|
|
42,185
|
|
|
|
1,598
|
|
|
|
40,587
|
|
Multi-family residential
|
|
|
25,797
|
|
|
|
417
|
|
|
|
25,380
|
|
Commercial
|
|
|
31,444
|
|
|
|
3,049
|
|
|
|
28,395
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
108,493
|
|
|
|
5,664
|
|
|
|
102,829
|
|
Home equity lines of credit
|
|
|
41,213
|
|
|
|
|
|
|
|
41,213
|
|
Commercial business loans
|
|
|
16,327
|
|
|
|
|
|
|
|
16,327
|
|
Consumer non-real estate loans
|
|
|
870
|
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
701,429
|
|
|
$
|
16,012
|
|
|
$
|
685,417
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
The following table summarizes the distribution of our allowance for loan losses in
relation to our recorded investment in financing receivables as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
|
|
|
|
|
Total
|
|
|
Individually
|
|
|
Collectively
|
|
|
|
Total
|
|
|
Allowance
|
|
|
Evaluated
|
|
|
Evaluated
|
|
|
|
Financing
|
|
|
for Loan
|
|
|
for
|
|
|
for
|
|
|
|
Receivable
|
|
|
Losses
|
|
|
Impairment
|
|
|
Impairment
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
393,435
|
|
|
$
|
528
|
|
|
$
|
|
|
|
$
|
528
|
|
Multi-family residential and
commercial
|
|
|
141,091
|
|
|
|
841
|
|
|
|
|
|
|
|
841
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
9,067
|
|
|
|
362
|
|
|
|
|
|
|
|
362
|
|
One-to four-family residential
|
|
|
42,185
|
|
|
|
1,100
|
|
|
|
34
|
|
|
|
1,066
|
|
Multi-family residential
|
|
|
25,797
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Commercial
|
|
|
31,444
|
|
|
|
1,250
|
|
|
|
272
|
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
108,493
|
|
|
|
2,740
|
|
|
|
306
|
|
|
|
2,434
|
|
Home equity lines of credit
|
|
|
41,213
|
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
Commercial business loans
|
|
|
16,327
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Consumer non-real estate loans
|
|
|
870
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
701,429
|
|
|
$
|
4,272
|
|
|
$
|
306
|
|
|
$
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are charged off when the loan is deemed uncollectible. Loans that are not charged off
are placed on non-accrual status when collection of principal or interest is considered doubtful.
One- to four-family residential loans are typically placed on non-accrual at the time the loan is
120 days delinquent, and all other loans are typically 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. 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.
|
|
|
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 years ended December 31, 2010, 2009 and 2008,
approximately $143,000, $0 and $279,000 in interest income was recognized on non-accrual loans.
Interest income foregone on non-accrual loans was $783,000, $489,000 and $561,000 for years
ended December 31, 2010, 2009, and 2008, respectively.
|
102
|
|
The following table presents non-accrual loans by classes of the loan portfolio as of December
31, 2010:
|
|
|
|
|
|
|
|
2010
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
|
|
Multi-family residential and commercial
|
|
|
1,348
|
|
Construction:
|
|
|
|
|
Land only
|
|
|
600
|
|
One-to four-family residential
|
|
|
1,597
|
|
Multi-family residential
|
|
|
417
|
|
Commercial
|
|
|
3,050
|
|
|
|
|
|
Total construction
|
|
|
5,664
|
|
Home equity lines of credit
|
|
|
|
|
Commercial business loans
|
|
|
|
|
Consumer non-real estate loans
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,012
|
|
|
|
|
|
|
|
Non-accrual loans amounted to $7.0 million and $28.3 million, respectively, at December 31,
2010 and 2009. Non-performing loans, which consist of non-accruing loans plus accruing loans 90
days or more past due, amounted to $9.0 million and $34.6 million, respectively, at December 31,
2010 and 2009. For the delinquent loans in our portfolio, we have considered our ability to
collect the past due interest, as well as the principal balance of the loan, in order to
determine whether specific loans should be placed on non-accrual status. In cases where our
evaluations have determined that the principal and interest balances are collectible, we have
continued to accrue interest.
|
103
|
|
The following table presents the classes of the loan portfolio summarized by past due status as
of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90 Days or
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
or More
|
|
|
Total
|
|
|
|
|
|
|
Financing
|
|
|
More and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivables
|
|
|
Accruing
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
2,674
|
|
|
$
|
309
|
|
|
$
|
1,211
|
|
|
$
|
4,194
|
|
|
$
|
389,241
|
|
|
$
|
393,435
|
|
|
$
|
1,211
|
|
Multi-family residential and
commercial
|
|
|
3,216
|
|
|
|
|
|
|
|
725
|
|
|
|
3,941
|
|
|
|
137,150
|
|
|
|
141,091
|
|
|
|
725
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land only
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
600
|
|
|
|
8,467
|
|
|
|
9,067
|
|
|
|
|
|
One-to four-family residential
|
|
|
|
|
|
|
|
|
|
|
1,611
|
|
|
|
1,611
|
|
|
|
40,574
|
|
|
|
42,185
|
|
|
|
14
|
|
Multi-family residential
|
|
|
|
|
|
|
|
|
|
|
417
|
|
|
|
417
|
|
|
|
25,380
|
|
|
|
25,797
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
3,050
|
|
|
|
3,050
|
|
|
|
28,394
|
|
|
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
|
|
|
|
|
|
|
|
5,678
|
|
|
|
5,678
|
|
|
|
102,815
|
|
|
|
108,493
|
|
|
|
14
|
|
Home equity lines of credit
|
|
|
20
|
|
|
|
24
|
|
|
|
76
|
|
|
|
120
|
|
|
|
41,093
|
|
|
|
41,213
|
|
|
|
76
|
|
Commercial business loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,327
|
|
|
|
16,327
|
|
|
|
|
|
Consumer non-real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,910
|
|
|
$
|
333
|
|
|
$
|
7,690
|
|
|
$
|
13,933
|
|
|
$
|
687,496
|
|
|
$
|
701,429
|
|
|
$
|
2,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
A loan is classified as a TDR if the Company, for economic or legal reasons related to a
debtors financial difficulties, grants a concession to the debtor that it would not otherwise
consider. We had six loans classified as TDRs at December 31, 2010, with an aggregate
outstanding balance of $10.3 million at such date. The $10.3 million of total TDRs consisted of
four multi-family residential and commercial real estate loans with an aggregate outstanding
balance of $9.8 million and two one- to four-family residential mortgage loans with an aggregate
outstanding balance of $583,000 at December 31, 2010. Except for one one- to four-family
residential mortgage loan that was 30 days past due, none of the TDRs were delinquent at
December 31, 2010. Of the six TDRs, one commercial real estate loan with an outstanding balance
of $1.3 million at December 31, 2010 was classified as non-accrual. No specific allowance was
reserved on any of the TDRs at such date. The loans are deemed to be TDRs due to concessions
made to borrowers considered to be experiencing financial difficulties and we have reduced
either the monthly payments or interest rate from the original contractual terms. We have no
commitments to lend additional funds to the borrowers under any of these loans. We had one TDR
at December 31, 2009 with an outstanding balance of $2.5 million at such date. This loan is the
commercial real estate loan with an outstanding balance of $1.3 million at December 31, 2010
that was classified as non-accrual at such date. This loan was also classified as non-accrual at
December 31, 2009.
|
|
|
Following is a summary of changes in the balance of real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balancebeginning of year
|
|
$
|
22,818,856
|
|
|
$
|
1,739,599
|
|
|
$
|
1,558,000
|
|
Additions
|
|
|
10,641,000
|
|
|
|
25,582,818
|
|
|
|
1,159,367
|
|
Capitalized improvements
|
|
|
575,699
|
|
|
|
1,129,046
|
|
|
|
699,618
|
|
Valuation adjustments
|
|
|
(350,981
|
)
|
|
|
(4,501,580
|
)
|
|
|
|
|
Dispositions
|
|
|
(10,096,435
|
)
|
|
|
(1,131,027
|
)
|
|
|
(1,677,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
23,588,139
|
|
|
$
|
22,818,856
|
|
|
$
|
1,739,599
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
|
ACCRUED INTEREST RECEIVABLE
|
|
|
Accrued interest receivable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Investments and interest-bearing deposits
|
|
$
|
749,008
|
|
|
$
|
616,135
|
|
Mortgage-backed securities
|
|
|
702,759
|
|
|
|
872,174
|
|
Loans receivable
|
|
|
2,651,217
|
|
|
|
2,790,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,102,984
|
|
|
$
|
4,279,032
|
|
|
|
|
|
|
|
|
105
8.
|
|
PROPERTY AND EQUIPMENT
|
|
|
Property and equipment is summarized by major classifications as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Land and buildings
|
|
$
|
6,676,982
|
|
|
$
|
6,669,937
|
|
Leasehold improvements
|
|
|
5,962,355
|
|
|
|
5,940,929
|
|
Furniture and fixtures
|
|
|
6,872,711
|
|
|
|
6,695,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,512,048
|
|
|
|
19,306,164
|
|
Accumulated depreciation
|
|
|
(9,760,354
|
)
|
|
|
(8,882,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net of
accumulated depreciation
|
|
$
|
9,751,694
|
|
|
$
|
10,423,190
|
|
|
|
|
|
|
|
|
|
|
Certain office facilities and equipment are leased under various operating leases. The
leases range in terms from one year to 20 years, some of which include renewal options as well
as specific provisions relating to rent increases. Rent expense on those lease agreements that
contain incremental increases in rent is recognized on a straight-line basis over the life of
the lease. Rental expense under operating leases was approximately $930,000, $917,000, and
$871,000 for the years ended December 31, 2010, 2009, and 2008, respectively.
|
|
|
Future minimum annual rental payments required under non-cancelable operating leases are as
follows:
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
$
|
900,583
|
|
2012
|
|
|
874,667
|
|
2013
|
|
|
800,384
|
|
2014
|
|
|
550,024
|
|
2015
|
|
|
494,271
|
|
Thereafter
|
|
|
926,259
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,546,188
|
|
|
|
|
|
106
|
|
Deposits consist of the following major classifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Type of Account
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
|
|
$
|
432,016,478
|
|
|
|
48.0
|
%
|
|
$
|
456,773,978
|
|
|
|
53.8
|
%
|
Passbook and MMDA
|
|
|
326,060,212
|
|
|
|
36.2
|
|
|
|
265,487,994
|
|
|
|
31.2
|
|
NOW
|
|
|
92,174,500
|
|
|
|
10.3
|
|
|
|
82,791,871
|
|
|
|
9.7
|
|
DDA
|
|
|
49,807,778
|
|
|
|
5.5
|
|
|
|
45,146,650
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
900,058,968
|
|
|
|
100.0
|
%
|
|
$
|
850,200,493
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense for each major classification of deposit account is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
|
|
$
|
10,143,069
|
|
|
$
|
12,855,180
|
|
|
$
|
15,090,905
|
|
Passbook and MMDA
|
|
|
2,495,067
|
|
|
|
2,546,999
|
|
|
|
1,912,965
|
|
NOW
|
|
|
36,370
|
|
|
|
37,734
|
|
|
|
20,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,674,506
|
|
|
$
|
15,439,913
|
|
|
$
|
17,024,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average rate paid on deposits at December 31, 2010 and 2009, was 1.23% and
1.50%, respectively. Deposits in amounts greater than $100,000 were approximately $220.5 million
and $246.0 million in the aggregate at December 31, 2010 and 2009, respectively, of which
approximately $127.9 million and $186.9 million were due in one year or less at December 31, 2010
and 2009, respectively. Historically, deposit amounts in excess of $100,000 were generally not
federally insured, however, beginning in 2008 Congress enacted legislation to temporarily
increase FDIC deposit insurance limits from $100,000 to $250,000 per depositor. In 2010,
Congress made this increased limit permanent.
|
107
|
|
A summary of certificates by maturities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
238,503,547
|
|
|
|
55.2
|
%
|
|
$
|
328,567,514
|
|
|
|
71.9
|
%
|
One through two years
|
|
|
45,376,964
|
|
|
|
10.5
|
|
|
|
37,415,798
|
|
|
|
8.2
|
|
Two through three years
|
|
|
22,776,002
|
|
|
|
5.2
|
|
|
|
11,547,995
|
|
|
|
2.5
|
|
Three through four
years
|
|
|
34,877,776
|
|
|
|
8.1
|
|
|
|
11,433,828
|
|
|
|
2.5
|
|
Four through five years
|
|
|
25,515,522
|
|
|
|
6.0
|
|
|
|
27,942,524
|
|
|
|
6.1
|
|
Over five years
|
|
|
64,966,667
|
|
|
|
15.0
|
|
|
|
39,866,319
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
432,016,478
|
|
|
|
100.0
|
%
|
|
$
|
456,773,978
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
|
ADVANCES FROM FEDERAL HOME LOAN BANK
|
|
|
Advances from Federal Home Loan Bank consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Interest
|
|
Maturing Period
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
24,885,319
|
|
|
|
3.19
|
%
|
|
$
|
35,082,340
|
|
|
|
5.62
|
%
|
One through two years
|
|
|
1,733,395
|
|
|
|
2.99
|
|
|
|
20,427,753
|
|
|
|
5.32
|
|
Two through three years
|
|
|
33,343,671
|
|
|
|
2.74
|
|
|
|
2,988,928
|
|
|
|
2.99
|
|
Three through four
years
|
|
|
10,211,069
|
|
|
|
4.71
|
|
|
|
43,704,478
|
|
|
|
2.71
|
|
Four through five years
|
|
|
30,251,573
|
|
|
|
4.27
|
|
|
|
10,270,719
|
|
|
|
4.72
|
|
Over five years
|
|
|
9,449,647
|
|
|
|
2.35
|
|
|
|
34,265,217
|
|
|
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,874,674
|
|
|
|
2.67
|
%
|
|
$
|
146,739,435
|
|
|
|
4.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The advances are collateralized by all of the Federal Home Loan Bank stock we hold and
substantially all of our qualifying first mortgage loans and certain mortgage-backed securities.
The weighted average interest rate on FHLB advances was 2.67% and 4.28% at December 31, 2010 and
2009, respectively. The average balance outstanding was approximately $126.6 million and $180.9
million for the years ended December 31, 2010 and 2009 respectively. The maximum amount
outstanding at any month-end was $144.7 million and $255.5 million for the years ended December
31, 2010 and 2009, respectively.
|
|
|
During the years ended December 31, 2010 and 2009 the Bank entered into overnight repurchase
agreements with commercial checking account customers. At December 31, 2010 and 2009, the
amounts outstanding were $15.9 million and $16.7 million, respectively. Interest expense on
customer repurchase agreements was $73,000, $74,000, and $358,000 for the years ended December
31, 2010, 2009 and 2008, respectively. Collateral for customer repurchase agreements was
mortgage-backed securities. The market value of the collateral was approximately equal to the
amounts outstanding. The weighted average interest rate on other borrowed money was 0.42% and
0.34% at December 31, 2010 and 2009, respectively. The average balance outstanding was
approximately $22.6 million and $23.3 million for the years ended December 31, 2010 and 2009,
respectively. The maximum amount outstanding at any month-end was approximately $29.0 million
and $30.6 million, respectively, for the years ended December 31, 2010 and 2009.
|
108
|
|
The income tax provision (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
847,758
|
|
|
$
|
(4,557,689
|
)
|
|
$
|
3,904,700
|
|
State
|
|
|
|
|
|
|
4,288
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
847,758
|
|
|
|
(4,553,401
|
)
|
|
|
3,905,250
|
|
Deferredfederal
|
|
|
1,697,486
|
|
|
|
(745,766
|
)
|
|
|
(4,183,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
(benefit)
|
|
$
|
2,545,244
|
|
|
$
|
(5,299,167
|
)
|
|
$
|
(278,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation between the reported income tax expense and
the income tax expense which would be computed by applying the normal federal income tax rate of
34% to income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
At statutory rate
|
|
$
|
3,479,900
|
|
|
$
|
(4,247,276
|
)
|
|
$
|
626,002
|
|
Adjustments resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxnet of federal tax benefit
|
|
|
|
|
|
|
2,830
|
|
|
|
363
|
|
Tax-exempt loan and investment income
|
|
|
(528,496
|
)
|
|
|
(546,056
|
)
|
|
|
(488,077
|
)
|
Income on bank owned life insurance
|
|
|
(598,932
|
)
|
|
|
(611,426
|
)
|
|
|
(641,499
|
)
|
Other
|
|
|
192,752
|
|
|
|
102,761
|
|
|
|
224,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,545,224
|
|
|
$
|
(5,299,167
|
)
|
|
$
|
(278,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
24.9
|
%
|
|
|
42.4
|
%
|
|
|
(15.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
109
|
|
Items that gave rise to significant portions of the deferred tax accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,452,350
|
|
|
$
|
3,090,720
|
|
Deferred compensation
|
|
|
2,097,730
|
|
|
|
2,048,647
|
|
Write-down of impaired investments
|
|
|
295,529
|
|
|
|
295,526
|
|
Write-down of real estate owned
|
|
|
164,158
|
|
|
|
1,530,537
|
|
Property and equipment
|
|
|
219,098
|
|
|
|
|
|
Alternative minimum tax refund
|
|
|
837,440
|
|
|
|
|
|
Other assets
|
|
|
365,883
|
|
|
|
181,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,432,188
|
|
|
|
7,147,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
available-for-sale
|
|
|
(1,427,662
|
)
|
|
|
(2,082,171
|
)
|
Deferred loan fees
|
|
|
(364,331
|
)
|
|
|
(333,723
|
)
|
Property and equipment
|
|
|
|
|
|
|
(8,875
|
)
|
Other liabilities
|
|
|
(8,977
|
)
|
|
|
(10,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,800,970
|
)
|
|
|
(2,435,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
3,631,218
|
|
|
$
|
4,711,447
|
|
|
|
|
|
|
|
|
|
|
The Bank uses the specific charge-off method for computing reserves for bad debts. The bad
debt deduction allowable under this method is available to large banks with assets greater than
$500 million. Generally, this method allows the Bank to deduct an annual addition to the
reserve for bad debts equal to its net charge-offs. Retained earnings at December 31, 2010 and
2009 include approximately $3,250,000 representing bad debt deductions for which no deferred
income tax has been provided. This amount represents the Banks bad debt reserve as of the base
year and is not subject to recapture as long as the Bank continues to carry on the business of
banking.
|
13.
|
|
PENSION AND PROFIT SHARING PLANS
|
|
|
Deferred Compensation Plans
|
|
|
The Company maintains an executive deferred compensation plan for selected executive officers
under which the Board of Directors may elect to contribute a portion of the Companys net
profits. In December 2005, the Board of Directors elected to freeze this plan retroactive to
January 1, 2005, such that no further contributions will be made on behalf of the executive
officers under the plan. The Board of Directors took this action upon its review of the total
compensation programs available to the Companys executive officers, including the increased
benefits available as a result of the equity compensation plans adopted by the Companys
shareholders in June 2005. The Company also maintains a board of directors deferred compensation
plan into which the Board of Directors may elect to contribute a percentage of their board fees.
