Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - ABINGTON BANCORP, INC./PA | c16778exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - ABINGTON BANCORP, INC./PA | c16778exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - ABINGTON BANCORP, INC./PA | c16778exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - ABINGTON BANCORP, INC./PA | c16778exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-52705
Abington Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania (State or Other Jurisdiction of Incorporation or Organization)
|
20-8613037
(I.R.S. Employer Identification No.) |
180 Old York Road | ||
Jenkintown, Pennsylvania | 19046 | |
(Address of Principal Executive Offices) | (Zip Code) |
(215) 886-8280
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address or former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of
accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: As of May 2, 2011, 20,234,550 shares of the Registrants common
stock were outstanding.
ABINGTON BANCORP, INC.
TABLE OF CONTENTS
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64 | ||||||||
64 | ||||||||
65 | ||||||||
CERTIFICATIONS |
||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
ABINGTON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2011 | December 31, 2010 | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 18,405,431 | $ | 17,917,261 | ||||
Interest-bearing deposits in other banks |
29,386,046 | 59,769,447 | ||||||
Total cash and cash equivalents |
47,791,477 | 77,686,708 | ||||||
Investment securities held to maturity (estimated fair
value2011, $20,953,409; 2010, $20,806,340) |
20,384,241 | 20,384,781 | ||||||
Investment securities available for sale (amortized cost
2011, $107,946,969; 2010, $124,245,038) |
108,284,090 | 124,903,901 | ||||||
Mortgage-backed securities held to maturity (estimated fair
value2011, $53,948,263; 2010, $58,338,548) |
52,715,892 | 56,872,188 | ||||||
Mortgage-backed securities available for sale (amortized cost
2011, $158,923,851; 2010, $164,632,654) |
161,748,148 | 168,172,796 | ||||||
Loans receivable, net of allowance for loan losses
(2011, $4,301,401; 2010, $4,271,618) |
680,029,837 | 696,443,502 | ||||||
Accrued interest receivable |
4,231,694 | 4,102,984 | ||||||
Federal Home Loan Bank stockat cost |
13,183,400 | 13,877,300 | ||||||
Cash surrender value bank owned life insurance |
43,175,786 | 42,744,766 | ||||||
Property and equipment, net |
9,561,814 | 9,751,694 | ||||||
Real estate owned |
23,628,145 | 23,588,139 | ||||||
Deferred tax asset |
3,770,146 | 3,631,218 | ||||||
Prepaid expenses and other assets |
4,884,941 | 4,938,037 | ||||||
TOTAL ASSETS |
$ | 1,173,389,611 | $ | 1,247,098,014 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
LIABILITIES: |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 38,789,486 | $ | 49,807,778 | ||||
Interest-bearing |
810,158,125 | 850,251,190 | ||||||
Total deposits |
848,947,611 | 900,058,968 | ||||||
Advances from Federal Home Loan Bank |
83,867,458 | 109,874,674 | ||||||
Other borrowed money |
16,367,141 | 15,881,449 | ||||||
Accrued interest payable |
2,098,902 | 912,321 | ||||||
Advances from borrowers for taxes and insurance |
3,042,039 | 2,956,425 | ||||||
Accounts payable and accrued expenses |
6,200,955 | 5,504,215 | ||||||
Total liabilities |
960,524,106 | 1,035,188,052 | ||||||
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: 20,231,550 shares in 2011,
20,166,742 shares in 2010 |
244,602 | 244,602 | ||||||
Additional paid-in capital |
202,723,230 | 202,517,175 | ||||||
Treasury stockat cost, 4,228,690 shares in 2011,
4,293,498 shares in 2010 |
(34,394,607 | ) | (34,949,051 | ) | ||||
Unallocated common stock held by: |
||||||||
Employee Stock Ownership Plan (ESOP) |
(13,250,578 | ) | (13,460,338 | ) | ||||
Recognition & Retention Plan Trust (RRP) |
(2,337,547 | ) | (2,589,310 | ) | ||||
Deferred compensation plans trust |
(1,061,718 | ) | (1,045,153 | ) | ||||
Retained earnings |
58,935,362 | 58,519,670 | ||||||
Accumulated other comprehensive income |
2,006,761 | 2,672,367 | ||||||
Total stockholders equity |
212,865,505 | 211,909,962 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 1,173,389,611 | $ | 1,247,098,014 | ||||
See notes to unaudited consolidated financial statements.
1
Table of Contents
ABINGTON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
INTEREST INCOME: |
||||||||
Interest on loans |
$ | 8,987,401 | $ | 9,999,227 | ||||
Interest and dividends on investment and
mortgage-backed securities: |
||||||||
Taxable |
2,321,562 | 2,697,977 | ||||||
Tax-exempt |
377,634 | 398,027 | ||||||
Interest and dividends on other interest-earning assets |
16,534 | 5,892 | ||||||
Total interest income |
11,703,131 | 13,101,123 | ||||||
INTEREST EXPENSE: |
||||||||
Interest on deposits |
2,769,310 | 3,288,583 | ||||||
Interest on Federal Home Loan Bank advances |
874,912 | 1,554,366 | ||||||
Interest on other borrowed money |
21,378 | 14,292 | ||||||
Total interest expense |
3,665,600 | 4,857,241 | ||||||
NET INTEREST INCOME |
8,037,531 | 8,243,882 | ||||||
PROVISION FOR LOAN LOSSES |
| 563,445 | ||||||
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES |
8,037,531 | 7,680,437 | ||||||
NON-INTEREST INCOME |
||||||||
Service charges |
273,931 | 296,378 | ||||||
Income on bank owned life insurance |
431,020 | 438,486 | ||||||
Net loss on real estate owned |
(195,577 | ) | (581,275 | ) | ||||
Other income |
185,054 | 201,741 | ||||||
Total non-interest income |
694,428 | 355,330 | ||||||
NON-INTEREST EXPENSES |
||||||||
Salaries and employee benefits |
3,096,957 | 2,929,782 | ||||||
Occupancy |
748,662 | 712,720 | ||||||
Depreciation |
196,760 | 229,725 | ||||||
Professional services |
970,642 | 443,911 | ||||||
Data processing |
448,740 | 422,622 | ||||||
Deposit insurance premium |
518,025 | 360,503 | ||||||
Advertising and promotions |
169,657 | 107,373 | ||||||
Director compensation |
142,916 | 219,946 | ||||||
Other |
643,868 | 540,739 | ||||||
Total non-interest expenses |
6,936,227 | 5,967,321 | ||||||
INCOME BEFORE INCOME TAXES |
1,795,732 | 2,068,446 | ||||||
PROVISION FOR INCOME TAXES |
253,279 | 460,086 | ||||||
NET INCOME |
$ | 1,542,453 | $ | 1,608,360 | ||||
BASIC EARNINGS PER COMMON SHARE |
$ | 0.08 | $ | 0.08 | ||||
DILUTED EARNINGS PER COMMON SHARE |
$ | 0.08 | $ | 0.08 | ||||
BASIC AVERAGE COMMON SHARES OUTSTANDING: |
18,510,508 | 18,995,279 | ||||||
DILUTED AVERAGE COMMON SHARES OUTSTANDING: |
19,313,058 | 19,372,522 |
See notes to unaudited consolidated financial statements.
2
Table of Contents
ABINGTON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Common | ||||||||||||||||||||||||||||||||
Stock | Accumulated | |||||||||||||||||||||||||||||||
Common | Additional | Acquired by | Other | Total | ||||||||||||||||||||||||||||
Stock | Common | Paid-in | Treasury | Benefit | Retained | Comprehensive | Stockholders | |||||||||||||||||||||||||
Shares | Stock | Capital | Stock | Plans | Earnings | Income | Equity | |||||||||||||||||||||||||
BALANCEJANUARY 1, 2011 |
24,460,240 | $ | 244,602 | $ | 202,517,175 | $ | (34,949,051 | ) | $ | (17,094,801 | ) | $ | 58,519,670 | $ | 2,672,367 | $ | 211,909,962 | |||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
| | | | | 1,542,453 | | 1,542,453 | ||||||||||||||||||||||||
Net unrealized holding loss on
available for sale securities
arising during the period, net
of tax benefit of $352,780 |
| | | | | | (684,807 | ) | (684,807 | ) | ||||||||||||||||||||||
Amortization of unrecognized
deferred costs on SERP, net
of tax expense of $9,891 |
| | | | | | 19,201 | 19,201 | ||||||||||||||||||||||||
Comprehensive income |
876,847 | |||||||||||||||||||||||||||||||
Treasury stock purchased
(22,232 shares) |
| | | (276,789 | ) | | | | (276,789 | ) | ||||||||||||||||||||||
Cash dividends declared,
($0.06 per share) |
| | | | | (1,126,761 | ) | | (1,126,761 | ) | ||||||||||||||||||||||
Exercise of stock options |
| | (97,276 | ) | 831,233 | | | | 733,957 | |||||||||||||||||||||||
Excess tax benefit on stock-based
compensation |
| | 105,770 | | | | | 105,770 | ||||||||||||||||||||||||
Stock options expense |
| | 135,501 | | | | | 135,501 | ||||||||||||||||||||||||
Common stock released from
benefit plans |
| | 62,060 | | 464,123 | | | 526,183 | ||||||||||||||||||||||||
Common stock acquired by
benefit plans |
| | | | (19,165 | ) | | | (19,165 | ) | ||||||||||||||||||||||
BALANCE
MARCH 31, 2011 |
24,460,240 | $ | 244,602 | $ | 202,723,230 | $ | (34,394,607 | ) | $ | (16,649,843 | ) | $ | 58,935,362 | $ | 2,006,761 | $ | 212,865,505 | |||||||||||||||
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 |
| | | | | 1,608,360 | | 1,608,360 | ||||||||||||||||||||||||
Net unrealized holding gain on
available for sale securities
arising during the period, net
of tax expense of $113,356 |
| | | | | | 220,044 | 220,044 | ||||||||||||||||||||||||
Amortization of unrecognized
deferred costs on SERP, net
of tax benefit of $10,175 |
| | | | | | 19,751 | 19,751 | ||||||||||||||||||||||||
Comprehensive income |
1,848,155 | |||||||||||||||||||||||||||||||
Treasury stock purchased
(193,677 shares) |
| | | (1,374,751 | ) | | | | (1,374,751 | ) | ||||||||||||||||||||||
Cash dividends declared,
($0.05 per share) |
| | | | | (965,995 | ) | | (965,995 | ) | ||||||||||||||||||||||
Exercise of stock options |
| | (13,970 | ) | 65,398 | | | | 51,428 | |||||||||||||||||||||||
Excess tax liability on stock-based
compensation |
| | (63,591 | ) | | | | | (63,591 | ) | ||||||||||||||||||||||
Stock options expense |
| | 217,275 | | | | | 217,275 | ||||||||||||||||||||||||
Common stock released from
benefit plans |
| | (70,672 | ) | | 627,055 | | | 556,383 | |||||||||||||||||||||||
Common stock acquired by
benefit plans |
| | | | (17,318 | ) | | | (17,318 | ) | ||||||||||||||||||||||
BALANCE
MARCH 31, 2010 |
24,460,240 | $ | 244,602 | $ | 201,991,693 | $ | (28,755,949 | ) | $ | (18,604,405 | ) | $ | 55,447,278 | $ | 4,110,367 | $ | 214,433,586 | |||||||||||||||
See notes to unaudited consolidated financial statements.
