|
|
|
Available
for sale
|
|
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
3,069
|
|
|
$
|
397
|
|
|
$
|
-
|
|
|
$
|
3,466
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
46,171,971
|
|
|
|
192,854
|
|
|
|
(355,288
|
)
|
|
|
46,009,537
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
65,194,466
|
|
|
|
516,574
|
|
|
|
(394,632
|
)
|
|
|
65,316,408
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
8,496,544
|
|
|
|
88,023
|
|
|
|
(27,963
|
)
|
|
|
8,556,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,866,050
|
|
|
$
|
797,848
|
|
|
$
|
(777,883
|
)
|
|
$
|
119,886,015
|
|
|
|
|
Held
to Maturity
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
20,236,408
|
|
|
$
|
-
|
|
|
$
|
(479,332
|
)
|
|
$
|
19,757,076
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
14,284,056
|
|
|
|
-
|
|
|
|
(431,116
|
)
|
|
|
13,852,940
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
12,371,379
|
|
|
|
19,205
|
|
|
|
(373,493
|
)
|
|
|
12,017,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,891,843
|
|
|
$
|
19,205
|
|
|
$
|
(1,283,941
|
)
|
|
$
|
45,627,107
|
|
|
|
|
Available
for sale
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
318,366
|
|
|
$
|
12,954
|
|
|
$
|
(239
|
)
|
|
$
|
331,081
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
21,441,471
|
|
|
|
155,943
|
|
|
|
(105,997
|
)
|
|
|
21,491,417
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
60,765,390
|
|
|
|
239,573
|
|
|
|
(637,497
|
)
|
|
|
60,367,466
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
11,875,380
|
|
|
|
112,742
|
|
|
|
(53,963
|
)
|
|
|
11,934,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,400,607
|
|
|
$
|
521,212
|
|
|
$
|
(797,696
|
)
|
|
$
|
94,124,123
|
|
|
|
There
were no sales of mortgage-backed securities during the three months ended
September 30, 2008. During the nine months ended September 30, 2008, a
gross gain of approximately $100,000 and a gross loss of approximately
$28,000 were recognized on the sale of certain mortgage-backed securities.
Proceeds from these sales were approximately $5.1 million. There were no
sales of mortgage-backed securities during the three or nine months ended
September 30, 2007.
|
|
|
|
|
|
No
impairment charges were recognized on mortgage-backed securities during
the three or nine months ended September 30, 2008 and
2007.
|
|
|
The
table below sets forth mortgage-backed securities which had an unrealized
loss position as of September 30,
2008:
|
|
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
(87,319
|
)
|
|
$
|
15,195,109
|
|
|
$
|
(453,887
|
)
|
|
$
|
11,275,959
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
(22,049
|
)
|
|
|
932,173
|
|
|
|
(568,759
|
)
|
|
|
15,710,237
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
(190,107
|
)
|
|
|
747,714
|
|
|
|
(554,894
|
)
|
|
|
9,698,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities held to maturity
|
|
|
(299,475
|
)
|
|
|
16,874,996
|
|
|
|
(1,577,540
|
)
|
|
|
36,685,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
(353,329
|
)
|
|
$
|
27,641,019
|
|
|
$
|
(1,959
|
)
|
|
$
|
59,750
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
(132,233
|
)
|
|
|
21,768,331
|
|
|
|
(262,399
|
)
|
|
|
7,996,764
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
(21,283
|
)
|
|
|
2,862,001
|
|
|
|
(6,680
|
)
|
|
|
256,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities available for sale
|
|
|
(506,845
|
)
|
|
|
52,271,351
|
|
|
|
(271,038
|
)
|
|
|
8,313,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(806,320
|
)
|
|
$
|
69,146,347
|
|
|
$
|
(1,848,578
|
)
|
|
$
|
44,998,568
|
|
|
|
The
table below sets forth mortgage-backed securities which had an unrealized
loss position as of December 31,
2007:
|
|
|
|
Less
than 12 months
|
|
|
More
than 12 months
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(479,332
|
)
|
|
$
|
19,757,076
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
-
|
|
|
|
-
|
|
|
|
(431,116
|
)
|
|
|
13,852,940
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
(373,493
|
)
|
|
|
11,060,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities held to maturity
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,283,941
|
)
|
|
|
44,670,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
(239
|
)
|
|
|
48,119
|
|
|
|
-
|
|
|
|
-
|
|
|
FNMA
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
(71,928
|
)
|
|
|
7,898,284
|
|
|
|
(34,069
|
)
|
|
|
5,342,063
|
|
|
FHLMC
pass-through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates
|
|
|
(9,753
|
)
|
|
|
5,321,623
|
|
|
|
(627,744
|
)
|
|
|
37,492,936
|
|
|
Collateralized
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
(53,963
|
)
|
|
|
4,140,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities available for sale
|
|
|
(81,920
|
)
|
|
|
13,268,026
|
|
|
|
(715,776
|
)
|
|
|
46,975,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(81,920
|
)
|
|
$
|
13,268,026
|
|
|
$
|
(1,999,717
|
)
|
|
$
|
91,645,432
|
|
|
|
On
a quarterly basis, management of the Company reviews the securities in its
investment portfolio to identify any securities that might have an
other-than-temporary impairment. At September 30, 2008, mortgage-backed
securities in a gross unrealized loss position for twelve months or longer
consisted of 22 securities having an aggregate depreciation of 3.9% from
the Company’s amortized cost basis. Mortgage-backed securities in a gross
unrealized loss position for less than twelve months at September 30,
2008, consisted of 27 securities having an aggregate depreciation of 1.2%
from the Company’s amortized cost basis. Management has concluded that the
unrealized losses above are temporary in nature. There is no exposure to
subprime loans in our mortgage-backed securities portfolio. The losses are
not related to the underlying credit quality of the issuers, and they are
on securities that have contractual maturity dates. The principal and
interest payments on our mortgage-backed securities have been made as
scheduled, and there is no evidence that the issuer will not continue to
do so. The future principal payments will be sufficient to recover the
current amortized cost of the securities. The unrealized losses above are
primarily related to market interest rates and the current market
environment. The current declines in market value are not significant, and
management of the Company believes that these values will recover as
market interest rates move and the market environment improves. The
Company has the intent and ability to hold each of these investments for
the time necessary to recover its
cost.
|
|
4.
|
LOANS
RECEIVABLE - NET
|
|
|
|
|
|
Loans
receivable consist of the
following:
|
|
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to
four-family residential
|
|
$
|
450,256,262
|
|
|
$
|
424,141,281
|
|
|
Multi-family
residential and commercial
|
|
|
88,829,229
|
|
|
|
77,137,944
|
|
|
Construction
|
|
|
203,263,894
|
|
|
|
168,711,266
|
|
|
Home
equity lines of credit
|
|
|
23,109,943
|
|
|
|
33,091,306
|
|
|
Commercial
business loans
|
|
|
20,482,563
|
|
|
|
29,373,909
|
|
|
Consumer
non-real estate loans
|
|
|
2,598,848
|
|
|
|
7,913,758
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
788,540,739
|
|
|
|
740,369,464
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Construction
loans in process
|
|
|
(60,090,071
|
)
|
|
|
(55,798,973
|
)
|
|
Deferred
loan fees, net
|
|
|
(505,279
|
)
|
|
|
(721,257
|
)
|
|
Allowance
for loan losses
|
|
|
(2,890,189
|
)
|
|
|
(1,811,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable—net
|
|
$
|
725,055,200
|
|
|
$
|
682,038,113
|
|
|
|
Following
is a summary of changes in the allowance for loan
losses:
|
|
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Balance—beginning
of year
|
|
$
|
1,811,121
|
|
|
$
|
1,602,613
|
|
|
Provision
for loan losses
|
|
|
1,035,360
|
|
|
|
457,192
|
|
|
Charge-offs
|
|
|
(43,624
|
)
|
|
|
(275,321
|
)
|
|
Recoveries
|
|
|
87,332
|
|
|
|
26,637
|
|
|
Recoveries/(charge-offs)—net
|
|
|
43,708
|
|
|
|
(248,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance—end
of period
|
|
$
|
2,890,189
|
|
|
$
|
1,811,121
|
|
|
|
The
provision for loan losses charged to expense is based upon past loan loss
experience and an evaluation of losses in the current loan portfolio,
including the evaluation of impaired loans. A loan is considered to be
impaired when, based upon current information and events, it is probable
that the Company will be unable to collect all amounts due according to
the contractual terms of the loan. An insignificant delay or insignificant
shortfall in amount of payments does not necessarily result in the loan
being identified as impaired. For this purpose, delays less than 90 days
are considered to be insignificant. During the periods presented, loan
impairment was evaluated based on the fair value of the loans’ collateral.
Impairment losses are included in the provision for loan losses. Large
groups of smaller balance, homogeneous loans are collectively evaluated
for impairment. Loans collectively evaluated for impairment include
smaller balance commercial real estate loans, residential real estate
loans and consumer loans.
|
|
|
As
of September 30, 2008 and December 31, 2007, the recorded investment in
loans that were considered to be impaired was as
follows.
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Impaired
collateral-dependent loans
|
|
$
|
21,262,518
|
|
|
$
|
1,445,255
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balance of impaired loans
|
|
$
|
12,218,293
|
|
|
$
|
3,996,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income recognized on
|
|
|
|
|
|
|
|
|
|
impaired
loans
|
|
$
|
278,550
|
|
|
$
|
175,950
|
|
|
|
Our
impaired loans at September 30, 2008 consist of six construction loans and
two commercial real estate loans to three borrowers with a combined
balance of $21.3 million. At September 30, 2008, our largest single group
of impaired loans was comprised of three construction loans with an
aggregate outstanding balance to the Bank of $15.1 million at such
date. These three loans, which were more than 90 days past due
and on non-accrual status at September 30, 2008, are for the construction
of a 40-unit, high rise residential condominium project in Center City,
Philadelphia. As of September 30, 2008, $836,000 of our allowance for loan
losses was allocated to these loans. Subsequent to September 30, 2008,
based on a recently completed examination by the FDIC and management’s
further review of this loan relationship, we determined to increase our
allowance for loan losses allocated to these loans by $2.5 million through
a provision for loan losses to be recognized in the quarter ending
December 31, 2008. Our second largest impaired loan at
September 30, 2008 is a $3.6 million construction loan secured by a second
mortgage on a 10-unit condominium project located in Philadelphia. This
loan was also more than 90 days past due at September 30, 2008, but
remained on accrual status, because all past due interest was brought
current in October. Based on a recently received appraisal update on this
project, we have determined to increase our allowance for loan losses
allocated to this loan by an additional $3.4 million through a provision
for loan losses in the quarter ending December 31, 2008. We had
allocated $180,000 of our allowance for loan losses to this project as of
September 30, 2008. At September 30, 2008 and December 31, 2007, our
non-performing loans amounted to 3.02% and 0.23% of loans receivable,
respectively, and our allowance for loan losses amounted to 13.1% and
116.8% of non-performing loans, respectively. In light of current economic
and market conditions, we expect that an additional provision for loan
losses will be required in the fourth quarter of 2008 as a result of the
ongoing review of the credit quality and loss characteristics of our loan
portfolio.
|
|
|
|
|
|
Non-accrual
loans at September 30, 2008 and December 31, 2007, amounted to
approximately $15.8 million and $1.4 million, respectively. Commercial
loans and commercial real estate loans are placed on non-accrual at the
time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Commercial loans are charged off when the
loan is deemed uncollectible. Residential real estate loans are typically
placed on non-accrual only when the loan is 120 days delinquent and not
well secured and in the process of collection. Other consumer loans are
typically charged off when they become 90 days delinquent. In all cases,
loans must be placed on non-accrual or charged off at an earlier date if
collection of principal or interest is considered doubtful. Non-performing
loans, which consist of non-accruing loans plus accruing loans 90 days or
more past due, at September 30, 2008 and December 31, 2007, amounted to
approximately $22.0 million and $1.6 million, respectively. Our
non-performing loans at September 30, 2008 consist primarily of the four
construction loans discussed above.
