- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2010


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

For the transition period from to

Commission file number: 0-52705

Abington Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Pennsylvania		20-8613037

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


180 Old York Road Jenkintown, Pennsylvania		19046

(Address of Principal Executive Offices)		(Zip Code)

(215) 886-8280

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 2, 2010, 20,165,448 shares of the Registrant’s common stock were outstanding.

ABINGTON BANCORP, INC.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Financial Condition as of September 30, 2010 and December 31, 2009		1

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009		2

Unaudited Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2010 and 2009		3

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		4

Notes to Unaudited Consolidated Financial Statements		6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		33

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		51

ITEM 4. CONTROLS AND PROCEDURES		54

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings		54

ITEM 1A. Risk Factors		54

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		54

ITEM 3. Defaults upon Senior Securities		55

ITEM 4. (Removed and Reserved)		55

ITEM 5. Other Information		55

ITEM 6. Exhibits		55

SIGNATURES		56

CERTIFICATIONS

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	September 30, 2010			December 31, 2009
ASSETS
Cash and due from banks	$	24,676,284		$	18,941,066
Interest-bearing deposits in other banks		45,753,105			25,773,173

Total cash and cash equivalents		70,429,389			44,714,239
Investment securities held to maturity (estimated fair value—2010, $21,593,960; 2009, $20,787,269)		20,385,322			20,386,944
Investment securities available for sale (amortized cost— 2010, $114,120,129; 2009, $82,905,101)		116,247,716			84,317,271
Mortgage-backed securities held to maturity (estimated fair value—2010, $63,513,898; 2009, $77,297,497)		61,764,910			77,149,936
Mortgage-backed securities available for sale (amortized cost— 2010, $161,002,687; 2009, $133,916,731)		166,793,923			138,628,592
Loans receivable, net of allowance for loan losses (2010, $4,685,160; 2009, $9,090,353)		714,822,707			764,559,941
Accrued interest receivable		4,275,874			4,279,032
Federal Home Loan Bank stock—at cost		14,607,700			14,607,700
Cash surrender value — bank owned life insurance		42,310,193			40,983,202
Property and equipment, net		9,870,836			10,423,190
Real estate owned		20,027,964			22,818,856
Deferred tax asset		1,751,835			4,711,447
Prepaid expenses and other assets		14,678,221			10,531,771


TOTAL ASSETS	$	1,257,966,590		$	1,238,112,121

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	43,997,062		$	45,146,650
Interest-bearing		858,364,892			805,053,843

Total deposits		902,361,954			850,200,493
Advances from Federal Home Loan Bank		109,891,311			146,739,435
Other borrowed money		18,019,549			16,673,480
Accrued interest payable		4,022,419			1,807,334
Advances from borrowers for taxes and insurance		707,332			3,142,470
Accounts payable and accrued expenses		10,094,380			5,366,909


Total liabilities		1,045,096,945			1,023,930,121


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 20,000,000 shares authorized none issued		—			—
Common stock, $0.01 par value, 80,000,000 shares authorized; 24,460,240 shares issued; outstanding: 20,161,608 shares in 2010, 21,049,025 shares in 2009		244,602			244,602
Additional paid-in capital		202,352,367			201,922,651
Treasury stock—at cost, 4,298,632 shares in 2010, 3,411,215 shares in 2009		(34,995,086	)		(27,446,596	)
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(13,670,098	)		(14,299,378	)
Recognition & Retention Plan Trust (RRP)		(2,833,931	)		(3,918,784	)
Deferred compensation plans trust		(1,035,560	)		(995,980	)
Retained earnings		57,692,961			54,804,913
Accumulated other comprehensive income		5,114,390			3,870,572


Total stockholders’ equity		212,869,645			214,182,000


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,257,966,590		$	1,238,112,121

See notes to unaudited consolidated financial statements.