3
Table of Contents
ABINGTON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 1,542,453 | $ | 1,608,360 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
| 563,445 | ||||||
Depreciation |
196,760 | 229,725 | ||||||
Stock-based compensation expense |
659,084 | 771,058 | ||||||
Net loss on real estate owned |
| 297,286 | ||||||
Deferred income tax expense (benefit) |
203,961 | (241,840 | ) | |||||
Amortization of: |
||||||||
Deferred loan fees |
(214,786 | ) | (331,420 | ) | ||||
Premiums and discounts, net |
(38,175 | ) | (41,830 | ) | ||||
Income from bank owned life insurance |
(431,020 | ) | (438,486 | ) | ||||
Changes in assets and liabilities which (used) provided cash: |
||||||||
Accrued interest receivable |
(128,710 | ) | (244,306 | ) | ||||
Prepaid expenses and other assets |
53,096 | 999,366 | ||||||
Accrued interest payable |
1,186,581 | 892,560 | ||||||
Accounts payable and accrued expenses |
709,267 | 311,778 | ||||||
Net cash provided by operating activities |
3,738,511 | 4,375,696 | ||||||
INVESTING ACTIVITIES: |
||||||||
Principal collected on loans |
35,487,137 | 29,717,723 | ||||||
Disbursements for loans |
(18,858,686 | ) | (17,668,949 | ) | ||||
Purchases of: |
||||||||
Mortgage-backed securities available for sale |
(9,045,938 | ) | (18,466,875 | ) | ||||
Investments available for sale |
(4,013,271 | ) | (35,013,521 | ) | ||||
Property and equipment |
(6,880 | ) | (7,439 | ) | ||||
Additions to real estate owned, net |
(40,006 | ) | | |||||
Proceeds from: |
||||||||
Maturities of mortgage-backed securities held to maturity |
| 150,178 | ||||||
Maturities of mortgage-backed securities available for sale |
522,951 | | ||||||
Maturities of investments available for sale |
20,298,500 | 18,540,000 | ||||||
Principal repayments of mortgage-backed securities held to maturity |
4,145,433 | 5,348,352 | ||||||
Principal repayments of mortgage-backed securities available for sale |
14,294,208 | 12,904,872 | ||||||
Redemption of Federal Home Loan Bank stock |
693,900 | | ||||||
Sales of real estate owned |
| 704,914 | ||||||
Net cash (used in) provided by investing activities |
43,477,348 | (3,790,745 | ) | |||||
FINANCING ACTIVITIES: |
||||||||
Net (decrease) increase in demand deposits and savings accounts |
(31,577,024 | ) | 20,215,781 | |||||
Net (decrease) increase in certificate accounts |
(19,534,333 | ) | 7,232,341 | |||||
Net increase in other borrowed money |
485,692 | 5,414,286 | ||||||
Advances from Federal Home Loan Bank |
| 935,000 | ||||||
Repayments of advances from Federal Home Loan Bank |
(26,007,216 | ) | (6,941,261 | ) | ||||
Net increase in advances from borrowers for taxes and insurance |
85,614 | 548,213 | ||||||
Proceeds from exercise of stock options |
733,957 | 51,428 | ||||||
Excess tax benefit (liability) from stock-based compensation |
105,770 | (63,591 | ) | |||||
Purchase of treasury stock |
(276,789 | ) | (1,374,751 | ) | ||||
Payment of cash dividend |
(1,126,761 | ) | (965,995 | ) | ||||
Net cash (used in) provided by financing activities |
(77,111,090 | ) | 25,051,451 | |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(29,895,231 | ) | 25,636,402 | |||||
CASH AND CASH EQUIVALENTSBeginning of period |
77,686,708 | 44,714,239 | ||||||
CASH AND CASH EQUIVALENTSEnd of period |
$ | 47,791,477 | $ | 70,350,641 | ||||
See notes to unaudited consolidated financial statements.
4
Table of Contents
ABINGTON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the year for: |
||||||||
Interest on deposits and other borrowings |
$ | 2,479,019 | $ | 3,964,381 | ||||
Income taxes |
$ | | $ | | ||||
Non-cash transfer of loans to real estate owned |
$ | | $ | | ||||
Acquisition of stock for deferred compensation plans trust |
$ | | $ | 17,318 | ||||
Release of stock from deferred compensation plans trust |
$ | 2,600 | $ | 2,600 | ||||
See notes to unaudited consolidated financial statements.
5
Table of Contents
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
Basis of Financial Statement Presentation Abington Bancorp, Inc. (the Company) is a
Pennsylvania corporation which was organized to be the stock holding company for Abington
Savings Bank in connection with our second-step conversion and reorganization completed in 2007.
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 limited liability companies (LLCs). The
consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, which combined constitute one reportable segment. All significant intercompany
balances and transactions have been eliminated.
The Banks executive offices are in Jenkintown, Pennsylvania, with 12 other branches and seven
limited service facilities located in Montgomery, Bucks and Delaware Counties, Pennsylvania. The
Bank is principally engaged in the business of accepting customer deposits and investing these
funds in loans that include residential mortgage, commercial, consumer and construction loans.
The principal business of ASB Investment Co. is to hold certain investment securities for the
Bank. The principal business of the LLCs is to own and manage certain properties that were
acquired as real estate owned. The Bank also has the following inactive subsidiaries Keswick
Services II, and its wholly owned subsidiaries, and Abington Corp.
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 10.
The accompanying unaudited consolidated financial statements were prepared in accordance with
the instructions to Form 10-Q, and therefore, do not include all the information or footnotes
necessary for a complete presentation of financial condition, results of operations, changes in
stockholders equity and comprehensive income and cash flows in conformity with accounting
principles generally accepted in the United States of America. However, all normal recurring
adjustments that, in the opinion of management, are necessary for a fair presentation of the
consolidated financial statements have been included. These financial statements should be read
in conjunction with the audited consolidated financial statements of Abington Bancorp, Inc. and
the accompanying notes thereto for the year ended December 31, 2010, which are included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010. The results for the
three months ended March 31, 2011 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2011, or any other period.
6
Table of Contents
The Company follows accounting standards set by the Financial Accounting Standards Board (the
FASB). The FASB sets accounting principles generally accepted in the United States (U.S.
GAAP) that we follow to ensure we consistently report our financial condition, results of
operations and cash flows. The FASB has established the FASB Accounting Standards Codification
(the Codification or the ASC) as the source of authoritative accounting.
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 March
31, 2011.
Use of Estimates in the Preparation of Financial StatementsThe 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.
Other-Than-Temporary Impairment of SecuritiesSecurities are evaluated on at least a quarterly
basis, and more frequently when market conditions warrant such an evaluation, to determine
whether a decline in their value is other-than-temporary. To determine whether a loss in value
is other-than-temporary, management utilizes criteria such as the reasons underlying the
decline, the magnitude and duration of the decline and 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 three months ended March 31, 2011 or 2010.
Allowance for Loan LossesThe allowance for loan losses is increased by charges to income
through the provision for loan losses and decreased by charge-offs (net of recoveries). The
allowance is maintained at a level that management considers adequate to provide for losses
based upon evaluation of the known and inherent risks in the loan portfolio. 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.
7
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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 4. The determination of fair value for the collateral underlying a loan is
more fully described in Note 9.
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.
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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. Under certain circumstances, a
portion of the allowance may be unallocated, in that it is not directly attributable to the
losses in any specific portion of our loan portfolio. This can occur when management determines
that the trends within our loan portfolio are not reflective of the trends in our market area or
the general economy. 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.
Comprehensive IncomeThe Company presents as a component of comprehensive income the amounts
from transactions and other events which currently are excluded from the consolidated statements
of income and are recorded directly to stockholders equity. These amounts consist of unrealized
holding gains on available for sale securities and amortization of unrecognized deferred costs
of the Companys defined benefit pension plan.
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The components of other comprehensive income are as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net unrealized (loss) gain on securities
arising during the period, net of tax |
$ | (684,807 | ) | $ | 220,044 | |||
Plus: reclassification adjustment for net loss
(gain) included in net income, net of tax |
| | ||||||
Net unrealized (loss) gain on securities,
net of tax |
(684,807 | ) | 220,044 | |||||
Amortization of deferred costs on
supplemental retirement plan, net of tax |
19,201 | 19,751 | ||||||
Total other comprehensive (loss) income,
net of tax |
$ | (665,606 | ) | $ | 239,795 | |||
The components of accumulated other comprehensive income are as follows:
March 31 | December 31, | |||||||
2011 | 2010 | |||||||
Net unrealized gain on securities, net of tax |
$ | 2,086,536 | $ | 2,771,343 | ||||
Unrecognized deferred costs of supplemental
retirment plan, net of tax |
(79,775 | ) | (98,976 | ) | ||||
Total accumulated other comprehensive income,
net of tax |
$ | 2,006,761 | $ | 2,672,367 | ||||
Share-Based CompensationThe 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 March 31, 2011, the Company has four share-based compensation plans, the 2005 and the 2007
Recognition and Retention Plans and the 2005 and 2007 Stock Option Plans. Share awards were
first issued under the 2005 plans in July 2005. Share awards were first issued under the 2007
plans in January 2008. These plans are more fully described in Note 7.
The Company also has an employee stock ownership plan (ESOP). This plan is more fully
described in Note 7. 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.
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Earnings per shareEarnings per share (EPS) consists of two separate components, basic EPS
and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common
stock outstanding for each period presented. Diluted EPS is calculated based on the weighted
average number of shares of common stock outstanding plus dilutive common stock equivalents
(CSEs). CSEs consist of shares that are assumed to have been purchased with the proceeds from
the exercise of stock options, as well as unvested common stock awards. Common stock equivalents
which are considered antidilutive are not included for the purposes of this calculation. For the
three months ended March 31, 2001 and 2010, there were 3,200 and 2,183,700 antidilutive CSEs,
respectively. Earnings per share were calculated as follows:
Three Months Ended March 31 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Net income |
$ | 1,542,453 | $ | 1,542,453 | $ | 1,608,360 | $ | 1,608,360 | ||||||||
Weighted average shares outstanding |
18,510,508 | 18,510,508 | 18,995,279 | 18,995,279 | ||||||||||||
Effect of common stock equivalents |
| 802,550 | | 377,243 | ||||||||||||
Adjusted weighted average shares used
in earnings per share computation |
18,510,508 | 19,313,058 | 18,995,279 | 19,372,522 | ||||||||||||
Earnings per share |
$ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | ||||||||
Recent Accounting PronouncementsIn 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 this additional
requirement on January 1, 2011. The adoptions did not have any impact on our financial position
or results of operations.
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, except for the requirement to include
information for activity that occurs during a reporting period, which was adopted on January 1,
2011. The adoptions did not have any impact on our financial position or results of operations.
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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 adopted this guidance on January 1, 2011.
The adoptions did not have any impact on our financial position or results of operations.
In January 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. The update related
to TDRs was issued April 2011 and is effective for interim and annual periods beginning after
June 15, 2011. The Company is continuing to evaluate this guidance, but does not expect the
adoption to have a significant impact on our financial position or results of operations.
In April 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring, which updates ASC 310. This updated clarifies
which loan modifications constitute troubled debt restructurings. In evaluating whether a
restructuring constitutes a troubled debt restructuring, a creditor must separately conclude
that both of the following exist: 1) the restructuring constitutes a concession; 2) the debtor
is experiencing financial difficulty. The update clarifies the guidance on a creditors
evaluation of whether it has granted a concession to note that if a debtor does not otherwise
have access to funds at a market rate for debt with similar characteristics as the restructured
debt, the restructuring would be considered to be at a below-market rate, which may indicate
that the creditor has granted a concession. Additionally, a temporary or permanent increase in
the contractual interest rate as a result of a restructuring does not preclude the restructuring
from being considered a concession because the new contractual interest rate on the restructured
debt could still be below the market interest rate for new debt with similar characteristics.
Furthermore, a restructuring that results in a delay in payment that is insignificant is not a
concession. The update also clarifies the guidance on a creditors evaluation of whether a
debtor is experiencing financial difficulty to note that a creditor may conclude that a debtor
is experiencing financial difficulties, even though the debtor is not currently in payment
default. The amendments in this ASU are effective for the first interim or annual period
beginning on or after June 15, 2011. The Company is continuing to evaluate this guidance, but
does not expect the adoption to have a significant impact on our financial position or results
of operations, as we have already implemented these principles in our evaluations of TDRs.
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In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase
Agreements, which updates ASC 860, Transfers and Servicing. The ASU removes from the assessment
of effective control the criterion requiring the transferor to have the ability to repurchase or
redeem the financial assets on substantially the agreed terms, even in the event of default by
the transferee. Accordingly, upon the adoption of the ASUs guidance, a transferor in a
repurchase transaction is deemed to have effective control if the following three conditions in
ASC 860-10-40-24 are met: 1) The financial assets to be repurchased or redeemed are the same or
substantially the same
as those transferred, 2) The agreement is to repurchase or redeem them before maturity, at a
fixed or determinable price, and 3) The agreement is entered into contemporaneously with, or in
contemplation of, the transfer. The guidance in the ASU is effective prospectively for
transactions or modifications of existing transactions that occur on or after the first interim
or annual period beginning on or after December 15, 2011. Early adoption is not permitted. The
Company is continuing to evaluate this guidance, but does not expect the adoption to have a
significant impact on our financial position or results of operations.
ReclassificationsCertain items in the 2010 consolidated financial statements have been
reclassified to conform to the presentation in the 2011 consolidated financial statements. Such
reclassifications did not have a material impact on the presentation of the overall financial
statements.