|
|
|
Interest
payments on impaired loans and non-accrual loans are typically applied to
principal unless the ability to collect the principal amount is fully
assured, in which case interest is recognized on the cash basis. For the
nine months ended September 30, 2008, $279,000 in cash basis interest
income was recognized on impaired and non-accrual loans. For the nine
months ended September 30, 2007, no cash basis interest income was
recognized on impaired and non-accrual loans. Interest income foregone on
non-accrual loans for the nine months ended September 30, 2008 and 2007
was approximately $308,000 in each period.
|
|
|
|
|
5.
|
DEFERRED
INCOME TAXES
|
|
|
|
|
|
Items
that gave rise to significant portions of the deferred tax balances are as
follows:
|
|
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
982,664
|
|
|
$
|
615,781
|
|
|
Deferred
compensation
|
|
|
1,728,183
|
|
|
|
1,624,419
|
|
|
Unrealized
loss on securities available-for-sale
|
|
|
139,457
|
|
|
|
-
|
|
|
Write-down
of impaired investments
|
|
|
112,379
|
|
|
|
-
|
|
|
Property
and equipment
|
|
|
123,819
|
|
|
|
90,375
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
3,086,502
|
|
|
|
2,330,575
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities available-for-sale
|
|
|
-
|
|
|
|
(102,538
|
)
|
|
Deferred
loan fees, net
|
|
|
(321,295
|
)
|
|
|
(319,199
|
)
|
|
Other
|
|
|
(14,936
|
)
|
|
|
(16,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
|
(336,231
|
)
|
|
|
(438,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
2,750,271
|
|
|
$
|
1,892,051
|
|
|
6.
|
PENSION,
PROFIT SHARING AND STOCK COMPENSATION PLANS
|
|
|
|
|
|
In
addition to the plans disclosed below, the Company also maintains an
executive deferred compensation plan for selected executive officers,
which was frozen retroactive to January 1, 2005, a board of directors
deferred compensation plan for directors, a defined benefit pension 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 Company’s Annual Report on Form 10-K for the year
ended December 31, 2007.
|
|
|
|
|
|
Employee Stock
Ownership Plan
|
|
|
In
2004, the Bank established an employee stock ownership plan (“ESOP”) for
substantially all of its full-time employees. Certain senior officers of
the Bank have been designated as Trustees of the ESOP. Shares of the
Company’s common stock purchased by the ESOP are held in a suspense
account until released for allocation to participants. Shares released are
allocated to each eligible participant based on the ratio of each such
participant’s base compensation to the total base compensation of all
eligible plan participants. As the unearned shares are committed to be
released and allocated among participants, the Company recognizes
compensation expense equal to the average market price of the shares.
Under this plan, during 2004 and 2005 the ESOP acquired 914,112 shares (as
adjusted for the exchange ratio as part of the June 2007 second-step
conversion) of common stock for approximately $7.4 million, an average
price of $8.06 per share (as adjusted). These shares are expected to be
released over a 15-year period. In June 2007, the ESOP acquired an
additional 1,042,771 shares of the Company’s common stock for
approximately $10.4 million, an average price of $10.00 per share. These
shares are expected to be released over a 30-year period. No additional
purchases are expected to be made by the ESOP. At September 30, 2008, the
ESOP held approximately 1.7 million unallocated shares of Company common
stock with a fair value of $17.6 million and approximately 218,000
allocated shares with a fair value of $2.2 million. During the three-month
periods ended September 30, 2008 and 2007, approximately 24,000 and 33,000
shares, respectively, were committed to be released to participants,
resulting in recognition of approximately $234,000 and $310,000 in
compensation expense, respectively. During the nine-month periods ended
September 30, 2008 and 2007, approximately 72,000 and 63,000 shares,
respectively, were committed to be released to participants, resulting in
recognition of approximately $711,000 and $669,000 in compensation
expense, respectively.
|
|
|
Recognition and
Retention Plan
|
|
|
In
June 2005, the shareholders of Abington Community Bancorp approved the
adoption of the 2005 Recognition and Retention Plan (the “2005 RRP”). As a
result of the second-step conversion, the 2005 RRP became a stock benefit
plan of the Company and the shares of Abington Community Bancorp held by
the 2005 RRP were converted to shares of Company common stock. Certain
senior officers of the Bank have been designated as Trustees of the 2005
RRP. The 2005 RRP provides for the grant of shares of common stock of the
Company to certain officers, employees and directors of the Company. In
order to fund the 2005 RRP, the 2005 Recognition Plan Trust (the “2005 RRP
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 RRP Trust to fund the purchase
of these shares. No additional purchases are expected to be made by the
2005 RRP Trust under this plan. As of September 30, 2008, pursuant to the
terms of the plan, 452,856 shares acquired by the 2005 RRP Trust have been
granted to certain officers, employees and directors of the Company, with
4,200 shares remaining available for future grant. 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 RRP Trust”) acquired
520,916 shares of the Company’s common stock in the open market for
approximately $5.4 million, an average price of $10.28 per share. As of
September 30, 2008, pursuant to the terms of the plan, 485,700 shares
acquired by the 2007 RRP Trust have been granted to certain officers,
employees and directors of the Company, with 35,216 shares remaining
available for future grant. 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
September 30, 2008 and 2007, and changes during the nine months ended
September 30, 2008 and 2007 are presented below. The number of shares and
weighted average grant date fair value for the prior period have been
adjusted for the exchange ratio as a result of our second-step
conversion:
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant
date
fair value
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant
date
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at the beginning of the year
|
|
|
274,874
|
|
|
$
|
7.54
|
|
|
|
366,285
|
|
|
$
|
7.54
|
|
|
Granted
|
|
|
524,200
|
|
|
|
9.12
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(89,971
|
)
|
|
|
7.51
|
|
|
|
(89,971
|
)
|
|
|
7.51
|
|
|
Forfeited
|
|
|
(42,700
|
)
|
|
|
8.69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at the end of the period
|
|
|
666,403
|
|
|
$
|
8.71
|
|
|
|
276,314
|
|
|
$
|
7.55
|
|
|
|
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- and nine-month periods ended
September 30, 2008, approximately 46,000 and 86,000 shares, respectively,
were amortized to expense, based on the proportional vesting of the
awarded shares, resulting in recognition of approximately $384,000 and
$1.1 million in compensation expense, respectively. A tax benefit of
approximately $181,000 and $423,000, respectively, was recognized during
these periods. During the three- and nine-month periods ended September
30, 2007, approximately 23,000 and 69,000 shares, respectively, were
amortized to expense, based on the proportional vesting of the awarded
shares, resulting in recognition of approximately $172,000 and $516,000 in
compensation expense, respectively. A tax benefit of approximately
$130,000 and $247,000, respectively, was recognized during these periods.
As of September 30, 2008, approximately $4.9 million in additional
compensation expense will be recognized over the remaining lives of the
RRP awards. At September 30, 2008, the weighted average remaining lives of
the RRP awards was approximately 3.7 years.
|
|
|
|
|
|
Stock
Options
|
|
|
In
June 2005, the shareholders of Abington Community Bancorp also approved
the adoption of the 2005 Stock Option Plan (the “2005 Option Plan”). As a
result of the second-step conversion, the 2005 Option Plan became a stock
benefit plan of the Company. Unexercised options which were previously
granted under the 2005 Option Plan were adjusted by the 1.6 exchange ratio
as a result of the second-step conversion and have been converted into
options to acquire Company common stock. The 2005 Option Plan authorizes
the grant of stock options to officers, employees and directors of the
Company to acquire shares of common stock with an exercise price equal to
the fair market value of the common stock on the grant date. Options will
generally become vested and exercisable at the rate of 20% per year over
five years and are generally exercisable for a period of ten years after
the grant date. As of September 30, 2008, a total of 1,142,640 shares of
common stock have been reserved for future issuance pursuant to the 2005
Option Plan of which 19,900 shares remain available for
grant.
|
|
|
|
|
|
In
January 2008, the shareholders of the Company also approved the adoption
of the 2007 Stock Option Plan (the “2007 Option Plan”). Options will
generally become vested and exercisable at the rate of 20% per year over
five years and are generally exercisable for a period of ten years after
the grant date. As of September 30, 2008, a total of 1,302,990 shares of
common stock have been reserved for future issuance pursuant to the 2007
Option Plan of which 160,490 shares remain available for future
grant.
|
|
|
|
|
|
A
summary of the status of the Company’s stock options under the 2005 and
2007 Option Plans as of September 30, 2008 and 2007, and changes during
the nine months ended September 30, 2008 and 2007 are presented below. The
number of options and weighted average exercise price for the prior period
have been adjusted for the exchange ratio as a result of our second-step
conversion:
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at the beginning of the year
|
|
|
1,135,180
|
|
|
$
|
7.74
|
|
|
|
1,065,680
|
|
|
$
|
7.62
|
|
|
Granted
|
|
|
1,272,500
|
|
|
|
9.12
|
|
|
|
69,500
|
|
|
|
10
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(142,440
|
)
|
|
|
8.69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at the end of the period
|
|
|
2,265,240
|
|
|
$
|
8.19
|
|
|
|
1,135,180
|
|
|
$
|
7.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at the end of the period
|
|
|
635,772
|
|
|
$
|
7.59
|
|
|
|
408,736
|
|
|
$
|
7.51
|
|
|
|
The
following table summarizes all stock options outstanding (as adjusted for
the exchange ratio) under the Option Plan as of September 30,
2008:
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
Exercise
Price
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Remaining
Contractual
Life
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
(in
years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
7.51
|
|
|
|
980,800
|
|
|
$
|
7.51
|
|
|
|
7.0
|
|
|
|
610,944
|
|
|
$
|
7.51
|
|
|
8.35
|
|
|
|
7,200
|
|
|
|
8.35
|
|
|
|
7.4
|
|
|
|
2,880
|
|
|
|
8.35
|
|
|
9.11
|
|
|
|
1,142,500
|
|
|
|
9.11
|
|
|
|
9.6
|
|
|
|
-
|
|
|
|
-
|
|
|
9.63
|
|
|
|
94,500
|
|
|
|
9.63
|
|
|
|
9.2
|
|
|
|
13,900
|
|
|
|
9.63
|
|
|
10.18
|
|
|
|
40,240
|
|
|
|
10.18
|
|
|
|
8.4
|
|
|
|
8,048
|
|
|
|
10.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
2,265,240
|
|
|
$
|
8.19
|
|
|
|
8.4
|
|
|
|
635,772
|
|
|
$
|
7.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
|
$
|
3,772,862
|
|
|
|
|
|
|
|
|
|
|
$
|
1,606,472
|
|
|
|
|
|
|
|
The
estimated fair value of options granted in January 2008 was $2.13 per
share. The fair value was estimated on the date of grant in accordance
with SFAS No. 123R using the Black-Scholes Single Option Pricing Model
with the following weighted average assumptions
used:
|
|
Dividend
yield
|
1.88%
|
|
Expected
volatility
|
23.25%
|
|
Risk-free
interest rate
|
3.13
- 3.49%
|
|
Expected
life of options
|
4 -
7 years
|
|
|
The
dividend yield was calculated based on the dividend amount and stock price
existing at the grant date taking into consideration expected increases in
the dividend and stock price over the lives of the options. The actual
dividend yield may differ from this assumption. The risk-free interest
rate used was based on the rates of treasury securities with maturities
equal to the expected lives of the
options.
|
|
|
As
the Company has a limited history of granting option awards, management
made certain assumptions regarding the exercise behavior of recipients
without the use of any prior exercise behavior as a
basis. Assumptions of exercise behavior were made on an
individual basis for directors and executive officers and general
assumptions were made for the remainder of employees. In making these
assumptions, management considered the age and financial status of
recipients in addition to other qualitative factors.