The expense relating to these plans was approximately $0 for each of the years ended December
31, 2010, 2009, and 2008. The liability for these plans at December 31, 2010 and 2009 was
approximately $1.1 million and $1.0 million, respectively.
|
110
|
|
Supplemental Retirement Plan
|
|
|
The Company maintains a nonqualified, unfunded, defined benefit, supplemental retirement plan
(SERP) for the Board of Directors and certain officers. The funded status of the plan is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
Benefit obligations
|
|
|
2,874,018
|
|
|
|
2,727,418
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(2,874,018
|
)
|
|
$
|
(2,727,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(2,874,018
|
)
|
|
$
|
(2,727,418
|
)
|
|
|
|
|
|
|
|
|
|
As benefit payments come due under the plan, the Company will make contributions to the
plan in an amount sufficient to fund the payments. During 2010, the Company paid approximately
$73,000 in benefits to participants of the plan. Future benefit payments scheduled to be paid to
participants under the plan as of December 31, 2010 are as follows:
|
|
|
|
|
|
2011
|
|
$
|
73,350
|
|
2012
|
|
|
73,350
|
|
2013
|
|
|
55,950
|
|
2014
|
|
|
55,950
|
|
2015
|
|
|
37,200
|
|
2016 - 2019
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
392,400
|
|
|
|
|
|
|
|
Amounts related to the plan have been recognized in the balance sheet in accumulated other
comprehensive income, net of tax, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Amount recognized in accumulated
other comprehensive loss for:
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
$
|
(38,191
|
)
|
|
$
|
(44,884
|
)
|
Prior service cost
|
|
|
137,167
|
|
|
|
216,172
|
|
|
|
|
|
|
|
|
Total recognized in accumulated
other comprehensive loss
|
|
$
|
98,976
|
|
|
$
|
171,288
|
|
|
|
|
|
|
|
|
111
|
|
The components of net periodic pension cost and other changes in the amounts recognized in
accumulated other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Components of net periodic plan cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
74,853
|
|
|
$
|
87,993
|
|
|
$
|
120,652
|
|
Interest cost
|
|
|
134,956
|
|
|
|
150,480
|
|
|
|
128,905
|
|
Expected return on assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
119,705
|
|
|
|
121,925
|
|
|
|
121,925
|
|
Amortization of net actuarial gain
|
|
|
|
|
|
|
(37,094
|
)
|
|
|
(215,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic plan cost
|
|
|
329,514
|
|
|
|
323,304
|
|
|
|
155,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit
obligations recognized in accumulated
other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
|
10,141
|
|
|
|
197,779
|
|
|
|
(590,480
|
)
|
Amortization of prior service costs
|
|
|
(119,705
|
)
|
|
|
(121,925
|
)
|
|
|
(121,925
|
)
|
Amortization of net actuarial gain
|
|
|
|
|
|
|
37,094
|
|
|
|
215,894
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in accumulated other
comprehensive income (loss)
|
|
|
(109,564
|
)
|
|
|
112,948
|
|
|
|
(496,511
|
)
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic plan cost and
accumulated other comprehensive income (loss)
|
|
$
|
219,950
|
|
|
$
|
436,252
|
|
|
$
|
(340,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The following weighted average assumptions were used in calculating the net periodic
pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.03
|
%
|
|
|
6.45
|
%
|
|
|
5.89
|
%
|
Rate of return on assets
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Rate of increase in future
board fees/salary levels
|
|
|
3.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
The estimated amounts that will be amortized from accumulated other comprehensive loss into
net periodic benefit cost in 2011 are as follows:
|
|
|
|
|
|
Prior service cost
|
|
$
|
(116,368
|
)
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
Total amount recognized
|
|
$
|
(116,368
|
)
|
|
|
|
|
|
|
The Company also maintains a 401(k) retirement plan for substantially all of its employees.
Certain senior officers of the Bank have been designated as Trustees of the 401(k) plan. The
Company
matches 50% of an employees contribution up to 6% of the employees annual gross compensation.
The expense incurred for this plan was approximately $126,000, $120,000, and $130,000 for the
years ended December 31, 2010, 2009, and 2008, respectively.
|
112
|
|
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 Companys 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 participants 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 scheduled to be released over a 15-year period. In June 2007,
the ESOP acquired an additional 1,042,771 shares of the Companys common stock for approximately
$10.4 million, an average price of $10.00 per share. These shares are scheduled to be released
over a 30-year period. No additional purchases are expected to be made by the ESOP. At December
31, 2010, the ESOP held approximately 1.5 million unallocated shares of Company common stock
with a fair value of $17.3 million of which approximately 96,000 shares were committed to be
released. At December 31, 2010, the ESOP also held approximately 482,000 allocated shares with a
fair value of $5.7 million. During the year ended December 31, 2010, approximately 96,000 shares
were committed to be released to participants, resulting in recognition of approximately
$902,000 in compensation expense. These shares were subsequently released to participants
accounts in the first quarter of 2011. During the year ended December 31, 2009 and 2008,
approximately 96,000 shares were committed to be released to participants in each year,
resulting in recognition of approximately $751,000 and $945,000 in compensation expense,
respectively. These shares were subsequently released to participants accounts in the first
quarters of 2010 and 2009, respectively. Due to the Companys announced merger with Susquehanna
Bancshares, it is expected that during the third quarter of 2011 the remaining unallocated
shares will be sold to repay the then outstanding balances of the loans obtained to acquire the
ESOP shares, with any excess shares distributed to participants in accordance with the
provisions of the ESOP. See Note 18 for further details of the proposed merger with Susquehanna.
|
|
|
During 2004, the Company established a rabbi trust to fund certain benefit plans. An officer of
the Bank has been designated as Trustee of the trust. In addition to cash balances, the trust
holds shares of Company common stock that were purchased for the benefit of certain officers and
directors that acquired shares through our deferred compensation plans. Participants may acquire
additional shares through the Companys dividend reinvestment plan or through purchases with
cash balances held by the trust. Distributions are made to participants as payments are required
under certain benefit plans of the Company. Distributions are made in cash, to the extent cash
is available, or in shares of Company stock when the trust does not hold a sufficient cash
balance for the benefiting participant. Company stock is not sold by the trust to make cash
distributions. Approximately 2,000 and 39,000 shares, respectively, were distributed by the
trust in 2010 and 2009. As of December 31, 2010, the trust holds approximately 161,000 shares of
the Companys common stock as well as an additional $10,000 in cash. The assets of the trust are
sufficient to cover the liabilities of the Companys executive deferred compensation plan and
board of directors deferred compensation plan.
|
113
|
|
Recognition and Retention Plans
|
|
|
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, however,
due to the forfeiture of shares by certain officers of the Company, 4,416 shares remain
available for future grant at December 31, 2010. 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) acquired 520,916 shares of the Companys common stock in the open
market for approximately $5.4 million, an average price of $10.28 per share. The Company made
sufficient contributions to the 2007 Trust to fund the purchase of these shares. Pursuant to the
terms of the plan, 543,700 shares acquired by the 2007 Trust were granted to certain officers,
employees and directors of the Company beginning in January 2008. Due to the forfeiture of
shares by certain officers of the Company in addition to unawarded shares, 25,416 shares remain
available for future grant at December 31, 2010. 2007 RRP shares generally vest at the rate of
20% per year over five years.
|
|
|
A summary of the status of the shares under the 2005 and 2007 RRP as of December 31, 2010, 2009
and 2008, and changes during the years ended December 31, 2010, 2009 and 2008 are presented
below. The number of shares and weighted average grant date fair value for all periods have been
adjusted for the exchange ratio as a result of our second-step conversion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
|
Number of
|
|
|
grant date
|
|
|
Number of
|
|
|
grant date
|
|
|
Number of
|
|
|
grant date
|
|
|
|
shares
|
|
|
fair value
|
|
|
shares
|
|
|
fair value
|
|
|
shares
|
|
|
fair value
|
|
Nonvested at the
beginning of the year
|
|
|
481,272
|
|
|
$
|
8.79
|
|
|
|
661,763
|
|
|
$
|
8.72
|
|
|
|
274,874
|
|
|
$
|
7.54
|
|
Granted
|
|
|
19,000
|
|
|
|
11.89
|
|
|
|
12,500
|
|
|
|
6.72
|
|
|
|
524,200
|
|
|
|
9.12
|
|
Vested
|
|
|
(180,736
|
)
|
|
|
8.37
|
|
|
|
(182,751
|
)
|
|
|
8.39
|
|
|
|
(91,411
|
)
|
|
|
7.54
|
|
Forfeited
|
|
|
(8,476
|
)
|
|
|
8.91
|
|
|
|
(10,240
|
)
|
|
|
8.89
|
|
|
|
(45,900
|
)
|
|
|
8.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at the
end of the year
|
|
|
311,060
|
|
|
$
|
9.21
|
|
|
|
481,272
|
|
|
$
|
8.79
|
|
|
|
661,763
|
|
|
$
|
8.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys stock at the date of grant.
During the years ended December 31, 2010, 2009 and 2008, approximately 139,000, 179,000 and
177,000 shares, respectively, were amortized to expense, based on the proportional vesting of
the awarded shares. During years ended December 31, 2010, 2009 and 2008, approximately $1.2
million, $1.5 million and $1.5 million, respectively, was recognized in compensation expense for
the plans. During the years ended December 31, 2010, 2009, and 2008, a tax benefit of
approximately $384,000,
$452,000 and $550,000, respectively, was recognized from the plans. As of December 31, 2010,
approximately $2.1 million in additional compensation expense is scheduled to be recognized over
the remaining lives of the RRP awards. At December 31, 2010, the weighted average remaining
lives of the RRP awards was approximately 2.3 years. Under the terms of the 2005 RRP and 2007
RRP, any unvested RRP awards will become fully vested upon a change in control, such as the
proposed merger with Susquehanna, resulting in the full recognition of any unrecognized expense.
|
114
|
|
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 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 December 31, 2010, a total of 1,142,640 shares
of common stock have been reserved for future issuance pursuant to the 2005 Option Plan of which
16,696 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). As with the 2005 Option Plan, under the 2007 Option Plan
options 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 December 31,
2010, a total of 1,302,990 shares of common stock have been reserved for future issuance
pursuant to the 2007 Option Plan of which 182,290 shares remain available for grant.
|
|
|
Any remaining unvested SOP awards will become fully vested in accordance with the provisions of
the Plans upon a change in control, such as the proposed merger with Susquehanna, resulting in
the full recognition of any unrecognized expense. See Note 18 for further details of the
proposed merger with Susquehanna.
|
|
|
A summary of the status of the Companys stock options under the 2005 and 2007 Option Plans as
of December 31, 2010, 2009 and 2008, and changes during the years ended December 31, 2010, 2009
and 2008 are presented below. The number of options and weighted average exercise price for all
prior periods have been adjusted for the exchange ratio as a result of our second-step
conversion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
shares
|
|
|
Price
|
|
|
shares
|
|
|
Price
|
|
|
shares
|
|
|
Price
|
|
Outstanding at the
beginning of the
year
|
|
|
2,198,888
|
|
|
$
|
8.47
|
|
|
|
2,206,296
|
|
|
$
|
8.48
|
|
|
|
1,135,180
|
|
|
$
|
7.74
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
6.72
|
|
|
|
1,272,500
|
|
|
|
9.12
|
|
Exercised
|
|
|
(16,048
|
)
|
|
|
7.82
|
|
|
|
(6,736
|
)
|
|
|
7.51
|
|
|
|
(56,160
|
)
|
|
|
7.51
|
|
Forfeited
|
|
|
(15,140
|
)
|
|
|
8.56
|
|
|
|
(16,672
|
)
|
|
|
9.04
|
|
|
|
(145,224
|
)
|
|
|
8.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the
end of the year
|
|
|
2,167,700
|
|
|
$
|
8.47
|
|
|
|
2,198,888
|
|
|
$
|
8.47
|
|
|
|
2,206,296
|
|
|
$
|
8.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the
end of the year
|
|
|
1,442,672
|
|
|
$
|
8.15
|
|
|
|
1,022,468
|
|
|
$
|
8.00
|
|
|
|
589,100
|
|
|
$
|
7.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
The following table summarizes all stock options outstanding under the 2005 and 2007 Option
Plans as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Number of
|
|
|
Average
|
|
Exercise Price
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(in years)
|
|
$6.00 - $7.00
|
|
|
12,500
|
|
|
$
|
6.72
|
|
|
|
9.0
|
|
|
|
2,500
|
|
|
$
|
6.72
|
|
7.01 - 8.00
|
|
|
899,520
|
|
|
|
7.51
|
|
|
|
4.5
|
|
|
|
899,520
|
|
|
|
7.51
|
|
8.01 - 9.00
|
|
|
7,200
|
|
|
|
8.35
|
|
|
|
4.9
|
|
|
|
7,200
|
|
|
|
8.35
|
|
9.01 - 10.00
|
|
|
1,209,200
|
|
|
|
9.15
|
|
|
|
7.1
|
|
|
|
501,900
|
|
|
|
9.17
|
|
Over 10.00
|
|
|
39,280
|
|
|
|
10.18
|
|
|
|
5.9
|
|
|
|
31,552
|
|
|
|
10.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,167,700
|
|
|
$
|
8.47
|
|
|
|
6.0
|
|
|
|
1,442,672
|
|
|
$
|
8.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value
|
|
$
|
7,454,203
|
|
|
|
|
|
|
|
|
|
|
$
|
5,467,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were granted during 2010. The estimated fair value of options granted during
2009 and 2008 was $1.67 and 2.13 per share, respectively. The fair value was estimated on the
date of grant in accordance with ASC 718 using the Black-Scholes Single Option Pricing Model
with the following weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Dividend yield
|
|
|
2.98
|
%
|
|
|
1.88
|
%
|
Expected volatility
|
|
|
32.88
|
%
|
|
|
23.25
|
%
|
Risk-free interest rate
|
|
|
2.33
|
%
|
|
|
3.13 - 3.49
|
%
|
Expected life of options
|
|
6 years
|
|
|
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.
|
|
|
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 reliable 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 years ended December 31, 2010, 2009 and 2008, approximately $713,000, $880,000 and
$860,000, respectively, was recognized in compensation expense for the Option Plans. During the
years ended December 31, 2010, 2009 and 2008, a tax benefit of approximately $74,000, $90,000
and $122,000, respectively, was recognized from the plans. During 2010, 2009 and 2008,
approximately $4,000, $2,000 and $38,000, respectively, of the tax benefit was due to the
exercise of approximately 16,000, 7,000 and 56,000 options, respectively, for which the Company
received proceeds of approximately $125,000, $51,000 and $422,000, respectively. At December 31,
2010, approximately $1.1 million in additional compensation expense for awarded options remained
unrecognized. The weighted average period over which this expense is scheduled to be recognized
is approximately 1.0 years.
|
116
14.
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
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 agreement. 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 customers
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 managements credit evaluation of the
customer. The amount and type of collateral required varies, but may include accounts
receivable, inventory, equipment, real estate and income-producing commercial properties. At
December 31, 2010 and 2009, commitments to originate loans and commitments under unused lines of
credit, including undisbursed portions of construction loans in process, for which the Bank was
obligated amounted to approximately $114.9 million and $125.9 million, respectively, in the
aggregate.
|
|
|
The Bank had approximately $2.9 million in outstanding mortgage loan commitments at December 31,
2010. The commitments are expected to be funded within 90 days with all $2.9 million in fixed
rates of interest ranging from 4.125% to 4.875%. These loans were not originated for resale.