2. | INVESTMENT SECURITIES |
The amortized cost and estimated fair value of investment securities are summarized as follows:
Held to Maturity | ||||||||||||||||
March 31, 2011 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Debt securities: |
||||||||||||||||
Municipal bonds |
$ | 20,384,241 | $ | 584,409 | $ | (15,241 | ) | $ | 20,953,409 | |||||||
Total debt securities |
$ | 20,384,241 | $ | 584,409 | $ | (15,241 | ) | $ | 20,953,409 | |||||||
Available for Sale | ||||||||||||||||
March 31, 2011 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Debt securities: |
||||||||||||||||
Agency bonds |
$ | 82,364,990 | $ | 669,133 | $ | (1,053,395 | ) | $ | 81,980,728 | |||||||
Corporate bonds and
commercial paper |
4,528,535 | 42,641 | | 4,571,176 | ||||||||||||
Municipal bonds |
18,372,240 | 644,973 | (3,080 | ) | 19,014,133 | |||||||||||
Total debt securities |
105,265,765 | 1,356,747 | (1,056,475 | ) | 105,566,037 | |||||||||||
Equity securities: |
||||||||||||||||
Mutual funds |
2,681,204 | 36,849 | | 2,718,053 | ||||||||||||
Total equity securities |
2,681,204 | 36,849 | | 2,718,053 | ||||||||||||
Total |
$ | 107,946,969 | $ | 1,393,596 | $ | (1,056,475 | ) | $ | 108,284,090 | |||||||
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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 Sale | ||||||||||||||||
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 | |||||||
There were no sales of debt or equity securities during the three months ended March 31,
2011 or 2010. No impairment charges were recognized on investment securities during the three
months ended March 31, 2011 or 2010.
All municipal bonds included in debt securities are bank-qualified municipal bonds.
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The amortized cost and estimated fair value of debt securities by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because the parties may have
the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2011 | ||||||||||||||||
Available for Sale | Held to Maturity | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Due in one year or less |
$ | 3,563,337 | $ | 3,588,152 | $ | | $ | | ||||||||
Due after one year through five years |
96,756,428 | 96,876,009 | | | ||||||||||||
Due after five years through ten years |
4,946,000 | 5,101,876 | 16,299,068 | 16,772,475 | ||||||||||||
Due after ten years |
| | 4,085,173 | 4,180,934 | ||||||||||||
Total |
$ | 105,265,765 | $ | 105,566,037 | $ | 20,384,241 | $ | 20,953,409 | ||||||||
The table below sets forth investment securities which had an unrealized loss position as
of March 31, 2011:
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 |
$ | (15,241 | ) | $ | 1,320,355 | $ | | $ | | |||||||
Total securities held to maturity |
(15,241 | ) | 1,320,355 | | | |||||||||||
Securities available for sale: |
||||||||||||||||
Agency bonds |
(1,053,395 | ) | 65,914,260 | | | |||||||||||
Municipal bonds |
(3,080 | ) | 959,349 | | | |||||||||||
Total securities available for sale |
(1,056,475 | ) | 66,873,609 | | | |||||||||||
Total |
$ | (1,071,716 | ) | $ | 68,193,964 | $ | | $ | | |||||||
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The table below sets forth investment securities which had an unrealized loss position 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 | $ | | $ | | |||||||
On a quarterly basis, management of the Company reviews the securities in its investment
portfolio to identify any securities that might have an other-than-temporary impairment. At
March 31, 2011, 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
March 31, 2011, consisted of 28 securities having an aggregate depreciation of 1.5% from the
Companys amortized cost basis. The securities included 21 agency bonds and seven municipal
bonds. Management has concluded that, as of March 31, 2011, 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 of these securities, nor does it anticipate
that it will be required to sell any of these securities prior to a recovery of their cost
basis.
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3. | MORTGAGE-BACKED SECURITIES |
The amortized cost and estimated fair value of mortgage-backed securities are summarized as
follows:
Held to Maturity | ||||||||||||||||
March 31, 2011 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
GNMA pass-through
certificates |
$ | 13,216,242 | $ | 379,390 | $ | | $ | 13,595,632 | ||||||||
FNMA pass-through
certificates |
18,194,725 | 1,079,998 | | 19,274,723 | ||||||||||||
FHLMC pass-through
certificates |
8,850,070 | 336,846 | | 9,186,916 | ||||||||||||
Collateralized mortgage
obligations |
12,454,855 | | (563,863 | ) | 11,890,992 | |||||||||||
Total |
$ | 52,715,892 | $ | 1,796,234 | $ | (563,863 | ) | $ | 53,948,263 | |||||||
Available for sale | ||||||||||||||||
March 31, 2011 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
GNMA pass-through
certificates |
$ | 1,789 | $ | 68 | $ | | $ | 1,857 | ||||||||
FNMA pass-through
certificates |
27,684,710 | 1,735,714 | | 29,420,424 | ||||||||||||
FHLMC pass-through
certificates |
22,937,870 | 1,588,047 | | 24,525,917 | ||||||||||||
Collateralized mortgage
obligations |
108,299,482 | 489,736 | (989,268 | ) | 107,799,950 | |||||||||||
Total |
$ | 158,923,851 | $ | 3,813,565 | $ | (989,268 | ) | $ | 161,748,148 | |||||||
17
Table of Contents
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 | |||||||
There were no sales of mortgage-backed securities during the three months ended March 31,
2011 or 2010. No impairment charge was recognized on mortgage-backed securities during the three
months ended March 31, 2011 or 2010.
Our collateralized mortgage obligations (CMOs) are issued by the FNMA, the FHLMC, and the GNMA
as well as certain AAA rated private issuers. At March 31, 2011 and December 31, 2010,
respectively, $6.3 million and $6.6 million of our CMOs were issued by private issuers.
18
Table of Contents
The table below sets forth mortgage-backed securities which had an unrealized loss position as
of March 31, 2011:
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 |
$ | (17,418 | ) | $ | (2,867,344 | ) | $ | (546,445 | ) | $ | 9,023,648 | |||||
Total securities held
to maturity |
(17,418 | ) | (2,867,344 | ) | (546,445 | ) | 9,023,648 | |||||||||
Securities available for sale: |
||||||||||||||||
Collateralized mortgage
obligations |
(989,268 | ) | 65,111,069 | | | |||||||||||
Total securities
available for sale |
(989,268 | ) | 65,111,069 | | | |||||||||||
Total |
$ | (1,006,686 | ) | $ | 62,243,725 | $ | (546,445 | ) | $ | 9,023,648 | ||||||
The table below sets forth mortgage-backed securities which had an unrealized loss position
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 | ||||||
19
Table of Contents
At March 31, 2011, mortgage-backed securities in a gross unrealized loss position for 12
months or longer consisted of three securities having an aggregate depreciation of 5.7% 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 March 31, 2011, had declines of approximately 6.5% and 16.6% from
their amortized cost basis at such date. The third security, with a principal balance of
approximately $6.2 million at March 31, 2011, had a decline of approximately 1.2% from its
amortized cost basis at such date. Mortgage-backed securities in a gross unrealized loss
position for less than 12 months at March 31, 2011, consisted of 26 securities having an
aggregate depreciation of 1.5% from the Companys amortized cost basis. One of these securities
was a CMO issued by a private issuer. This security had a decline of 0.6% from its amortized
cost basis at March 31, 2011. All of the remaining securities were CMOs issued by government
agencies. Management has concluded that, as of March 31, 2011, 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 of these securities, nor does it anticipate that it
will be required to sell any of these securities prior to a recovery of their cost basis.
4. | LOANS RECEIVABLE AND REAL ESTATE OWNED |
Loans receivable consist of the following:
March 31, 2011 | December 31, 2010 | |||||||
One-to four-family residential |
$ | 385,486,465 | $ | 393,434,519 | ||||
Multi-family residential and commercial |
137,307,600 | 141,090,844 | ||||||
Construction |
129,431,691 | 138,558,368 | ||||||
Home equity lines of credit |
39,743,652 | 41,213,274 | ||||||
Commercial business loans |
16,192,660 | 16,326,982 | ||||||
Consumer non-real estate loans |
2,573,839 | 870,406 | ||||||
Total loans |
710,735,907 | 731,494,393 | ||||||
Less: |
||||||||
Construction loans in process |
(25,653,015 | ) | (30,065,072 | ) | ||||
Deferred loan fees, net |
(751,654 | ) | (714,201 | ) | ||||
Allowance for loan losses |
(4,301,401 | ) | (4,271,618 | ) | ||||
Loans receivablenet |
$ | 680,029,837 | $ | 696,443,502 | ||||
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.
20
Table of Contents
The Bank has sold and was servicing loans for others in the amounts of approximately $15.6
million and $16.0 million at March 31, 2011 and December 31, 2010, respectively. These loan
balances are excluded from the Companys consolidated financial statements. At March 31, 2011
and December 31, 2010, mortgage servicing rights of $24,000 and $26,000, respectively, were
included in other assets. No valuation allowance was deemed necessary for any of the periods
presented.
Following is a summary of changes in the allowance for loan losses:
Three Months Ended | Year Ended | Three Months Ended | ||||||||||
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||
Balancebeginning of year |
$ | 4,271,618 | $ | 9,090,353 | $ | 9,090,353 | ||||||
Provision for loan losses |
| 976,550 | 563,445 | |||||||||
Charge-offs |
(15,255 | ) | (7,076,332 | ) | (342,267 | ) | ||||||
Recoveries |
45,038 | 1,281,047 | 8,411 | |||||||||
Charge-offsnet |
29,783 | (5,795,285 | ) | (333,856 | ) | |||||||
Balanceend of period |
$ | 4,301,401 | $ | 4,271,618 | $ | 9,319,942 | ||||||
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 1.
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 March 31, 2011:
Special | ||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
One-to four-family residential |
$ | 383,263 | $ | 81 | $ | 2,142 | $ | | $ | 385,486 | ||||||||||
Multi-family residential and
commercial |
103,929 | 11,481 | 21,897 | | 137,307 | |||||||||||||||
Construction: |
||||||||||||||||||||
Land only |
3,227 | 1,810 | 3,511 | | 8,548 | |||||||||||||||
One-to four-family residential |
18,218 | 14,476 | 9,030 | | 41,724 | |||||||||||||||
Multi-family residential |
5,650 | 20,457 | 417 | | 26,524 | |||||||||||||||
Commercial |
15,087 | | 11,896 | | 26,983 | |||||||||||||||
Total construction |
42,182 | 36,743 | 24,854 | | 103,779 | |||||||||||||||
Home equity lines of credit |
39,744 | | | | 39,744 | |||||||||||||||
Commercial business loans |
14,853 | 1,340 | | | 16,193 | |||||||||||||||
Consumer non-real estate loans |
2,574 | | | | 2,574 | |||||||||||||||
Total |
$ | 586,545 | $ | 49,645 | $ | 48,893 | $ | | $ | 685,083 | ||||||||||
21
Table of Contents
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 9.