|
|
|
|
|
|
The
expected volatility was based on and calculated from the historical
volatility of our stock, as it was determined that this would be the most
reliable estimate of future stock volatility. The actual future volatility
may differ from our historical volatility.
|
|
|
|
|
|
During
the three and nine months ended September 30, 2008, approximately $221,000
and $638,000, respectively, was recognized in compensation expense for the
Option Plans. A tax benefit of approximately $22,000 and $62,000,
respectively, was recognized during each of these periods. During the
three and nine months ended September 30, 2007, approximately $101,000 and
$296,000, respectively, was recognized in compensation expense for the
Option Plans. A tax benefit of approximately $9,000 and $27,000,
respectively, was recognized during each of these periods. At September
30, 2008, approximately $3.0 million in additional compensation expense
for awarded options remained unrecognized. The weighted average period
over which this expense will be recognized is approximately 3.2
years.
|
|
|
|
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
The
Bank had approximately $5.5 million in outstanding mortgage loan
commitments at September 30, 2008. The commitments are expected to be
funded within 90 days with all $5.5 million in fixed rate loans with
interest rates ranging from 5.75% to 6.50%. The Bank had approximately
$5.0 million in outstanding mortgage loan commitments at December 31,
2007. These loans were not originated for resale. Also outstanding at
September 30, 2008 and December 31, 2007, were unused lines of credit
totaling approximately $92.2 million and $65.2 million,
respectively.
|
|
|
|
|
|
Letters
of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to
facilitate trade or commerce and are also issued to support public and
private borrowing arrangements, bond financings and similar
transactions. Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer
to a third party. Collateral may be required to support letters of credit
based upon management's evaluation of the creditworthiness of each
customer. The credit risk involved in issuing letters of credit
is substantially the same as that involved in extending loan facilities to
customers. Most of the Bank’s letters of credit expire within
one year. At September 30, 2008 and December 31, 2007, the Bank had
letters of credit outstanding of approximately $14.1 million and $17.2
million, respectively, of which $12.8 million and $15.8 million,
respectively, were standby letters of credit. At September 30,
2008 and December 31, 2007, the uncollateralized portion of the letters of
credit extended by the Bank was approximately $24,000 and $97,000,
respectively. At September 30, 2008 and December 31, 2007, all of the
uncollateralized letters of credit were for standby letters of
credit.
|
|
|
|
|
|
The
Company is subject to various pending claims and contingent liabilities
arising in the normal course of business which are not reflected in the
accompanying consolidated financial statements. Management considers that
the aggregate liability, if any, resulting from such matters will not be
material.
|
|
|
Among
the Company’s contingent liabilities, are exposures to limited recourse
arrangements with respect to the Bank’s sales of whole loans and
participation interests. At September 30, 2008, the exposure, which
represents a portion of credit risk associated with the sold interests,
amounted to $185,000. The exposure is for the life of the related loans
and payable, on our proportional share, as losses are
incurred.
|
|
|
|
|
8.
|
FAIR
VALUE MEASUREMENTS
|
|
|
|
|
|
The
Company uses fair value measurements to record fair value adjustments to
certain assets to determine fair value disclosures. Investment and
mortgage-backed securities available for sale are recorded at fair value
on a recurring basis. Additionally, from time to time, the Company may be
required to record at fair value other assets on a nonrecurring basis,
such as impaired loans, real estate owned and certain other assets. These
nonrecurring fair value adjustments typically involve application of
lower-of-cost-or-market accounting or write-downs of individual
assets.
|
|
|
|
|
|
Under
SFAS No. 157,
Fair Value
Measurements
, the Company groups its assets at fair value in
three levels, based on the markets in which the assets are
traded and the reliability of the assumptions used to determine fair
value. These levels are:
|
|
|
|
|
|
●
|
Level
1 – Valuation is based upon quoted prices for identical instruments traded
in active markets.
|
|
|
|
|
|
|
●
|
Level
2 – Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the
market.
|
|
|
|
|
|
|
●
|
Level
3 – Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable
assumptions reflect the Company’s own estimates of assumptions that market
participants would use in pricing the asset.
|
|
|
|
|
|
|
Under
SFAS No. 157, the Company bases its fair values on the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It is our
policy to maximize the use of observable inputs and minimize the use of
unobservable inputs when developing fair value measurements, in accordance
with the fair value hierarchy in SFAS No. 157.
|
|
|
|
|
|
Fair
value measurements for assets where there exists limited or no observable
market data and, therefore, are based primarily upon the Company’s or
other third-party’s estimates, are often calculated based on the
characteristics of the asset, the economic and competitive environment and
other such factors. Therefore, the results cannot be determined with
precision and may not be realized in an actual sale or immediate
settlement of the asset. Additionally, there may be inherent weaknesses in
any calculation technique, and changes in the underlying assumptions used,
including discount rates and estimates of future cash flows, that could
significantly affect the results of current or future valuations. At
September 30, 2008, the Company did not have any assets that were measured
at fair value on a recurring basis that use Level 3
measurements.
|
|
|
Following
is a description of valuation methodologies used for assets recorded at
fair value.
|
|
|
|
|
|
Investment
and Mortgage-backed Securities Available for
Sale
—
Investment
and mortgage-backed securities available for sale are recorded at fair
value on a recurring basis. Fair value measurements for these securities
are typically obtained from independent pricing services that we have
engaged for this purpose. When available, we, or our independent pricing
service, use quoted market prices to measure fair value. If market prices
are not available, fair value measurement is based upon models that
incorporate available trade, bid and other market information and for
structured securities, cash flow and, when available, loan performance
data. Because many fixed income securities do not trade on a daily basis,
our independent pricing service’s applications apply available information
as applicable through processes such as benchmark curves, benchmarking of
like securities, sector groupings and matrix pricing to prepare
evaluations. For each asset class, pricing applications and models are
based on information from market sources and integrate relevant credit
information. All of our securities available for sale are valued using
either of the foregoing methodologies to determine fair value adjustments
recorded to our financial statements. Level 1 securities include equity
securities such as common stock and mutual funds traded on active
exchanges. Level 2 securities include corporate bonds, agency bonds,
municipal bonds, certificates of deposit, mortgage-backed securities, and
collateralized mortgage obligations.
|
|
|
|
|
|
Impaired
Loans—
A loan is considered to be impaired when, based upon current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan. An
insignificant delay or insignificant shortfall in amount of payments does
not necessarily result in the loan being identified as impaired. 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. Our appraisals are
typically performed by independent third party appraisers. For appraisals
of commercial and construction properties, comparable properties within
the area may not be available. In such circumstances, our appraisers will
rely on certain judgments in determining how a specific property compares
in value to other properties that are not identical in design or in
geographic area. Our impaired loans at September 30, 2008, are secured by
commercial and construction properties for which there are no comparable
properties available and, accordingly, we classify impaired loans as Level
3. The valuation allowances recognized during the quarter are discussed in
Note 4.
|
|
|
|
|
|
Real Estate
Owned—
Real estate owned includes foreclosed properties securing
commercial and construction loans. Real estate properties acquired through
foreclosure are initially recorded at the fair value of the property at
the date of foreclosure. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of
cost or fair value less estimated costs to sell. As is the case for
collateral of impaired loans, fair value is generally based upon
independent market prices or appraised value of the collateral. Our
appraisal process for real estate owned is identical to our appraisal
process for the collateral of impaired loans. Our current portfolio of
real estate owned is comprised of commercial and construction properties
for which comparable properties within the area are not available. Our
appraisers have relied on certain judgments in determining how our
specific properties compare in value to other properties that are not
identical in design or in geographic area and, accordingly, we classify
real estate owned as Level 3. Our increase in real estate owned during the
quarter was due solely to additions to that category of asset. No
valuation allowances or changes in value were recognized during the
quarter.
|
|
|
The
table below presents the balances of asset measured at fair value on a
recurring basis:
|
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
$
|
78,441,097
|
|
|
$
|
2,726,219
|
|
|
$
|
75,714,878
|
|
|
$
|
-
|
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
|
119,886,015
|
|
|
|
-
|
|
|
|
119,886,015
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
198,327,112
|
|
|
$
|
2,726,219
|
|
|
$
|
195,600,893
|
|
|
$
|
-
|
|
|
|
For
assets measured at fair value on a nonrecurring basis in 2008 that were
still held at the end of the period, the following table provides the
level of valuation assumptions used to determine each adjustment an the
carrying value of the related individual assets or portfolios at September
30, 2008:
|
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
21,262,518
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,262,518
|
|
|
$
|
-
|
|
|
Real
estate owned
|
|
|
3,080,714
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,080,714
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,343,232
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
24,343,232
|
|
|
$
|
-
|
|
ITEM
2. – MANAGEMENT’S 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.
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.
Overview—
The
Company was formed by the Bank in connection with the Bank’s second-step
conversion and reorganization, completed on June 27, 2007. Previously, Abington
Community Bancorp was the mid-tier holding company for the Bank, and Abington
Mutual Holding Company owned approximately 57% of Abington Community Bancorp’s
outstanding stock. Upon completion of the second-step reorganization, Abington
Community Bancorp, Inc. and Abington Mutual Holding Company ceased to exist and
the Company became the holding company for the Bank. The Bank is now a wholly
owned subsidiary of the Company.
The
Company’s results of operations are primarily dependent on the results of the
Bank. The Bank’s results of operations depend to a large extent on net interest
income, which is the difference between the income earned on its loan and
investment portfolios and the cost of funds, which is the interest paid on
deposits and borrowings. Results of operations are also affected by
our provisions for loan losses, service charges and other non-interest income
and non-interest expense. Non-interest expense principally consists of salaries
and employee benefits, office occupancy and equipment expense, professional
services expense, data processing expense, advertising and promotions and other
expense. Our results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. Future changes in
applicable laws, regulations or government policies may materially impact our
financial condition and results of operations. The Bank is subject to regulation
by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania
Department of Banking. The Bank’s executive offices and loan processing office
are in Jenkintown, Pennsylvania, with eleven other full service branches and six
limited service facilities located in Montgomery, Bucks and Delaware Counties,
Pennsylvania. The Bank is principally engaged in the business of accepting
customer deposits and investing these funds in loans, primarily residential
mortgages.
We earned
net income of $2.4 million for the quarter ended September 30, 2008,
representing an increase of $305,000 or 14.7% over the comparable 2007 period.
Basic and diluted earnings per share increased to $0.11 and $0.10, respectively,
for the quarter compared to $0.09 for each for the third quarter of 2007.
Additionally, we reported net income of $6.0 million for the nine months ended
September 30, 2008, representing an increase of $1.1 million or 22.2% over the
comparable 2007 period. Basic and diluted earnings per share increased to $0.27
and $0.26, respectively, for the first nine months of 2008 compared to $0.21 for
each for the first nine months of 2007.
The
increase reported in net income for the three-month and nine-month periods was
primarily driven by an increase in our net interest income, as well as an
increase in our income on bank owned life insurance (“BOLI”). These increases
were partially offset by increases in our provisions for loan losses to $309,000
and $1.0 million, respectively, for the three and nine months ended September
30, 2008, as well as to increases in our non-interest expenses. Based upon
events subsequent to September 30, 2008, we expect an additional provision for
loan losses of at least $5.9 million to be recognized in the quarter ending
December 31, 2008.
Net
interest income was $7.7 million and $22.1 million for the three months and nine
months ended September 30, 2008, respectively, representing increases of 8.1%
and 19.5%, respectively, over the comparable 2007 periods. The increases in our
net interest income were primarily due to decreases in our interest expense. Our
average interest rate spread and net interest margin for the third quarter of
2008 increased to 2.37% and 2.99%, respectively, from 1.92% and 2.89%,
respectively, for the third quarter of 2007. Our average interest rate spread
and net interest margin for the first nine months of 2008 increased to 2.17% and
2.88%, respectively, from 1.90% and 2.65%, respectively, for the first nine
months of 2007.