Also outstanding at December 31, 2010 were unused home equity lines of credit totaling
approximately $30.2 million and unused commercial lines of credit totaling approximately $51.8
million. The unused portion of our construction loans in process at December 31, 2010 amounted
to approximately $30.1 million.
|
|
|
The Bank had approximately $2.1 million in outstanding mortgage loan commitments at December 31,
2009. The commitments generally were funded within 90 days with $2.1 million in fixed rates of
interest ranging from 4.875% to 5.50%. These loans were not originated for resale. Also
outstanding at December 31, 2009 were unused home equity lines of credit totaling approximately
$27.6 million and unused commercial lines of credit totaling approximately $42.0 million. The
unused portion of our construction loans in process at December 31, 2009 amounted to
approximately $54.2 million.
|
|
|
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 managements
evaluation of the creditworthiness of each customer. The credit risk involved in issuing
letters of credit is substantially the same as that involved in extending loan facilities to
customers. Most letters of credit expire within one year. At December 31, 2010 and December 31,
2009, the Bank had letters of credit outstanding of approximately $48.3 million and $48.5
million, respectively, of which $47.5 million and $47.6 million, respectively, were standby
letters of credit. At December 31, 2010 and 2009, the uncollateralized portion of the letters
of credit extended by the Bank was approximately $7,000 and $219,000, respectively, all of which
was for standby letters of credit in both years. The current amount of the liability for
guarantees under letters of credit was not material as of December 31, 2010 and 2009.
|
117
|
|
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 to our financial position or results of operations.
|
|
|
Among the Companys contingent liabilities, are exposures to limited recourse arrangements with
respect to the sales of whole loans and participation interests. At December 31, 2010, 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.
|
15.
|
|
REGULATORY CAPITAL REQUIREMENTS
|
|
|
The Bank is subject to various regulatory capital requirements administered by federal and state
banking agencies. As a savings and loan holding company, the Company is not subject to any
regulatory capital requirements. Failure to meet minimum capital requirements can initiate
certain mandatoryand possibly additional discretionaryactions by regulators, that, if
undertaken, could have a direct material effect on the Companys consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
|
|
|
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). As of December 31, 2010 and 2009, the Bank met all
capital adequacy requirements to which it was subject.
|
|
|
As of December 31, 2010, the most recent notification from the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum Tier I risk-based, total risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Banks category.
|
118
|
|
The Banks actual capital amounts and ratios are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
Required for
|
|
|
Under Prompt
|
|
|
|
|
|
|
|
|
|
|
|
Capital Adequacy
|
|
|
Corrective Action
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars in thousands)
|
|
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
(to Risk Weighted
Assets)
|
|
$
|
177,432
|
|
|
|
23.89
|
%
|
|
$
|
1,000
|
|
|
|
8.00
|
%
|
|
$
|
74,000
|
|
|
|
10.00
|
%
|
Tier I Capital
(to Risk Weighted
Assets)
|
|
|
173,138
|
|
|
|
23.31
|
|
|
|
30,000
|
|
|
|
4.00
|
|
|
|
45,000
|
|
|
|
6.00
|
|
Tier I Capital
(to Average Assets)
|
|
|
173,138
|
|
|
|
13.84
|
|
|
|
50,000
|
|
|
|
4.00
|
|
|
|
63,000
|
|
|
|
5.00
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
(to Risk Weighted
Assets)
|
|
$
|
171,757
|
|
|
|
21.16
|
%
|
|
$
|
1,000
|
|
|
|
8.00
|
%
|
|
$
|
81,000
|
|
|
|
10.00
|
%
|
Tier I Capital
(to Risk Weighted
Assets)
|
|
|
162,666
|
|
|
|
20.04
|
|
|
|
32,000
|
|
|
|
4.00
|
|
|
|
49,000
|
|
|
|
6.00
|
|
Tier I Capital
(to Average Assets)
|
|
|
162,666
|
|
|
|
13.14
|
|
|
|
50,000
|
|
|
|
4.00
|
|
|
|
62,000
|
|
|
|
5.00
|
|
|
|
The following table reconciles the Banks GAAP capital to its regulatory capital as of the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Total equity capital
|
|
$
|
175,813
|
|
|
$
|
166,540
|
|
LESS:
|
|
|
|
|
|
|
|
|
Net unrealized gain on AFS securities
|
|
|
2,771
|
|
|
|
4,042
|
|
Net unrecognized deferred compensation costs
|
|
|
(99
|
)
|
|
|
(171
|
)
|
Disallowed servicing assets
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
$
|
173,138
|
|
|
$
|
162,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses includable
in Tier 2 capital
|
|
|
4,272
|
|
|
|
9,090
|
|
Unrealized gain on AFS equity securities
includable in Tier 2 capital
|
|
|
22
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
177,432
|
|
|
$
|
171,757
|
|
|
|
|
|
|
|
|
119
16.
|
|
FAIR VALUE MEASUREMENTS
|
|
|
The Company uses 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, 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.
|
|
|
In accordance with ASC Topic 820,
Fair Value Measurements and Disclosures
(ASC 820), 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
Companys own estimates of assumptions that market participants would use in pricing
the asset.
|
|
|
In accordance with ASC 820, 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 ASC 820.
|
|
|
Fair value measurements for assets where there exists limited or no observable market data and,
therefore, are based primarily upon the Companys or other third-partys 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 December 31, 2010 and December 31, 2009,
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 in determining the fair value for our
assets and liabilities.
|
|
|
Cash and Cash Equivalents
These assets are carried at historical cost. The carrying amount is a
reasonable estimate of fair value because of the relatively short time between the origination
of the instrument and its expected realization.
|
120
|
|
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 services 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. Investment and mortgage-backed securities held to maturity are carried at
amortized cost.
|
|
|
Loans Receivable
We do not record loans at fair value on a recurring basis. As such, valuation
techniques discussed herein for loans are primarily for estimating fair value for footnote
disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments
to loans to reflect partial write-downs for impairment or the full charge-off of the loan
carrying value. The valuation of impaired loans is discussed below. The fair value estimate for
footnote disclosure purposes differentiates loans based on their financial characteristics, such
as product classification, loan category, pricing features and remaining maturity. Prepayment
and credit loss estimates are evaluated by loan type and rate. The fair value of one- to
four-family residential mortgage loans is estimated by discounting contractual cash flows using
discount rates based on current industry pricing, adjusted for prepayment and credit loss
estimates. The fair value of loans is estimated by discounting contractual cash flows using
discount rates based on our current pricing for loans with similar characteristics, adjusted for
prepayment and credit loss estimates.
|
|
|
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 the
amount of payments does not necessarily result in the loan being identified as impaired. We
establish an allowance on certain impaired loans for the amount by which the discounted cash
flows, observable market price or fair value of collateral, if the loan is collateral dependent,
is lower than the carrying value of the loan. Fair value is generally based upon independent
market prices or appraised value of the collateral less estimated cost to sell. During the
periods presented, loan impairment was evaluated based on the fair value of the loans
collateral. Our appraisals are typically performed by independent third party appraisers, and
are obtained as soon as practicable once indicators of possible impairment are identified. We
obtained current appraisals of the collateral underlying all of our impaired loans for the
periods presented. For appraisals of commercial and construction properties, comparable
properties within the area may not be available. In such circumstances, our appraisers will rely
on certain judgments in determining how a specific property compares in value to other
properties that are not identical in design or in geographic area. Our impaired loans at
December 31, 2010 and 2009 that were recorded at fair value are secured by commercial and
construction properties for which there are no comparable properties available and, accordingly,
all of these impaired loans were classified as Level 3 assets at such dates.
|
|
|
Accrued Interest Receivable
This asset is carried at historical cost. The carrying amount is a
reasonable estimate of fair value because of the relatively short time between the origination
of the instrument and its expected realization.
|
121
|
|
FHLB Stock
Although Federal Home Loan Bank (FHLB) stock is an equity interest in the FHLB,
it is carried at cost because it does not have a readily determinable fair value as its
ownership is restricted and it lacks a market. The estimated fair value approximates the
carrying amount. FHLB stock is evaluated for impairment based on the ultimate recoverability of
the par value of the security. We have evaluated our FHLB stock for impairment, and we have
determined that the stock was not impaired at December 31, 2010.
|
|
|
Real Estate Owned
Real estate owned includes foreclosed properties securing commercial and
construction loans. Real estate properties acquired through foreclosure are initially recorded
at the fair value of the property at the date of foreclosure. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower of cost or fair
value less estimated costs to sell. As is the case for collateral of impaired loans, fair value
is generally based upon independent market prices or appraised value of the collateral. Our
appraisal process for real estate owned is identical to our appraisal process for the collateral
of impaired loans. Our current portfolio of real estate owned is comprised of commercial and
construction properties for which comparable properties within the area are not available. Our
appraisers have relied on certain judgments in determining how our specific properties compare
in value to other properties that are not identical in design or in geographic area and,
accordingly, we classify real estate owned as a Level 3 asset.
|
|
|
Deposits
Deposit liabilities are carried at cost. As such, valuation techniques discussed
herein for deposits are primarily for estimating fair value for footnote disclosure purposes.
The fair value of deposits is discounted based on rates available for borrowings of similar
maturities. A decay rate is estimated for non-time deposits. The discount rate for non-time
deposits is adjusted for servicing costs based on industry estimates.
|
|
|
Advances from Federal Home Loan Bank
Advances from the FHLB are carried at amortized cost.
However, we are required to estimate the fair value of this debt for footnote disclosure
purposes. The fair value is based on the contractual cash flows, which are discounted using
rates currently offered for new notes with similar remaining maturities.
|
|
|
Other Borrowed Money
These liabilities are carried at historical cost. The carrying amount is a
reasonable estimate of fair value because of the relatively short time between the origination
of the instrument and its expected realization.
|
|
|
Accrued Interest Payable
This liability is carried at historical cost. The carrying amount is a
reasonable estimate of fair value because of the relatively short time between the origination
of the instrument and its expected realization.
|
|
|
Commitments to Extend Credit and Letters of Credit
The majority of the Banks commitments to
extend credit and letters of credit carry current market interest rates if converted to loans.
Because commitments to extend credit and letters of credit are generally unassignable by either
the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair
value approximates the recorded deferred fee amounts, which are not significant.
|
122
|
|
The table below presents the balances of asset measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
$
|
99,312,700
|
|
|
$
|
|
|
|
$
|
99,312,700
|
|
|
$
|
|
|
Corporate bonds and
commercial paper
|
|
|
3,558,295
|
|
|
|
|
|
|
|
3,558,295
|
|
|
|
|
|
Municipal bonds
|
|
|
19,320,900
|
|
|
|
|
|
|
|
19,320,900
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,712,006
|
|
|
|
2,712,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available for sale
|
|
|
124,903,901
|
|
|
|
2,712,006
|
|
|
|
122,191,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
2,006
|
|
|
$
|
|
|
|
$
|
2,006
|
|
|
$
|
|
|
FNMA pass-through
certificates
|
|
|
31,928,307
|
|
|
|
|
|
|
|
31,928,307
|
|
|
|
|
|
FHLMC pass-through
certificates
|
|
|
28,648,152
|
|
|
|
|
|
|
|
28,648,152
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
|
107,594,331
|
|
|
|
|
|
|
|
107,594,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities available for sale
|
|
|
168,172,796
|
|
|
|
|
|
|
|
168,172,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
293,076,697
|
|
|
$
|
2,712,006
|
|
|
$
|
290,364,691
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds
|
|
$
|
56,459,667
|
|
|
$
|
|
|
|
$
|
56,459,667
|
|
|
$
|
|
|
Corporate bonds and
commercial paper
|
|
|
3,121,440
|
|
|
|
|
|
|
|
3,121,440
|
|
|
|
|
|
Municipal bonds
|
|
|
22,055,175
|
|
|
|
|
|
|
|
22,055,175
|
|
|
|
|
|
Certificates of deposit
|
|
|
99,000
|
|
|
|
|
|
|
|
99,000
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,581,980
|
|
|
|
2,581,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available for sale
|
|
|
84,317,271
|
|
|
|
2,581,989
|
|
|
|
81,735,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
2,833
|
|
|
$
|
|
|
|
$
|
2,833
|
|
|
$
|
|
|
FNMA pass-through
certificates
|
|
|
48,079,095
|
|
|
|
|
|
|
|
48,079,095
|
|
|
|
|
|
FHLMC pass-through
certificates
|
|
|
51,201,450
|
|
|
|
|
|
|
|
51,201,450
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
|
39,345,214
|
|
|
|
|
|
|
|
39,345,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities available for
sale
|
|
|
138,628,592
|
|
|
|
|
|
|
|
138,628,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
222,945,863
|
|
|
$
|
2,581,989
|
|
|
$
|
220,363,874
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
For assets measured at fair value on a nonrecurring basis that were still held at the end
of the period, the following table provides the level of valuation assumptions used to determine
each adjustment and the carrying value of the related individual assets or portfolios at
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
residential and
commerical
|
|
$
|
1,348,304
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,348,304
|
|
Construction
|
|
|
5,357,844
|
|
|
|
|
|
|
|
|
|
|
|
5,357,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
|
6,706,148
|
|
|
|
|
|
|
|
|
|
|
|
6,706,148
|
|
Real estate owned
|
|
|
23,588,139
|
|
|
|
|
|
|
|
|
|
|
|
23,588,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,294,287
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,294,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
residential and
commerical
|
|
$
|
3,646,396
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,646,396
|
|
Construction
|
|
|
10,859,266
|
|
|
|
|
|
|
|
|
|
|
|
10,859,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
|
14,505,662
|
|
|
|
|
|
|
|
|
|
|
|
14,505,662
|
|
Real estate owned
|
|
|
22,818,856
|
|
|
|
|
|
|
|
|
|
|
|
22,818,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,324,518
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,324,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies as described above. However, considerable
judgment is necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts
the Company could realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
77,687
|
|
|
$
|
77,687
|
|
|
$
|
44,714
|
|
|
$
|
44,714
|
|
Investment securities
|
|
|
145,289
|
|
|
|
145,710
|
|
|
|
104,704
|
|
|
|
105,105
|
|
Mortgage-backed
securities
|
|
|
225,045
|
|
|
|
226,511
|
|
|
|
215,779
|
|
|
|
215,926
|
|
Loans receivablenet
|
|
|
696,444
|
|
|
|
702,343
|
|
|
|
764,560
|
|
|
|
769,058
|
|
FHLB stock
|
|
|
13,877
|
|
|
|
13,877
|
|
|
|
14,608
|
|
|
|
14,608
|
|
Accrued interest
receivable
|
|
|
4,103
|
|
|
|
4,103
|
|
|
|
4,279
|
|
|
|
4,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
900,059
|
|
|
$
|
886,873
|
|
|
$
|
850,200
|
|
|
$
|
836,176
|
|
Advances from Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Loan Bank
|
|
|
109,875
|
|
|
|
114,772
|
|
|
|
146,739
|
|
|
|
152,773
|
|
Other borrowed money
|
|
|
15,881
|
|
|
|
15,881
|
|
|
|
16,673
|
|
|
|
16,673
|
|
Accrued interest payable
|
|
|
912
|
|
|
|
912
|
|
|
|
1,807
|
|
|
|
1,807
|
|
Off balance sheet
financial
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value estimates presented herein are based on pertinent information available to
management as of December 31, 2010 and 2009. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since December 31, 2010 and
2009 and, therefore, current estimates of fair value may differ significantly from the amounts
presented herein.
|
126
17.
|
|
ABINGTON BANCORP, INC. (PARENT COMPANY ONLY)
|
|
|
Certain condensed financial information follows:
|
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,326,996
|
|
|
$
|
32,443,052
|
|
Investment in Abington Bank
|
|
|
175,813,155
|
|
|
|
166,539,607
|
|
Loans receivable
|
|
|
14,728,503
|
|
|
|
15,265,847
|
|
Other assets
|
|
|
41,318
|
|
|
|
39,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
211,909,972
|
|
|
$
|
214,287,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
10
|
|
|
$
|
105,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
211,909,962
|
|
|
|
214,182,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
$
|
211,909,972
|
|
|
$
|
214,287,568
|
|
|
|
|
|
|
|
|
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
$
|
1,058,580
|
|
|
$
|
1,088,613
|
|
|
$
|
1,116,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
1,058,580
|
|
|
|
1,088,613
|
|
|
|
1,116,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
502,308
|
|
|
|
500,100
|
|
|
|
533,899
|
|
Other
|
|
|
617,282
|
|
|
|
585,152
|
|
|
|
591,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,119,590
|
|
|
|
1,085,252
|
|
|
|
1,125,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES
AND
EQUITY IN UNDISTRIBUTED NET INCOME
(LOSS) OF SUBSIDIARY
|
|
|
(61,010
|
)
|
|
|
3,361
|
|
|
|
(8,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN UNDISTRIBUTED NET
INCOME (LOSS) OF SUBSIDIARY
|
|
|
7,730,045
|
|
|
|
(7,192,211
|
)
|
|
|
2,140,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(BENEFIT) PROVISION FOR INCOME TAXES
|
|
|
(20,741
|
)
|
|
|
3,972
|
|
|
|
12,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
7,689,776
|
|
|
$
|
(7,192,822
|
)
|
|
$
|
2,119,605
|
|
|
|
|
|
|
|
|
|
|
|
127
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,689,776
|
|
|
$
|
(7,192,822
|
)
|
|
$
|
2,119,605
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (income) loss of subsidiary
|
|
|
(7,730,045
|
)
|
|
|
7,192,211
|
|
|
|
(2,140,825
|
)
|
Changes in assets and liabilities which (used) provided
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(2,257
|
)
|
|
|
(27,318
|
)
|
|
|
149,514
|
|
Accounts payable and accrued expenses
|
|
|
(105,558
|
)
|
|
|
(308,119
|
)
|
|
|
374,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(148,084
|
)
|
|
|
(336,048
|
)
|
|
|
502,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal collected on loans
|
|
|
537,344
|
|
|
|
507,310
|
|
|
|
479,011
|
|
Disbursements for loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Abington Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
537,344
|
|
|
|
507,310
|
|
|
|
479,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issuance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
125,416
|
|
|
|
50,617
|
|
|
|
421,762
|
|
Purchases of treasury stock
|
|
|
(7,655,713
|
)
|
|
|
(16,988,633
|
)
|
|
|
(10,953,623
|
)
|
Payment of cash dividends
|
|
|
(3,975,019
|
)
|
|
|
(4,009,403
|
)
|
|
|
(4,472,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(11,505,316
|
)
|
|
|
(20,947,419
|
)
|
|
|
(15,004,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE INCREASE IN CASH AND
CASH EQUIVALENTS
|
|
|
(11,116,056
|
)
|
|
|
(20,776,157
|
)
|
|
|
(14,023,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of period
|
|
|
32,443,052
|
|
|
|
53,219,209
|
|
|
|
67,242,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of period
|
|
$
|
21,326,996
|
|
|
$
|
32,443,052
|
|
|
$
|
53,219,209
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
|
MERGER AGREEMENT WITH SUSQUEHANNA BANCSHARES, INC.
|
|
|
On January 26, 2011, the Company and Susquehanna entered into an Agreement and Plan of Merger
(the Merger Agreement) pursuant to which the Company will merge with and into Susquehanna
(the Merger). Promptly following consummation of the Merger, it is expected that the Bank
will merge with and into Susquehanna Bank (the Bank Merger). The Merger is expected to be
completed during the third quarter of 2011.
|
|
|
Under the terms of the Merger Agreement, upon consummation of the Merger, shareholders of the
Company will receive 1.32 shares (the Exchange Ratio) of Susquehanna common stock for each
share of common stock they own. The Merger Agreement also provides that all options to purchase
Company stock which are outstanding and unexercised immediately prior to the closing
(Continuing Options) under the Companys Amended and Restated 2005 Stock Option Plan and
its 2007 Stock Option Plan, shall become fully vested and exercisable and be converted into
fully vested and exercisable options to purchase shares of Susquehanna stock.
|
|
|
At the closing of the Merger, Susquehanna and Susquehanna Bank will appoint Mr. Robert W.