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
INTEREST INCOME:
Interest on loans	$	9,950,488		$	9,872,855		$	29,765,723		$	30,050,716
Interest and dividends on investment and mortgage-backed securities:
Taxable		2,608,375			2,736,909			7,980,849			9,022,260
Tax-exempt		385,171			401,062			1,171,444			1,204,646
Interest and dividends on other interest-earning assets		26,448			6,607			52,101			33,537


Total interest income		12,970,482			13,017,433			38,970,117			40,311,159

INTEREST EXPENSE:
Interest on deposits		3,179,474			3,801,382			9,700,929			11,889,584
Interest on Federal Home Loan Bank advances		1,302,589			1,794,970			4,270,932			5,783,241
Interest on other borrowed money		20,068			19,879			54,684			56,214


Total interest expense		4,502,131			5,616,231			14,026,545			17,729,039


NET INTEREST INCOME		8,468,351			7,401,202			24,943,572			22,582,120

PROVISION FOR LOAN LOSSES		—			8,802,678			563,445			12,324,090


NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES		8,468,351			(1,401,476	)		24,380,127			10,258,030


NON-INTEREST INCOME (LOSS)
Service charges		280,464			388,850			903,798			1,175,515
Income on bank owned life insurance		442,493			451,713			1,326,991			1,353,479
Net loss on real estate owned		(278,152	)		(5,152,887	)		(991,348	)		(4,983,805	)
Net gain on sale of securities		—			5,102			—			5,102
Other income		166,449			160,998			532,911			451,836


Total non-interest income (loss)		611,254			(4,146,224	)		1,772,352			(1,997,873	)


NON-INTEREST EXPENSES
Salaries and employee benefits		2,934,517			2,736,723			8,895,026			8,503,992
Occupancy		645,148			630,544			2,069,856			1,734,540
Depreciation		219,560			228,583			677,095			676,657
Professional services		509,352			335,623			1,529,472			1,034,023
Data processing		429,421			383,011			1,283,832			1,175,790
Deposit insurance premium		522,443			331,735			1,377,362			1,486,239
Advertising and promotions		171,709			128,613			427,966			309,669
Director compensation		151,753			224,709			597,208			673,564
Other		576,740			518,032			1,666,885			1,767,573


Total non-interest expenses		6,160,643			5,517,573			18,524,702			17,362,047


INCOME (LOSS) BEFORE INCOME TAXES		2,918,962			(11,065,273	)		7,627,777			(9,101,890	)

PROVISION (BENEFIT) FOR INCOME TAXES		753,724			(4,089,152	)		1,881,900			(3,900,369	)


NET INCOME (LOSS)	$	2,165,238		$	(6,976,121	)	$	5,745,877		$	(5,201,521	)


BASIC EARNINGS (LOSS) PER COMMON SHARE	$	0.12		$	(0.36	)	$	0.31		$	(0.26	)
DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	0.11		$	(0.36	)	$	0.29		$	(0.26	)

BASIC AVERAGE COMMON SHARES OUTSTANDING:		18,404,143			19,635,808			18,771,303			19,963,132
DILUTED AVERAGE COMMON SHARES OUTSTANDING:		19,624,366			19,635,808			20,033,491			19,963,132

See notes to unaudited consolidated financial statements.

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


											Common
											Stock						Accumulated
	Common				Additional						Acquired by						Other		Total
	Stock		Common		Paid-in			Treasury			Benefit			Retained			Comprehensive		Stockholders’
	Shares		Stock		Capital			Stock			Plans			Earnings			Income		Equity
BALANCE—JANUARY 1, 2010		24,460,240	$	244,602	$	201,922,651		$	(27,446,596	)	$	(19,214,142	)	$	54,804,913		$	3,870,572	$	214,182,000

Comprehensive income:
Net income		—		—		—			—			—			5,745,877			—		5,745,877
Net unrealized holding gain on available for sale securities arising during the period, net of tax expense of $610,228		—		—		—			—			—			—			1,184,564		1,184,564
Amortization of unrecognized deferred costs on SERP, net of tax benefit of $30,525		—		—		—			—			—			—			59,254		59,254