The
Company’s total assets increased $80.9 million, or 7.5%, to $1.16 billion at
September 30, 2008 compared to $1.08 billion at December 31, 2007, due primarily
to increases in the aggregate balance of mortgage-backed securities and loans
receivable, partially offset by a decrease in the balance of cash and
cash equivalents and investment securities. Our total deposits increased $21.7
million or 3.6% to $631.3 million at September 30, 2008 compared to $609.6
million at December 31, 2007. The increase during the first nine months of 2008
was due to growth in core deposits. Advances from the Federal Home Loan Bank
(“FHLB”) increased $62.5 million or 33.0% to $252.0 million at September 30,
2008. Our total stockholders’ equity decreased to $244.2 million at September
30, 2008 from $249.9 million at December 31, 2007 due primarily to the purchase
of shares of the Company’s common stock by the 2007 Recognition and Retention
Plan Trust (the “2007 RRP trust”), as well as to the repurchase of shares by the
Company as part of our stock repurchase plan.
Critical
Accounting Policies, Judgments and Estimates—
In reviewing and
understanding financial information for Abington Bancorp, Inc., you are
encouraged to read and understand the significant accounting policies used in
preparing our consolidated financial statements. These policies are described in
Note 1 of the notes to our unaudited consolidated financial statements. The
accounting and financial reporting policies of Abington Bancorp, Inc. conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. The preparation of the Company’s
consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Management evaluates these estimates and assumptions on an ongoing basis
including those related to the allowance for loan losses and deferred income
taxes. Management bases its estimates on historical experience and various other
factors and assumptions that are believed to be reasonable under the
circumstances. These form the bases for making judgments on the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Allowance for
Loan Losses—
The allowance for loan losses is increased by charges to
income through the provision for loan losses and decreased by charge-offs (net
of recoveries). The allowance is maintained at a level that management considers
adequate to provide for losses based upon evaluation of the known and inherent
risks in the loan portfolio. Management’s periodic evaluation of the adequacy of
the allowance is based on the Company’s past loan loss experience, the volume
and composition of lending conducted by the Company, adverse situations that may
affect a borrower’s ability to repay, the estimated value of any underlying
collateral, current economic conditions and other factors affecting the known
and inherent risk in the portfolio. This evaluation is inherently subjective as
it requires material estimates including, among others, the amount and timing of
expected future cash flows on impacted loans, exposure at default, value of
collateral, and estimated losses on our commercial and residential loan
portfolios. All of these estimates may be susceptible to significant
change.
The
allowance consists of specific allowances for impaired loans, a general
allowance on all classified loans which are not impaired and a general allowance
on the remainder of the portfolio. Although we determine the amount of each
element of the allowance separately, the entire allowance for loan losses is
available for the entire portfolio.
We
establish an allowance on certain impaired loans for the amount by which the
discounted cash flows, observable market price or fair value of collateral, if
the loan is collateral dependent, is lower than the carrying value of the loan.
A loan is considered to be impaired when, based upon current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan. An insignificant delay or
insignificant shortfall in amount of payments does not necessarily result in the
loan being identified as impaired.
We
establish a general valuation allowance on classified loans which are not
impaired. We segregate these loans by category and assign allowance percentages
to each category based on inherent losses associated with each type of lending
and consideration that these loans, in the aggregate, represent an above-average
credit risk and that more of these loans will prove to be uncollectible compared
to loans in the general portfolio. The categories used by the Company include
“Doubtful,” “Substandard” and “Special Mention.” Classification of a loan within
such categories is based on identified weaknesses that increase the credit risk
of the loan.
We
establish a general allowance on non-classified loans to recognize the inherent
losses associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem loans. This general
valuation allowance is determined by segregating the loans by loan category and
assigning allowance percentages based on our historical loss experience,
delinquency trends, and management’s evaluation of the collectibility of the
loan portfolio.
The
allowance is adjusted for significant factors that, in management’s judgment,
affect the collectibility of the portfolio as of the evaluation date. These
significant factors may include changes in lending policies and procedures,
changes in existing general economic and business conditions affecting our
primary lending areas, credit quality trends, collateral value, loan volumes and
concentrations, seasoning of the loan portfolio, loss experience in particular
segments of the portfolio, duration of the current business cycle, and bank
regulatory examination results. The applied loss factors are reevaluated each
reporting period to ensure their relevance in the current economic
environment.
While
management uses the best information available to make loan loss allowance
valuations, adjustments to the allowance may be necessary based on changes in
economic and other conditions, changes in the composition of the loan portfolio
or changes in accounting guidance. In times of economic slowdown, either
regional or national, the risk inherent in the loan portfolio could increase
resulting in the need for additional provisions to the allowance for loan losses
in future periods. An increase could also be necessitated by an increase in the
size of the loan portfolio or in any of its components even though the credit
quality of the overall portfolio may be improving. Historically, our estimates
of the allowance for loan losses have approximated actual losses incurred. In
addition, the Pennsylvania Department of Banking and the FDIC, as an integral
part of their examination processes, periodically review our allowance for loan
losses. The Pennsylvania Department of Banking or the FDIC may require the
recognition of adjustment to the allowance for loan losses based on their
judgment of information available to them at the time of their examinations. To
the extent that actual outcomes differ from management’s estimates, additional
provisions to the allowance for loan losses may be required that would adversely
impact earnings in future periods.
Fair Value
Measurements—
We use fair value measurements to record fair value
adjustments to certain assets and to determine fair value disclosures.
Investment and mortgage-backed securities available for sale are recorded at
fair value on a recurring basis. Additionally, from time to time, we may be
required to record at fair value other assets on a nonrecurring basis, such as
impaired loans, real estate owned and certain other assets. These nonrecurring
fair value adjustments typically involve application of lower-of-cost-or-market
accounting or write-downs of individual assets.
Under
SFAS No. 157,
Fair Value
Measurements
, we group our assets at fair value in three levels, based on
the markets in which the assets are traded and the reliability of the
assumptions used to determine fair value. These levels are:
|
|
●
|
Level
1 – Valuation is based upon quoted prices for identical instruments traded
in active markets.
|
|
|
|
|
|
|
●
|
Level
2 – Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the
market.
|
|
|
|
|
|
|
●
|
Level
3 – Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable
assumptions reflect the Company’s own estimates of assumptions that market
participants would use in pricing the
asset.
|
Under
SFAS No. 157, we base our fair values on the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. It is our policy to maximize the
use of observable inputs and minimize the use of unobservable inputs when
developing fair value measurements, in accordance with the fair value hierarchy
in SFAS No. 157. Fair value measurements for most of our assets are obtained
from independent pricing services that we have engaged for this purpose. When
available, we, or our independent pricing service, use quoted market prices to
measure fair value. If market prices are not available, fair value measurement
is based upon models that incorporate available trade, bid and other market
information. Substantially all of our financial instruments use either of the
foregoing methodologies to determine fair value adjustments recorded to our
financial statements. In certain cases, however, when market observable inputs
for model-based valuation techniques may not be readily available, we are
required to make judgments about assumptions market participants would use in
estimating the fair value of financial instruments.
The
degree of management judgment involved in determining the fair value of a
financial instrument is dependent upon the availability of quoted market prices
or observable market parameters. For financial instruments that trade actively
and have quoted market prices or observable market parameters, there is minimal
subjectivity involved in measuring fair value. When observable market prices and
parameters are not fully available, management judgment is necessary to estimate
fair value. In addition, changes in the market conditions may reduce the
availability of quoted prices or observable data. When market data is not
available, we use valuation techniques requiring more management judgment to
estimate the appropriate fair value measurement. Therefore, the results cannot
be determined with precision and may not be realized in an actual sale or
immediate settlement of the asset. Additionally, there may be inherent
weaknesses in any calculation technique, and changes in the underlying
assumptions used, including discount rates and estimates of future cash flows,
that could significantly affect the results of current or future valuations. At
September 30, 2008, we did not have any assets that were measured at fair value
on a recurring basis that use Level 3 measurements. We did have assets that were
measured at fair value on a nonrecurring basis that use Level 3 measurements.
See Note 8 in the Notes to the Unaudited Consolidated Financial Statements
herein for further description of our fair value measurements.
Other-Than-Temporary
Impairment of Securities—
Securities are evaluated on at least a quarterly
basis, and more frequently when market conditions warrant such an evaluation, to
determine whether a decline in their value is other-than-temporary. To determine
whether a loss in value is other-than-temporary, management utilizes criteria
such as the reasons underlying the decline, the magnitude and duration of the
decline and the intent and ability of the Company to retain its investment in
the security for a period of time sufficient to allow for an anticipated
recovery in the fair value. The term “other-than-temporary” is not intended to
indicate that the decline is permanent, but indicates that the prospects for a
near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized.
Income
Taxes—
Management makes estimates and judgments to calculate some of our
tax liabilities and determine the recoverability of some of our deferred tax
assets, which arise from temporary differences between the tax and financial
statement recognition of revenues and expenses. Management also estimates a
reserve for deferred tax assets if, based on the available evidence, it is more
likely than not that some portion or all of the recorded deferred tax assets
will not be realized in future periods. These estimates and judgments are
inherently subjective. Historically, our estimates and judgments to calculate
our deferred tax accounts have not required significant revision from
management’s initial estimates.
In
evaluating our ability to recover deferred tax assets, management considers all
available positive and negative evidence, including our past operating results
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 SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
The
Company’s total assets increased $80.9 million, or 7.5%, to $1.16 billion at
September 30, 2008 compared to $1.08 billion at December 31, 2007. Our total
cash and cash equivalents decreased $13.0 million or 19.1% during the first nine
months of 2008 as we redeployed certain of our interest-bearing deposits in
other banks to purchase additional securities. Our mortgage-backed securities
increased by an aggregate of $64.1 million as purchases of $97.0 million
outpaced repayments, maturities and sales aggregating $33.3 million. Our
investment securities decreased $20.3 million in the aggregate due primarily to
$47.4 million in calls, maturities and sales of agency bonds partially offset by
$15.0 million in purchases of additional agency bonds and $13.6 million of
municipal bonds. Net loans receivable increased $43.0 million or 6.3% during the
first nine months of 2008. The largest loan growth occurred in construction
loans, which increased $34.6 million, one- to four-family residential loans,
which increased $26.1 million, and multi-family residential and commercial
loans, which increased $11.7 million. These increases were partially offset by
decreases in all other categories of loans. Real estate owned (“REO”) increased
$1.5 million or 97.7% to $3.1 million at September 30, 2008 compared to $1.6
million at December 31, 2007. The majority of this increase occurred during the
first quarter of 2008, when, as previously disclosed, we foreclosed on the
collateral properties securing three commercial real estate loans to one
borrower with an aggregate balance of $977,000. The remainder of the increase in
real estate owned was due to improvements made to existing REO properties. Our
FHLB stock increased $3.3 million or 29.9% as a result of our increased
utilization of advances from the FHLB as a source of funding.
Our total
deposits increased $21.7 million or 3.6% to $631.3 million at September 30, 2008
compared to $609.6 million at December 31, 2007. The increase during the first
nine months of 2008 was due to growth in core deposits. During this period, our
savings and money market accounts grew $36.4 million, or 38.1%, and our checking
accounts grew $2.1 million, or 2.2%, resulting in an increase to core deposits
of $38.5 million, or 19.7%. Our certificate accounts decreased $16.8 million or
4.1%. Advances from the FHLB increased $62.5 million or 33.0% to $252.0 million
at September 30, 2008. As previously stated, our increased utilization of
advances from the FHLB has been part of a strategic decision to replace
high-rate certificates of deposit with lower cost sources of funding in the
current interest rate environment. Our other borrowed money, which is comprised
of securities repurchase agreements entered into with certain commercial
checking account customers, increased $3.0 million or 16.9% during the first
nine months of 2008 to $20.4 million at September 30, 2008.