White, the Companys Chairman, President and Chief Executive Officer, as a director of each of
Susquehanna and Susquehanna Bank. In the event that Mr. White is unable or unwilling to serve
as a director of Susquehanna and Susquehanna Bank pursuant to the terms of the Merger
Agreement, another director of Abington, as mutually agreed upon by the Company and
Susquehanna, shall be substituted for Mr. White, to serve as a member of the Susquehanna and
Susquehanna Bank boards of directors. Mr. White also will become an Executive Vice President of
Susquehanna Bank.
|
128
|
|
The Merger Agreement contains (a) customary representations and warranties of the Company and
Susquehanna, including, among others, with respect to corporate organization, capitalization,
corporate authority, third party and governmental consents and approvals, financial statements,
and compliance with applicable laws, (b) covenants of the Company to conduct its business in
the ordinary course until the Merger is completed; and (c) covenants of the Company and
Susquehanna not to take certain actions. The Company has also agreed not to (i) solicit
proposals relating to alternative business combination transactions or (ii) subject to certain
exceptions, enter into discussions concerning, or provide confidential information in
connection with, any alternative transactions.
|
|
|
Consummation of the Merger is subject to certain conditions, including, among others, approval
of the Merger by shareholders of both the Company and Susquehanna, governmental filings and
regulatory approvals and expiration of applicable waiting periods, accuracy of specified
representations and warranties of the other party, effectiveness of the registration statement
to be filed with the SEC to register shares of Susquehanna common stock to be offered to
shareholders of the Company, absence of a material adverse effect, and receipt of tax opinions.
|
|
|
The Merger Agreement also contains certain termination rights for the Company and Susquehanna,
as the case may be, applicable upon the occurrence or non-occurrence of certain events. If the
Merger is not consummated under certain circumstances, the Company has agreed to pay
Susquehanna a termination fee of $11.0 million.
|
******
129
SUPPLEMENTARY DATA
SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized consolidated quarterly data for each of the last two years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended:
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
(Dollars in thousands, except per share data)
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
12,348
|
|
|
$
|
12,970
|
|
|
$
|
12,898
|
|
|
$
|
13,101
|
|
Total interest expense
|
|
|
3,983
|
|
|
|
4,502
|
|
|
|
4,667
|
|
|
|
4,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
8,365
|
|
|
|
8,468
|
|
|
|
8,231
|
|
|
|
8,244
|
|
Provision for loan losses
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses
|
|
|
7,952
|
|
|
|
8,468
|
|
|
|
8,231
|
|
|
|
7,681
|
|
Total non-interest income
|
|
|
867
|
|
|
|
611
|
|
|
|
806
|
|
|
|
355
|
|
Total non-interest expense
|
|
|
6,212
|
|
|
|
6,160
|
|
|
|
6,397
|
|
|
|
5,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,607
|
|
|
|
2,919
|
|
|
|
2,640
|
|
|
|
2,068
|
|
Income taxes
|
|
|
663
|
|
|
|
754
|
|
|
|
668
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,944
|
|
|
$
|
2,165
|
|
|
$
|
1,972
|
|
|
$
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
Diluted earnings per share
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
13,434
|
|
|
$
|
13,017
|
|
|
$
|
13,568
|
|
|
$
|
13,725
|
|
Total interest expense
|
|
|
5,207
|
|
|
|
5,616
|
|
|
|
5,972
|
|
|
|
6,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
8,227
|
|
|
|
7,401
|
|
|
|
7,596
|
|
|
|
7,585
|
|
Provision for loan losses
|
|
|
6,413
|
|
|
|
8,803
|
|
|
|
3,405
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses
|
|
|
1,814
|
|
|
|
(1,402
|
)
|
|
|
4,191
|
|
|
|
7,468
|
|
Total non-interest income (loss)
|
|
|
503
|
|
|
|
(4,146
|
)
|
|
|
1,132
|
|
|
|
1,016
|
|
Total non-interest expense
|
|
|
5,707
|
|
|
|
5,517
|
|
|
|
6,254
|
|
|
|
5,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(3,390
|
)
|
|
|
(11,065
|
)
|
|
|
(931
|
)
|
|
|
2,894
|
|
Income taxes (benefit)
|
|
|
(1,399
|
)
|
|
|
(4,089
|
)
|
|
|
(553
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,991
|
)
|
|
$
|
(6,976
|
)
|
|
$
|
(378
|
)
|
|
$
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.10
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.10
|
|
130
|
|
|
ITEM 9.
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
|
|
|
ITEM 9A.
|
|
CONTROLS AND PROCEDURES
|
|
|
(a)
Disclosure Controls and Procedures
|
|
|
Based on their evaluation of the Companys disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)), the Companys
principal executive officer and principal financial officer have concluded that as of the end
of the period covered by this Annual Report on Form 10-K such disclosure controls and
procedures are effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and
forms and is accumulated and communicated to the Companys management, including the principal
executive and principal financial officer, as appropriate to allow timely decisions regarding
required disclosures.
|
|
|
(b)
Internal Control over Financial Reporting
|
1.
|
|
Managements Annual Report on Internal Control Over Financial Reporting
|
MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
|
Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Securities Exchange Act of 1934
Rules 13(a)-15(f). The Companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
|
|
|
Management, including the chief executive officer and chief financial officer, conducted an
evaluation of the effectiveness of the Companys internal control over financial reporting
based on the framework in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control Integrated Framework, we concluded that the Companys internal
control over financial reporting was effective as of December 31, 2010.
|
|
|
The Companys internal control over financial reporting as of December 31, 2010 has been
audited by ParenteBeard LLC, an independent registered public accounting firm, as stated in
their report which is included in the following pages.
|
131
|
2.
|
|
Attestation Report of Independent Registered Public Accounting Firm
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
To the Board of Directors and Stockholders of
Abington Bancorp, Inc. and subsidiaries
Jenkintown, Pennsylvania
|
|
|
We have audited Abington Bancorp, Inc.s (the Company) internal control over financial
reporting as of December 31, 2010, based on criteria established in
Internal
ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Managements Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our audit.
|
|
|
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
|
|
|
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material effect on the financial
statements.
|
|
|
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
|
|
|
In our opinion, Abington Bancorp, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2010, based on criteria
established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
|
132
|
|
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial condition and the
related
consolidated statements of operations, stockholders equity and cash flows of Abington
Bancorp, Inc. and its subsidiaries, and our report dated March 14, 2011, expressed an
unqualified opinion.
|
|
|
Malvern, Pennsylvania
March 14, 2011
|
|
3.
|
|
Changes in Internal Control over Financial Reporting
|
|
|
During the last quarter of the year under report, there was no change in the Companys
internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
|
|
|
|
ITEM 9B.
|
|
OTHER INFORMATION
|
PART III
|
|
|
ITEM 10.
|
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Our Articles of Incorporation provide that the Board of Directors shall be divided into three
classes as nearly equal in number as possible. The directors are elected by our shareholders for
staggered terms and until their successors are elected and qualified. No director is related to
any other director or executive officer by blood, marriage or adoption.
The following tables present information concerning our directors, all of whom also serve as
directors of Abington Bank. Ages are reflected as of March 1, 2011. Where applicable, service as
a director includes service as a director of Abington Bank.
|
|
|
|
|
Age and Principal Occupation During the Past Five Years/
|
Name
|
|
Public Directorships
|
|
|
|
Douglas S. Callantine
|
|
President of Grosvenor Investment Management US, Inc.,
a privately owned property group, since 2006, following
Grosvenors acquisition of Legg Mason Real Estate
Services, where he had been President since 1987. Age
59. Director since 2007.
|
|
|
|
|
|
Mr. Callantine brings a wealth of real estate
management and investment expertise to the Board from
his service with an international property development
and investment group and his prior service as President
of Legg Mason Real Estate Services for nearly 20 years.
|
133
|
|
|
|
|
Age and Principal Occupation During the Past Five Years/
|
Name
|
|
Public Directorships
|
|
Michael F. Czerwonka,
III, CPA
|
|
Partner, Fitzpatrick & Czerwonka, Certified Public
Accountants, Abington, Pennsylvania, since 1988 and
Treasurer of Abington School District, Abington,
Pennsylvania from July, 2004 to June, 2005. Mr.
Czerwonka is a member of the American Institute of
Certified Public Accountants and the Pennsylvania
Institute of Certified Public Accountants. Age 57.
|
|
|
|
|
|
As a certified public accountant, Mr. Czerwonka brings
a wealth of financial expertise and practical knowledge
to the Board. Mr. Czerwonka owns and oversees a
professional accounting firm and has extensive
knowledge of Abington Bank through his tenure as a
director since 1998.
|
|
|
|
Jane Margraff Kieser
|
|
Retired. Formerly, Senior Vice President, Operations
and Human Resources, Abington Bank from 1980 to
December 2001. Age 75. Director since 2002.
|
|
|
|
|
|
Ms. Kieser brings valuable banking and institutional
knowledge to the Board having served as our Senior Vice
President of Operation and Human Resources for more
than 20 years.
|
|
|
|
Robert J. Pannepacker, Sr.
|
|
President, Pennys Flowers, a florist in Glenside,
Pennsylvania since 1966. Age 62.
|
|
|
|
|
|
Mr. Pannepacker brings significant business and
management expertise to the Board as the President and
owner of a family operated business serving the greater
Philadelphia area. Mr. Pannepacker has extensive
knowledge of Abington Bank through his tenure as a
director since 1991.
|
|
|
|
Jack J. Sandoski, CPA
|
|
Director since 2010. Senior Vice President and Chief
Financial Officer of Abington Bancorp since June 2004;
Senior Vice President of Abington Bank since 1997 and
Chief Financial Officer and Treasurer since 1988. Age
67.
|
|
|
|
|
|
As a certified public accountant, Mr. Sandoski brings a
wealth of financial expertise to the Board. Mr.
Sandoski has gained valuable banking and institutional
knowledge from his years of service as our Chief
Financial Officer.
|
|
|
|
Robert W. White
|
|
Chairman of the Board, President and Chief Executive
Officer of Abington Bancorp since June 2004; Chairman
of the Board and Chief Executive Officer of Abington
Bank since 1994 and President since 1991. Age 66.
Director since 1977.
|
|
|
|
|
|
Mr. White brings valuable insight and knowledge to the
Board of Abington Bancorp due to his service as its
President and Chief Executive Officer and as the
longest serving member of the Board since 1977. Mr.
White also has gained valuable banking and
institutional knowledge from his years of service in
the financial institutions industry and his
long-standing ties to the local business and legal
community in the greater Philadelphia area.
|
|
|
|
G. Price Wilson, Jr.
|
|
Partner, Quinn & Wilson, Inc., Realtors in Abington,
Pennsylvania. Age 68. Director since 2006.
|
|
|
|
|
|
Mr. Wilson possesses a vast amount of knowledge
regarding the real estate market through his more than
40 years of experience in the residential and
commercial real estate market in the greater
Philadelphia area.
|
134
Executive Officers Who Are Not Directors
Set forth below is information regarding individuals currently serving as executive officers
of Abington Bancorp and Abington Bank who do not also serve as directors. Ages are as of March 1,
2011.
|
|
|
Name
|
|
Age and Principal Occupation During the Past Five Years
|
|
|
|
Frank Kovalcheck
|
|
Senior Vice President and Secretary of Abington
Bancorp and Abington Bank since October 1, 2008;
previously, Senior Vice President of Abington Bancorp
since June 2004 and Senior Vice President of Abington
Bank since June 2001; prior thereto, Senior Vice
President and Assistant Secretary, First Federal
Savings and Loan Association of Bucks County, Bristol,
Pennsylvania from 1976 to 2001. Age 53.
|
|
|
|
Eric L. Golden, CPA
|
|
Vice President and Controller of Abington Bancorp
since April 2006; Assistant Vice President and
Assistant Controller of Abington Bancorp from July
2004 to April 2006; previously, senior accountant,
Deloitte & Touche LLP. Age 36.
|
|
|
|
Thomas J. Wasekanes
|
|
Senior Vice President of Abington Bancorp and Senior
Vice President and Chief Lending Officer of Abington
Bank since August 2008; previously, Vice President
Mortgage Lending of Abington Bank since 1988. Age 54.
|
In accordance with Abington Bancorps Bylaws, our executive officers are elected annually and
hold office until their respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors.
Audit Committee.
The Committee reviews with management and our independent registered public
accounting firm Abington Bancorps systems of internal controls, reviews our annual financial
statements, including the Form 10-K and monitors Abington Bancorps adherence to generally accepted
accounting principles in our in accounting and financial reporting. The Audit Committee is
currently comprised of three directors, all of whom are independent directors as defined in the
Nasdaqs listing standards. Mr. Czerwonka, a certified public accountant and partner in the
accounting firm of Fitzpatrick & Czerwonka, has been designated as our Audit Committee Financial
Expert by the Board of Directors.
Code of Conduct and Ethics
Abington Bancorp maintains a comprehensive Code of Conduct and Ethics which covers all
directors, officers and employees of Abington Bancorp and its subsidiaries. The Code of Conduct
and Ethics requires that our directors, officers and employees avoid conflicts of interest;
maintain the confidentiality of information relating to Abington Bancorp and its customers; engage
in transactions in the common stock only in compliance with applicable laws and regulations and the
requirements set forth in the Code of Conduct and Ethics; and comply with other requirements which
are intended to ensure that they conduct business in an honest and ethical manner and otherwise act
with integrity and in the best interest
of Abington Bancorp. Our Code of Conduct and Ethics specifically imposes standards of conduct on
our chief executive officer, chief financial officer, principal accounting officer and other
persons with financial reporting responsibilities who are identified in regulations issued by the
SEC dealing with corporate codes of conduct.
135
Our directors, officers and employees are required to affirm in writing that they have
reviewed and understand the Code of Conduct and Ethics. A copy of our Code of Conduct and Ethics
is available on our website at www.abingtonbank.com under the Investor Relations heading. In
accordance with the listing requirements of The Nasdaq Stock Market, we will disclose on the SECs
Form 8-K, the nature of any amendments to this Code of Conduct and Ethics (other than technical,
administrative, or other non-substantive amendments), our approval of any material departure from a
provision of this Code of Conduct and Ethics, and our failure to take action within a reasonable
period of time regarding any material departure from a provision of this Code of Conduct and Ethics
that has been made known to any of our executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the officers and
directors, and persons who own more than 10% of Abington Bancorps common stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10% shareholders are required by regulation to furnish us with copies of
all Section 16(a) forms they file. We know of no person who owns 10% or more of Abington Bancorps
common stock.
Based solely on our review of the copies of such forms furnished to us, or written
representations from our officers and directors, we believe that during, and with respect to, the
fiscal year ended December 31, 2010, our officers and directors complied in all respects with the
reporting requirements promulgated under Section 16(a) of the Securities Exchange Act of 1934.
Director Nominations
There have been no material changes to the procedures by which our shareholders may recommend
nominees to our Board of Directors.
|
|
|
ITEM 11.
|
|
EXECUTIVE COMPENSATION
|
COMPENSATION DISCUSSION AND ANALYSIS
Overview
. Our executive compensation program is designed to provide incentives to our
executive officers to effectively lead and manage our business to achieve our corporate goals.
Because the compensation of our executive officers plays an integral role in the successful
operation of Abington Bancorp, our compensation programs are designed to attract, retain, and
motivate qualified, effective executives and professionals. Decisions regarding executive
compensation are made by our Compensation Committee, which reviews a number of factors, including
performance of the individual executive officers, the performance of Abington Bancorp as well as
publicly available compensation surveys for comparable companies. As of December 31, 2010, the
members of our Compensation Committee were Ms. Margraff Kieser and Messrs. Callantine and
Pannepacker, who is Chairman. In this compensation discussion and analysis, our chief executive
officer, our chief financial officer and three other executive officers during 2010 are referred to
collectively as our named executive officers.
136
During the year ended December 31, 2010, we compensated our named executive officers with a
combination of base salary, cash bonus, equity compensation and participation in benefit plans at
levels that we believed were comparable to other financial institution peers of similar size within
our region. In addition to salaries, the primary benefit plans made available to our named
executive officers include our employee stock ownership plan, 2005 Stock Option Plan and 2005
Recognition and Retention Plan, 2007 Stock Option Plan, 2007 Recognition and Retention Plan, 401(k)
Plan, our frozen deferred compensation plan, supplemental executive retirement plan and
split-dollar life insurance. Our compensation plans have been developed by our Board of Directors
and the Compensation Committee with the assistance of our management. Historically, the
Compensation Committee has conducted an analysis of our compensation levels based on its review of
various publicly available surveys or reports to assist in setting appropriate levels of
compensation for our named executive officers.