Comprehensive income																				6,989,695


Treasury stock purchased (897,065 shares)		—		—		—			(7,640,628	)		—			—			—		(7,640,628	)
Cash dividends declared, ($0.15 per share)		—		—		—			—			—			(2,857,829	)		—		(2,857,829	)
Exercise of stock options		—		—		(14,786	)		92,138			—			—			—		77,352
Excess tax liability on stock-based compensation		—		—		(29,918	)		—			—			—			—		(29,918	)
Stock options expense		—		—		578,401			—			—			—			—		578,401
Common stock released from benefit plans		—		—		(103,981	)		—			1,721,933			—			—		1,617,952
Common stock acquired by benefit plans		—		—		—			—			(47,380	)		—			—		(47,380	)


BALANCE—SEPTEMBER 30, 2010		24,460,240	$	244,602	$	202,352,367		$	(34,995,086	)	$	(17,539,589	)	$	57,692,961		$	5,114,390	$	212,869,645


											Common						Accumulated
											Stock						Other
	Common				Additional						Acquired by						Comprehensive		Total
	Stock		Common		Paid-in			Treasury			Benefit			Retained			Income		Stockholders’
	Shares		Stock		Capital			Stock			Plans			Earnings			(Loss)		Equity
BALANCE—JANUARY 1, 2009		24,460,240	$	244,602	$	201,378,465		$	(10,525,100	)	$	(21,923,096	)	$	66,007,138		$	2,918,576	$	238,100,585

Comprehensive loss:
Net loss		—		—		—			—			—			(5,201,521	)		—		(5,201,521	)
Net unrealized holding gain on available for sale securities arising during the period, net of tax expense of $912,294		—		—		—			—			—			—			1,770,924		1,770,924
Amortization of unrecognized deferred costs on SERP, net of tax benefit of $13,647		—		—		—			—			—			—			26,490		26,490


Comprehensive income																				(3,404,107	)


Treasury stock purchased (1,702,013 shares)		—		—		—			(12,704,620	)		—			—			—		(12,704,620	)
Cash dividends declared, ($0.15 per share)		—		—		—			—			—			(3,034,474	)		—		(3,034,474	)
Exercise of stock options		—		—		(16,520	)		67,137			—			—			—		50,617
Excess tax liability on stock-based compensation		—		—		(57,690	)		—			—			—			—		(57,690	)
Stock options expense		—		—		665,202			—			—			—			—		665,202
Common stock released from benefit plans		—		—		(175,790	)		—			2,146,155			—			—		1,970,365
Common stock acquired by benefit plans		—		—		—			—			(43,164	)		—			—		(43,164	)


BALANCE—SEPTEMBER 30, 2009		24,460,240	$	244,602	$	201,793,667		$	(23,162,583	)	$	(19,820,105	)	$	57,771,143		$	4,715,990	$	221,542,714

See notes to unaudited consolidated financial statements.

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2010			2009
OPERATING ACTIVITIES:
Net income (loss)	$	5,745,877		$	(5,201,521	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		563,445			12,324,090
Depreciation		677,095			676,657
Stock-based compensation expense		2,188,553			2,390,896
Net loss on real estate owned		601,121			4,983,805
Net gain on sale of investments and mortgage-backed securities		—			(5,102	)
Deferred income tax expense (benefit)		2,318,859			(3,717,579	)
Amortization of:
Deferred loan fees		(1,102,915	)		(914,230	)
Premiums and discounts, net		(147,119	)		(170,249	)
Income from bank owned life insurance		(1,326,991	)		(1,353,479	)
Changes in assets and liabilities which (used) provided cash:
Accrued interest receivable		3,158			314,885
Prepaid expenses and other assets		(4,146,450	)		(3,459,697	)
Accrued interest payable		2,215,085			2,036,744
Accounts payable and accrued expenses		4,777,670			1,729,765