Our total
stockholders’ equity decreased to $244.2 million at September 30, 2008 from
$249.9 million at December 31, 2007. The decrease was due primarily to the
purchase of approximately 521,000 shares of the Company’s common stock by the
2007 Recognition and Retention Plan Trust (the “2007 RRP trust”) for
approximately $5.4 million in the aggregate. Additionally, the
Company purchased approximately 511,000 shares of the Company’s common stock
during the third quarter of 2008 for approximately $4.9 million as part of our
previously announced stock repurchase plan. Partially offsetting these decreases
was a $2.7 million increase in retained earnings during the first nine months of
2008 as our net income of $6.0 million was partially offset by a reduction of
$3.4 million resulting from the payment of our quarterly dividends.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary sources of funds are from deposits, amortization of loans, loan
prepayments and pay-offs, mortgage-backed securities and other investments, and
other funds provided from operations. While scheduled payments from the
amortization of loans and mortgage-backed securities and maturing investment
securities are relatively predictable sources of funds, deposit flows and loan
prepayments can be greatly influenced by general interest rates, economic
conditions and competition. We also maintain excess funds in
short-term, interest-bearing assets that provide additional
liquidity. At September 30, 2008, our cash and cash equivalents
amounted to $55.1 million. In addition, at such date we had $1.7
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 $198.3 million at September 30,
2008.
We use
our liquidity to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, and to meet operating expenses. At September
30, 2008, we had certificates of deposit maturing within the next 12 months
amounting to $311.8 million. Based upon historical experience, we anticipate
that a significant portion of the maturing certificates of deposit will be
redeposited with us. For the nine months ended September 30, 2008,
and the year ended December 31, 2007, the average balance of our outstanding
FHLB advances was $196.7 million and $183.4 million, respectively. At
September 30, 2008, we had $252.0 million in outstanding FHLB advances and we
had $362.4 million in additional FHLB advances available to us.
In
addition to cash flow from loan and securities payments and prepayments as well
as from sales of available for sale securities, we have significant borrowing
capacity available to fund liquidity needs. We have increased our
utilization of borrowings in recent years as an alternative to deposits as a
source of funds. Our borrowings consist primarily of advances from
the Federal Home Loan Bank of Pittsburgh, of which we are a
member. Under terms of the collateral agreement with the Federal Home
Loan Bank, we pledge substantially all of our residential mortgage loans and
mortgage-backed securities as well as all of our stock in the Federal Home Loan
Bank as collateral for such advances.
Our
stockholders’ equity amounted to $244.2 million at September 30, 2008, compared
to stockholders’ equity of $249.9 million at December 31, 2007. During 2007, we
raised $134.7 million in net proceeds received from our second-step conversion
and stock offering. Half of these net proceeds, approximately $67.3 million,
were invested in Abington Bank.
The net
proceeds received by the Bank have further strengthened its capital position,
which already exceeded all regulatory requirements (see table below). While
these proceeds were initially invested in short-term, liquid investments to earn
a market rate of return, our long-term plan continues to be to leverage our
capital through retail deposit and loan growth. Specifically, we are using the
net proceeds received by the Bank to fund new loans, to invest in
mortgage-backed securities, to finance the expansion of our business activities,
including developing new branch locations and for general corporate purposes.
Towards this goal, we opened our newest branch location in Hatboro, Pennsylvania
in the third quarter of 2008 after opening four new branches in 2007. Although
these branches will require a period of time to generate sufficient revenues to
offset their costs, our ongoing branch expansion is a key component of our
long-term business strategy.
The net
proceeds held by the Company are on deposit with the Bank. These proceeds have
been used, in part, to pay quarterly dividends to our shareholders. The
Company’s quarterly dividend was increased to $0.045 per share in September 2007
and then to $0.05 per share in March 2008. In July 2008, we announced plans to
utilize a portion of our capital to repurchase up to 5% of the outstanding
shares of the Company, or 1,221,772 shares. As of September 30, 2008, we had
repurchased approximately 511,000 shares of the Company’s common stock for
approximately $4.9 million, paying an average price of $9.61 per share. The
repurchase plan will benefit our shareholders by improving the Company’s return
on equity and earnings per share as well as aid us in managing our strong
capital position. In the long term, these proceeds may also be used to invest in
securities and to finance the possible acquisition of financial institutions or
branch offices or other businesses that are related to banking. Although we
currently have no plans, understandings or agreements with respect to any
specific acquisitions, we are constantly considering potential opportunities to
increase long-term shareholder value.
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.
|
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Actual Ratios At
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Ratios
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
15.03
|
%
|
|
|
15.45
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
|
Tier
1 risk-based capital ratio
|
|
|
23.11
|
|
|
|
24.22
|
|
|
|
4.00
|
|
|
|
6.00
|
|
|
Total
risk-based capital ratio
|
|
|
23.50
|
|
|
|
24.49
|
|
|
|
8.00
|
|
|
|
10.00
|
|
In light
of the Company’s strong capital base, its earnings, growth, prospects and
business strategy, and in consideration of the Bank’s regulatory capital, which
is significantly in excess of well capitalized levels, we have decided not to
seek federal funds through the Capital Purchase Program recently announced by
the U.S. Treasury, although we believe we would be eligible for such
funds.
SHARE-BASED
COMPENSATION
The
Company accounts for its share-based compensation awards in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123R (revised 2004),
Share-Based Payment
.
This statement requires an entity to recognize the cost of employee services
received in share-based payment transactions and measures the cost on the
grant-date fair value of the award. That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award.
At
September 30, 2008, the Company has four share-based compensation plans, the
2005 and the 2007 Recognition and Retention Plans (the “2005 RRP” and “2007
RRP”) and the 2005 and 2007 Stock Option Plans (the “2005 Option Plan” and “2007
Option Plan”). Share awards were first issued under the 2005 plans in July 2005.
Share awards were issued under the 2007 plans in January 2008. See Note 6 in the
Notes to the Unaudited Consolidated Financial Statements herein for a further
description of these plans.
Compensation
expense on Recognition and Retention Plan shares granted is recognized ratably
over the five year vesting period in an amount which totals the market price of
the common stock at the date of grant. During the three- and nine-month periods
ended September 30, 2008, approximately 46,000 and 86,000 shares, respectively,
were amortized to expense, based on the proportional vesting of the awarded
shares, resulting in recognition of approximately $384,000 and $1.1 million in
compensation expense, respectively. A tax benefit of approximately $181,000 and
$423,000, respectively, was recognized during these periods. During the three-
and nine-month periods ended September 30, 2007, approximately 23,000 and 69,000
shares, respectively, were amortized to expense, based on the proportional
vesting of the awarded shares, resulting in recognition of approximately
$172,000 and $516,000 in compensation expense, respectively. A tax benefit of
approximately $130,000 and $247,000, respectively, was recognized during these
periods. As of September 30, 2008, approximately $4.9 million in additional
compensation expense will be recognized over the remaining lives of the RRP
awards. At September 30, 2008, the weighted average remaining lives of the RRP
awards was approximately 3.7 years.
During
the three and nine months ended September 30, 2008, approximately $221,000 and
$638,000, respectively, was recognized in compensation expense for the Option
Plans. A tax benefit of approximately $22,000 and $62,000, respectively, was
recognized during each of these periods. During the three and nine months ended
September 30, 2007, approximately $101,000 and $296,000, respectively, was
recognized in compensation expense for the Option Plans. A tax benefit of
approximately $9,000 and $27,000, respectively, was recognized during each of
these periods. At September 30, 2008, approximately $3.0 million in additional
compensation expense for awarded options remained unrecognized. The weighted
average period over which this expense will be recognized is approximately 3.2
years.
The
Company also has an employee stock ownership plan (“ESOP”). See Note 6 in the
Notes to the Unaudited Consolidated Financial Statements herein for a further
description of this plan. Shares awarded under the ESOP are accounted for in
accordance with AICPA Statement of Position (“SOP”) 93-6,
Employers’ Accounting for Employee
Stock Ownership Plans
. As ESOP shares are committed to be released and
allocated among participants, the Company recognizes compensation expense equal
to the average market price of the shares over the period earned. During the
three-month periods ended September 30, 2008 and 2007, approximately 24,000 and
33,000 shares, respectively, were committed to be released to participants,
resulting in recognition of approximately $234,000 and $310,000 in compensation
expense, respectively. During the nine-month periods ended September 30, 2008
and 2007, approximately 72,000 and 63,000 shares, respectively, were committed
to be released to participants, resulting in recognition of approximately
$711,000 and $669,000 in compensation expense, respectively.
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 September 30, 2008 and December 31, 2007, we had
no commitments to originate loans for sale.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the loan documents. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer. The amount and type
of collateral required varies, but may include accounts receivable, inventory,
equipment, real estate and income-producing commercial properties. At September
30, 2008 and December 31, 2007, commitments to originate loans and commitments
under unused lines of credit, including undisbursed portions of construction
loans in process, for which the Bank is obligated, amounted to approximately
$157.8 million and $126.0 million, respectively.
Letters
of credit are conditional commitments issued by the Bank guaranteeing payments
of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to
facilitate trade or commerce and are also issued to support public and private
borrowing arrangements, bond financings and similar
transactions. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Collateral may be required to support letters of credit based upon management's
evaluation of the creditworthiness of each customer. The credit risk
involved in issuing letters of credit is substantially the same as that involved
in extending loan facilities to customers. Most of the Bank’s letters
of credit expire within one year. At September 30, 2008 and December 31, 2007,
the Bank had letters of credit outstanding of approximately $14.1 million and
$17.2 million, respectively, of which $12.8 million and $15.8 million,
respectively, were standby letters of credit. At September 30, 2008
and December 31, 2007, the uncollateralized portion of the letters of credit
extended by the Bank was approximately $24,000 and $97,000, respectively. At
September 30, 2008 and December 31, 2007, all of the uncollateralized letters of
credit were for standby letters of credit.
The
Company is also subject to various pending claims and contingent liabilities
arising in the normal course of business, which are not reflected in the
unaudited consolidated financial statements. Management considers that the
aggregate liability, if any, resulting from such matters will not be
material.
Among the
Company’s contingent liabilities are exposures to limited recourse arrangements
with respect to the Bank’s sales of whole loans and participation interests. At
September 30, 2008, the exposure, which represents a portion of credit risk
associated with the sold interests, amounted to $185,000. The exposure is for
the life of the related loans and payable, on our proportional share, as losses
are incurred.
We
anticipate that we will continue to have sufficient funds and alternative
funding sources to meet our current commitments.
The
following table summarizes our outstanding commitments to originate loans and to
advance additional amounts pursuant to outstanding letters of credit, lines of
credit and under our construction loans at September 30, 2008.
|
|
|
|
|
|
Amount
of Commitment Expiration - Per Period
|
|
|
|
|
|
|
|
To
|
|
|
Over
1 to
|
|
|
|
|
|
After
5
|
|
|
|
|
(In
Thousands)
|
|
|
Letters
of credit
|
|
$
|
14,086
|
|
|
$
|
13,564
|
|
|
$
|
517
|
|
|
$
|
--
|
|
|
$
|
5
|
|
|
Recourse
obligations on loans sold
|
|
|
185
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
185
|
|
|
Commitments
to originate loans
|
|
|
5,532
|
|
|
|
5,532
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Unused
portion of home equity lines of credit
|
|
|
23,651
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
23,651
|
|
|
Unused
portion of commercial lines of credit
|
|
|
68,524
|
|
|
|
68,524
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Undisbursed
portion of construction loans in process
|
|
|
60,090
|
|
|
|
19,177
|
|
|
|
40,913
|
|
|
|
--
|
|
|
|
--
|
|
|
Total
commitments
|
|
$
|
172,068
|
|
|
$
|
106,797
|
|
|
$
|
41,430
|
|
|
$
|
--
|
|
|
$
|
23,841
|
|
The
following table summarizes our contractual cash obligations at September 30,
2008.