22
Table of Contents
The following table summarizes information in regards to impaired loans by loan portfolio class
as of March 31, 2011:
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
One-to four-family residential |
$ | 435 | $ | 435 | $ | 40 | $ | 5 | $ | | ||||||||||
Multi-family residential and commercial |
| | | | | |||||||||||||||
Construction: |
||||||||||||||||||||
Land only |
| | | | | |||||||||||||||
One-to four-family residential |
3,743 | 4,077 | 208 | 342 | 27 | |||||||||||||||
Multi-family residential |
| | | | | |||||||||||||||
Commercial |
1,660 | 1,852 | 230 | 1,699 | | |||||||||||||||
Total construction |
5,403 | 5,929 | 438 | 2,041 | 27 | |||||||||||||||
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 | $ | | $ | 454 | $ | 8 | ||||||||||
Multi-family residential and commercial |
9,924 | 11,019 | | 9,813 | 112 | |||||||||||||||
Construction |
||||||||||||||||||||
Land only |
600 | 1,928 | | 600 | | |||||||||||||||
One-to four-family residential |
3,072 | 5,327 | | 1,252 | 19 | |||||||||||||||
Multi-family residential |
417 | 417 | | 417 | | |||||||||||||||
Commercial |
1,359 | 1,584 | | 1,364 | | |||||||||||||||
Total construction |
5,448 | 9,256 | | 3,633 | 19 | |||||||||||||||
Home equity lines of credit |
| | | | | |||||||||||||||
Commercial business loans |
| | | | | |||||||||||||||
Consumer non-real estate loans |
| | | | | |||||||||||||||
Total: |
||||||||||||||||||||
One-to four-family residential |
$ | 1,018 | $ | 1,018 | $ | 40 | $ | 459 | $ | 8 | ||||||||||
Multi-family residential and commercial |
9,924 | 11,019 | | 9,813 | 112 | |||||||||||||||
Construction |
||||||||||||||||||||
Land only |
600 | 1,928 | | 600 | | |||||||||||||||
One-to four-family residential |
6,815 | 9,404 | 208 | 1,594 | 46 | |||||||||||||||
Multi-family residential |
417 | 417 | | 417 | | |||||||||||||||
Commercial |
3,019 | 3,436 | 230 | 3,063 | | |||||||||||||||
Total construction |
10,851 | 15,185 | 438 | 5,674 | 46 | |||||||||||||||
Home equity lines of credit |
| | | | | |||||||||||||||
Commercial business loans |
| | | | | |||||||||||||||
Consumer non-real estate loans |
| | | | |
23
Table of Contents
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 |
| | | | |
24
Table of Contents
The following table summarizes the distribution of our allowance for loan losses and
recorded investment in loan receivables for the three months ended March 31, 2011:
March 31, 2011 | ||||||||||||||||||||||||||||||||||||||||
Multi-family | Construction | Consumer | ||||||||||||||||||||||||||||||||||||||
One- to Four- | Residential | One- to Four- | Home Equity | Commercial | Non-real | |||||||||||||||||||||||||||||||||||
Family | and | Family | Multi-family | Lines of | Business | Estate | Unallocated | |||||||||||||||||||||||||||||||||
Residential | Commercial | Land Only | Residential | Residential | Commercial | Credit | Loans | Loans | Allowance | |||||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||||||||||
Beginning balance |
$ | 528 | $ | 841 | $ | 362 | $ | 1,100 | $ | 28 | $ | 1,250 | $ | 82 | $ | 75 | $ | 6 | $ | | ||||||||||||||||||||
Charge-offs |
| | | | | | | | (15 | ) | | |||||||||||||||||||||||||||||
Recoveries |
| | | | 37 | | | | 7 | | ||||||||||||||||||||||||||||||
Provisions |
31 | 29 | 1 | 5 | (37 | ) | (181 | ) | (3 | ) | (1 | ) | 16 | 140 | ||||||||||||||||||||||||||
Ending balance |
$ | 559 | $ | 870 | $ | 363 | $ | 1,105 | $ | 28 | $ | 1,069 | $ | 79 | $ | 74 | $ | 14 | $ | 140 | ||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||||||
individually evaluated
for impairment |
$ | 40 | $ | | $ | | $ | 208 | $ | | $ | 230 | $ | | $ | | $ | | n/a | |||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||||||
collectively evaluated
for impairment |
$ | 519 | $ | 870 | $ | 363 | $ | 897 | $ | 28 | $ | 839 | $ | 79 | $ | 74 | $ | 14 | n/a | |||||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||||||||||||||||||
Ending balance |
$ | 385,486 | $ | 137,307 | $ | 8,548 | $ | 41,724 | $ | 26,524 | $ | 26,983 | $ | 39,744 | $ | 16,193 | $ | 2,574 | n/a | |||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||||||
individually evaluated
for impairment |
$ | 1,018 | $ | 9,924 | $ | 600 | $ | 6,815 | $ | 417 | $ | 3,019 | $ | | $ | | $ | | n/a | |||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||||||
collectively evaluated
for impairment |
$ | 384,468 | $ | 127,383 | $ | 7,948 | $ | 34,909 | $ | 26,107 | $ | 23,964 | $ | 39,744 | $ | 16,193 | $ | 2,574 | n/a | |||||||||||||||||||||
25
Table of Contents
The following table summarizes the distribution of our allowance for loan losses and
recorded investment in loan receivables as of December 31, 2010:
December 31, 2010 | ||||||||||||||||||||||||||||||||||||
Multi-family | Construction | Consumer | ||||||||||||||||||||||||||||||||||
One- to Four- | Residential | One- to Four- | Home Equity | Commercial | Non-real | |||||||||||||||||||||||||||||||
Family | and | Family | Multi-family | Lines of | Business | Estate | ||||||||||||||||||||||||||||||
Residential | Commercial | Land Only | Residential | Residential | Commercial | Credit | Loans | Loans | ||||||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||||||
Ending balance |
$ | 528 | $ | 841 | $ | 362 | $ | 1,100 | $ | 28 | $ | 1,250 | $ | 82 | $ | 75 | $ | 6 | ||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||
individually evaluated
for impairment |
$ | | $ | | $ | | $ | 34 | $ | | $ | 272 | $ | | $ | | $ | | ||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||
collectively evaluated
for impairment |
$ | 528 | $ | 841 | $ | 362 | $ | 1,066 | $ | 28 | $ | 978 | $ | 82 | $ | 75 | $ | 6 | ||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||||||||||||||
Ending balance |
$ | 393,435 | $ | 141,091 | $ | 9,067 | $ | 42,185 | $ | 25,797 | $ | 31,444 | $ | 41,213 | $ | 16,327 | $ | 870 | ||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||
individually evaluated
for impairment |
$ | 583 | $ | 9,765 | $ | 600 | $ | 1,598 | $ | 417 | $ | 3,049 | $ | | $ | | $ | | ||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||||||||||
collectively evaluated
for impairment |
$ | 392,852 | $ | 131,326 | $ | 8,467 | $ | 40,587 | $ | 25,380 | $ | 28,395 | $ | 41,213 | $ | 16,327 | $ | 870 | ||||||||||||||||||
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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. No interest income was recognized on non-accrual loans for the
three months ended March 31, 2011 or 2010. Interest income foregone on non-accrual loans was
$157,000 and $474,000 for three months ended March 31, 2011 and 2010, respectively.
The following table presents non-accrual loans by classes of the loan portfolio as of the dates
indicated:
March 31, 2011 | December 31, 2010 | |||||||
(In Thousands) | ||||||||
One-to four-family residential |
$ | | $ | | ||||
Multi-family residential and commercial |
1,514 | 1,348 | ||||||
Construction: |
||||||||
Land only |
600 | 600 | ||||||
One-to four-family residential |
1,511 | 1,597 | ||||||
Multi-family residential |
417 | 417 | ||||||
Commercial |
3,019 | 3,050 | ||||||
Total construction |
5,547 | 5,664 | ||||||
Home equity lines of credit |
| | ||||||
Commercial business loans |
| | ||||||
Consumer non-real estate loans |
| | ||||||
Total |
$ | 7,061 | $ | 7,012 | ||||
Non-accrual loans amounted to $7.1 million and $7.0 million, respectively, at March 31,
2011 and December 31, 2010. Non-performing loans, which consist of non-accruing loans plus
accruing loans 90 days or more past due, amounted to $8.2 million and $9.0 million,
respectively, at March 31, 2011 and December 31, 2010. 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.
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The following table presents the classes of the loan portfolio summarized by past due status as
of March 31, 2011:
Recorded | ||||||||||||||||||||||||||||
Investment | ||||||||||||||||||||||||||||
90 Days | Total | 90 Days or | ||||||||||||||||||||||||||
30-59 Days | 60-89 Days | or More | Total | Loan | More and | |||||||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Current | Receivables | Accruing | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
One-to four-family residential |
$ | 2,829 | $ | 22 | $ | 1,028 | $ | 3,879 | $ | 381,607 | $ | 385,486 | $ | 1,028 | ||||||||||||||
Multi-family
residential and commercial |
2,375 | 2,373 | 185 | 4,933 | 132,374 | 137,307 | | |||||||||||||||||||||
Construction: |
||||||||||||||||||||||||||||
Land only |
| | 600 | 600 | 7,948 | 8,548 | | |||||||||||||||||||||
One-to four-family residential |
4,131 | | 1,525 | 5,656 | 36,068 | 41,724 | 14 | |||||||||||||||||||||
Multi-family residential |
| | 417 | 417 | 26,107 | 26,524 | | |||||||||||||||||||||
Commercial |
| | 3,019 | 3,019 | 23,964 | 26,983 | | |||||||||||||||||||||
Total construction |
4,131 | | 5,561 | 9,692 | 94,087 | 103,779 | 14 | |||||||||||||||||||||
Home equity lines of credit |
212 | | 62 | 274 | 39,470 | 39,744 | 62 | |||||||||||||||||||||
Commercial business loans |
| | | | 16,193 | 16,193 | | |||||||||||||||||||||
Consumer non-real estate loans |
| | | | 2,574 | 2,574 | | |||||||||||||||||||||
Total |
$ | 9,547 | $ | 2,395 | $ | 6,836 | $ | 18,778 | $ | 666,305 | $ | 685,083 | $ | 1,104 | ||||||||||||||
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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 | Loan | 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 | ||||||||||||||
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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 eight loans classified as TDRs at March 31, 2011, with an aggregate outstanding
balance of $13.8 million at such date. The $13.8 million of total TDRs consisted of four
multi-family residential and commercial real estate loans with an aggregate outstanding balance
of $9.7 million, two one- to four-family residential mortgage loans with an aggregate
outstanding balance of $583,000, and two construction loans with an outstanding balance of $3.4
million at March 31, 2011. Except for one one- to four-family residential mortgage loan that was
90 days past due, none of the TDRs were delinquent at March 31, 2011. Of the eight TDRs, one
commercial real estate loan with an outstanding balance of $1.3 million at March 31, 2011 was
classified as non-accrual. No specific allowance was reserved on any of the TDRs at such date,
except for a reserve of $174,000 in the aggregate reserved on the two construction loans. 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 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.
Following is a summary of changes in the balance of real estate owned for the periods presented:
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
Balancebeginning of period |
$ | 23,588,139 | $ | 22,818,856 | ||||
Additions |
| 10,641,000 | ||||||
Capitalized improvements |
40,006 | 575,699 | ||||||
Valuation adjustments |
| (350,981 | ) | |||||
Dispositions |
| (10,096,435 | ) | |||||
Balanceend of period |
$ | 23,628,145 | $ | 23,588,139 | ||||
5. | DEPOSITS |
Deposits consist of the following major classifications:
March 31, 2011 | December 31, 2010 | |||||||||||||||
Type of Account | Amount | Percent | Amount | Percent | ||||||||||||
Certificates |
$ | 412,482,145 | 48.6 | % | $ | 432,016,478 | 48.0 | % | ||||||||
Passbook and MMDA |
307,192,979 | 36.2 | 326,060,212 | 36.2 | ||||||||||||
NOW |
90,483,001 | 10.6 | 92,174,500 | 10.3 | ||||||||||||
DDA |
38,789,486 | 4.6 | 49,807,778 | 5.5 | ||||||||||||
Total |
$ | 848,947,611 | 100.0 | % | $ | 900,058,968 | 100.0 | % | ||||||||
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6. | DEFERRED INCOME TAXES |
Items that gave rise to significant portions of the deferred tax balances are as follows:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 1,462,476 | $ | 1,452,350 | ||||
Deferred compensation |
1,805,533 | 2,097,730 | ||||||
Write-down of impaired investments |
295,529 | 295,529 | ||||||
Write-down of real estate owned |
164,158 | 164,158 | ||||||
Property and equipment |
230,449 | 219,098 | ||||||
Alternative minimum tax refund |
837,440 | 837,440 | ||||||
Other assets |
419,287 | 365,883 | ||||||
Total deferred tax assets |
5,214,872 | 5,432,188 | ||||||
Deferred tax liabilities: |
||||||||
Unrealized gain on securities available-for-sale |
(1,074,883 | ) | (1,427,662 | ) | ||||
Deferred loan fees |
(360,076 | ) | (364,331 | ) | ||||
Other liabilities |
(9,767 | ) | (8,977 | ) | ||||
Total deferred tax liabilities |
(1,444,726 | ) | (1,800,970 | ) | ||||
Net deferred tax asset |
$ | 3,770,146 | $ | 3,631,218 | ||||
7. | PENSION, PROFIT SHARING AND STOCK COMPENSATION PLANS |
In addition to the plans disclosed below, the Company also maintains an executive deferred
compensation plan for selected executive officers, which was frozen retroactive to January 1,
2005, a deferred compensation plan for directors, a supplemental retirement plan for directors
and selected executive officers and a 401(k) retirement plan for substantially all of its
employees. Further detail of these plans can be obtained from the Companys Annual Report on
Form 10-K for the year ended December 31, 2010.