Net cash provided by operating activities		12,367,388			9,634,985


INVESTING ACTIVITIES:
Principal collected on loans		92,448,227			101,476,923
Disbursements for loans		(49,146,523	)		(145,312,378	)
Purchases of:
Mortgage-backed securities held to maturity		—			(9,972,266	)
Mortgage-backed securities available for sale		(69,927,577	)		(20,732,549	)
Investments available for sale		(139,234,111	)		(37,557,039	)
Property and equipment		(124,741	)		(256,579	)
Additions to real estate owned, net		(281,524	)		(1,159,940	)
Proceeds from:
Maturities of mortgage-backed securities held to maturity		150,178			—
Maturities of mortgage-backed securities available for sale		3,811,213			2,955,058
Sales and maturities of investments available for sale		107,994,000			30,999,102
Principal repayments of mortgage-backed securities held to maturity		15,181,502			19,649,063
Principal repayments of mortgage-backed securities available for sale		39,257,578			33,971,342
Sales of real estate owned		9,446,295			648,802


Net cash provided by (used) in investing activities		9,574,517			(25,290,461	)


FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts		50,117,531			100,539,191
Net increase in certificate accounts		2,043,930			52,195,328
Net increase in other borrowed money		1,346,069			4,723,016
Advances from Federal Home Loan Bank		10,000,000			30,935,000
Repayments of advances from Federal Home Loan Bank		(46,848,124	)		(135,231,390	)
Net decrease in advances from borrowers for taxes and insurance		(2,435,138	)		(2,453,622	)
Proceeds from exercise of stock options		77,352			50,617
Excess tax liability from stock-based compensation		(29,918	)		(57,690	)
Purchase of treasury stock		(7,640,628	)		(12,704,620	)
Payment of cash dividend		(2,857,829	)		(3,034,474	)


Net cash provided by financing activities		3,773,245			34,961,356


NET INCREASE IN CASH AND CASH EQUIVALENTS		25,715,150			19,305,880

CASH AND CASH EQUIVALENTS—Beginning of period		44,714,239			31,863,344


CASH AND CASH EQUIVALENTS—End of period	$	70,429,389		$	51,169,224

See notes to unaudited consolidated financial statements.

ABINGTON BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)


	Nine Months Ended September 30,
	2010		2009
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and other borrowings	$	11,811,460	$	15,692,295
Income taxes	$	1,000,000	$	750,000
Non-cash transfer of loans to real estate owned	$	6,975,000	$	20,914,058
Acquisition of stock for deferred compensation plans trust	$	47,380	$	43,164
Release of stock from deferred compensation plans trust	$	7,800	$	244,671

See notes to unaudited consolidated financial statements.

ABINGTON BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation— Abington Bancorp, Inc. (the “Company”) is a Pennsylvania corporation which was organized to be the stock holding company for Abington Savings Bank in connection with our second-step conversion and reorganization completed in 2007, which is discussed further below. Abington Savings Bank is a Pennsylvania-chartered, FDIC-insured savings bank, which conducts business under the name “Abington Bank” (the “Bank” or “Abington Bank”). As a result of the Bank’s election pursuant to Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company regulated by the Office of Thrift Supervision (the “OTS”). The Bank is a wholly owned subsidiary of the Company. The Company’s results of operations are primarily dependent on the results of the Bank and the Bank’s wholly owned subsidiaries, ASB Investment Co., American Street Lofts LLC, 1210 Chestnut Realty LLC, and North Front Street Realty LLC. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, which combined constitute one reportable segment. All significant intercompany balances and transactions have been eliminated.