In the future, we may determine to engage the service of a compensation consultant to review
our policies and procedures with respect to executive compensation, or conduct annual benchmark
reviews of our executive compensation. Executive compensation consultants were not used in 2010 and
the Board of Directors or Compensation Committee have no specific plans to do so at this time.
We offer various fringe benefits to all of our employees, including our executive officers, on
a non-discriminatory basis, including group policies for medical, dental, life, disability and
accidental death insurance. Our President and Chief Executive Officer receives an automobile
allowance and country club dues. The Compensation Committee believes that such additional benefits
are appropriate and assist Mr. White in fulfilling his employment obligations as chief executive
officer. No such perquisites are provided to the other executive officers of the company.
Objectives of Our Compensation Programs
. The primary objectives of our executive compensation
policies and programs are to attract, retain and motivate talented and qualified individuals to
manage and lead our company, which we believe will promote our corporate growth strategy and
enhance long-term shareholder value. We focus on determining appropriate compensation levels that
will enable the organization to meet the following objectives:
|
|
|
To attract, retain and motivate an experienced, competent executive management team;
|
|
|
|
|
To reward the executive management team for the enhancement of shareholder value
based on our annual earnings performance and the market price of our stock;
|
|
|
|
|
To ensure that compensation rewards are adequately balanced between short-term and
long-term considerations so as not to expose the company to undue financial risk;
|
|
|
|
|
To encourage ownership of our common stock through grants of stock options and
restricted stock awards to bank management; and
|
|
|
|
|
To maintain compensation levels that are competitive with other financial
institutions particularly those of executive officers at peer institutions based on
asset size and market area.
|
137
Elements of Executive Compensation
Base Salary
. For 2010, the Compensation Committee determined the base salaries of Messrs.
White, Sandoski, Kovalcheck, Wasekanes and Golden and submitted such determination to the full
board of directors for review. Mr. White and Mr. Sandoski, the only named executive officers who
are also
members of the Board, did not participate in discussions regarding their own compensation. In
setting base salary, the Compensation Committee conducted a review of external competitiveness
based on publicly available salary surveys produced by American Bankers Association (ABA) and L. R.
Webber. The ABA is a national bank trade organization and their survey lists various job titles by
asset size of the bank and the geographic region in which the bank operates. The L. R. Webber
survey is for Pennsylvania banks and also provides information based on the institutions asset
size and geographic region within the state. Generally, the peer groups consisted of financial
institutions within an asset range of $1 billion to $2.9 billion in the mid-Atlantic region.
In determining base salary for 2010, the Compensation Committee considered the overall
financial performance of Abington Bancorp, the individuals contribution to the attainment of the
companys internal budget, growth in market share, leadership, complexity of position, expense
containment, asset quality and Abington Banks ratings with our banking regulators, however, no
particular weight is given to any single factor. The base salaries for Messrs White, Sandoski,
Kovalcheck, Wasekanes and Golden were $313,000, $161,500, $141,000, $128,500 and $91,000,
respectively, for 2010, increases of zero, 2.9%, 2.9%, 6.2% and 4.0% respectively, compared to 2009
salaries. As a group, the total increase in salaries was 2.4%. For Mr. Wasekanes, the 6.2%
increase in base salary was reflective of his promotion and increased responsibilities in
September, 2008. The Compensation Committee believes that the base salaries paid to each member of
the senior management team is commensurate with their duties, performance and range for the
industry compared with financial institutions of similar size within our region.
Incentive/Bonus Compensation
. The Compensation Committee allocates annual bonuses paid to
Messrs. White, Sandoski, Kovalcheck, Wasekanes and Golden from a bonus pool determined by the Board
of Directors that is based on a percentage of net profit for the year. By utilizing a calculation
of cash bonus as a percentage of net profit, the Compensation Committee believes this component of
executive compensation properly focuses management on the attainment of the companys short term
performance. The Compensation Committee approved cash bonuses to the named executive officers in
2010 due to the record net profit of Abington Bancorp in 2010. The Committee recognized that the
management team was able to achieve the record net profit one year after a large net loss, though
2010 bonuses were not influenced by the fact that no bonuses were paid in 2009. Bonuses for Messrs
White, Sandoski, Kovalcheck, Wasekanes and Golden were $108,372, $55,917, $48,819, $75,000, and
$10,920 respectively. The Compensation Committee did review the performance in 2010 of each named
executive officer. Mr. Wasekanes bonus was larger than normal due to his highly effective
management of delinquent loans, real estate owned and non-performing loans.
Equity Compensation
. The Compensation Committee uses the award of stock options and
recognition and retention plan shares to align the interests of the named executive officers with
those of Abington Bancorps shareholders. At the annual meeting of shareholders in 2005,
shareholders approved our 2005 stock option plan and 2005 recognition and retention plan. Messrs.
White, Sandoski, Kovalcheck, Wasekanes and Golden received awards from the Compensation Committee
under those plans during 2005 which are vesting at a rate of 20% per year over five years. See
Outstanding Equity Awards at Fiscal Year End. Additional stock option awards were granted to
Messrs. Wasekanes and Golden under the 2005 stock option plan during 2006 and 2007. In 2008 Mr.
Wasekanes was granted additional stock options and additional recognition and retention plan shares
due to his promotion to Chief Lending Officer. At a special meeting of shareholders in January,
2008, shareholders approved the 2007 stock option plan and 2007 recognition and retention plan. In
January 2008, the Compensation Committee subsequently granted additional stock option and
restricted share awards to directors and the named executive officers under the 2007 Stock Option
Plan and 2007 Recognition and Retention Plan which are vesting at a rate of 20% per year over five
years. The following compensation tables only include awards through December 31, 2010. In
December 2010, Mr. Wasekanes was granted an
additional 5,000 recognition and retention plan shares and Mr. Golden was granted an additional
1,000 recognition and retention plan shares. The Compensation Committee believes that the
five-year vesting of stock options and recognition and retention plan awards will focus senior
management on long term performance and stock appreciation. Vesting at a rate over no less than
five years was mandated under the federal banking regulations applicable as a result of our mutual
holding company reorganization completed in 2005 and second step conversion completed in 2007 and
facilitates our goal of retaining our experienced, effective management team.
138
Stock option awards have an exercise price equal to the fair market value of the companys
common stock on the date of the award. The Compensation Committee closely monitors the stock
option awards to all employees and directors for their adherence to applicable accounting, tax and
other regulatory requirements. No changes to the option awards or option exercise price have been
made to any option granted under our stock option plan other than changes required due to the
second step conversion completed in June, 2007. At such time, all outstanding shares of the former
Abington Community Bancorp were exchanged for 1.6 shares of Abington Bancorp and all outstanding
stock option awards were adjusted for the exchange ratio along with the exercise price. Restricted
stock awards were also adjusted per the exchange ratio.
Information regarding the outstanding stock option grants and unvested recognition and
retention plan awards is included in the section titled Outstanding Equity Awards at Fiscal Year
End. For information regarding Abington Bancorps expense related to each stock option and
recognition and retention plan award that vested during fiscal 2010, as calculated in accordance
with Statement of Financial Accounting Standards No. 123(R), see Summary Compensation Table.
Employment Agreement
s. Abington Bank has entered into employment agreements with each of the
named executive officers. The contracts are reviewed annually by the Compensation Committee and
the full board of directors. In November, 2007, the boards of directors of Abington Bancorp and
Abington Bank approved the amendment and restatement of Abington Banks employment agreements with
each of the named executive officers. The employment agreements were amended and restated
primarily in order to comply with new Section 409A of the Internal Revenue Code. Furthermore,
various defined terms, including the definitions of change in control and disability, were revised
to be consistent with Section 409A of the Internal Revenue Code. For additional information
regarding the terms of the employment agreements, see Employment Agreements.
Benefit Plans
. The Compensation Committee reviews annually the expense and appropriateness of
all benefit plans for the named executive officers and all other employees. Our benefit plans
include a supplemental executive retirement plan, 401(k) plan, deferred compensation plan, employee
stock ownership plan, and other benefit plans such as medical, dental, life and disability
insurance.
Abington Bank maintains a deferred compensation plan for Messrs White, Sandoski and
Kovalcheck. As of January 1, 2005, Abington Bank no longer contributes to the deferred
compensation plan. Plan balances remain on behalf of each of the participants for contributions
prior to 2005, the majority of which are invested in Abington Bancorp common stock.
The Compensation Committee reviewed the existing supplemental executive retirement plan in
2010 for the benefit of the named executive officers and determined that no changes to the plan
formula were necessary. The Compensation Committee believes that the supplemental executive
retirement plan is a means to provide suitable, supplemental retirement benefits to senior
management. The supplemental executive retirement plan provides the participants with a ten-year
benefit upon retirement at age 65 or older in an amount equal to 50% of the executives average
base compensation, as defined, for the highest
three calendar years during the 10 years immediately preceding retirement. Mr. Golden does not
participate in this plan.
139
Abington Bank has purchased bank-owned life insurance and entered into endorsement split
dollar insurance agreements with each of the named executive officers in consideration for
termination of the named executive officers participation in the group life insurance benefits
provided to other employees of Abington Bank. Bank-owned life insurance and the related split
dollar life insurance arrangements are commonly utilized by financial institutions to provide a
benefit to their executive officers while generating additional income and funding various other
employee benefit programs. A description of the endorsement split dollar agreements is set forth
under Benefit Plans Endorsement Split Dollar Insurance Agreements.
Compensation Committee Report
We have reviewed and discussed with management certain Compensation Discussion and Analysis
provisions to be included in Abington Bancorps Annual Report on Form 10-K for the year ended
December 31, 2010, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934. Based
on the reviews and discussions referred to above, we recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in Abington Bancorps proxy statement.
|
|
|
|
|
Members of the Compensation Committee
|
|
|
Robert J. Pannepacker, Sr., Chairman
|
|
|
Douglas S. Callantine
|
|
|
Jane Margraff Kieser
|
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the named
executive officers for the years ended December 31, 2010, 2009, and 2008.
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Nonqualified
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Compensation
|
|
|
Compen-
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary(1)
|
|
|
Bonus
|
|
|
Awards(2)
|
|
|
Awards(2)
|
|
|
Earnings(3)
|
|
|
sation(4)
|
|
|
Total
|
|
Robert W. White
|
|
|
2010
|
|
|
$
|
313,000
|
|
|
$
|
108,372
|
|
|
|
|
|
|
|
|
|
|
$
|
31,886
|
|
|
$
|
107,359
|
|
|
$
|
560,617
|
|
Chairman of the Board, President and
|
|
|
2009
|
|
|
|
313,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,208
|
|
|
|
83,717
|
|
|
|
605,925
|
|
Chief Executive Officer
|
|
|
2008
|
|
|
|
304,000
|
|
|
|
|
|
|
|
1,138,750
|
|
|
|
661,540
|
|
|
|
32,088
|
|
|
|
76,938
|
|
|
|
2,213,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack J. Sandoski
|
|
|
2010
|
|
|
|
161,500
|
|
|
|
55,917
|
|
|
|
|
|
|
|
|
|
|
|
33,756
|
|
|
|
42,308
|
|
|
|
293,481
|
|
Senior Vice President, Chief
|
|
|
2009
|
|
|
|
157,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,542
|
|
|
|
29,086
|
|
|
|
243,628
|
|
Financial Officer and Treasurer
|
|
|
2008
|
|
|
|
152,500
|
|
|
|
13,725
|
|
|
|
286,965
|
|
|
|
224,070
|
|
|
|
57,814
|
|
|
|
31,475
|
|
|
|
766,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Kovalcheck
|
|
|
2010
|
|
|
|
141,000
|
|
|
|
48,819
|
|
|
|
|
|
|
|
|
|
|
|
36,340
|
|
|
|
37,530
|
|
|
|
263,689
|
|
Senior Vice President and
|
|
|
2009
|
|
|
|
137,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,665
|
|
|
|
25,754
|
|
|
|
204,419
|
|
Corporate Secretary
|
|
|
2008
|
|
|
|
133,000
|
|
|
|
11,970
|
|
|
|
286,965
|
|
|
|
238,980
|
|
|
|
8,378
|
|
|
|
27,476
|
|
|
|
706,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Wasekanes
|
|
|
2010
|
|
|
|
128,500
|
|
|
|
75,000
|
|
|
|
59,450
|
|
|
|
|
|
|
|
28,528
|
|
|
|
29,786
|
|
|
|
321,264
|
|
Senior Vice President and Chief
|
|
|
2009
|
|
|
|
121,000
|
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
19,864
|
|
|
|
19,442
|
|
|
|
193,906
|
|
Lending Officer (since August 2008)
|
|
|
2008
|
|
|
|
101,375
|
|
|
|
9,123
|
|
|
|
140,290
|
|
|
|
84,211
|
|
|
|
|
|
|
|
19,723
|
|
|
|
354,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric L. Golden
|
|
|
2010
|
|
|
|
91,000
|
|
|
|
10,920
|
|
|
|
11,890
|
|
|
|
|
|
|
|
|
|
|
|
18,690
|
|
|
|
132,500
|
|
Vice President and Controller
|
|
|
2009
|
|
|
|
87,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,271
|
|
|
|
100,771
|
|
|
|
|
2008
|
|
|
|
85,000
|
|
|
|
7,650
|
|
|
|
63,770
|
|
|
|
25,236
|
|
|
|
|
|
|
|
15,749
|
|
|
|
133,635
|
|
|
|
|
(1)
|
|
Amounts disclosed in this column include contributions by the named executive officer to the
Abington Bank 401(k) plan.
|
140
|
|
|
(2)
|
|
Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718
with respect to restricted stock awards and grants of stock options during the fiscal year.
The fair value was estimated on the date of grant using the Black-Scholes Single Option
Pricing Model with the following weighted average assumptions used.
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
Dividend yield
|
|
|
2.19
|
%
|
Expected volatility
|
|
|
23.27
|
%
|
Risk-free interest rate
|
|
|
3.30 3.49
|
%
|
Expected life of options
|
|
6 7 years
|
|
|
|
|
(3)
|
|
Messrs. White, Sandoski and Kovalcheck are participants in Abington Banks frozen executive
deferred compensation plan and supplemental executive retirement plan (SERP). Mr. Wasekanes
became a participant in the SERP in 2009. The amounts for Messrs. White, Sandoski, Kovalcheck
and Wasekanes reflect increases in the actuarial present value of SERP benefits. There are no
above-market or preferential earnings paid on the named executive officers accounts under the
deferred compensation plan.
|
|
(4)
|
|
Includes employer matching contributions of $7,350, $4,845, $4,229, $3,885, and $787
allocated in 2010 to the accounts of Messrs. White, Sandoski, Kovalcheck, Wasekanes and
Golden, respectively, under Abington Banks 401(k) plan and split-dollar life insurance
premiums paid by Abington Bank of $768, $848, $312, $370 and $104 for Messrs. White, Sandoski,
Kovalcheck, Wasekanes and Golden, respectively in fiscal 2010. Also includes the fair market
value at December 31, 2010 of the shares of common stock allocated pursuant to the employee
stock ownership plan in 2010, representing $43,318, $28,560, $24,934, $22,715 and $16,094 for
each of Messrs. White, Sandoski, Kovalcheck, Wasekanes and Golden, respectively, and dividends
paid on shares awarded pursuant to the Recognition and Retention Plans that vested during
2010. Includes $6,800 of country club dues and Abington Banks cost of providing an
automobile of $17,000 for Mr. White in 2010.
|
Grants of Plan-Based Awards
The following table provides information with respect to equity awards granted to Mr.