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
To
|
|
|
Over
1 to
|
|
|
|
|
|
After
5
|
|
|
|
|
(In
Thousands)
|
|
|
Certificates
of deposit
|
|
$
|
397,801
|
|
|
$
|
311,797
|
|
|
$
|
56,637
|
|
|
$
|
14,293
|
|
|
$
|
15,074
|
|
|
FHLB
advances
|
|
|
252,043
|
|
|
|
113,128
|
|
|
|
65,651
|
|
|
|
23,867
|
|
|
|
49,397
|
|
|
Repurchase
agreements
|
|
|
20,407
|
|
|
|
20,407
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Total
debt
|
|
|
272,450
|
|
|
|
133,535
|
|
|
|
65,651
|
|
|
|
23,867
|
|
|
|
49,397
|
|
|
Operating
lease obligations
|
|
|
7,360
|
|
|
|
845
|
|
|
|
1,745
|
|
|
|
1,512
|
|
|
|
3,258
|
|
|
Total
contractual obligations
|
|
$
|
677,611
|
|
|
$
|
446,177
|
|
|
$
|
124,033
|
|
|
$
|
39,672
|
|
|
$
|
67,729
|
|
COMPARISON
OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
General.
We earned
net income of $2.4 million for the quarter ended September 30, 2008,
representing an increase of $305,000 or 14.7% over the comparable 2007 period.
Basic and diluted earnings per share increased to $0.11 and $0.10, respectively,
for the quarter compared to $0.09 for each for the third quarter of 2007. Net
interest income was $7.7 million for the three months ended September 30, 2008,
representing an increase of 8.1% over the comparable 2007 period. The increase
in our net interest income was due to a reduction in our interest expense, which
was partially offset by a decrease in our interest income. Our average interest
rate spread and net interest margin for the third quarter of 2008 increased to
2.37% and 2.99%, respectively, from 1.92% and 2.89%, respectively, for the third
quarter of 2007.
Interest Income.
Our
total interest income for the three months ended September 30, 2008 decreased
$888,000 or 6.0% over the comparable 2007 period to $14.0 million. The decrease
occurred as growth in the average balance of our total interest-earning assets
was offset by a decrease in the average yield earned on our total
interest-earning assets. The average balance of our other interest-earning
assets decreased $62.5 million, quarter-over-quarter, as these funds were
reinvested in mortgage-backed securities and loans. The average balance of our
mortgage-backed securities increased $71.7 million to $197.1 million for the
third quarter of 2008 from $125.4 million for the third quarter of 2007. The
average balance of our loans receivable increased $38.8 million to $699.1
million for the third quarter of 2008 from $660.3 million for the third quarter
of 2007. Although the average yield on our mortgage-backed securities increased
48 basis points for the third quarter of 2008 compared to the third quarter of
2007, the average yield on all other categories of interest-earning assets
decreased quarter-over-quarter, including an 88 basis point decrease in the
average yield on our loans receivable, a 43 basis point decrease in the average
yield on our investment securities, and a 212 basis point decrease in the
average yield on our other interest-earning assets. These decreases in yield
were the result of the current interest rate environment, in which the Federal
Reserve Board’s Open Market Committee cut the federal funds rate by 300 basis
points from September 2007 to September 2008.
Interest
Expense.
Our total interest expense for the three months ended
September 30, 2008 decreased $1.5 million or 18.9% from the comparable 2007
period to $6.3 million. The decrease in our interest expense occurred as a
decrease in the average rate paid on our total interest-bearing liabilities
offset an increase in the average balance of those liabilities. The average rate
we paid on our total interest-bearing liabilities decreased 105 basis points to
3.05% for the third quarter of 2008 from 4.10% for the third quarter of 2007.
The average rate we paid on our total deposits decreased 127 basis points,
quarter-over-quarter, driven by a 173 basis point decrease in the average rate
paid on our certificates of deposit. The average balance of our total
interest-bearing liabilities increased $68.6 million to $823.6 million for the
quarter ended September 30, 2008 from $754.9 million for the quarter ended
September 30, 2007. Our average deposit balance grew by $30.6 million over this
same period, with all of the growth attributable to core deposits. The average
balance of our advances from the FHLB increased $39.9 million or 23.4% to $210.7
million for the quarter ended September 30, 2008 from $170.8 million for the
quarter ended September 30, 2007. Our increased utilization of advances from the
FHLB has been part of a strategic decision to replace high-rate certificates of
deposit with lower-cost sources of funding in the current interest rate
environment.
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 September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
(Dollars
in Thousands)
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities(1)
|
|
$
|
102,286
|
|
|
$
|
1,158
|
|
|
|
4.53
|
%
|
|
$
|
105,447
|
|
|
$
|
1,307
|
|
|
|
4.96
|
%
|
|
Mortgage-backed
securities
|
|
|
197,102
|
|
|
|
2,375
|
|
|
|
4.82
|
|
|
|
125,382
|
|
|
|
1,359
|
|
|
|
4.34
|
|
|
Loans
receivable(2)
|
|
|
699,101
|
|
|
|
10,267
|
|
|
|
5.87
|
|
|
|
660,290
|
|
|
|
11,141
|
|
|
|
6.75
|
|
|
Other
interest-earning assets
|
|
|
36,102
|
|
|
|
207
|
|
|
|
2.29
|
|
|
|
98,616
|
|
|
|
1,088
|
|
|
|
4.41
|
|
|
Total
interest-earning assets
|
|
|
1,034,591
|
|
|
|
14,007
|
|
|
|
5.42
|
|
|
|
989,735
|
|
|
|
14,895
|
|
|
|
6.02
|
|
|
Cash
and non-interest bearing balances
|
|
|
22,782
|
|
|
|
|
|
|
|
|
|
|
|
24,488
|
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
70,247
|
|
|
|
|
|
|
|
|
|
|
|
43,229
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,127,620
|
|
|
|
|
|
|
|
|
|
|
$
|
1,057,452
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and money market accounts
|
|
$
|
125,169
|
|
|
|
518
|
|
|
|
1.66
|
|
|
$
|
95,429
|
|
|
|
321
|
|
|
|
1.35
|
|
|
Checking
accounts
|
|
|
64,096
|
|
|
|
5
|
|
|
|
0.03
|
|
|
|
59,928
|
|
|
|
10
|
|
|
|
0.07
|
|
|
Certificate
accounts
|
|
|
401,901
|
|
|
|
3,320
|
|
|
|
3.30
|
|
|
|
405,204
|
|
|
|
5,093
|
|
|
|
5.03
|
|
|
Total
deposits
|
|
|
591,166
|
|
|
|
3,843
|
|
|
|
2.60
|
|
|
|
560,561
|
|
|
|
5,424
|
|
|
|
3.87
|
|
|
FHLB
advances
|
|
|
210,680
|
|
|
|
2,342
|
|
|
|
4.45
|
|
|
|
170,770
|
|
|
|
2,053
|
|
|
|
4.81
|
|
|
Other
borrowings
|
|
|
21,705
|
|
|
|
91
|
|
|
|
1.68
|
|
|
|
23,584
|
|
|
|
264
|
|
|
|
4.48
|
|
|
Total
interest-bearing liabilities
|
|
|
823,551
|
|
|
|
6,276
|
|
|
|
3.05
|
|
|
|
754,915
|
|
|
|
7,741
|
|
|
|
4.10
|
|
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
demand accounts
|
|
|
43,111
|
|
|
|
|
|
|
|
|
|
|
|
40,772
|
|
|
|
|
|
|
|
|
|
|
Real
estate tax escrow accounts
|
|
|
3,085
|
|
|
|
|
|
|
|
|
|
|
|
2,672
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
11,310
|
|
|
|
|
|
|
|
|
|
|
|
13,408
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
881,057
|
|
|
|
|
|
|
|
|
|
|
|
811,767
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
246,563
|
|
|
|
|
|
|
|
|
|
|
|
245,685
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,127,620
|
|
|
|
|
|
|
|
|
|
|
$
|
1,057,452
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets
|
|
$
|
211,040
|
|
|
|
|
|
|
|
|
|
|
$
|
234,820
|
|
|
|
|
|
|
|
|
|
|
Net
interest income; average Interest rate spread
|
|
|
|
|
|
$
|
7,731
|
|
|
|
2.37
|
%
|
|
|
|
|
|
$
|
7,154
|
|
|
|
1.92
|
%
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
2.89
|
%
|
___________________________
|
(1)
|
Investment
securities for the 2008 period include 126 tax-exempt municipal bonds with
an aggregate average balance of $38.6 million and an average yield of
3.9%. Investment securities for the 2007 period include 54 tax-exempt
municipal bonds with an aggregate average balance of $20.8 million and an
average yield of 4.2%. The tax-exempt income from such securities has not
been presented on a tax equivalent basis.
|
|
(2)
|
Includes
non-accrual loans during the respective periods. Calculated net
of deferred fees and discounts and loans in process.
|
|
(3)
|
Equals
net interest income divided by average interest-earning
assets.
|
Provision for Loan
Losses.
We recorded a $309,000 provision for loan losses during the
third quarter of 2008 compared to a provision of $163,000 during the third
quarter of 2007. The provision for loan losses is charged to expense as
necessary to bring our allowance for loan losses to a sufficient level to cover
known and inherent losses in the loan portfolio. As of September 30, 2008, our
allowance for loan losses amounted to $2.9 million, or 0.4% of total loans,
compared to $1.8 million at December 31, 2007. Our loan portfolio at September
30, 2008 included an aggregate of $22.0 million of non-performing loans compared
to $1.6 million of non-performing loans at December 31, 2007. At September 30,
2008, our largest single group of non-performing loans was comprised of three
construction loans with an aggregate outstanding balance to the Bank of $15.1
million at such date. These three loans, which were more than 90 days
past due, on non-accrual status and considered impaired at September 30, 2008,
are for the construction of a 40-unit, high rise residential condominium project
in Center City, Philadelphia. As of September 30, 2008, $836,000 of our
allowance for loan losses was allocated to these loans. Subsequent to
September 30, 2008, based on a recently completed examination by the FDIC and
management’s further review of this loan relationship, we determined to increase
our allowance for loan losses allocated to these loans by $2.5 million through a
provision for loan losses to be recognized in the quarter ending December 31,
2008. Our second largest non-performing loan at September 30, 2008 is
a $3.6 million construction loan secured by a second mortgage on a 10-unit
condominium project located in Philadelphia. This loan was also more than 90
days past due and deemed to be impaired at September 30, 2008, but remained on
accrual status, because all past due interest was brought current in October.
Based on a recently received appraisal update on this project, we have
determined to increase our allowance for loan losses allocated to this loan by
an additional $3.4 million through a provision for loan losses in the quarter
ending December 31, 2008. We had allocated $180,000 of our allowance
for loan losses to this project as of September 30, 2008. At September 30, 2008
and December 31, 2007, our non-performing loans amounted to 3.02% and 0.23% of
loans receivable, respectively, and our allowance for loan losses amounted to
13.1% and 116.8% of non-performing loans, respectively. In light of current
economic and market conditions, we expect that an additional provision for loan
losses will be required in the fourth quarter of 2008 as a result of the ongoing
review of the credit quality and loss characteristics of our loan
portfolio.
Non-interest Income.
Our
total non-interest income for the third quarter of 2008 amounted to $984,000,
representing an increase of $201,000 or 25.7% from the third quarter of 2007.
The increase was due primarily to an increase in income on BOLI of $189,000. The
increase in income on BOLI resulted mainly from the purchase of $20.0 million of
additional BOLI during the third quarter of 2007.
Non-interest
Expenses.