The Bank’s executive offices are in Jenkintown, Pennsylvania, with 12 other branches and seven limited service facilities located in Montgomery, Bucks and Delaware Counties, Pennsylvania. The Bank is principally engaged in the business of accepting customer deposits and investing these funds in loans that include residential mortgage, commercial, consumer and construction loans. The principal business of ASB Investment Co. is to hold certain investment securities for the Bank. The principal business of American Street Lofts LLC, 1210 Chestnut Realty LLC, and North Front Realty LLC is to own and manage certain properties that were acquired as real estate owned. The Bank also has the following inactive subsidiaries — Keswick Services II, and its wholly owned subsidiaries, and Abington Corp.

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in stockholders’ equity and comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements of Abington Bancorp, Inc. and the accompanying notes thereto for the year ended December 31, 2009, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010, or any other period.

The Company follows accounting standards set by the Financial Accounting Standards Board (the “FASB”). The FASB sets accounting principles generally accepted in the United States (“U.S. GAAP”) that we follow to ensure we consistently report our financial condition, results of operations and cash flows. The FASB established the FASB Accounting Standards Codification (the “Codification” or the “ASC”) as the source of authoritative accounting principles effective for interim and annual periods ended on or after September 15, 2009. The Company adopted the Codification as of September 30, 2009. The adoption did not have an impact on our financial position or results of operations.

In accordance with the subsequent events topic of the ASC, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2010.

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

Other-Than-Temporary Impairment of Securities— Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline and whether or not management intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery of the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. For equity securities, the full amount of the other-than-temporary impairment is recognized in earnings. No impairment charges were recognized during the three or nine months ended September 30, 2010 or 2009.

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. Management’s evaluation of these factors is done separately for each type of loan.

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

The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. During the periods presented, loan impairment was evaluated based on the fair value of the loans’ collateral. The determination of fair value for the collateral underlying a loan is more fully described in Note 9. Impairment losses are included in the provision for loan losses.

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

The components of other comprehensive income are as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009

Net unrealized gain on securities arising during the period, net of tax	$	213,040	$	1,381,656		$	1,184,564	$	1,774,291
Plus: reclassification adjustment for net gain included in net income, net of tax		—		(3,367	)		—		(3,367	)


Net unrealized gain on securities, net of tax		213,040		1,378,289			1,184,564		1,770,924

Amortization of deferred costs on supplemental retirement plan, net of tax		19,752		8,829			59,254		26,490


Total other comprehensive income (loss), net of tax	$	232,792	$	1,387,118		$	1,243,818	$	1,797,414

The components of accumulated other comprehensive income are as follows:


	September 30,			December 31,
	2010			2009

Net unrealized gain on securities	$	5,226,424		$	4,041,860
Unrecognized deferred costs of supplemental retirment plan		(112,034	)		(171,288	)


Total accumulated other comprehensive income	$	5,114,390		$	3,870,572

Share-Based Compensation —The Company accounts for its share-based compensation awards in accordance with the stock compensation topic of the ASC. Under ASC Topic 718, Compensation — Stock Compensation (“ASC 718”), the Company recognizes the cost of employee services received in share-based payment transactions and measures the cost based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award.

At September 30, 2010, the Company has four share-based compensation plans, the 2005 and the 2007 Recognition and Retention Plans and the 2005 and 2007 Stock Option Plans. Share awards were first issued under the 2005 plans in July 2005. Share awards were first issued under the 2007 plans in January 2008. These plans are more fully described in Note 7.

The Company also has an employee stock ownership plan (“ESOP”). This plan is more fully described in Note 7. Shares held under the ESOP are also accounted for under ASC 718. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

Earnings per share —Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested common stock awards. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For both the three and nine months ended September 30, 2010, there were 1,255,280 antidilutive CSEs. Due to the net loss recognized for the three and nine months ended September 30, 2009, the inclusion of any CSEs would decrease the amount of net loss per share for the periods and would be antidilutive. Consequently, all 2,198,920 outstanding options are antidilutive for those periods. Earnings (loss) per share were calculated as follows:


	Three Months Ended September 30,
	2010				2009
	Basic		Diluted		Basic			Diluted

Net income (loss)	$	2,165,238	$	2,165,238	$	(6,976,121	)	$	(6,976,121	)