Wasekanes and Mr. Golden during 2010 under our 2007 Recognition and Retention Plan. No other named
executive officers received equity awards in 2010. Abington Bancorp and Abington Bank do not
maintain a management incentive plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock Awards:
|
|
|
Grant Date Fair Value
|
|
|
|
Grant
|
|
|
Number of Shares of
|
|
|
of Stock and Option
|
|
Name
|
|
Date
|
|
|
Stock or Units
(1)
|
|
|
Awards
(2)
|
|
Thomas J. Wasekanes
|
|
|
12/08/10
|
|
|
|
5,000
|
|
|
$
|
59,450
|
|
Eric L. Golden
|
|
|
12/08/10
|
|
|
|
1,000
|
|
|
$
|
11,890
|
|
|
|
|
(1)
|
|
The shares of restricted stock become vested at the rate of 20% per year commencing on
December 8, 2011. Dividends paid on the restricted stock will be paid to the recipient as the
award vests.
|
|
(2)
|
|
The grant date fair value of the restricted stock award is computed in accordance with FASB
ASC Topic 718 using the per share price of $11.89 on the date of grant.
|
141
Outstanding Equity Awards at Fiscal Year-End
The table below sets forth outstanding equity awards at December 31, 2010 to our named
executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Option Awards
|
|
|
Number of Shares
|
|
|
Market Value of
|
|
|
|
Number of Securities Underlying
|
|
|
|
|
|
|
Option
|
|
|
or Units of Stock
|
|
|
Shares or Units of
|
|
|
|
Unexercised Options(1)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
That Have Not
|
|
|
Stock That Have
|
|
Name
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Not Vested
|
|
Robert W. White
|
|
|
|
|
|
|
280,800
|
|
|
$
|
7.51
|
|
|
|
7/5/2015
|
|
|
|
75,000
|
|
|
$
|
894,750
|
|
|
|
|
186,000
|
|
|
|
124,000
|
|
|
|
9.11
|
|
|
|
1/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack J. Sandoski
|
|
|
|
|
|
|
93,600
|
|
|
|
7.51
|
|
|
|
7/5/2015
|
|
|
|
18,900
|
|
|
|
225,477
|
|
|
|
|
63,000
|
|
|
|
42,000
|
|
|
|
9.11
|
|
|
|
1/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Kovalcheck
|
|
|
|
|
|
|
93,600
|
|
|
|
7.51
|
|
|
|
7/5/2015
|
|
|
|
18,900
|
|
|
|
225,477
|
|
|
|
|
63,000
|
|
|
|
42,000
|
|
|
|
9.11
|
|
|
|
1/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Wasekanes
|
|
|
|
|
|
|
6,960
|
|
|
|
7.51
|
|
|
|
7/5/2015
|
|
|
|
18,000
|
|
|
|
214,740
|
|
|
|
|
320
|
|
|
|
1,280
|
|
|
|
10.18
|
|
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
1,200
|
|
|
|
9.63
|
|
|
|
8/22/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200
|
|
|
|
4,800
|
|
|
|
9.11
|
|
|
|
1/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
10,000
|
|
|
|
9.63
|
|
|
|
8/25/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric L. Golden
|
|
|
|
|
|
|
3,200
|
|
|
|
7.51
|
|
|
|
7/5/2015
|
|
|
|
5,200
|
|
|
|
62,036
|
|
|
|
|
320
|
|
|
|
1,280
|
|
|
|
10.18
|
|
|
|
11/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
1,200
|
|
|
|
9.63
|
|
|
|
8/22/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200
|
|
|
|
4,800
|
|
|
|
9.11
|
|
|
|
1/30/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Stock options are vesting at a rate of 20% per year commencing on the first anniversary of the
date of grant.
|
Option Exercises and Stock Vested
The table below sets forth the number of shares acquired and their value on the date of
vesting pursuant to our Recognition and Retention Plans for the year ended December 31, 2010. None
of our named executive officers exercised stock options during the fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
|
Number of Shares Acquired
|
|
|
Value Realized
|
|
Name
|
|
Acquired on Exercise
|
|
|
on Exercise
|
|
|
on Vesting
|
|
|
on Vesting
|
|
Robert W. White
|
|
|
|
|
|
$
|
|
|
|
|
47,400
|
|
|
$
|
374,052
|
|
Jack J. Sandoski
|
|
|
|
|
|
|
|
|
|
|
11,900
|
|
|
|
93,870
|
|
Frank Kovalcheck
|
|
|
|
|
|
|
|
|
|
|
11,900
|
|
|
|
93,870
|
|
Thomas J. Wasekanes
|
|
|
|
|
|
|
|
|
|
|
5,440
|
|
|
|
37,995
|
|
Eric L. Golden
|
|
|
|
|
|
|
|
|
|
|
2,360
|
|
|
|
18,376
|
|
Employment Agreements
Abington Bank and Abington Bancorp have entered into amended and restated employment
agreements, dated as of November 28, 2007 with Robert W. White, Chairman of the Board, President
and Chief Executive Officer, and Abington Bank has entered into employment agreements, dated as of
November 28, 2007, with Frank Kovalcheck and Jack J. Sandoski, an employment agreement dated August
8, 2007, with Eric L. Golden, and an employment agreement dated August 25, 2009, with Thomas J.
Wasekanes.
142
The amended and restated agreements between Abington Bank and Mr. White and Abington Bancorp
and Mr. White are substantially similar, however, in order to comply with the policies of the
Office of Thrift Supervision, certain payments otherwise payable under the amended and restated
agreement with Abington Bank are reduced or scaled back if they would constitute a parachute
payment pursuant to Section 280G of the Internal Revenue Code. In addition, the amended and
restated agreements with Mr. White include the following provisions:
|
|
|
Salary and other compensation payable to Mr. White will be shared by Abington
Bancorp and Abington Bank on a proportional basis.
|
|
|
|
In the event Mr. Whites employment is involuntarily terminated, other than for
cause, disability, retirement or death, or by Mr. White for good reason, as defined,
prior to a change in control, he will be entitled to a lump sum payment equal three
times his current base salary plus highest bonus received in the prior three years,
plus the continuation of certain employee benefits for a period up to the remaining
term of the agreement.
|
|
|
|
In the event Mr. Whites employment is terminated concurrently with or within 12
months following a change in control, Mr. White will be entitled to a lump sum payment
equal to 2.99 times his base amount as defined under Section 280G of the Internal
Revenue Code, subject to reduction in the amended and restated agreement with Abington
Bank, plus the continuation of certain employee benefits for up to three years. Under
his agreement with Abington Bancorp, Abington Bancorp will reimburse Mr. White for any
excise tax liability incurred pursuant to Sections 280G and 4999 of the Internal
Revenue Code and for any additional taxes incurred as a result of such reimbursement.
|
|
|
|
In the event of Mr. Whites disability, he will be entitled to receive aggregate
annual disability benefits at least equal to 60% of his then current salary through his
70th birthday.
|
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|
|
A death benefit equal to three times Mr. Whites base salary.
|
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|
|
The agreements contain non-competition and arbitration provisions substantially
similar to those currently in place with Mr. White.
|
In addition, Abington Banks Amended and Restated Employment Agreements with Messrs. Sandoski,
Kovalcheck, Wasekanes and Golden include the following provisions:
|
|
|
If the executives employment is terminated by Abington Bank, other than for cause,
disability, retirement or death, or is terminated by the executive for good reason, as
defined, prior to a change in control, the executive will be entitled to a lump sum
payment equal to two times his current base salary (one times base salary in the case
of Mr. Golden) and any bonus received in the prior year, plus continuation of certain
employee benefits for up to two years.
|
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|
If the executives employment is terminated concurrently with or within 12 months
following a change in control, the executive will be entitled, with certain exceptions,
to a lump sum payment equal to three times his current base salary (two times in the
case of Mr. Golden) and bonus for the prior year plus continuation of certain employee
benefits for up to three years, subject to reduction in the event such payments or
benefits would constitute a parachute payment under Section 280G of the Internal
Revenue Code.
|
Although the above-described employment agreements could increase the cost of any acquisition
of control of Abington Bancorp, we do not believe that the terms thereof would have a significant
anti-takeover effect.
143
Potential Payments Upon Termination of Employment or Change in Control
The tables below reflect the amount of compensation to each of the named executive officers of
Abington Bancorp and Abington Bank in the event of termination of such executives employment. The
amount of compensation payable to each named executive officer upon voluntary termination, early
retirement, involuntary not-for-cause termination, termination following a change in control and in
the event of disability or death of the executive is shown below. The amounts shown assume that
such termination was effective as of December 31, 2010, and thus includes amounts earned through
such time and are estimates of the amounts which would be paid out to the executives upon their
termination. The actual amounts to be paid out can only be determined at the time of such
executives separation from Abington Bancorp and Abington Bank.
The amounts shown in the Change in Control columns in the following tables do not reflect the
amounts payable to the named executive officers in connection with the pending merger of Abington
Bancorp with and into Susquehanna Bancshares, Inc. (Susquehanna). The amounts payable in
connection with the merger are expected to be higher primarily for the following reasons: (1) the
cash severance payable in the merger reflects the salary increases effective January 1, 2011 and
the bonuses paid to the named executive officers in 2010, and (2) the value of the merger
consideration based on current market prices of the Susquehanna common stock is higher than the
$11.93 closing price per share of common stock of Abington Bancorp as of December 31, 2010, which
results in higher values for the unvested stock options and unvested restricted stock awards held
by the named executive officers. The estimated amounts payable in the merger are set forth in the
Joint Proxy Statement/Prospectus contained in Susquehannas Form S-4, which is incorporated herein
by reference.
Robert W. White.
The following table shows the potential payments upon termination of
employment or a change in control of Abington Bancorp or Abington Bank to Robert W. White, our
President and Chief Executive Officer, assuming such events had occurred as of December 31, 2010.
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Involuntary
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Termination Without
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Cause or Termination
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Change in
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by the Executive for
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Control With
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Voluntary
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Termination
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Good Reason Absent a
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Termination of
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Death or
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Payments and Benefits
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Termination
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for Cause
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Change in Control
|
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|
Employment
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|
Disability (m)
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Retirement (n)
|
|
Severance payments and benefits: (a)
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Cash severance (b)
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|
$
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$
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$
|
1,219,500
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$
|
1,637,415
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$
|
681,378
|
(o)
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$
|
|
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Medical and dental benefits (c)
|
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|
58,525
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58,525
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|
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|
Other welfare benefits (d)
|
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9,597
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9,597
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|
Club dues (e)
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13,000
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19,500
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Automobile expenses (f)
|
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32,128
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48,192
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SERP benefits (g)
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§280G tax gross-up (h)
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694,623
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Equity awards (i):
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Unvested stock options (j)
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524,520
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524,520
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524,520
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|
Unvested restricted stock awards (k)
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|
|
|
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|
938,250
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938,250
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938,250
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Total payments and benefits (l)
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$
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$
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$
|
1,332,750
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|
|
$
|
3,930,622
|
|
|
$
|
2,144,148
|
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|
$
|
1,462,770
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144
Jack J. Sandoski.
The following table shows the potential payments upon termination of
employment or a change in control of Abington Bancorp or Abington Bank to Jack J. Sandoski, our
Senior Vice President and Chief Financial Officer, assuming such events had occurred as of December
31, 2010.
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Involuntary Termination
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|
|
|
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Without Cause or
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|
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|
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|
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Termination by the
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|
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|
|
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|
Executive for Good Reason
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Change in Control
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Voluntary
|
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|
Termination
|
|
|
Absent a Change in
|
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|
With Termination
|
|
|
Death or
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|
|
Payments and Benefits
|
|
Termination
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for Cause
|
|
|
Control
|
|
|
of Employment
|
|
|
Disability (m)
|
|
|
Retirement (n)
|
|
Severance payments and benefits: (a)
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash severance (b)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
323,000
|
|
|
$
|
484,500
|
|
|
$
|
|
|
|
$
|
|
|
Medical and dental benefits (c)
|
|
|
|
|
|
|
|
|
|
|
37,207
|
|
|
|
58,525
|
|
|
|
|
|
|
|
|
|
Other welfare benefits (d)
|
|
|
|
|
|
|
|
|
|
|
921
|
|
|
|
1,448
|
|
|
|
|
|
|
|
|
|
Club dues (e)
|
|
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|
|
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Automobile expenses (f)
|
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|
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|
|
|
|
|
|
|
|
SERP benefits (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
§280G cut-back (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards (i):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested stock options (j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,660
|
|
|
|
177,660
|
|
|
|
177,660
|
|
Unvested restricted stock awards (k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,439
|
|
|
|
236,439
|
|
|
|
236,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payments and benefits (l)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
361,128
|
|
|
$
|
958,572
|
|
|
$
|
414,099
|
|
|
$
|
414,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Kovalcheck.
The following table shows the potential payments upon termination of
employment or a change in control of Abington Bancorp or Abington Bank to Frank Kovalcheck, our
Senior Vice President, assuming such events had occurred as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Cause or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for Good Reason
|
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Termination
|
|
|
Absent a Change in
|
|
|
With Termination
|
|
|
Death or
|
|
|
|
|
Payments and Benefits
|
|
Termination
|
|
|
for Cause
|
|
|
Control
|
|
|
of Employment
|
|
|
Disability (m)
|
|
|
Retirement (n)
|
|
Severance payments and benefits: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash severance (b)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
282,000
|
|
|
$
|
423,000
|
|
|
$
|
|
|
|
$
|
|
|
Medical and dental benefits (c)
|
|
|
|
|
|
|
|
|
|
|
47,425
|
|
|
|
74,598
|
|
|
|
|
|
|
|
|
|
Other welfare benefits (d)
|
|
|
|
|
|
|
|
|
|
|
921
|
|
|
|
1,448
|
|
|
|
|
|
|
|
|
|
Club dues (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile expenses (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP benefits (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,922
|
|
|
|
|
|
|
|
|
|
§280G cut-back (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards (i):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested stock options (j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,660
|
|
|
|
177,660
|
|
|
|
|
|
Unvested restricted stock awards (k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,439
|
|
|
|
236,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payments and benefits (l)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330,346
|
|
|
$
|
954,393
|
|
|
$
|
414,099
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
Thomas J. Wasekanes.
The following table shows the potential payments upon termination
of employment or a change in control of Abington Bancorp or Abington Bank to Thomas J. Wasekanes,
our Senior Vice President and Chief Lending Officer, assuming such events had occurred as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Termination
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by the Executive for Good
|
|
|
Control With
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Termination
|
|
|
Reason Absent a Change in
|
|
|
Termination of
|
|
|
Death or
|
|
|
|
|
Payments and Benefits
|
|
Termination
|
|
|
for Cause
|
|
|
Control
|
|
|
Employment
|
|
|
Disability (m)
|
|
|
Retirement (n)
|
|
Severance payments and benefits: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash severance (b)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
257,000
|
|
|
$
|
385,500
|
|
|
$
|
|
|
|
$
|
|
|
Medical and dental benefits (c)
|
|
|
|
|
|
|
|
|
|
|
47,425
|
|
|
|
74,598
|
|
|
|
|
|
|
|
|
|
Other welfare benefits (d)
|
|
|
|
|
|
|
|
|
|
|
921
|
|
|
|
1,448
|
|
|
|
|
|
|
|
|
|
Club dues (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile expenses (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP benefits (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,300
|
|
|
|
|
|
|
|
|
|
§280G cut-back (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(236,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards (i):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested stock options (j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,204
|
|
|
|
57,204
|
|
|
|
|
|
Unvested restricted stock awards (k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,506
|
|
|
|
220,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payments and benefits (l)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
305,346
|
|
|
$
|
551,215
|
|
|
$
|
277,710
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Golden.
The following table shows the potential payments upon termination of
employment or a change in control of Abington Bancorp or Abington Bank to Eric Golden, our Vice
President and Controller, assuming such events had occurred as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Termination
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by the Executive for Good
|
|
|
Control With
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Termination
|
|
|
Reason Absent a Change in
|
|
|
Termination of
|
|
|
Death or
|
|
|
|
|
Payments and Benefits
|
|
Termination
|
|
|
for Cause
|
|
|
Control
|
|
|
Employment
|
|
|
Disability (m)
|
|
|
Retirement (n)
|
|
Severance payments and benefits: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash severance (b)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91,000
|
|
|
$
|
182,000
|
|
|
$
|
|
|
|
$
|
|
|
Medical and dental benefits (c)
|
|
|
|
|
|
|
|
|
|
|
20,880
|
|
|
|
43,684
|
|
|
|
|
|
|
|
|
|
Other welfare benefits (d)
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
Club dues (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile expenses (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP benefits (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
§280G cut-back (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards (i):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested stock options (j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,704
|
|
|
|
22,704
|
|
|
|
|
|
Unvested restricted stock awards (k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,472
|
|
|
|
64,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payments and benefits (l)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
112,286
|
|
|
$
|
313,710
|
|
|
$
|
87,176
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
These severance payments and benefits are payable if the executives employment is
terminated prior to a change in control either (i) by the Company or the Bank for any reason
other than cause, disability, retirement or death or (ii) by the executive if the Company or
the Bank takes certain adverse actions (a good reason termination). The severance payments
and benefits are also payable if an executives employment is terminated during the term of
the executives employment agreement following a change in control.
|
|
(b)
|
|
For Mr. White, the amount in the Involuntary Termination column represents a lump sum payment
equal to three times the sum of his current base salary from the Company and the Bank and his
highest bonus paid in the prior three
calendar years, while the amount in the Change in Control column represents 2.99 times his
average taxable income from the Company and the Bank for the five years preceding the year
in which the date of termination occurs. For each other executive, the amount in the
Involuntary Termination column represents two times (one time for Mr. Golden) the sum of the
executives current base salary and bonus for the prior calendar year, while the amount in
the Change in Control column represents a lump sum cash payment equal to three times (two
times for Mr. Golden) the sum of the executives current base salary and bonus for the prior
calendar year.
|
146
|
|
|
(c)
|
|
In the Involuntary Termination column, represents the estimated present value cost of
providing continued medical and dental coverage to each of the executives for the remaining
term of Mr. Whites employment agreement or for an additional 24 months (12 months for Mr.
Golden) for each of the other executives. In the Change in Control column, represents the
estimated present value cost of providing continued medical and dental coverage to each of the
executives for an additional 36 months (24 months for Mr. Golden). In each case, the benefits
will be discontinued if the executive obtains full-time employment with a subsequent employer
which provides substantially similar benefits. The estimated costs assume the current
insurance premiums or costs increase by 10% in each of 2012 and 2013.
|
|
(d)
|
|
In the Involuntary Termination column, represents the estimated present value cost of
providing continued life, accidental death and long-term disability coverage to each of the
executives for the remaining term of Mr. Whites employment agreement or for an additional 24
months (12 months for Mr. Golden) for each of the other executives. In the Change in Control
column, represents the estimated present value cost of providing such benefits to each of the
executives for an additional 36 months (24 months for Mr. Golden). In each case, the benefits
will be discontinued if the executive obtains full-time employment with a subsequent employer
which provides substantially similar benefits. The estimated costs assume the current
insurance premiums or costs increase by 10% in each of 2012 and 2013.
|
|
(e)
|
|
Represents the estimated costs of paying club dues to Mr. White for an assumed additional 24
months in the Involuntary Termination column (36 months in the Change in Control column),
based on the amounts paid in 2009. The amounts have not been discounted to present value.
|
|
(f)
|
|
Represents the estimated costs of paying automobile leases and related expenses to Mr. White
for an assumed additional 24 months in the Involuntary Termination Column (36 months in the
Change in Control column), based on the amounts paid in 2009. The amounts have not been
discounted to present value.
|
|
(g)
|
|
Represents the incremental increase in the present value of the benefits payable under the
Banks Supplemental Executive Retirement Plan (the SERP). If a participant in the SERP has
a separation from service on or after his normal retirement date of age 65, he is entitled to
receive supplemental retirement benefits for 10 years. The annual supplemental retirement
benefit is equal to 50% of the participants average base compensation for the highest three
years during the 10 years preceding his separation from service, with the annual benefit
payable in quarterly installments. In the event of a change in control, a participant becomes
100% vested in all amounts then accrued for his benefit under the SERP, and the vested
benefits are paid in a lump sum on the first day of the month following the lapse of six
months after the participants separation from service. At December 31, 2010, Messrs. White
and Sandoski had reached at least age 65 and were fully vested in their SERP benefits. The
amounts shown in the tables for Messrs. Kovalcheck and Wasekanes represent their accrued SERP
benefits, discounted to present value from the date of payment to December 31, 2010. Mr.