Our total non-interest expenses for the third quarter of
2008 amounted to $5.2 million, representing an increase of $328,000 or 6.8% from
the third quarter of 2007. The largest increases were in salaries and employee
benefits, director compensation, and other non-interest expenses. Salaries and
employee benefits expense increased $84,000 or 3.2%, quarter-over-quarter, due
largely to growth in the total number of employees, normal merit increases in
salaries, and higher health and insurance benefit costs. Salaries and employee
benefits expense also increased due to an additional expense of $237,000
recognized during the third quarter of 2008 as the result of the issuance of
awards to officers and employees under the 2007 SOP and the 2007 RRP which were
approved by shareholders in January 2008. These increases were partially offset
by two additional items. First, the expense for our ESOP, which is based on the
price of our common stock during the period, decreased $76,000,
quarter-over-quarter, due primarily to a decline in the average market price of
our common stock. Second, the expense recognized for our defined benefit pension
plan decreased $359,000, quarter-over-quarter. This decrease in pension plan
expense was due to the retirement of one of our executive officers as of
September 30, 2008 and his corresponding forfeiture of benefits accumulated
under the plan. Director compensation increased $109,000 or 94.2%,
quarter-over-quarter, primarily due to the issuance of awards to directors under
the 2007 SOP and the 2007 RRP. Other non-interest expenses increased $119,000 or
21.5%, quarter-over-quarter, due primarily to a $67,000 increase in deposit
insurance premiums, $29,000 in expenses for real estate owned, and an $18,000
increase in ATM expense.
Income Tax
Expense.
Income tax expense was approximately $877,000 for both the
third quarter of 2008 and the third quarter of 2007. Our effective tax rate
improved to 26.9% for the quarter ended September 30, 2008, from 29.7% for
quarter ended September 30, 2007. This occurred in part due to purchases of
additional tax-exempt investments, including municipal bonds and BOLI, that
allowed our tax-exempt income to increase as other sources of income were
increasing. Our provision for income taxes was increased as a result of the
increase in our pre-tax income.
COMPARISON
OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
General.
We earned
net income of $6.0 million for the nine months ended September 30, 2008,
representing an increase of $1.1 million or 22.2% over the comparable 2007
period. Basic and diluted earnings per share increased to $0.27 and $0.26,
respectively, for the first nine months of 2008 compared to $0.21 for each for
the first nine months of 2007. Net interest income was $22.1 million for the
nine months ended September 30, 2008 representing an increase of 19.5% over the
comparable 2007 period. As was the case for the three-month period, the increase
in our net interest income for the nine-month period was primarily driven by a
decrease in our interest expense, however, for the nine-month period this
decrease was augmented by an increase in our interest income. Our average
interest rate spread and net interest margin for the first nine months of 2008
increased to 2.17% and 2.88%, respectively, from 1.90% and 2.65%, respectively,
for the first nine months of 2007.
Interest
Income.
Our total interest income nine months ended September
30, 2008 increased $441,000 or 1.1% over the comparable 2007 period to $42.2
million. This increase occurred as growth in the average balance of our total
interest-earning assets offset a decrease in the average yield earned on our
interest-earning assets. As was the case for the three-month periods, the
largest period-over-period growth occurred in mortgage-backed securities and
loans. The average balance of our mortgage-backed securities increased $43.8
million to $172.8 million for the first nine months of 2008 from $129.0 million
for the first nine months of 2007. The average balance of our loans receivable
increased $58.6 million to $695.5 million for the first nine months of 2008 from
$637.0 million for the first nine months of 2007. Similar to the three-month
period, the average yield on our mortgage-backed securities increased 27 basis
points for the first nine months of 2008 compared to the first nine months of
2007, while the average yield on all other categories of interest-earning assets
decreased period-over-period, including a 68 basis point decrease in the average
yield on our loans receivable, an eight basis point decrease in the average
yield on our investment securities, and a 129 basis point decrease in the
average yield on our other interest-earning assets.
Interest
Expense.
Our total expense for the nine months ended September
30, 2008 decreased $3.2 million or 13.6% over the comparable 2007 period to
$20.1 million. As was the case in the three-month period, the decrease in our
interest expense occurred as a decrease in the average rate paid on our total
interest-bearing liabilities offset an increase in the average balance of those
liabilities. The average rate we paid on our total interest-bearing liabilities
decreased 77 basis points to 3.32% for the first nine months of 2008 from 4.09%
for the first nine months of 2007. The average rate we paid on our total
deposits decreased 90 basis points, period-over-period, driven by a 125 basis
point decrease in the average rate paid on our certificates of deposit. The
average balance of our total interest-bearing liabilities increased $48.6
million to $807.0 million for the nine months ended September 30, 2008 from
$758.4 million for the nine months ended September 30, 2007. Our average deposit
balance grew by $32.5 million over this same period, with approximately 62.9% of
that growth occurring in core deposits. The average balance of our advances from
the FHLB increased $15.7 million or 8.7% period-over-period.
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.
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
(Dollars
in Thousands)
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities(1)
|
|
$
|
107,868
|
|
|
$
|
3,690
|
|
|
|
4.56
|
%
|
|
$
|
101,968
|
|
|
$
|
3,550
|
|
|
|
4.64
|
%
|
|
Mortgage-backed
securities
|
|
|
172,752
|
|
|
|
5,920
|
|
|
|
4.57
|
|
|
|
128,998
|
|
|
|
4,160
|
|
|
|
4.30
|
|
|
Loans
receivable(2)
|
|
|
695,546
|
|
|
|
31,583
|
|
|
|
6.05
|
|
|
|
636,958
|
|
|
|
32,171
|
|
|
|
6.73
|
|
|
Other
interest-earning assets
|
|
|
49,570
|
|
|
|
1,031
|
|
|
|
2.77
|
|
|
|
62,483
|
|
|
|
1,903
|
|
|
|
4.06
|
|
|
Total
interest-earning assets
|
|
|
1,025,736
|
|
|
|
42,224
|
|
|
|
5.49
|
|
|
|
930,407
|
|
|
|
41,784
|
|
|
|
5.99
|
|
|
Cash
and non-interest bearing balances
|
|
|
22,826
|
|
|
|
|
|
|
|
|
|
|
|
20,484
|
|
|
|
|
|
|
|
|
|
|
Other
non-interest-earning assets
|
|
|
63,104
|
|
|
|
|
|
|
|
|
|
|
|
35,392
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,111,666
|
|
|
|
|
|
|
|
|
|
|
$
|
986,283
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and money market accounts
|
|
$
|
111,498
|
|
|
|
1,278
|
|
|
|
1.53
|
|
|
$
|
94,917
|
|
|
|
900
|
|
|
|
1.26
|
|
|
Checking
accounts
|
|
|
62,470
|
|
|
|
14
|
|
|
|
0.03
|
|
|
|
58,575
|
|
|
|
18
|
|
|
|
0.04
|
|
|
Certificate
accounts
|
|
|
415,225
|
|
|
|
11,723
|
|
|
|
3.76
|
|
|
|
403,160
|
|
|
|
15,135
|
|
|
|
5.01
|
|
|
Total
deposits
|
|
|
589,193
|
|
|
|
13,015
|
|
|
|
2.95
|
|
|
|
556,652
|
|
|
|
16,053
|
|
|
|
3.85
|
|
|
FHLB
advances
|
|
|
196,684
|
|
|
|
6,755
|
|
|
|
4.58
|
|
|
|
181,004
|
|
|
|
6,529
|
|
|
|
4.81
|
|
|
Other
borrowings
|
|
|
21,126
|
|
|
|
321
|
|
|
|
2.03
|
|
|
|
20,765
|
|
|
|
683
|
|
|
|
4.39
|
|
|
Total
interest-bearing liabilities
|
|
|
807,003
|
|
|
|
20,091
|
|
|
|
3.32
|
|
|
|
758,421
|
|
|
|
23,265
|
|
|
|
4.09
|
|
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
demand accounts
|
|
|
41,425
|
|
|
|
|
|
|
|
|
|
|
|
42,836
|
|
|
|
|
|
|
|
|
|
|
Real
estate tax escrow accounts
|
|
|
3,529
|
|
|
|
|
|
|
|
|
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
11,093
|
|
|
|
|
|
|
|
|
|
|
|
11,146
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
863,050
|
|
|
|
|
|
|
|
|
|
|
|
815,508
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
248,616
|
|
|
|
|
|
|
|
|
|
|
|
170,775
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,111,666
|
|
|
|
|
|
|
|
|
|
|
$
|
986,283
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets
|
|
$
|
218,733
|
|
|
|
|
|
|
|
|
|
|
$
|
171,986
|
|
|
|
|
|
|
|
|
|
|
Net
interest income; average Interest rate spread
|
|
|
|
|
|
$
|
22,133
|
|
|
|
2.17
|
%
|
|
|
|
|
|
$
|
18,519
|
|
|
|
1.90
|
%
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
2.65
|
%
|
___________________________
|
(4)
|
Investment
securities for the 2008 period include 126 tax-exempt municipal bonds with
an aggregate average balance of $34.2 million and an average yield of
3.9%. Investment securities for the 2007 period include 54 tax-exempt
municipal bonds with an aggregate average balance of $20.5 million and an
average yield of 4.2%. The tax-exempt income from such securities has not
been presented on a tax equivalent basis.
|
|
(5)
|
Includes
non-accrual loans during the respective periods. Calculated net
of deferred fees and discounts and loans in process.
|
|
(6)
|
Equals
net interest income divided by average interest-earning
assets.
|
Provision for Loan
Losses.
We recorded a $1.0 million provision for loan losses during
the first nine months of 2008 compared to a provision of $273,000 during the
first nine months of 2007. The 2008 provision was taken primarily in relation to
certain impaired loans, as previously discussed for the quarter ended September
30, 2008.
Non-interest Income.
Our
total non-interest income for the first nine months of 2008 amounted to $2.8
million, representing an increase of $603,000 or 27.6% from the first nine
months of 2007. The increase in total non-interest income for the nine-month
period was primarily due to an increase in income on BOLI of $790,000 and a gain
on sale of investments of $146,000 that were partially offset by a securities
impairment charge of $331,000. The impairment charge was taken during the second
quarter of 2008 with no such charge in 2007. The impairment charge was taken to
write-down the carrying value of our investment in a mortgage-backed securities
based mutual fund to its fair value of $3.0 million at June 30, 2008, based on
our determination that the investment, the AMF Ultra Short Mortgage Fund, was
other-than-temporarily impaired at such date. At the time, there had been recent
credit rating downgrades in certain of the private label mortgage-backed
securities held by the fund. During the third quarter, the fair value of the
fund continued to decline, and at September 30, 2008, the fair value of our
investment in the fund had decreased to $2.7 million. Although our investment in
this fund is recorded at fair value in our balance sheet, no additional
impairment charge was recognized during the third quarter. Based on our
evaluation of the fund at September 30, 2008, we determined that the additional
decrease in the value of the fund since June 30, 2008, more likely than not, is
recoverable. We believe that the majority of the securities held by the fund
will continue to perform, however, we are continuing to monitor this fund, and
it is possible that additional impairment charges will be recorded in subsequent
quarters.
Non-interest
Expenses.
Our total non-interest expenses for the first nine months
of 2008 amounted to $15.7 million, representing an increase of $2.1 million or
15.7% from the first nine months of 2007. As was the case with the three-month
period, the largest increases for the nine-month period were in salaries and
employee benefits, director compensation and other non-interest expenses.
Additionally, occupancy expense increased $183,000, period-over-period, and
professional services expense increased $123,000, period-over-period. The causes
for the increases in salaries and employee benefits, director compensation and
other non-interest expense over the nine-month periods mirrored the causes for
the increases for such items in the three-month periods. Salaries and employee
benefits expense increased $1.2 million or 16.0%, period-over-period, due
largely to growth in the total number of employees, normal merit increases in
salaries, and higher health and insurance benefit costs, as well as an
additional expense of $632,000 recognized during the first nine months of 2008
for the issuance of awards to officers and employees under the 2007 SOP and the
2007 RRP. Additionally, the expense for our ESOP increased $42,000,
period-over-period. These increases were partially offset by a $354,000 decrease
in the expense recognized for our defined benefit pension plan due, as
previously stated, to the retirement of one of our executive officers. Directors
compensation increased $278,000 or 78.3%, period-over-period, primarily due to
the issuance of awards under our 2007 SOP and 2007 RRP. Other non-interest
expenses increased $324,000 or 19.5%, period-over-period, due primarily to a
$73,000 increase in deposit insurance premiums, $82,000 in expenses for real
estate owned, a $39,000 increase in ATM expense, a $31,000 increase in appraisal
fees, and a $24,000 increase in printing and office supplies. Occupancy expense
increased by $183,000 or 13.0%, period-over-period, primarily as a result of our
additional branches opened in Chalfont and Spring House, Pennsylvania, during
2007 as well as additional equipment and computer costs for all of our
facilities. Professional services expense increased $123,000 or 16.0%,
period-over-period, due to increases in both legal and accounting fees. The
increase in legal fees was due in part to expenses related to the special
meeting of shareholders held in January 2008 as well as expenses incurred in
connection with the resolution of certain non-performing loans.