Weighted average shares outstanding		18,404,143		18,404,143		19,635,808			19,635,808
Effect of common stock equivalents		—		1,220,223		—			—

Adjusted weighted average shares used in earnings per share computation		18,404,143		19,624,366		19,635,808			19,635,808


Earnings (loss) per share	$	0.12	$	0.11	$	(0.36	)	$	(0.36	)


	Nine Months Ended September 30,
	2010				2009
	Basic		Diluted		Basic			Diluted

Net income (loss)	$	5,745,877	$	5,745,877	$	(5,201,521	)	$	(5,201,521	)

Weighted average shares outstanding		18,771,303		18,771,303		19,963,132			19,963,132
Effect of common stock equivalents		—		1,262,188		—			—

Adjusted weighted average shares used in earnings per share computation		18,771,303		20,033,491		19,963,132			19,963,132


Earnings (loss) per share	$	0.31	$	0.29	$	(0.26	)	$	(0.26	)

Recent Accounting Pronouncements —In March 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-11, Scope Exception Related to Embedded Credit Derivatives , which updates ASC 815, Derivatives and Hedging . The updated guidance addresses application of the embedded derivative scope exception in ASC 815-15-15-8 and 15-9 and primarily affects entities that hold or issue investments in financial instruments that contain embedded credit derivative features. The ASU includes a transition provision which permits entities to make a special one-time election to apply the fair value option to any investments in a beneficial interest in securitized financial asset, regardless of whether such investments contain embedded derivative features. The amended guidance is effective for the Company on July 1, 2010. The adoption of this guidance did not have any impact on our financial position or results of operations.

In April 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset , which updates ASC 310, Receivables . The amendments in this update affect any entity that acquires loans subject to ASC Subtopic 310-30, Receivables: Loans and Debt Securities Acquired with Deteriorated Credit Quality , that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after acquisition. Under this updated guidance, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amended guidance was effective prospectively for modifications occurring in the first interim or annual period ending on or after July 15, 2010. The Company adopted this guidance effective July 1, 2010. The adoption did not have any impact on our financial position or results of operations.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses , which updated ASC 310 , Receivables . The updated guidance requires more robust and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses, including a rollforward schedule of the allowance for credit losses for the period on a portfolio segment basis, as well as additional information about the aging and credit quality of receivables by class of financing receivables as of the end of the period. The new and amended disclosures that relate to information as of the end of a reporting period will be effective for the Company as of December 31, 2010. The disclosures that include information for activity that occurs during a reporting period will be effective for the first interim reporting period beginning after December 31, 2010. The Company is continuing to evaluate this guidance. While the guidance will impact the presentation of certain disclosures within our financial statements, we do not expect that the guidance will have any impact on our financial position or results of operations.

Reclassifications —Certain items in the 2009 consolidated financial statements have been reclassified to conform to the presentation in the 2010 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.

INVESTMENT SECURITIES

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


	Held to Maturity
	September 30, 2010
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Debt securities:
Municipal bonds	$	20,385,322	$	1,208,638	$	—	$	21,593,960


Total debt securities	$	20,385,322	$	1,208,638	$	—	$	21,593,960


	Available for Sale
	September 30, 2010
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Debt securities:
Agency bonds	$	89,958,107	$	1,075,057	$	—	$	91,033,164
Corporate bonds and commercial paper		2,093,411		27,979		—		2,121,390
Municipal bonds		19,423,707		954,887		—		20,378,594


Total debt securities		111,475,225		2,057,923		—		113,533,148


Equity securities:
Mutual funds		2,644,904		69,664		—		2,714,568


Total equity securities		2,644,904		69,664		—		2,714,568


Total	$	114,120,129	$	2,127,587	$	—	$	116,247,716


	Held to Maturity
	December 31, 2009
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Debt securities:
Municipal bonds	$	20,386,944	$	400,325	$	—	$	20,787,269