Golden does not participate in the SERP.
|
|
(h)
|
|
The payments and benefits to Mr. White in the Change in Control column are subject to a 20%
excise tax to the extent the parachute amounts associated therewith under Section 280G of the
Code equal or exceed three times his average taxable income for the five years preceding the
year in which the change in control occurs. His payments exceed this threshold. If a change
in control was to occur, the Company believes that the Section 280G gross-up payments could be
reduced or even eliminated if tax planning was done in connection with the change in control.
However, if the excise tax cannot be avoided, then the Company has agreed in its employment
agreement with Mr. White to pay the 20% excise tax and the additional federal, state and local
income taxes and excise taxes on such reimbursement in order to place him in the same
after-tax position he would have been in if the excise tax had not been imposed. If the
parachute amounts associated with the payments and benefits to Messrs. Sandoski, Kovalcheck
and Golden equal or exceed three times their average taxable income for the five years
preceding the year in which the change in control occurs, such payments and benefits in the
event of a change in control will be reduced by the minimum amount necessary so that they do
not trigger the 20% excise tax. The applicable amount of the reductions for each of such
officers is shown in the tables. If the timing of the change in control permitted tax
planning to be done, the Company believes that the amount of the cut-backs could be reduced or
even eliminated.
|
|
(i)
|
|
The vested stock options held by Messrs. White, Sandoski, Kovalcheck, Wasekanes and Golden
had a value of approximately $1.6 million, $532,000, $532,000, $72,000 and $33,000,
respectively, based on the December 31, 2010 closing price of $11.93 per share. Such value can
be obtained in the event of termination due to voluntary termination, death, disability,
retirement or cause only if the executive actually exercises the vested options in the manner
provided
for by the relevant option plan and subsequently sells the shares received for $11.93 per
share. In the event of a termination of employment, each executive (or his or her estate in
the event of death) will have the right to exercise vested stock options for the period
specified in his or her option grant agreement. If the termination of employment occurs
following a change in control, each executive can exercise the vested stock options for the
remainder of the original ten-year term of the option.
|
147
|
|
|
(j)
|
|
Represents the amount by which the December 31, 2010 closing price of $11.93 per share of our
common stock exceeds the exercise price per share of the unvested stock options held by
Messrs. White, Sandoski, Kovalcheck, Wasekanes and Golden. All unvested stock options will
become fully vested upon an executives death, disability or retirement after age 65 or upon a
change in control. None of the executives except Messrs. White and Sandoski had reached age
65 as of December 31, 2009.
|
|
(k)
|
|
If an executives employment is terminated as a result of death or disability, unvested
restricted stock awards are deemed fully earned. In addition, in the event of a change in
control of the Company or the Bank, the unvested restricted stock awards are deemed fully
earned. Amounts include the value of cash dividends accrued on the unvested restricted stock
awards.
|
|
(l)
|
|
Does not include the value of the vested benefits to be paid under our tax-qualified 401(k)
plan and ESOP or under our SERP and our Executive Deferred Compensation Plan. See the Pension
Benefits table and the Nonqualified Deferred Compensation table under - Benefit Plans below.
Also does not include the value of vested stock options set forth in Note (i) above, earned
but unpaid salary and bonus, accrued but unused vacation leave, reimbursable expenses and any
additional amounts that would be allocated to ESOP participants in the event of a change in
control.
|
|
(m)
|
|
If the employment of any of the executives had terminated on December 31, 2010 due to death,
such executives beneficiaries or estate would have received life insurance proceeds of
$400,000 ($650,000 if the death was due to an accident) under our bank owned life insurance
policies. For Mr. White, this amount is in addition to the continuation of his base salary in
the event of his death as described in Note (n) below. The life insurance coverage is based on
three times base salary, subject to a cap of $250,000, plus an additional $150,000 for each
executive for a total benefit of $400,000 ($650,000 if the death was due to an accident). If
the employment of any of the executives had terminated on December 31, 2010 due to disability,
they would each have received disability benefits equal to 65% of their base salary for up to
the first six months, after a four-week waiting period. If the executive is still disabled
after six months, he would then receive disability benefits equal to 60% of his base salary,
subject to a benefit cap of $5,000 per month, until the executive reaches his normal
retirement age of 65, minus Social Security disability benefits. Mr. White will also receive
supplemental disability benefits as described in Note (n) below. In addition, each
executives unvested stock options and unvested restricted stock awards will become fully
vested upon death or disability. The SERP benefits discussed in Note (n) below will also
become payable following death or disability.
|
|
(n)
|
|
The Company has a SERP covering each executive other than Mr. Golden. Under the SERP, the
normal retirement benefits in the event of retirement, death or disability on or after age 65
is an annual benefit equal to 50% of the executives salary for the highest three of the last
10 years, with the annual benefit payable for 10 years in quarterly installments. If the
executive dies before age 65, his beneficiary or estate will receive a lump sum payment equal
to the present value of the aggregate retirement benefit accrued by us. If the executive
becomes disabled before age 65, then his 40 quarterly installments will begin as of the first
day of the first full quarter following his 65
th
birthday. See the Pension
Benefits table under - Benefit Plans below.
|
|
(o)
|
|
Represents the estimated present value of the supplemental disability benefits that Mr. White
would be entitled to receive under his employment agreement if he remained disabled until age
70. In the event of disability, he is entitled to receive supplemental disability benefits
equal to the difference between 60% of his base salary and the disability benefits otherwise
payable to him, as described in Note (m) above. If Mr. White had died as of December 31,
2010, his spouse or his estate would have received a lump sum cash payment of approximately
$934,000, representing the present value of his base salary for 36 months.
|
148
Benefit Plans
Supplemental Executive Retirement Plan.
Abington Bank maintains a Supplemental Executive
Retirement Plan (SERP) for selected executive officers. Currently, Messrs. White, Sandoski,
Kovalcheck and Wasekanes participate in the Supplemental Executive Retirement Plan. The SERP
provides the participants with a ten-year benefit upon retirement at age 65 or older in an amount
equal to 50% of the executives average base compensation, as defined, for the highest three
calendar years during the 10 years immediately preceding retirement. The SERP was amended and
restated in January 2011 to permit the Bank to terminate it within 30 days of a change-in-control
as defined, so that all benefits under the plan can be paid in a lump sum, provided certain
conditions are met.
Pension Benefits.
The table below shows the present value of accumulated benefits payable to
Messrs. White, Sandoski, Kovalcheck and Wasekanes, including the number of years of credited
service, under the supplemental executive retirement plan determined using interest rate and
mortality rate assumptions consistent with those used in our financial statements. Mr. Golden does
not participate in the supplemental executive retirement plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years
|
|
|
Present Value of
|
|
|
Payments During Last
|
|
Name
|
|
Plan Name
|
|
|
Credited Service
|
|
|
Accumulated Benefit(1)
|
|
|
Fiscal Year
|
|
Robert W. White
|
|
Supplemental Executive Retirement Plan
|
|
|
n/a
|
|
|
$
|
1,235,494
|
|
|
|
|
|
Jack J. Sandoski
|
|
Supplemental Executive Retirement Plan
|
|
|
n/a
|
|
|
|
637,484
|
|
|
|
|
|
Frank Kovalcheck
|
|
Supplemental Executive Retirement Plan
|
|
|
n/a
|
|
|
|
150,206
|
|
|
|
|
|
Thomas J. Wasekanes
|
|
Supplemental Executive Retirement Plan
|
|
|
n/a
|
|
|
|
48,392
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects value as of December 31, 2010.
|
Executive Deferred Compensation Plan.
Abington Bank maintains an Executive Deferred
Compensation Plan for selected executive officers. In December 2005, Abingtons Board of Directors
froze the Amended and Restated Executive Deferred Compensation Plan retroactive to January 1, 2005,
such that no further contributions will be made on behalf of the executive officers under the plan.
Messrs. White, Sandoski and Kovalcheck currently participate in the executive deferred
compensation plan. In addition, director Jane Margraff Kieser maintains an account in the
Executive Deferred Compensation Plan with respect to amounts accumulated when she was an executive
officer of Abington Bank. The participant maintains an account in the Executive Deferred
Compensation Plan until the earlier of retirement, termination of employment or death.
Nonqualified Deferred Compensation.
The table below sets forth the aggregate balance at
December 31, 2010 and earnings on the executive deferred compensation plan accounts for the named
executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
in 2010 Fiscal
|
|
|
in 2010 Fiscal
|
|
|
in 2010 Fiscal
|
|
|
Withdrawals/
|
|
|
Balance at
|
|
Name
|
|
Year(1)
|
|
|
Year(1)
|
|
|
Year(1)
|
|
|
Distributions
|
|
|
December 31, 2010
|
|
Robert W. White
|
|
$
|
|
|
|
$
|
|
|
|
$
|
471,420
|
|
|
$
|
|
|
|
$
|
1,089,972
|
|
Jack J. Sandoski
|
|
|
|
|
|
|
|
|
|
|
218,256
|
|
|
|
|
|
|
|
499,601
|
|
Frank Kovalcheck
|
|
|
|
|
|
|
|
|
|
|
51,489
|
|
|
|
|
|
|
|
119,120
|
|
|
|
|
(1)
|
|
The executive deferred compensation plan was frozen in 2005 and no contributions have been
made since that date. We have established a rabbi trust to fund the executive deferred
compensation plan and certain other benefit plans. The aggregate earnings amounts in 2010 in
the table above reflect the increase in value of assets held in the rabbi trust, which include
our common stock. Messrs. Golden and Wasekanes do not participate in the executive deferred
compensation plan.
|
149
Endorsement Split-Dollar Insurance Agreements.
Abington Bank has purchased insurance
policies on the lives of the five executive officers named in the Summary Compensation Table, and
has entered into split-dollar insurance agreements with each of those officers. The policies are
owned by Abington Bank which pays each premium due on the policies. Under the agreements with the
named executive officers, upon an officers death while he remains employed by Abington Bank the
executives beneficiary shall receive proceeds in the amount of the executives salary at the time
of death multiplied by three (up to a maximum of $250,000) plus an additional $150,000. The
officers beneficiary will not receive any proceeds in the case of the officers death after
termination of employment. Abington Bank is entitled to receive the amount of the death benefits
less those paid to the officers beneficiary, which is expected to reimburse Abington Bank in full
for its life insurance investment.
The split-dollar insurance agreements may be terminated at any time by Abington Bank or the
officer, by written notice to the other. The split-dollar insurance agreements will also terminate
upon cancellation of the insurance policy by Abington Bank, cessation of Abington Banks business
or upon bankruptcy, receivership or dissolution or by Abington Bank upon the officers termination
of service to Abington Bank. Upon termination, the officer forfeits any right in the death benefit
and Abington Bank may retain or terminate the insurance policy in its sole discretion.
Director Compensation
Directors of Abington Bancorp are not compensated separately by Abington Bancorp. All of our
directors also serve as directors of Abington Bank and our non-employee directors are compensated
by Abington Bank for such service. Messrs. White and Sandoski do not receive compensation for
service on the Board.
Members of Abington Banks Board of Directors received $1,200 per meeting attended and a
$13,000 annual retainer for 2010. Members of the Audit Committee received $500 per meeting, with
the Chair receiving $900 per meeting. The members of the Compensation and Nominating and Corporate
Governance Committees received $400 per meeting, with the Chair receiving $500. Such fees were
paid only if the meetings were attended. Board fees are subject to periodic adjustment by the
Board of Directors.
We maintain a Deferred Compensation Plan for our Board of Directors whereby non-employee
directors may elect to defer a portion of their board fees until the earlier of retirement,
termination of service, death or disability, each as defined in the Deferred Compensation Plan.
The participants accounts are invested in cash unless they elect to invest all or a portion of
their accounts in stock units representing an equal number of shares of Abington Bancorp common
stock. Payments upon retirement, termination of service or disability will be made, at the
election of the participant, in a lump sum or monthly installments over a period not to exceed
fifteen years. Upon death of a participant prior to termination of service, payments are made to
his or her beneficiary in a lump sum. We also maintain a Board of Directors Retirement Plan.
Pursuant to the Boards Retirement Plan, upon retirement after reaching age 75, non-employee
directors will receive an annual benefit equal to 75% of the director fees paid in the year of
retirement for a period of 10 years. If a director dies while serving as a director and prior to
reaching age 75, his or her beneficiary will receive the present value of the directors accrued
retirement benefit in a lump sum. In January 2011, the Directors Retirement Plan was amended and
restated to, among other things, waive the age 75 requirement in the plan for directors who have a
separation of service after a change-in-control, as defined, and permit the Bank to terminate the
plan within 30 days of a change-in-control, as defined.
150
Director Compensation Table.
The table below summarizes the total compensation paid to our
non-employee directors for the year ended December 31, 2010.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension
|
|
|
|
|
|
|
|
|
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Fees
|
|
|
|
|
|
|
|
|
|
|
Value and Nonqualified
|
|
|
|
|
|
|
|
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|
Earned
|
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|
|
|
|
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|
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Deferred
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All Other
|
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|
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or Paid
|
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Stock
|
|
|
Option
|
|
|
Compensation
|
|
|
Compen-
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|
|
|
|
Name
|
|
in Cash
|
|
|
Awards(1)
|
|
|
Awards(1)
|
|
|
Earnings(2)
|
|
|
sation(3)
|
|
|
Total
|
|
Douglas S. Callantine
|
|
$
|
30,000
|
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
77,639
|
|
|
$
|
2,427
|
|
|
$
|
110,066
|
|
Michael F. Czerwonka, III
|
|
|
32,400
|
|
|
|
|
|
|
|
|
|
|
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6,848
|
|
|
|
5,854
|
|
|
|
45,102
|
|
Jane Margraff Kieser
|
|
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30,000
|
|
|
|
|
|
|
|
|
|
|
|
34,760
|
|
|
|
5,854
|
|
|
|
70,614
|
|
Robert J. Pannepacker, Sr.
|
|
|
32,300
|
|
|
|
|
|
|
|
|
|
|
|
10,060
|
|
|
|
5,854
|
|
|
|
48,214
|
|
G. Price Wilson, Jr.
|
|
|
30,800
|
|
|
|
|
|
|
|
|
|
|
|
14,241
|
|
|
|
2,427
|
|
|
|
47,468
|
|
|
|
|
(1)
|
|
At December 31, 2010, each non-employee director held the following amount of unvested stock
awards under our 2005 and 2007 Recognition and Retention Plans and outstanding options under
our 2005 and 2007 Stock Option Plans:
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|
|
|
|
|
|
|
|
Name
|
|
Unvested Stock Awards
|
|
|
Option Awards
|
|
Douglas S. Callantine
|
|
|
15,000
|
|
|
|
60,000
|
|
Michael F. Czerwonka, III
|
|
|
15,000
|
|
|
|
108,000
|
|
Jane Margraff Kieser
|
|
|
15,000
|
|
|
|
108,000
|
|
Robert J. Pannepacker, Sr.
|
|
|
15,000
|
|
|
|
108,000
|
|
G. Price Wilson, Jr.
|
|
|
15,000
|
|
|
|
66,400
|
|
|
|
|
(2)
|
|
Our non-employee directors participate in the board of directors deferred compensation plan
and board retirement plan. In addition, Ms. Margraff Kieser maintains an account in the
executive deferred compensation plan with respect to amounts deferred while she served as an
executive officer. The amounts represent the changes in the actuarial present value of
accumulated pension benefits under the retirement plan. The amount for Ms. Margraff Kieser is
net of aggregate distributions paid to her during 2010 of $21,026. There are no above-market
or preferential earnings paid on the accounts under the deferred compensation plan. Mr.
Callantine deferred all of his board fees in 2010 to the deferred compensation plan.
|
|
(3)
|
|
Consists of dividends paid on shares awarded pursuant to our Recognition and Retention Plans
that vested during 2010.
|
Compensation Committee Interlocks and Insider Participation
Ms. Margraff Kieser and Messrs. Callantine and Pannepacker, who is Chairman, serve as members
of the Compensation Committee. None of the members of the Compensation Committee during 2010 was a
current or former officer or employee of Abington Bancorp or Abington Bank other than Ms. Margraff
Kieser, who served as our Senior Vice President, Operations and Human Resources from 1980 to 2001.
Nor did any member engage in certain transactions with Abington Bancorp or Abington Bank required
to be disclosed by regulations of the SEC. Additionally, there were no compensation committee
interlocks during 2010, which generally means that no executive officer of Abington Bancorp
served as a director or member of the compensation committee of another entity, one of whose
executive officers served as a director or member of the Compensation Committee of Abington
Bancorp.
151
|
|
|
ITEM 12.
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Equity Compensation Plan Information
. The following table sets forth certain information for
all equity compensation plans and individual compensation arrangements (whether with employees or
non-employees, such as directors) in effect as of December 31, 2010.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities remaining
|
|
|
|
Number of securities to be
|
|
|
Weighted-average
|
|
|
available for future issuance
|
|
|
|
issued upon exercise of
|
|
|
exercise price of
|
|
|
under equity compensation
|
|
|
|
outstanding options, warrants
|
|
|
outstanding options,
|
|
|
plans (excluding securities
|
|
|
|
and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans
approved by security holders
|
|
|
2,478,760
|
(1)
|
|
$
|
8.47
|
(1)
|
|
|
228,818
|
|
Equity compensation plans
not approved by security
holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,478,760
|
|
|
$
|
8.47
|
|
|
|
228,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes 311,060 shares subject to restricted stock grants which were not vested as of
December 31, 2010. The weighted-average exercise price excludes such restricted stock grants.
|
152
Beneficial Ownership of Common Stock By Certain Beneficial Owners and Management.