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 March 31,
2011, the ESOP held approximately 1.5 million unallocated shares of Company common stock with a
fair value of $17.9
million and approximately 482,000 allocated shares with a fair value of $5.9 million. During the
three-month periods ended March 31, 2011 and 2010, approximately 24,000 shares were committed to
be released to participants in each period, resulting in recognition of approximately $291,000
and $180,000 in compensation expense, respectively.
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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. 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. 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 March 31, 2011 and 2010,
and changes during the three months ended March 31, 2011 and 2010 are presented below:
Three Months Ended March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Number of | average grant | Number of | average grant | |||||||||||||
shares | date fair value | shares | date fair value | |||||||||||||
Nonvested at the beginning of the year |
311,060 | $ | 9.21 | 481,272 | $ | 8.79 | ||||||||||
Granted |
| | | | ||||||||||||
Vested |
(93,140 | ) | 9.11 | (94,940 | ) | 9.11 | ||||||||||
Forfeited |
| | (3,876 | ) | 7.95 | |||||||||||
Nonvested at the end of the period |
217,920 | $ | 9.26 | 382,456 | $ | 8.71 | ||||||||||
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Compensation expense on RRP shares granted is recognized ratably over the five year vesting
period in an amount which totals the market price of the common stock at the date of grant.
During the three-month periods ended March 31, 2011 and 2010, approximately 25,000 and 45,000
RRP shares, respectively, were amortized to expense, based on the proportional vesting of the
awarded shares, resulting in recognition of approximately $233,000 and $373,000 in compensation
expense, respectively. A tax benefit of approximately $142,000 and $63,000, respectively, was
recognized
during these periods with respect to the 2005 and 2007 RRPs. As of March 31, 2011, approximately
$1.8 million in additional compensation expense is scheduled to be recognized over the remaining
lives of the RRP awards. At March 31, 2011, the weighted average remaining lives of the RRP
awards was approximately 2.2 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.
Stock Options
In June 2005, the shareholders of Abington Community Bancorp also approved the adoption of the
2005 Stock Option Plan (the 2005 Option Plan). As a result of the second-step conversion, the
2005 Option Plan became a stock benefit plan of the Company. Unexercised options which were
previously granted under the 2005 Option Plan were adjusted by the 1.6 exchange ratio as a
result of the second-step conversion and have been converted into options to acquire Company
common stock. The 2005 Option Plan authorizes the grant of stock options to officers, employees
and directors of the Company to acquire shares of common stock with an exercise price equal to
the fair market value of the common stock on the grant date. Options generally become vested and
exercisable at the rate of 20% per year over five years and are generally exercisable for a
period of ten years after the grant date. As of March 31, 2011, a total of 1,142,640 shares of
common stock have been reserved for future issuance pursuant to the 2005 Option Plan.
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 March 31, 2011,
a total of 1,302,990 shares of common stock have been reserved for future issuance pursuant to
the 2007 Option Plan.
A summary of the status of the Companys stock options under the 2005 and 2007 Option Plans as
of March 31, 2011 and 2010, and changes during the three months ended March 31, 2011 and 2010
are presented below:
Three Months Ended March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Number of | average | Number of | average | |||||||||||||
shares | exercise price | shares | exercise price | |||||||||||||
Outstanding at the beginning of the
year |
2,167,700 | $ | 8.47 | 2,198,888 | $ | 8.47 | ||||||||||
Granted |
| | | | ||||||||||||
Exercised |
(87,040 | ) | 8.43 | (6,848 | ) | 7.51 | ||||||||||
Forfeited |
(320 | ) | 10.18 | (8,340 | ) | 8.06 | ||||||||||
Outstanding at the end of the period |
2,080,340 | $ | 8.47 | 2,183,700 | $ | 8.47 | ||||||||||
Exercisable at the end of the period |
1,577,932 | $ | 8.27 | 1,240,920 | $ | 8.21 | ||||||||||
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Table of Contents
The following table summarizes all stock options outstanding under the 2005 and 2007 Option
Plans as of March 31, 2011:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Average | Weighted Average | Average | ||||||||||||||||||
Number of | Exercise | Remaining | Number of | Exercise | ||||||||||||||||
Exercise Price | Shares | Price | Contractual Life | Shares | Price | |||||||||||||||
(in years) | ||||||||||||||||||||
$6.00 $7.00 |
12,000 | $ | 6.72 | 8.7 | 2,000 | $ | 6.72 | |||||||||||||
7.01 8.00 |
859,120 | 7.51 | 4.3 | 859,120 | 7.51 | |||||||||||||||
8.01 9.00 |
2,400 | 8.35 | 4.7 | 2,400 | 8.35 | |||||||||||||||
9.01 10.00 |
1,171,700 | 9.14 | 6.8 | 686,700 | 9.14 | |||||||||||||||
Over 10.00 |
35,120 | 10.18 | 5.6 | 27,712 | 10.18 | |||||||||||||||
Total |
2,080,340 | $ | 8.47 | 5.8 | 1,577,932 | $ | 8.27 | |||||||||||||
Intrinsic value |
$ | 7,817,514 | $ | 6,255,036 | ||||||||||||||||
No options were granted during the first three months of 2011 or 2010.
During the three months ended March 31, 2011 and 2010, approximately $136,000 and $217,000,
respectively, was recognized in compensation expense for the Option Plans. A tax benefit of
approximately $137,000 and $24,000, respectively, was recognized during each of these periods
with respect to the Option Plans. At March 31, 2011, approximately $971,000 in additional
compensation expense for awarded options remained unrecognized. The weighted average period over
which this expense will be recognized is approximately 1.8 years.
8. | 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
March 31, 2011 and December 31, 2010, 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 $116.1 million and $114.9 million,
respectively, in the aggregate.
The Bank had approximately $3.3 million in outstanding mortgage loan commitments at March 31,
2011. The commitments are expected to be funded within 90 days with all $3.3 million in fixed
rates of interest ranging from 4.375% to 5.625%. These loans were not originated for resale.
Also outstanding at March 31, 2011 were unused home equity lines of credit totaling
approximately $30.4 million and unused commercial lines of credit totaling approximately $56.6
million. The unused portion of our construction loans in process at March 31, 2011 amounted to
approximately $25.7 million.
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Table of Contents
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.
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 March 31, 2011 and
December 31, 2010, the Bank had letters of credit outstanding of approximately $46.6 million and
$48.3 million, respectively, of which $45.8 million and $47.5 million, respectively, were
standby letters of credit. At both March 31, 2011 and December 31, 2010, the uncollateralized
portion of the letters of credit extended by the Bank was approximately $7,000, all of which was
for standby letters of credit in both periods. The current amount of the liability for
guarantees under letters of credit was not material as of March 31, 2011 and December 31, 2010.
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 March 31, 2011, 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.
9. | 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. |
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| 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 March 31, 2011 and December 31, 2010, 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 EquivalentsThese 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.
Investment and Mortgage-backed Securities Available for SaleInvestment 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.
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Loans ReceivableWe 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 March
31, 2011 and December 31, 2010 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 ReceivableThis 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.
FHLB StockAlthough 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 March 31, 2011.
Real Estate OwnedReal estate owned includes foreclosed properties securing commercial and
construction loans. Real estate properties acquired through foreclosure are initially recorded
at the fair value of the property at the date of foreclosure. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower of cost or fair
value less estimated costs to sell. 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.
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DepositsDeposit 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 BankAdvances 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 MoneyThese 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 PayableThis 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 CreditThe 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.
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The tables below presents the balances of assets measured at fair value on a recurring basis:
March 31, 2011 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investment securities
available for sale: |
||||||||||||||||
Debt securities: |
||||||||||||||||
Agency bonds |
$ | 81,980,728 | $ | | $ | 81,980,728 | $ | | ||||||||
Corporate bonds and
commercial paper |
4,571,176 | | 4,571,176 | | ||||||||||||
Municipal bonds |
19,014,133 | | 19,014,133 | | ||||||||||||
Equity securities: |
||||||||||||||||
Mutual funds |
2,718,053 | 2,718,053 | | | ||||||||||||
Total investment securities
available for sale |
108,284,090 | 2,718,053 | 105,566,037 | | ||||||||||||
Mortgage-backed securities
available for sale: |
||||||||||||||||
GNMA pass-through
certificates |
$ | 1,857 | $ | | $ | 1,857 | $ | | ||||||||
FNMA pass-through
certificates |
29,420,424 | | 29,420,424 | | ||||||||||||
FHLMC pass-through
certificates |
24,525,917 | | 24,525,917 | | ||||||||||||
Collateralized mortgage
obligations |
107,799,950 | | 107,799,950 | | ||||||||||||
Total mortgage-backed
securities available for sale |
161,748,148 | | 161,748,148 | | ||||||||||||
Total |
$ | 270,032,238 | $ | 2,718,053 | $ | 267,314,185 | $ | | ||||||||
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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 | $ | | ||||||||
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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 March
31, 2011 and December 31, 2010:
March 31, 2011 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans: |
||||||||||||||||
One- to four-
family residential |
$ | 395,908 | $ | | $ | | $ | 395,908 | ||||||||
Multi-family
residential and
commerical |
1,328,618 | | | 1,328,618 | ||||||||||||
Construction |
7,189,565 | | | 7,189,565 | ||||||||||||
Total impaired loans |
8,914,091 | | | 8,914,091 | ||||||||||||
Real estate owned |
23,628,145 | | | 23,628,145 | ||||||||||||
Total |
$ | 32,542,236 | $ | | $ | | $ | 32,542,236 | ||||||||
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 | ||||||||
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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.
March 31, 2011 | December 31, 2010 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 47,791 | $ | 47,791 | $ | 77,687 | $ | 77,687 | ||||||||
Investment securities |
128,668 | 129,237 | 145,289 | 145,710 | ||||||||||||
Mortgage-backed securities |
214,464 | 215,696 | 225,045 | 226,511 | ||||||||||||
Loans receivablenet |
680,030 | 681,524 | 696,444 | 702,343 | ||||||||||||
FHLB stock |
13,183 | 13,183 | 13,877 | 13,877 | ||||||||||||
Accrued interest receivable |
4,232 | 4,232 | 4,103 | 4,103 | ||||||||||||
Liabilities: |
||||||||||||||||
Deposits |
$ | 848,948 | $ | 840,012 | $ | 900,059 | $ | 886,873 | ||||||||
Advances from Federal
Home Loan Bank |
83,867 | 87,954 | 109,875 | 114,772 | ||||||||||||
Other borrowed money |
16,367 | 16,367 | 15,881 | 15,881 | ||||||||||||
Accrued interest payable |
2,099 | 2,099 | 912 | 912 | ||||||||||||
Off balance sheet financial
instruments |
| | | |
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. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The fair value estimates presented herein
are based on pertinent information available to management as of March 31, 2011 and December 31,
2010. 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 March 31, 2011 and December 31, 2010 and, therefore, current
estimates of fair value may differ significantly from the amounts presented herein.
10. | 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.
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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.
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,
governmental filings and regulatory approvals and expiration of applicable waiting periods, accuracy of specified
representations and warranties of the other party, absence of a material adverse effect, and
receipt of tax opinions. The Merger Agreement was approved by the requisite vote of shareholders of each of the Company and Susquehanna
at meetings held on May 6, 2011.
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.
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements, which can be identified by the use of words such
as estimate, project, believe, intend, anticipate, plan, seek, expect and similar
expressions. These forward-looking statements include: statements of goals, intentions and
expectations, statements regarding prospects and business strategy, statements regarding asset
quality and market risk, and estimates of future costs, benefits and results.
These forward-looking statements are subject to significant risks, assumptions and uncertainties,
including, among other things, the following: (1) general economic conditions, (2) competitive
pressure
among financial services companies, (3) changes in interest rates, (4) deposit flows, (5) loan
demand, (6) changes in legislation or regulation, (7) changes in accounting principles, policies
and guidelines, (8) costs related to the expansion of our branch network, (9) changes in the amount
or character of our non-performing assets, and (10) other economic, competitive, governmental,
regulatory and technological factors affecting our operations, pricing, products and services.
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Because of these and other uncertainties, our actual future results may be materially different
from the results indicated by these forward-looking statements. We have no obligation to update or
revise any forward-looking statements to reflect any changed assumptions, any unanticipated events
or any changes in the future.
OverviewThe 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 Bancshares, Inc. (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 10 in the Notes to the Unaudited Consolidated Financial Statements 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.