Total debt securities	$	20,386,944	$	400,325	$	—	$	20,787,269


	Available for Sale
	December 31, 2009
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

Debt securities:
Agency bonds	$	55,863,999	$	691,337	$	(95,669	)	$	56,459,667
Corporate bonds and commercial paper		3,123,496		6,286		(8,342	)		3,121,440
Municipal bonds		21,238,185		817,838		(848	)		22,055,175
Certificates of deposit		99,000		—		—			99,000


Total debt securities		80,324,680		1,515,461		(104,859	)		81,735,282


Equity securities:
Common stock		10		—		(1	)		9
Mutual funds		2,580,411		1,569		—			2,581,980


Total equity securities		2,580,421		1,569		(1	)		2,581,989


Total	$	82,905,101	$	1,517,030	$	(104,860	)	$	84,317,271

There were no sales of debt or equity securities during the three or nine months ended September 30, 2010. During the three months ended September 30, 2009, a gross gain of approximately $5,000 was recognized on the sale of one municipal bond. Proceeds from this sale were approximately $305,000. There were no other sales of debt or equity securities during the nine months ended September 30, 2009. No impairment charges were recognized on investment securities during the three or nine months ended September 30, 2010 or 2009.

All municipal bonds included in debt securities are bank-qualified municipal bonds.

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


	September 30, 2010
	Available for Sale				Held to Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due in one year or less	$	6,038,273	$	6,072,120	$	—	$	—
Due after one year through five years		98,556,008		100,200,244		—		—
Due after five years through ten years		6,880,944		7,260,784		14,062,470		14,946,541
Due after ten years		—		—		6,322,852		6,647,419


Total	$	111,475,225	$	113,533,148	$	20,385,322	$	21,593,960

No investment securities were in an unrealized loss position at September 30, 2010. The table below sets forth investment securities which had an unrealized loss position as of December 31, 2009:


	Less than 12 months					More than 12 months
	Gross			Estimated		Gross		Estimated
	Unrealized			Fair		Unrealized		Fair
	Losses			Value		Losses		Value

Securities available for sale:
Agency bonds	$	(95,669	)	$	18,299,480	$	—	$	—
Corporate bonds and commercial paper		(8,342	)		1,127,220		—		—
Municipal bonds		(848	)		251,938		—		—
Equity securities		(1	)		9		—		—


Total securities available for sale	$	(104,860	)	$	19,678,647	$	—	$	—

On a quarterly basis, management of the Company reviews the securities in its investment portfolio to identify any securities that might have an other-than-temporary impairment. At September 30, 2010, no investment securities were in a gross unrealized loss position.

MORTGAGE-BACKED SECURITIES

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


	Held to Maturity
	September 30, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

GNMA pass-through certificates	$	14,648,837	$	652,738	$	—		$	15,301,575
FNMA pass-through certificates		22,203,640		1,293,320		—			23,496,960
FHLMC pass-through certificates		10,651,681		397,761		—			11,049,442
Collateralized mortgage obligations		14,260,752		106,501		(701,332	)		13,665,921


Total	$	61,764,910	$	2,450,320	$	(701,332	)	$	63,513,898


	Available for sale
	September 30, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

GNMA pass-through certificates	$	2,069	$	90	$	—		$	2,159
FNMA pass-through certificates		33,783,088		2,226,649		—			36,009,737
FHLMC pass-through certificates		31,685,011		2,058,898		—			33,743,909
Collateralized mortgage obligations		95,532,519		1,506,145		(546	)		97,038,118


Total	$	161,002,687	$	5,791,782	$	(546	)	$	166,793,923


	Held to Maturity
	December 31, 2009
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

GNMA pass-through certificates	$	18,607,580	$	374,179	$	(198,784	)	$	18,782,975
FNMA pass-through certificates		27,817,665		1,031,598		—			28,849,263
FHLMC pass-through certificates		13,242,317		258,707		(26,483	)		13,474,541
Collateralized mortgage obligations		17,482,374		—		(1,291,656	)		16,190,718