The
following table sets forth as of March 1, 2011, certain information as to the common stock
beneficially owned by (a) each person or entity, including any group as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, who or which was known to us to be the
beneficial owner of more than 5% of the issued and outstanding common stock, (b) the directors of
Abington Bancorp, (c) certain executive officers of Abington Bancorp named in the Summary
Compensation Table; and (d) all directors and executive officers of Abington Bancorp as a group.
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|
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|
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|
|
Amount and Nature of Beneficial
|
|
|
|
|
|
|
Ownership as of
|
|
|
Percent of
|
|
Name of Beneficial Owner or Number of Persons in Group
|
|
March 1, 2011(1)
|
|
|
Common Stock
|
|
Abington Bank Employee Stock Ownership Plan Trust
|
|
|
1,933,959
|
(2)
|
|
|
9.6
|
%
|
180 York Road
Jenkintown, Pennsylvania 19046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
1,382,192
|
(3)
|
|
|
6.9
|
|
Palisades West, Building One
6300 Bee Cave Road
Austin, Texas 78746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP
|
|
|
1,030,206
|
(4)
|
|
|
5.1
|
|
75 State Street
Boston, Massachusetts 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Director Nominees:
|
|
|
|
|
|
|
|
|
Douglas S. Callantine
|
|
|
73,832
|
(5)(6)
|
|
|
*
|
|
Michael F. Czerwonka, III
|
|
|
159,120
|
(5)(7)
|
|
|
*
|
|
Jane Margraff Kieser
|
|
|
182,800
|
(5)(8)
|
|
|
*
|
|
Robert J. Pannepacker, Sr.
|
|
|
249,608
|
(5)(9)
|
|
|
1.2
|
|
Jack J. Sandoski
|
|
|
321,456
|
(5)(10)
|
|
|
1.6
|
|
Robert W. White
|
|
|
809,386
|
(5)(11)
|
|
|
3.9
|
|
G. Price Wilson, Jr.
|
|
|
69,526
|
(5)(12)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Other Executive Officers:
|
|
|
|
|
|
|
|
|
Frank Kovalcheck
|
|
|
260,222
|
(5)(13)
|
|
|
1.3
|
|
Thomas J. Wasekanes
|
|
|
171,010
|
(5)(14)
|
|
|
*
|
|
Eric L. Golden
|
|
|
24,456
|
(5)(15)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (10 persons)
|
|
|
2,311,048
|
(5)
|
|
|
10.8
|
%
|
|
|
|
*
|
|
Represents less than 1% of our outstanding common stock.
|
|
(1)
|
|
Based upon filings made pursuant to the Securities Exchange Act of 1934 and information
furnished by the respective individuals. Under regulations promulgated pursuant to the
Securities Exchange Act of 1934, shares of common stock are deemed to be beneficially owned by
a person if he or she directly or indirectly has or shares (i) voting power, which includes
the power to vote or to direct the voting of the shares, or (ii) investment power, which
includes the power to dispose or to direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting and dispositive power with respect to
the shares.
|
|
|
|
Under applicable regulations, a person is deemed to have beneficial ownership of any shares
of common stock which may be acquired within 60 days of the record date pursuant to the
exercise of outstanding stock options. Shares of common stock which are subject to stock
options are deemed to be outstanding for the purpose of computing the percentage of
outstanding common stock owned by such person or group but not deemed outstanding for the
purpose of computing the percentage of common stock owned by any other person or group.
|
|
(2)
|
|
Messrs. Robert W. White, Jack J. Sandoski and Frank Kovalcheck act as trustees of the
Abington Bancorp, Inc. Employee Stock Ownership Plan Trust. As of February 22, 2011, 481,758
shares held in the plan trust were allocated to the accounts of participating employees and
1,452,201 shares were held, unallocated, for allocation in future years. In general, the
allocated shares held in the plan trust, will be voted by the plan trustees in accordance with
the
instructions of the participants. Any unallocated shares are generally required to be voted
by the plan trustees in the same manner that the majority of the shares which have been
allocated to participants are directed to be voted, subject to each case to the fiduciary
duties of the plan trustees and applicable law. The amount of our common stock beneficially
owned by officers who serve as plan trustees and by all directors and executive officers as
a group does not include the shares held by the plan trust other than shares specifically
allocated to the individual officers account.
|
153
|
|
|
(3)
|
|
Based on a Schedule 13G, filed on February 11, 2011 with the SEC by Dimensional Fund Advisors
LP, in its capacity as investment advisor, reporting sole voting power of 1,335,074 shares of
common stock and sole dispositive power over the 1,382,192 shares of common stock.
|
|
(4)
|
|
Based on a Schedule 13G/A, filed February 14, 2011 with the SEC by Wellington Management
Company, LLP. Wellington Management Company, LLP, in its capacity as investment advisor,
reports shared dispositive power and shared voting power over 1,030,206 shares of common
stock.
|
|
(5)
|
|
Includes shares over which the directors and officers may provide voting instructions which
have been granted pursuant to the Abington Bancorp 2005 and 2007 Recognition and Retention
Plans and are held in the associated trusts; and stock options granted pursuant to the
Abington Bancorp 2005 and 2007 Stock Option Plans which are exercisable within 60 days.
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
|
|
|
Stock
|
|
Name
|
|
Plan Trust
|
|
|
Option Plan
|
|
Douglas S. Callantine
|
|
|
10,000
|
|
|
|
36,000
|
|
Michael F. Czerwonka, III
|
|
|
10,000
|
|
|
|
84,000
|
|
Jane Margraff Kieser
|
|
|
10,000
|
|
|
|
84,000
|
|
Robert J. Pannepacker, Sr.
|
|
|
10,000
|
|
|
|
84,000
|
|
Jack J. Sandoski
|
|
|
12,600
|
|
|
|
156,600
|
|
Robert W. White
|
|
|
50,000
|
|
|
|
466,800
|
|
G. Price Wilson, Jr.
|
|
|
10,000
|
|
|
|
41,120
|
|
Frank Kovalcheck
|
|
|
12,600
|
|
|
|
156,600
|
|
Thomas J. Wasekanes
|
|
|
16,400
|
|
|
|
26,640
|
|
Eric L. Golden
|
|
|
3,800
|
|
|
|
12,880
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (10 persons)
|
|
|
145,400
|
|
|
|
1,148,640
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
Includes 2,820 shares held jointly with Mr. Callantines spouse and 10,012 shares held in
the Deferred Compensation Plan over which Mr. Callantine disclaims beneficial ownership.
|
|
(7)
|
|
Includes 14,400 shares held jointly with Mr. Czerwonkas spouse, 25,600 shares held by Mr.
Czerwonkas spouse and 6,120 shares held in Mr. Czerwonkas individual retirement account. An
aggregate of 40,000 of such shares are pledged as security.
|
|
(8)
|
|
Includes 10,022 shares held in the Deferred Compensation Plan over which Ms. Margraff Kieser
disclaims beneficial ownership and 3,555 shares held in the Abington Bank 401(k) Plan.
|
|
(9)
|
|
Includes 45,190 shares held by Mr. Pannepackers spouse, 38,501 shares held by Mr.
Pannepackers mother for whom he has power of attorney, and over which he disclaims beneficial
ownership and 4,196 shares held jointly with Mr. Pannepackers spouse. Include an aggregate of
82,752 shares pledged as security.
|
|
(10)
|
|
Includes 48,005 shares held in Abington Banks 401(k) Plan, 41,160 shares held in the
Deferred Compensation Plan over which Mr. Sandoski disclaims beneficial ownership, 16,000
shares held by Mr. Sandoskis mother for whom he has power of attorney and over which he
disclaims beneficial ownership and 14,106 shares allocated to Mr. Sandoskis account in the
employee stock ownership plan, over which Mr. Sandoski shares voting power.
|
|
(11)
|
|
Includes 25,307 shares held in the Abington Bank 401(k) Plan, 91,011 shares held in the
Deferred Compensation Plan Trust over which Mr. White disclaims beneficial ownership and
21,547 shares allocated to Mr. Whites account in the employee stock ownership plan, over
which Mr. White shares voting power.
|
|
(12)
|
|
Includes 1,677 shares held in Mr. Wilsons individual retirement account.
|
|
(13)
|
|
Includes 12,288 shares held jointly with Mr. Kovalchecks spouse, 15,691 shares held by Mr.
Kovalchecks spouse, 14,180 shares held in the Abington Bank 401(k) Plan, 9,948 shares held in
the Deferred Compensation Plan Trust over which Mr. Kovalcheck disclaims beneficial ownership
and 12,193 shares allocated to Mr. Kovalchecks account in the employee stock ownership plan
over which Mr. Kovalcheck shares voting power. Includes an aggregate of 25,835 shares pledged
as security.
|
|
(14)
|
|
Includes 40,000 shares held by Mr. Wasekaness spouse, 28,462 shares held in Abington Banks
401(k) Plan and 9,553 shares allocated to Mr. Wasekaness account in the employee stock
ownership plan, over which Mr. Wasekanes shares voting power.
|
|
(15)
|
|
Includes 7,776 shares allocated to Mr. Goldens account in the employee stock ownership plan,
over which Mr. Golden shares voting power.
|
154
|
|
|
ITEM 13.
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
Related Party Transactions
Abington Bank has made loans in the ordinary course of business to its directors and officers,
and other related parties. These loans were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those prevailing at the
time for loans with persons not related to Abington Bank and did not involve more than the normal
risk of collectibility or present other unfavorable features. None of these loans or other
extensions of credit are disclosed as non-accrual, past due, restructured or potential problem
loans.
Under Abington Bancorps Audit Committee Charter, the Audit Committee is required to review
and approve all related party transactions, as described in Item 404 of Regulation S-K of the SECs
rules. To the extent such transactions are ongoing business relationships with Abington Bancorp or
Abington Bank, such transactions shall be reviewed annually and such relationships shall be on
terms not materially less favorable than what would be usual and customary in similar transactions
between unrelated persons dealing at arms length.
Director Independence.
A majority of our directors are independent directors as defined in the
Nasdaq listing standards. The Board of Directors has determined that Messrs. Callantine, Czerwonka,
Pannepacker and Wilson and Ms. Margraff Kieser are independent directors.
|
|
|
ITEM 14.
|
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
Audit Fees
The Audit Committee selects our independent registered public accounting firm and pre-approves
all audit services to be provided by it to Abington Bancorp. The Audit Committee also reviews and
pre-approves all audit-related and non-audit related services rendered by our independent
registered public accounting firm in accordance with the Audit Committees charter. In its review
of these services and related fees and terms, the Audit Committee considers, among other things,
the possible effect of the performance of such services on the independence of our independent
registered public accounting firm. The Audit Committee pre-approves certain audit-related services
and certain non-audit related tax services which are specifically described by the Audit Committee
on an annual basis and separately approves other individual engagements as necessary.
The following table sets forth the aggregate fees paid by us to ParenteBeard LLC for
professional services rendered in connection with the audit of Abington Bancorps consolidated
financial statements for 2010 and 2009, respectively, as well as the fees paid by us to
ParenteBeard LLC for audit-related and other services rendered to us during 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Audit fees(1)
|
|
$
|
170,972
|
|
|
$
|
159,682
|
|
Audit-related fees(2)
|
|
|
24,974
|
|
|
|
24,069
|
|
Tax fees(3)
|
|
|
22,864
|
|
|
|
20,957
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
218,810
|
|
|
$
|
204,708
|
|
|
|
|
|
|
|
|
155
|
|
|
(1)
|
|
Includes professional services rendered for the audit of Abington Bancorps annual
consolidated financial statements, effectiveness of internal control over financial reporting
required by Section 404 of the Sarbanes-Oxley Act, and review of consolidated financial
statements included in Forms 10-Q, including out-of-pocket expenses.
|
|
(2)
|
|
Includes audit-related services provided for the annual audit of our tax-qualified benefit
plans.
|
|
(3)
|
|
Includes assistance with corporate tax matters and preparation of state and federal tax
returns.
|
Each new engagement of ParenteBeard LLC was approved in advance by the Audit Committee
and none of those engagements made use of the
de minimis
exception to pre-approval contained in the
Securities and Exchange Commissions rules.
PART IV
|
|
|
ITEM 15.
|
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
(a) Documents Filed as Part of this Report:
|
|
|
Financial Statements: The Consolidated Financial Statements of Abington Bancorp, Inc. and the
Reports of Independent Registered Public Accounting Firm thereon, as listed below, have been
filed under Item 8, Financial Statements and Supplementary Data.
|
(b) List of Exhibits
|
|
|
|
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
2.1
|
|
|
Agreement and Plan of Merger, dated as of January 26, 2011, by
and between Susquehanna Bancshares, Inc. and Abington
Bancorp, Inc.
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
Articles of Incorporation of Abington Bancorp, Inc.
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws of Abington Bancorp, Inc.
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
4.0
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Form of Stock Certificate of Abington Bancorp, Inc.
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(3)
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10.1
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*
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Amended and Restated Employment Agreement between Abington
Bancorp, Inc. and Robert W. White
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(4)
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156
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No.
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Description
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Location
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10.2
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*
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Amended and Restated Employment Agreement between Abington
Savings Bank and Robert W. White
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(4)
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10.3
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*
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Amended and Restated Employment Agreement between Abington
Savings Bank and Jack J. Sandoski
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(4)
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10.4
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*
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Employment Agreement between Abington Savings Bank and
Thomas J. Wasekanes
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(5)
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10.5
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*
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Amended and Restated Employment Agreement between Abington
Savings Bank and Frank Kovalcheck
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(4)
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10.6
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*
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Amended and Restated Employment Agreement between Abington
Savings Bank and Eric L. Golden
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(4)
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10.7
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*
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Abington Savings Bank Amended and Restated Executive Deferred
Compensation Plan
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(4)
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10.8
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*
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|
Abington Savings Bank Amended and Restated Directors Deferred
Compensation Plan
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(4)
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10.9
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*
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Abington Savings Bank Amended and Restated Board of Directors
Retirement Plan
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(1)
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10.10
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*
|
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Abington Savings Bank Amended and Restated Supplemental
Executive Retirement Plan
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(1)
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10.11
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*
|
|
Abington Bancorp, Inc. Amended and Restated 2005 Stock Option
Plan
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(4)
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10.12
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*
|
|
Abington Bancorp, Inc. Amended and Restated 2005 Stock
Recognition and Retention Plan and Trust Agreement
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(4)
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10.13
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*
|
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Form of Split Dollar Insurance Agreement between Abington
Bank and each of Robert W. White, Thomas J. Wasekanes, Frank
Kovalcheck, Jack J. Sandoski and Eric L. Golden
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(6)
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10.14
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*
|
|
Abington Bancorp, Inc. 2007 Stock Option Plan
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(7)
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10.15
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*
|
|
Abington Bancorp, Inc. 2007 Recognition and Retention Plan
and Trust Agreement
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(7)
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23.0
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Consent of ParenteBeard LLC
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Filed Herewith
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31.1
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Rule 13(a)-14(a) Certification of the Chief Executive Officer
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Filed Herewith
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31.2
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Rule 13(a)-14(a) Certification of the Chief Financial Officer
|
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Filed Herewith
|
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32.0
|
|
|
Section 1350 Certifications
|
|
Filed Herewith
|
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157
|
|
|
*
|
|
Denotes a management contract or compensatory plan or arrangement
|
|
(1)
|
|
Incorporated by reference from Abington Bancorps Current Report on Form 8-K dated as of
January 25, 2011 and filed with the SEC on January 27, 2011 (File No. 0-52705).
|
|
(2)
|
|
Incorporated by reference from the registration statement on Form S-1 of Abington Bancorp,
Inc., as amended (File No. 333-142543), as filed on May 2, 2007.
|
|
(3)
|
|
Incorporated by reference from the registration statement on Form S-1 of Abington Bancorp,
Inc. (File No. 333-142543) as filed on May 2, 2007.
|
|
(4)
|
|
Incorporated by reference from Abington Bancorps Current Report on Form 8-K dated as of
November 28, 2007 and filed with the SEC on December 3, 2007 (File No. 0-52705).
|
|
(5)
|
|
Incorporated by reference from Exhibit 10.1 to Abington Bancorps Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2009 and filed with the SEC on August 10, 2009
(File No. 0-52705).
|
|
(6)
|
|
Incorporated by reference from the Quarterly Report on Form 10-Q for Abington Bancorp, Inc.
for the quarter ended September 30, 2007 and filed with the SEC on November 14, 2007 (File No.
0-52705).
|
|
(7)
|
|
Incorporated by reference to the definitive proxy statement filed by Abington Bancorp, Inc.
with the SEC on December 26, 2007 (File No. 0-52705).
|
(c) Financial Statement Schedules
|
|
|
All schedules have been omitted as the required information is not applicable or is
presented in the consolidated financial statements or related notes included in Item 8
hereof.
|
158
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
Abington Bancorp, Inc.
|
|
|
By:
|
/s/ Robert W. White
|
Date: March 14, 2011
|
|
|
Robert W. White
|
|
|
|
Chairman, President and
Chief Executive Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
/s/ Robert W. White
Robert W. White
|
|
Chairman of the
Board, President
and
Chief Executive
Officer
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Jack J. Sandoski
Jack J. Sandoski
|
|
Director, Senior
Vice President and
Chief Financial
Officer
(principal
financial officer
and
principal
accounting officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Douglas S. Callantine
Douglas S. Callantine
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Michael F. Czerwonka, III
Michael F. Czerwonka, III
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Jane Margraff Kieser
Jane Margraff Kieser
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Robert John Pannepacker, Sr.
Robert John Pannepacker, Sr.
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ G. Price Wilson, Jr.
G. Price Wilson, Jr.
|
|
Director
|
|
March 14, 2011
|
159
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