We recorded net income of $1.5 million for the quarter ended March 31, 2011, compared to net income
of $1.6 million for the quarter ended March 31, 2010. The Companys basic and diluted earnings per
share were each $0.08 for the first quarter of 2011 and 2010. Net interest income was $8.0 million
for the three months ended March 31, 2011, compared to $8.2 million for the three months ended
March 31, 2010, a decrease of 2.5%. The decrease occurred as lower interest expense was more than
offset by a reduction in interest income. Our average interest rate spread improved to 2.72% for
the first quarter of 2011 from 2.65% for the first quarter of 2010 as a decrease in the average
rate paid on our interest-bearing liabilities exceeded the decrease in the average yield earned on
our interest-earning assets. Our net interest margin improved to 2.94% for the first three months
of 2011 from 2.92% for the three months of 2010.
No provision for loan losses was recorded during the first quarter of 2011, compared to a provision
of $563,000 during the first quarter of 2010. We had a $30,000 net recovery to the allowance for
loan losses during the quarter ended March 31, 2011 compared to $334,000 of net charge-offs in the
quarter ended March 31, 2010. Our non-accrual loans increased slightly during the first quarter of
2011 to $7.1 million at March 31, 2011 from $7.0 million at December 31, 2010. At March 31, 2011
and December 31, 2010,
our non-performing loans amounted to 1.19% and 1.29%, respectively, of loans receivable, and our
allowance for loan losses amounted to 52.68% and 47.27%, respectively, of non-performing loans.
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Our total assets decreased $73.7 million, or 5.9%, to $1.17 billion at March 31, 2011 compared to
$1.25 billion at December 31, 2010 as repayments of securities and loans during the quarter were
used primarily to reduce our liabilities. Our total deposits decreased $51.1 million or 5.7% to
$848.9 million at March 31, 2011 compared to $900.1 million at December 31, 2010 due to decreases
in all categories of deposits. Our total stockholders equity increased to $212.9 million at March
31, 2011 from $211.9 million at December 31, 2010.
Critical Accounting Policies, Judgments and EstimatesIn reviewing and understanding financial
information for Abington Bancorp, Inc., you are encouraged to read and understand the significant
accounting policies used in preparing our consolidated financial statements. These policies are
described in Note 1 of the notes to our unaudited consolidated financial statements. The accounting
and financial reporting policies of Abington Bancorp, Inc. conform to accounting principles
generally accepted in the United States of America (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, fair value measurements, 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 LossesThe allowance for loan losses is increased by charges to income through
the provision for loan losses and decreased by charge-offs (net of recoveries). The allowance is
maintained at a level that management considers adequate to provide for losses based upon
evaluation of the known and inherent risks in the loan portfolio. 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.
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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 9 in the Notes to the Unaudited
Consolidated Financial Statements 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.
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
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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. Under certain circumstances, a portion of the allowance
may be unallocated, in that it is not directly attributable to the losses in any specific portion
of our loan portfolio. This can occur when management determines that the trends within our loan
portfolio are not reflective of the trends in our market area or the general economy. 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.
Fair Value MeasurementsWe use fair value measurements to record fair value adjustments to certain
assets and to determine fair value disclosures. Investment and mortgage-backed securities available
for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may
be required to record at fair value other assets on a nonrecurring basis, such as impaired loans,
real estate owned and certain other assets. These nonrecurring fair value adjustments typically
involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
In accordance with 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. |
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| 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 March 31, 2011 and December 31, 2010, 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 9 in the Notes to the
Unaudited Consolidated Financial Statements herein for a further description of our fair value
measurements.
Other-Than-Temporary Impairment of SecuritiesSecurities are evaluated on at least a quarterly
basis, and more frequently when market conditions warrant such an evaluation, to determine whether
a decline in their value is other-than-temporary. To determine whether a loss in value is
other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the
magnitude and duration of the decline and 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.
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Income TaxesManagement makes estimates and judgments to calculate some of our tax liabilities and
determine the recoverability of some of our deferred tax assets, which arise from temporary
differences between the tax and financial statement recognition of revenues and expenses.
Management also estimates a reserve for deferred tax assets if, based on the available evidence, it
is more likely than not that some portion or all of the recorded deferred tax assets will not be
realized in future periods. These estimates and judgments are inherently subjective. Historically,
our estimates and judgments to calculate our deferred tax accounts have not required significant
revision from 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.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2011 AND DECEMBER 31, 2010
The Companys total assets decreased $73.7 million, or 5.9%, to $1.17 billion at March 31, 2011
compared to $1.25 billion at December 31, 2010. The most significant decreases were in cash and
cash equivalents, which decreased $29.9 million during the quarter, investment and mortgage-backed
securities, which decreased $27.2 million in the aggregate during the quarter, and loans
receivable, which decreased $16.4 million during the quarter. These decreases occurred as
repayments of securities and loans during the quarter were used primarily to reduce our
liabilities. Of $39.3 million in calls, maturities and repayments of our investment and
mortgage-backed securities, only $13.1 million of those funds were reinvested in new securities.
The largest decreases within our loan portfolio during the first quarter of 2011 were with our one-
to four-family residential loans, which decreased $7.9 million or 2.0% during the quarter and our
gross construction loans, which decreased $9.1 million or 6.6% during the quarter. The decrease in
our gross construction loans was partially offset by a $4.4 million decrease in the balance of our
loans-in-process. The decrease in one- to four-family residential loans was due primarily to a
decrease in demand, including a decrease in the rate of mortgage refinancing. The decrease in
construction loans was also due, in part, to a decrease in demand, but also reflects our increased
selectivity in the origination of these types of loans given the increased risk involved in making
construction loans and the relatively high amount of non-performing assets that we are continuing
to manage.
Our total deposits decreased $51.1 million or 5.7% to $848.9 million at March 31, 2011 compared to
$900.1 million at December 31, 2010. The decrease during the first quarter of 2011 was due to
decreases in all categories of deposits, including a decrease in our savings and money market
accounts of $18.9 million and a decrease in our certificates of deposit of $19.5 million. Our
advances from the Federal Home Loan Bank (FHLB) decreased $26.0 million or 23.7% to $83.9 million
at March 31, 2011 from $109.9 million at December 31, 2010, as we continued to repay existing
balances. Our repayment of advances from the FHLB is described further in the next section,
Liquidity and Capital Resources.
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Our total stockholders equity increased to $212.9 million at March 31, 2011 from $211.9 million at
December 31, 2010. Contributing to the increase was the reissuance of approximately 87,000 shares
of treasury stock with a cost basis of approximately $831,000 in conjunction with the exercise of
stock options by certain of our employees during the quarter. Additionally, our retained earnings
increased $416,000 as our net income for the period was partially offset by the payment of our
quarterly cash dividend of $0.06 per share of common stock. Limiting the effects of these increases
was a reduction in our accumulated other comprehensive income of $666,000 resulting from a decrease
in the aggregate fair value of our available for sale investment and mortgage-backed securities.
The Banks regulatory capital levels continue to far exceed requirements for well capitalized
institutions (see chart in next section, Liquidity and Capital Resources).
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 March 31, 2011, our cash and cash equivalents
amounted to $47.8 million. In addition, at that date we had $3.6 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 $270.0 million at March 31, 2011.
We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet
operating expenses. At March 31, 2011, we had certificates of deposit maturing within the next 12
months of $211.6 million. Based upon historical experience, we anticipate that a significant
portion of the maturing certificates of deposit will be redeposited with us.
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 March 31, 2011, we had $83.9 million in outstanding FHLB
advances, and we had $355.6 million in additional FHLB advances available to us. During the first
quarter of 2011, we continued to significantly reduce 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 increased to $212.9 million at March 31, 2011 from $211.9 million at
December 31, 2010. 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).
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The following table summarizes regulatory capital ratios for the Bank as of the dates indicated and
compares them to current regulatory requirements. As a savings and loan holding company, the
Company is not subject to any regulatory capital requirements.
Actual Ratios At | ||||||||||||||||
March 31, | December 31, | Regulatory | To Be Well | |||||||||||||
2011 | 2010 | Minimum | Capitalized | |||||||||||||
Capital Ratios: |
||||||||||||||||
Tier 1 leverage ratio |
14.55 | % | 13.84 | % | 4.00 | % | 5.00 | % | ||||||||
Tier 1 risk-based capital ratio |
24.17 | 23.31 | 4.00 | 6.00 | ||||||||||||
Total risk-based capital ratio |
24.76 | 23.89 | 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 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 is recognized over the period during which an employee is required to
provide service in exchange for the award.
At March 31, 2011, the Company has four share-based compensation plans, the 2005 and the 2007
Recognition and Retention Plans (the 2005 RRP and 2007 RRP) and the 2005 and 2007 Stock Option
Plans (the 2005 Option Plan and 2007 Option Plan). Share awards were first issued under the
2005 plans in July 2005. Share awards were first issued under the 2007 plans in January 2008. See
Note 7 in the Notes to the Unaudited Consolidated Financial Statements herein for a further
description of these plans.
The Company also has an employee stock ownership plan (ESOP). See Note 7 in the Notes to the
Unaudited Consolidated Financial Statements herein for a further description of this plan. 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.
COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
We are a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of our customers. These financial instruments include
commitments to extend credit and the unused portions of lines of credit. These instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. Commitments to extend credit and lines of
credit are not recorded as an asset or liability by us until the instrument is exercised. At March
31, 2011 and December 31, 2010, we had no commitments to originate loans for sale.
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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 March 31, 2011 and December 31, 2010, 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 $116.1 million and $114.9 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 March 31, 2011 and December 31, 2010, the Bank had letters of
credit outstanding of approximately $46.6 million and $48.3 million, respectively, of which $45.8
million and $47.5 million, respectively, were standby letters of credit. At both March 31, 2011
and December 31, 2010, the uncollateralized portion of the letters of credit extended by the Bank
was approximately $7,000, all of which was for standby letters of credit in both periods. The
current amount of the liability for guarantees under letters of credit was not material as of March
31, 2011 and December 31, 2010.
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 March 31, 2011, the
exposure, which represents a portion of credit risk associated with the sold interests, amounted to
$185,000. The exposure is for the life of the related loans and payable, on our proportional share,
as losses are incurred.
We anticipate that we will continue to have sufficient funds and alternative funding sources to
meet our current commitments.
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The following table summarizes our outstanding commitments to originate loans and to advance
additional amounts pursuant to outstanding letters of credit, lines of credit and under our
construction loans at March 31, 2011.
Amount of Commitment Expiration - Per Period | ||||||||||||||||||||
After One to | After Three | |||||||||||||||||||
Total Amounts | To | Three | to Five | After Five | ||||||||||||||||
Committed | One Year | Years | Years | Years | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Letters of credit |
$ | 46,619 | $ | 27,475 | $ | 18,298 | $ | | $ | 846 | ||||||||||
Recourse obligations on loans
sold |
185 | | | | 185 | |||||||||||||||
Commitments to originate loans |
3,346 | 3,346 | | | | |||||||||||||||
Unused portion of home equity
lines of credit |
30,429 | | | | 30,429 | |||||||||||||||
Unused portion of commercial
lines of credit |
56,627 | 56,627 | | | | |||||||||||||||
Undisbursed portion of
construction loans in process |
25,653 | 23,029 | 2,624 | | | |||||||||||||||
Total commitments |
$ | 162,859 | $ | 110,477 | $ | 20,922 | $ | | $ | 31,460 | ||||||||||
The following table summarizes our contractual cash obligations at March 31, 2011. The
balances included in the table do not reflect the interest due on these obligations.
Payments Due By Period | ||||||||||||||||||||
After One to | After Three | |||||||||||||||||||
To | Three | to Five | After Five | |||||||||||||||||
Total | One Year | Years | Years | Years | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Certificates of deposit |
$ | 412,482 | $ | 211,608 | $ | 75,056 | $ | 62,280 | $ | 63,538 | ||||||||||
FHLB advances |
83,867 | 3,208 | 32,320 | 39,222 | 9,117 | |||||||||||||||
Repurchase agreements |
16,367 | 16,367 | | | | |||||||||||||||
Total debt |
100,234 | 19,575 | 32,320 | 39,222 | 9,117 | |||||||||||||||
Operating lease obligations |
4,322 | 904 | 1,597 | 1,013 | 808 | |||||||||||||||
Total contractual obligations |
$ | 517,038 | $ | 232,087 | $ | 109,440 | $ | 96,285 | $ | 73,463 | ||||||||||
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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
General. We recorded net income of $1.5 million for the quarter ended March 31, 2011, compared to
net income of $1.6 million for the quarter ended March 31, 2010. The Companys basic and diluted
earnings per share were each $0.08 for the first quarter of 2011 and 2010. Net interest income was
$8.0 million for the three months ended March 31, 2011, compared to $8.2 million for the three
months ended March 31, 2010, a decrease of 2.5%. The decrease occurred as lower interest expense
was more than offset by a reduction in interest income. Our average interest rate spread improved
to 2.72% for the first quarter of 2011 from 2.65% for the first quarter of 2010 as a decrease in
the average rate paid on our interest-bearing liabilities exceeded the decrease in the average
yield earned on our interest-earning assets. Our net interest margin improved to 2.94% for the
first three months of 2011 from 2.92% for the three months of 2010.