Income Tax
Expense.
Income tax expense for the first nine months of 2008
amounted to $2.1 million compared to $1.9 million for the first nine months of
2007. Our effective tax rate improved to 26.1% for the nine months ended
September 30, 2008, from 28.0% for the nine months ended September 30, 2007. As
was the case for the quarter ended September 30, 2008, the improvement in our
effective tax rate for the nine-month period occurred in part due to purchases
of additional tax-exempt investments, including municipal bonds and BOLI, that
allowed our tax-exempt income to increase as other sources of income were
increasing. Our provision for income taxes was increased as a result of the
increase in our pre-tax income.
ITEM
3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Asset/Liability Management and Market
Risk.
Market risk is the risk of loss from adverse changes in market
prices and rates. Our market risk arises primarily from the interest
rate risk which is inherent in our lending and deposit taking
activities. To that end, management actively monitors and manages
interest rate risk exposure. In addition to market risk, our primary
risk is credit risk on our loan portfolio. We attempt to manage
credit risk through our loan underwriting and oversight policies.
The
principal objective of our interest rate risk management function is to evaluate
the interest rate risk embedded in certain balance sheet accounts, determine the
level of risk appropriate given our business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with approved guidelines. We seek to manage our exposure to
risks from changes in interest rates while at the same time trying to improve
our net interest spread. We monitor interest rate risk as such risk
relates to our operating strategies. We have established an
Asset/Liability Committee, which is comprised of our President and Chief
Executive Officer, three Senior Vice Presidents and one Vice President of
Lending, and which is responsible for reviewing our asset/liability policies and
interest rate risk position. The Asset/Liability Committee meets on a
regular basis. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on future earnings.
In recent
years, we primarily have utilized the following strategies in our efforts to
manage interest rate risk:
|
|
●
|
we
have increased our originations of shorter term loans and/or loans with
adjustable rates of interest, particularly construction loans, commercial
real estate and multi-family residential mortgage loans and home equity
lines of credit;
|
|
|
|
|
|
|
●
|
we
have attempted to match fund a portion of our securities portfolio with
borrowings having similar expected lives;
|
|
|
|
|
|
|
●
|
we
have attempted, where possible, to extend the maturities of our deposits
and borrowings; and
|
|
|
|
|
|
|
●
|
we
have invested in securities with relatively short anticipated lives,
generally three to five years, and increased our holding of liquid
assets.
|
Gap Analysis.
The
matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are “interest rate sensitive” and by
monitoring the interest rate sensitivity “gap.” An asset and
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets. During a period of rising interest rates, a negative gap
would tend to affect adversely net interest income while a positive gap would
tend to result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to affect
adversely net interest income. Our current asset/liability policy
provides that our one-year interest rate gap as a percentage of total assets
should not exceed positive or negative 20%. This policy was adopted
by our management and Board based upon their judgment that it established an
appropriate benchmark for the level of interest-rate risk, expressed in terms of
the one-year gap, for the Bank. In the event our one-year gap
position were to approach or exceed the 20% policy limit, we would review the
composition of our assets and liabilities in order to determine what steps might
appropriately be taken, such as selling certain securities or loans or repaying
certain borrowings, in order to maintain our one-year gap in accordance with the
policy. Alternatively, depending on the then-current economic
scenario, we could determine to make an exception to our policy or we could
determine to revise our policy. In recent periods, our one-year gap
position was well within our policy. Our one-year cumulative gap was a negative
11.61% at September 30, 2008, compared to a negative 9.04% at December 31, 2007.
We have increased our originations of commercial real estate and multi-family
residential real estate loans, construction loans, home equity lines and
commercial business loans in recent periods. This has been done, in part,
because such loans generally have shorter terms to maturity than single-family
residential mortgage loans and are more likely to have floating or adjustable
rates of interest, thereby increasing the amount of our interest rate sensitive
assets in the one- to three-year time horizon. By increasing the
amount of our interest rate sensitive assets in the one-to three-year time
horizon, we felt that we better positioned ourselves to benefit from a rising
interest rate environment because the average interest rates on our loans would
increase as general market rates of interest were increasing.
The
following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at September 30, 2008, which we expect,
based upon certain assumptions, to reprice or mature in each of the future time
periods shown (the “GAP Table”). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
September 30, 2008, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a three-month period and
subsequent selected time intervals. The loan amounts in the table
reflect principal balances expected to be redeployed and/or repriced as a result
of contractual amortization and anticipated prepayments of adjustable-rate loans
and fixed-rate loans, and as a result of contractual rate adjustments on
adjustable-rate loans. Annual prepayment rates for adjustable-rate
and fixed-rate single-family and multi-family mortgage loans are assumed to
range from 10% to 26%. The annual prepayment rate for mortgage-backed
securities is assumed to range from 9% to 63%. Money market deposit
accounts, savings accounts and interest-bearing checking accounts are assumed to
have annual rates of withdrawal, or “decay rates,” of 16%, 12.5% and 0%,
respectively.
|
|
|
6
Months
|
|
|
More
than
6
Months
|
|
|
More
than
1
Year
|
|
|
More
than
3
Years
|
|
|
More
than
|
|
|
|
|
|
|
|
(Dollars
in Thousands)
|
|
|
Interest-earning
assets(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
|
$
|
273,667
|
|
|
$
|
57,170
|
|
|
$
|
159,255
|
|
|
$
|
90,058
|
|
|
$
|
132,489
|
|
|
$
|
712,639
|
|
|
Mortgage-backed
securities
|
|
|
29,143
|
|
|
|
20,498
|
|
|
|
47,912
|
|
|
|
29,825
|
|
|
|
77,765
|
|
|
|
205,143
|
|
|
Investment
securities
|
|
|
11,484
|
|
|
|
--
|
|
|
|
8,255
|
|
|
|
42,645
|
|
|
|
36,877
|
|
|
|
99,261
|
|
|
Other
interest-earning assets
|
|
|
47,184
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
47,184
|
|
|
Total
interest-earning assets
|
|
$
|
361,478
|
|
|
$
|
77,668
|
|
|
$
|
215,422
|
|
|
$
|
162,528
|
|
|
$
|
247,131
|
|
|
$
|
1,064,227
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
and money market accounts
|
|
$
|
19,937
|
|
|
$
|
19,937
|
|
|
$
|
49,384
|
|
|
$
|
22,716
|
|
|
$
|
19,739
|
|
|
$
|
131,713
|
|
|
Checking
accounts
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
63,269
|
|
|
|
63,269
|
|
|
Certificate
accounts
|
|
|
283,356
|
|
|
|
50,448
|
|
|
|
34,630
|
|
|
|
14,293
|
|
|
|
15,074
|
|
|
|
397,801
|
|
|
FHLB
advances
|
|
|
144,146
|
|
|
|
35,708
|
|
|
|
28,523
|
|
|
|
12,889
|
|
|
|
30,777
|
|
|
|
252,043
|
|
|
Other
borrowed money
|
|
|
20,407
|
|
|
|
--
|
|
|
|
--
|
|
|
|
-
|
|
|
|
--
|
|
|
|
20,407
|
|
|
Total
interest-bearing liabilities
|
|
$
|
467,846
|
|
|
$
|
106,093
|
|
|
$
|
112,537
|
|
|
$
|
49,898
|
|
|
$
|
128,859
|
|
|
$
|
865,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets less interest-bearing liabilities
|
|
$
|
(106,368
|
)
|
|
$
|
(28,425
|
)
|
|
$
|
102,885
|
|
|
$
|
112,630
|
|
|
$
|
118,272
|
|
|
$
|
198,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-rate sensitivity gap(2)
|
|
$
|
(106,368
|
)
|
|
$
|
(134,793
|
)
|
|
$
|
(
31,908
|
)
|
|
$
|
80,722
|
|
|
$
|
198,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-rate gap as a percentage of total assets at September 30,
2008
|
|
|
(9.17
|
)%
|
|
|
(11.61
|
)%
|
|
|
(2.75
|
)%
|
|
|
6.96
|
%
|
|
|
17.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-earning assets as a percentage of cumulative
interest-bearing liabilities at September 30, 2008
|
|
|
77.26
|
%
|
|
|
76.51
|
%
|
|
|
95.35
|
%
|
|
|
110.96
|
%
|
|
|
123.00
|
%
|
|
|
|
|
_____________________
|
|
(1)
|
Interest-earning
assets are included in the period in which the balances are expected to be
redeployed and/or repriced as a result of anticipated prepayments,
scheduled rate adjustments and contractual maturities.
|
|
|
|
|
|
|
(2)
|
Interest-rate
sensitivity gap represents the difference between net interest-earning
assets and interest-bearing
liabilities.
|
Certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as
adjustable-rate loans, have features which restrict changes in interest rates
both on a short-term basis and over the life of the asset. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate significantly from those assumed in calculating the
table. Finally, the ability of many borrowers to service their
adjustable-rate loans may decrease in the event of an interest rate
increase.
ITEM
4. – CONTROLS AND PROCEDURES
Our
management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.
No change
in our internal control over financial reporting (as defined in Rule 13a-15(f)
or 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
|
|
There
have been no material changes from the risk factors disclosed in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
|
(a)
|
Not
applicable.
|
|
|
|
|
(b)
|
Not
applicable.
|
|
|
|
|
(c)
|
Purchases
of Equity Securities
|
The
Company’s purchases of its common stock made during the quarter are set forth in
the following table.
|
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number of Shares Purchased
as
Part of Publicly Announced Plans
or
Programs
|
|
|
Maximum
Number
of
Shares that May
Yet
be Purchased Under the Plan or Programs (2)
|
|
|
July
1 – July 31, 2008 (1)
|
|
|
14,090
|
|
|
|
9.16
|
|
|
|
--
|
|
|
|
1,221,772
|
|
|
August
1 – August 31, 2008
|
|
|
390,257
|
|
|
|
9.53
|
|
|
|
390,257
|
|
|
|
831,515
|
|
|
September
1 – September 30, 2008
|
|
|
121,095
|
|
|
|
9.88
|
|
|
|
121,095
|
|
|
|
710,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
525,442
|
|
|
$
|
9.60
|
|
|
|
511,352
|
|
|
|
710,420
|
|
|
(1)
|
Shares
purchased during the month of July were acquired as part of the Company’s
recognition and retention plan. In conjunction with the plan, participants
may elect to have a portion of their awarded shares withheld upon vesting
solely to pay for any related tax liabilities on these
awards.
|
|
(2)
|
On July
31, 2008, the Company announced a stock repurchase program to repurchase
up to 5% of its outstanding shares, or 1,221,772 shares. The repurchase
program is scheduled to terminate as of July 31,
2009.
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
|
ITEM
5.
|
OTHER
INFORMATION
|
|
|
No.
|
Description
|
|
|
31.1
|
Rule
13a-14(d) and 15d-14(d) Certification of the Chief Executive
Officer.
|
|
|
31.2
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Rule
13a-14(d) and 15d-14(d) Certification of the Chief Financial
Officer.
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32.1
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Section
1350 Certification.
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32.2
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Section
1350 Certification.
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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.
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ABINGTON
BANCORP, INC.
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Date:
November 10, 2008
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By:
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/s/
Robert W. White
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Robert
W. White
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Chairman,
President and
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Chief
Executive Officer
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Date:
November 10, 2008
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By:
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/s/
Jack J. Sandoski
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Jack
J. Sandoski
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Senior
Vice President and
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Chief
Financial Officer
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