Interest Income. Our total interest income for the three months ended March 31, 2011 decreased
$1.4 million or 10.7% over the comparable 2010 period to $11.7 million. The decrease occurred as a
result of a decline in both the average balance of our total interest-earning assets and the
average yield earned on those assets. Although the average balances of our investment and
mortgage-backed securities increased $24.2 million and $7.0 million, respectively,
quarter-over-quarter, and the balance of our other interest-earning assets increased $7.1 million
quarter-over-quarter, these increases were more than offset by a decrease in the average balance of
our loan portfolio of $75.5 million or 9.9% quarter-over-quarter. The average yield earned on our
total interest-earning assets decreased 35 basis points to 4.28% for the first quarter of 2011
compared to 4.63% for the first quarter of 2010 due to primarily to declines in the average yield
earned on investment and mortgage-backed securities. The average yield earned on our investment
securities declined 45 basis points to 2.40% for the first quarter of 2011 compared to 2.85% for
the first quarter of 2010. The average yield earned on our mortgage-backed securities declined 90
basis points to 3.46% for the first quarter of 2011 compared to 4.36% for the first quarter of
2010.
Interest Expense. Our total interest expense for the three months ended March 31, 2011 decreased
$1.2 million or 24.5% from the comparable 2010 period to $3.7 million. The decrease occurred as a
result of a decline in both the average balance of our total interest-bearing liabilities and the
average rate paid on those liabilities. The average balance of our total interest-bearing
liabilities decreased $39.1 million or 4.0% to $940.8 million for the first quarter of 2011 from
$979.9 million for the first quarter of 2010. The decrease was due primarily to a decrease in the
average balance of our advances from FHLB of $49.4 million or 34.3% and our certificates of deposit
of $33.8 million or 7.3%, quarter-over-quarter. This was partially offset by an increase in the
average balance of our core deposits of $12.3 million quarter-over-quarter. The average rate we
paid on our total interest-bearing liabilities decreased 42 basis points to 1.56% for the first
quarter of 2011 from 1.98% for the first quarter of 2010 due to declines in the average rate paid
on our advances from the FHLB of 61 basis points and our deposits of 27 basis points.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows
for the periods indicated the total dollar amount of interest from average interest-earning assets
and the resulting yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields
have not been adjusted to a tax-equivalent basis. All average balances are based on monthly
balances. Management does not believe that the monthly averages differ significantly from what the
daily averages would be.
Three Months Ended March 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
Balance | Interest | Yield/Rate | Balance | Interest | Yield/Rate | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Investment securities(1) |
$ | 137,930 | $ | 828 | 2.40 | % | $ | 113,695 | $ | 811 | 2.85 | % | ||||||||||||
Mortgage-backed securities |
216,588 | 1,871 | 3.46 | 209,577 | 2,285 | 4.36 | ||||||||||||||||||
Loans receivable(2) |
685,663 | 8,987 | 5.24 | 761,155 | 9,999 | 5.25 | ||||||||||||||||||
Other interest-earning assets |
53,518 | 17 | 0.13 | 46,351 | 6 | 0.05 | ||||||||||||||||||
Total interest-earning assets |
1,093,699 | 11,703 | 4.28 | 1,130,778 | 13,101 | 4.63 | ||||||||||||||||||
Cash and non-interest bearing
balances |
18,067 | 21,691 | ||||||||||||||||||||||
Other non-interest-earning assets |
96,618 | 94,921 | ||||||||||||||||||||||
Total assets |
$ | 1,208,384 | $ | 1,247,390 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||
Savings and money market accounts |
$ | 311,794 | 477 | 0.61 | $ | 274,438 | 687 | 1.00 | ||||||||||||||||
Checking accounts |
89,321 | 5 | 0.02 | 80,630 | 9 | 0.04 | ||||||||||||||||||
Certificate accounts |
427,328 | 2,287 | 2.14 | 461,098 | 2,593 | 2.25 | ||||||||||||||||||
Total deposits |
828,443 | 2,769 | 1.34 | 816,166 | 3,289 | 1.61 | ||||||||||||||||||
FHLB advances |
94,374 | 875 | 3.71 | 143,740 | 1,554 | 4.32 | ||||||||||||||||||
Other borrowings |
17,977 | 21 | 0.47 | 20,018 | 14 | 0.28 | ||||||||||||||||||
Total interest-bearing liabilities |
940,794 | 3,665 | 1.56 | 979,924 | 4,857 | 1.98 | ||||||||||||||||||
Non-interest-bearing liabilities: |
||||||||||||||||||||||||
Non-interest-bearing demand
accounts |
43,978 | 41,430 | ||||||||||||||||||||||
Real estate tax escrow accounts |
3,416 | 3,758 | ||||||||||||||||||||||
Other liabilities |
7,334 | 7,799 | ||||||||||||||||||||||
Total liabilities |
995,522 | 1,032,911 | ||||||||||||||||||||||
Stockholders equity |
212,862 | 214,479 | ||||||||||||||||||||||
Total liabilities and stockholders
equity |
$ | 1,208,384 | $ | 1,247,390 | ||||||||||||||||||||
Net interest-earning assets |
$ | 152,905 | $ | 150,854 | ||||||||||||||||||||
Net interest income; average
interest rate spread |
$ | 8,038 | 2.72 | % | $ | 8,244 | 2.65 | % | ||||||||||||||||
Net interest margin(3) |
2.94 | % | 2.92 | % | ||||||||||||||||||||
(1) | Investment securities for the 2011 period include 123 tax-exempt municipal bonds with an
aggregate average balance of $38.9 million and an average yield of 3.9%. Investment securities
for the 2010 period include 133 tax-exempt municipal bonds with an aggregate average balance
of $40.9 million and an average yield of 3.9%. The tax-exempt income from such securities has
not been presented on a tax equivalent basis. |
|
(2) | Includes non-accrual loans during the respective periods. Calculated net of deferred fees
and discounts and loans in process. |
|
(3) | Equals net interest income divided by average interest-earning assets. |
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Provision for Loan Losses. No provision for loan losses was recorded during the first quarter
of 2011. A provision of $563,000 was recorded during the first quarter of 2010. 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. Management determined
that no provision was required during the first quarter of 2011 based on our evaluation of the
overall adequacy of the allowance for loan losses in relation to the loan portfolio, and in
consideration of a number of factors including a decrease in the outstanding balance of our loans
receivable and the resolution or charge-off of certain large-balance, non-performing loans in
recent periods. In addition, we had a $30,000 net recovery to the allowance for loan losses during
the quarter ended March 31, 2011 compared to $334,000 in net charge-offs to the allowance in the
prior year comparable period.
Our non-accrual loans increased slightly during the first quarter of 2011 to $7.1 million
at March 31, 2011 from $7.0 million at December 31, 2010. The increase was due primarily to the
addition of one commercial real estate loan with an outstanding balance of $185,000 at March 31,
2011. Our total non-performing loans, defined as non-accruing loans and accruing loans 90 days or
more past due, decreased to $8.2 million at March 31, 2011 from $9.0 million at December 31, 2010.
This was primarily a result of certain of our past due accruing loans becoming current in their
payments during the quarter. With no significant changes to our real estate owned (REO), our
total non-performing assets decreased to $31.8 million at March 31, 2011 compared to $32.6 million
at December 31, 2010. The balance of our performing TDRs increased to $12.1 million at March 31,
2011 compared to $9.0 million at December 31, 2010, primarily due to the addition of two
constructions loans to one borrower with an aggregate outstanding balance of $3.4 million at March
31, 2011. These two loans, in which we own a participation interest, were restructured to reduce
the interest rate paid by the borrower, who is experiencing financial difficutly. At March 31, 2011
and December 31, 2010, our non-performing loans amounted to 1.19% and 1.29%, respectively, of loans
receivable, and our allowance for loan losses amounted to 52.68% and 47.27%, respectively, of
non-performing loans. At March 31, 2011 and December 31, 2010, our non-performing assets amounted
to 2.71% and 2.62% of total assets, respectively.
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The following table shows the amounts of our non-performing assets (defined as non-accruing
loans, accruing loans 90 days or more past due and real estate owned) at the date indicated.
March 31, | December 31, | March 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(Dollars in Thousands) | ||||||||||||
Non-accruing loans: |
||||||||||||
One- to four-family residential |
$ | | $ | | $ | | ||||||
Multi-family residential and
commercial real estate(1) |
1,514 | 1,348 | 4,788 | |||||||||
Construction |
5,547 | 5,664 | 22,659 | |||||||||
Commercial business |
| | | |||||||||
Home equity lines of credit |
| | | |||||||||
Consumer non-real estate |
| | | |||||||||
Total non-accruing loans |
7,061 | 7,012 | 27,447 | |||||||||
Accruing loans 90 days or more past due: |
||||||||||||
One- to four-family residential(2) |
1,028 | 1,211 | 29 | |||||||||
Multi-family residential and
commercial real estate |
| 725 | | |||||||||
Construction |
14 | 14 | 10,535 | |||||||||
Commercial business |
| | | |||||||||
Home equity lines of credit |
62 | 76 | 106 | |||||||||
Consumer non-real estate |
| | | |||||||||
Total accruing loans 90 days or
more past due |
1,104 | 2,026 | 10,670 | |||||||||
Total non-performing loans(3) |
8,165 | 9,038 | 38,117 | |||||||||
Real estate owned, net |
23,628 | 23,588 | 21,817 | |||||||||
Total non-performing assets |
31,793 | 32,626 | 59,934 | |||||||||
Performing troubled debt restructurings: |
||||||||||||
One- to four-family residential(4) |
219 | 583 | | |||||||||
Multi-family residential and
commercial real estate |
8,410 | 8,417 | | |||||||||
Construction |
3,439 | | | |||||||||
Commercial business |
| | | |||||||||
Home equity lines of credit |
| | | |||||||||
Consumer non-real estate |
| | | |||||||||
Total performing troubled debt
restructurings |
12,068 | 9,000 | | |||||||||
Total non-performing assets and
performing troubled debt
restructurings |
$ | 43,861 | $ | 41,626 | $ | 59,934 | ||||||
Total non-performing loans as a
percentage of loans |
1.19 | % | 1.29 | % | 5.00 | % | ||||||
Total non-performing loans as a
percentage of total assets |
0.70 | % | 0.72 | % | 3.01 | % | ||||||
Total non-performing assets as a
percentage of total assets |
2.71 | % | 2.62 | % | 4.73 | % | ||||||
(1) | Included in this category of non-accruing loans at March 31, 2011, December 31, 2010
and March 31, 2010 is one troubled debt restructuring with a balance of $1.3 million, $1.3
million, and $2.4 million at such date, respectively. See Note 4 in the Notes to the
Unaudited Consolidated Financial Statements herein. |
|
(2) | Included in this category of non-accruing loans at March 31, 2011 is one troubled debt
restructuring with a balance of $219,000 at such date. See Note 4 in the Notes to the
Unaudited Consolidated Financial Statements herein. |
|
(3) | Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more
past due. |
|
(4) | Two performing troubled debt restructurings (TDRs) included in one- to four-family
residential real estate loans with an aggregate outstanding balance of $583,000 at March
31, 2010 were identified as a result of enhanced procedures, although no such balances were
previously reported at such date. |
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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 March 31, 2011.
Allowance | ||||||||||||||||||||||||||||||||||||||||||||||||
Accruing | for Loan | |||||||||||||||||||||||||||||||||||||||||||||||
Type | Loan Classification | Loans 90 | Losses | |||||||||||||||||||||||||||||||||||||||||||||
Total | One- to | Days or | Allocated to | |||||||||||||||||||||||||||||||||||||||||||||
No. of | Balance | Land | Four- | Multi- | Commercial | Special | More Past | Construction | ||||||||||||||||||||||||||||||||||||||||
Range | Loans | Outstanding | Only | Family | Family | Real Estate | Doubtful | Substandard | Mention | Non-Accrual(1) | Due | Loans | ||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans over $10.0 million |
1 | $ | 20,457 | $ | | $ | | $ | 20,457 | $ | | $ | | $ | | $ | 20,457 | $ | | $ | | $ | | |||||||||||||||||||||||||
Loans $5.0 million to $10.0 million |
4 | 27,812 | | 13,160 | | 14,652 | | 8,877 | 5,483 | | | 867 | ||||||||||||||||||||||||||||||||||||
Loans $2.5 million to $5.0 million |
9 | 30,330 | 2,911 | 14,991 | 4,948 | 7,480 | | 2,911 | 8,774 | | | 626 | ||||||||||||||||||||||||||||||||||||
Loans $1.0 million to $2.5 million |
13 | 20,927 | 4,482 | 11,594 | | 4,851 | | 11,293 | 1,255 | 4,227 | | 825 | ||||||||||||||||||||||||||||||||||||
Loans under $1.0 million |
12 | 4,253 | 1,155 | 1,979 | 1,119 | | | 1,773 | 774 | 1,320 | 14 | 246 | ||||||||||||||||||||||||||||||||||||
Total construction loans |
39 | $ | 103,779 | $ | 8,548 | $ | 41,724 | $ | 26,524 | $ | 26,983 | $ | | $ | 24,854 | $ | 36,743 | $ | 5,547 | $ | 14 | $ | 2,564 | |||||||||||||||||||||||||
(1) | All of the $5.5 million of non-accrual construction loans at March 31, 2011 were classified
substandard at such date. |
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Non-interest Income. Our total non-interest income increased to $694,000 for the first
quarter of 2011 from $355,000 for the first quarter of 2010. The increase was due primarily to a
$386,000 improvement in our net loss on REO quarter-over-quarter. The larger net loss during the
2010 period was the result of a higher level of write-downs and losses on sales during that period.
Non-interest Expenses. Our total non-interest expenses for the first quarter of 2011 amounted to
$6.9 million, representing an increase of $969,000 or 16.2% from the first quarter of 2010. The
largest increase was in our expense for professional services, which increased $527,000 or 118.7%
quarter-over-quarter. The increase was due primarily to additional legal and consulting expenses
related to our proposed merger with Susquehanna, including expenses related to certain shareholder
lawsuits. Also contributing to the increase in our total non-interest expenses were increases in
our salaries and employee benefits and deposit insurance premium expenses, which increased $167,000
and $158,000, respectively, quarter-over-quarter. The increase in salaries and employee benefits
expenses was due largely to increases in the costs of health and insurance benefits as well as
normal merit increases in salaries.
Income Tax Expense. We recorded an income tax expense of approximately $253,000 for the first
quarter of 2011 compared to an income tax expense of approximately $460,000 for the first quarter
of 2010. Our effective tax rate improved to 14.1% for the first quarter of 2011 compared to 22.2%
for the first quarter of 2010 largely as a result of the tax benefit related to the exercise of
stock options by certain of our employees during the quarter.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Asset/Liability Management and Market Risk. Market risk is the risk of loss from adverse changes
in market prices and rates. Our market risk arises primarily from the interest rate risk which is
inherent in our lending and deposit taking activities. To that end, management actively monitors
and manages interest rate risk exposure. In addition to market risk, our primary risk is credit
risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and
oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest
rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given
our business strategy, operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure
to risks from changes in interest rates while at the same time trying to improve our net interest
spread. We monitor interest rate risk as such risk relates to our operating strategies. We have
established an Asset/Liability Committee at Abington Bank, which is comprised of our President and
Chief Executive Officer, three Senior Vice Presidents, one Vice President 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.
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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 positive 0.33% at March 31, 2011, compared to a negative 0.50% at December 31, 2010.
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The following table sets forth the amounts of our interest-earning assets and interest-bearing
liabilities outstanding at March 31, 2011, which we expect, based upon certain assumptions, to
reprice or mature in each of the future time periods shown (the GAP Table). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or the contractual
maturity of the asset or liability. The table sets forth an approximation of the projected
repricing of assets and liabilities at March 31, 2011, 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%.
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) |
$ | 243,076 | $ | 40,996 | $ | 140,153 | $ | 103,031 | $ | 150,015 | $ | 677,271 | ||||||||||||
Mortgage-backed
securities |
38,613 | 30,457 | 78,842 | 38,683 | 25,045 | 211,640 | ||||||||||||||||||
Investment securities |
7,883 | 1,420 | 47,850 | 70,015 | 1,163 | 128,331 | ||||||||||||||||||
Other interest-earning
assets |
42,569 | | | | | 42,569 | ||||||||||||||||||
Total interest-earning
assets |
332,141 | 72,873 | 266,845 | 211,729 | 176,223 | 1,059,811 | ||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Savings and money market
accounts |
$ | 72,467 | $ | 72,467 | $ | 64,903 | $ | 53,089 | $ | 44,267 | $ | 307,193 | ||||||||||||
Checking accounts |
| | | | 90,483 | 90,483 | ||||||||||||||||||
Certificate accounts |
144,796 | 68,150 | 73,719 | 62,280 | 63,537 | 412,482 | ||||||||||||||||||
FHLB advances |
17,652 | 9,612 | 25,786 | 27,508 | 3,309 | 83,867 | ||||||||||||||||||
Other borrowed money |
16,367 | | | | | 16,367 | ||||||||||||||||||
Total interest-bearing
liabilities |
251,282 | 150,229 | 164,408 | 142,877 | 201,596 | 910,392 | ||||||||||||||||||
Interest-earning assets less
interest-bearing liabilities |
$ | 80,859 | $ | (77,356 | ) | $ | 102,437 | $ | 68,852 | $ | (25,373 | ) | $ | 149,419 | ||||||||||
Cumulative interest-rate
sensitivity gap (3) |
$ | 80,859 | $ | 3,503 | $ | 105,940 | $ | 174,792 | $ | 149,419 | ||||||||||||||
Cumulative interest-rate
gap
as a percentage of total
assets at March 31, 2011 |
6.89 | % | 0.30 | % | 9.03 | % | 14.90 | % | 12.73 | % | ||||||||||||||
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities at March 31, 2011 |
132.18 | % | 100.87 | % | 118.72 | % | 124.66 | % | 116.41 | % | ||||||||||||||
(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. |
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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.
ITEM 4. | CONTROLS AND PROCEDURES |
Our management evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and regulations and are
operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) or
15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
On March 17, 2011, a putative class action lawsuit was filed in the Court of
Common Pleas, Montgomery County, Pennsylvania, against the directors of the Company and
Susquehanna, RSD Capital vs. Robert W. White, et al., C.A. No. 2011-06590. The
lawsuit in Montgomery County alleged that the named directors, in approving the Agreement and
Plan of Merger, by and between Abington and Susquehanna, dated January 26, 2011 (the Merger
Agreement), and Susquehanna, by entering into the Merger Agreement, intentionally interfered
with a contractual relationship between Abington and its shareholders and interfered with a
prospective economic advantage of the Companys shareholders. On April 13, 2011, upon
consideration of the defendants Preliminary Objections, the lawsuit in Montgomery County was
dismissed with prejudice.
On March 25, 2011, a putative class action lawsuit was filed by separate plaintiffs in
the Court of Common Pleas, Philadelphia County, Pennsylvania, against the Company, the
Companys directors (other than Jack J. Sandoski) and Susquehanna, Exum, et al. vs.
Robert W. White, et al., C.A. No. 110302814. The lawsuit in Philadelphia County, which
was also brought as a shareholders derivative suit on behalf of Abington, generally alleged,
among other things, that the Abington Board of Directors breached its fiduciary duties in
connection with its approval of the Merger Agreement in that the consideration offered to
Abingtons shareholders in the Merger was alleged to be inadequate and the process used to
negotiate the Merger Agreement was alleged to be unfair, and that such breaches of fiduciary
duty were exacerbated by preclusive transaction protection devices. The Philadelphia County
complaint also alleged that Abington and Susquehanna aided and abetted the Abington Board of
Directors in breaching its fiduciary duties, and that the disclosure provided to the
Companys shareholders in the joint proxy statement/prospectus of Abington and
Susquehanna, dated March 18, 2011 (the Joint Proxy Statement/Prospectus) and included
in the registration statement on Form S-4 filed by Susquehanna with the Securities and
Exchange Commission (the SEC) (File No. 333-172626), failed to provide required material
information necessary for Abingtons shareholders to make a fully informed decision
concerning the Merger Agreement and the transactions contemplated thereby.
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On April 25, 2011, solely to avoid the costs, risks and uncertainties inherent in
litigation, Abington and the other named defendants entered into a Memorandum of
Understanding with the plaintiffs in the Philadelphia County lawsuit. Under the terms of the
memorandum, Abington, the other named defendants and the plaintiffs have agreed to settle the
lawsuit subject to court approval. If the court approves the settlement contemplated in the
memorandum, the lawsuit will be dismissed with prejudice. Pursuant to the terms of the
memorandum, Abington agreed to make available additional information to its shareholders.
Such additional information was included in a Current Report on Form 8-K, dated April 25,
2011 and filed by Abington on April 26, 2011 (SEC File No. 0-52705) (the Current Report).
In return, the plaintiffs agreed to the dismissal of the lawsuit and to withdraw all motions
filed in connection with such lawsuit. In connection with the settlement, plaintiffs intend
to seek an award of attorneys fees and expenses not to exceed $250,000 subject to court
approval, and Abington has agreed not to oppose plaintiffs application. The amount of the
fee award to class counsel will ultimately be determined by the Court. This payment will not
affect the amount of merger consideration to be paid in the merger. If the settlement is
finally approved by the court, it is anticipated that it will resolve and release all claims
in all actions that were or could have been brought challenging any aspect of the proposed
merger, the Merger Agreement, and any disclosure made in connection therewith. There can be
no assurance that the parties will ultimately enter in to a stipulation of settlement or that
the court will approve the settlement even if the parties were to enter into such
stipulation. In such event, the proposed settlement as contemplated by the Memorandum of
Understanding may be terminated. The details of the settlement will be set forth in a notice
to be sent to Abingtons shareholders prior to a hearing before the court to consider both
the settlement and plaintiffs fee application.
For further information regarding the Memorandum of Understanding and the terms of the
proposed settlement of the Philadelphia County lawsuit and to review the supplemental
disclosures to the Joint Proxy Statement/Prospectus made by Abington pursuant to the
Memorandum of Understanding, reference is made to the Current Report, which is incorporated
herein by reference.
The Company and the other defendants have vigorously denied, and continue to vigorously
deny, that they have committed or aided and abetted in the commission of any violation of law
or engaged in any of the wrongful acts that were alleged in the lawsuit, and expressly
maintain that, to the extent applicable, they diligently and scrupulously complied with their
fiduciary and other legal burdens and are entering into the contemplated settlement solely to
eliminate the burden and expense of further litigation and to put the claims that were or
could have been asserted to rest.
ITEM 1A. | RISK FACTORS |
There have been no material changes from the risk factors disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2010.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(a) | Not applicable. |
(b) | Not applicable. |
(c) | Purchases of Equity Securities |
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The Companys purchases 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) | ||||||||||||
January 1,
January 31, 2011 |
22,232 | $ | 12.45 | | 265,824 | |||||||||||
February 1,
February 28, 2011 |
| $ | | | | |||||||||||
March 1, March
31, 2011 |
| $ | | | | |||||||||||
Total |
22,232 | $ | 12.45 | | | |||||||||||
(1) | All 22,232 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. The subject shares
were withheld directly from the amount that otherwise would become vested. There was no
transaction in the open market with respect to these withheld shares. |
|
(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 782,779 total shares purchased under the plan. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. | (REMOVED AND RESERVED) |
ITEM 5. | OTHER INFORMATION |
Not applicable.
ITEM 6. | EXHIBITS |
No. | Description | |||
31.1 | Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer. |
|||
31.2 | Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer. |
|||
32.1 | Section 1350 Certification. |
|||
32.2 | Section 1350 Certification. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ABINGTON BANCORP, INC. |
||||
Date: May 10, 2011 | By: | /s/ Robert W. White | ||
Robert W. White | ||||
Chairman, President and Chief Executive Officer |
||||
Date: May 10, 2011 | By: | /s/ Jack J. Sandoski | ||
Jack J. Sandoski | ||||
Senior Vice President and Chief Financial Officer |
65