Total	$	77,149,936	$	1,664,484	$	(1,516,923	)	$	77,297,497


	Available for sale
	December 31, 2009
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

GNMA pass-through certificates	$	2,464	$	369	$	—		$	2,833
FNMA pass-through certificates		45,813,997		2,265,098		—			48,079,095
FHLMC pass-through certificates		48,863,220		2,363,183		(24,953	)		51,201,450
Collateralized mortgage obligations		39,237,050		354,656		(246,492	)		39,345,214


Total	$	133,916,731	$	4,983,306	$	(271,445	)	$	138,628,592

There were no sales of mortgage-backed securities during the three or nine months ended September 30, 2010 or 2009. No impairment charge was recognized on mortgage-backed securities during the three or nine months ended September 30, 2010 or 2009.

Our collateralized mortgage obligations (“CMOs”) are issued by the FNMA, the FHLMC, and the GNMA as well as certain AAA rated private issuers. At September 30, 2010 and December 31, 2009, respectively, $7.0 million and $8.4 million of our CMOs were issued by private issuers.

The table below sets forth mortgage-backed securities which had an unrealized loss position as of September 30, 2010:


	Less than 12 months					More than 12 months
	Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value

Securities held to maturity:
Collateralized mortgage obligations	$	—		$	—	$	(701,332	)	$	3,019,217


Total securities held to maturity		—			—		(701,332	)		3,019,217


Securities available for sale:
Collateralized mortgage obligations		(546	)		3,499,454		—			—


Total securities available for sale		(546	)		3,499,454		—			—


Total	$	(546	)	$	3,499,454	$	(701,332	)	$	3,019,217

The table below sets forth mortgage-backed securities which had an unrealized loss position as of December 31, 2009:


	Less than 12 months					More than 12 months
	Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value

Securities held to maturity:
GNMA pass-through certificates	$	(198,784	)	$	10,122,441	$	—		$	—
FHLMC pass-through certificates		(26,483	)		4,787,594		—			—
Collateralized mortgage obligations		(322,627	)		8,755,414		(969,029	)		7,435,304


Total securities held to maturity		(547,894	)		23,665,449		(969,029	)		7,435,304


Securities available for sale:
FHLMC pass-through certificates		(21,372	)		2,060,797		(3,581	)		1,225,716
Collateralized mortgage obligations		(194,886	)		13,186,239		(51,606	)		3,340,759


Total securities available for sale		(216,258	)		15,247,036		(55,187	)		4,566,475


Total	$	(764,152	)	$	38,912,485	$	(1,024,216	)	$	12,001,779

At September 30, 2010, mortgage-backed securities in a gross unrealized loss position for 12 months or longer consisted of three securities having an aggregate depreciation of 18.9% from the Company’s amortized cost basis. All three securities were CMOs issued by private issuers. Included in this total are two CMOs with an aggregate principal balance of approximately $3.5 million at September 30, 2010, that had declines of approximately 21% and 20% from their amortized cost basis at such date. The third security, with a principal balance of approximately $216,000 at September 30, 2010, had a decline of approximately 1.0% from its amortized cost basis at such date. Mortgage-backed securities in a gross unrealized loss position for less than 12 months at September 30, 2010, consisted of one security having an aggregate depreciation of 0.02% from the Company’s amortized cost basis. The security is a CMO issued by GNMA. Management has concluded that, as of September 30, 2010, the unrealized losses above were temporary in nature. There is no exposure to subprime loans with these CMOs. The losses are not related to the underlying credit quality of the issuers, all of whom remain AAA rated, including the private issuers, and they are on securities that have contractual maturity dates. The principal and interest payments on these CMOs have been made as scheduled, and there is no evidence that the issuers will not continue to do so. In management’s opinion, the future principal payments will be sufficient to recover the current amortized cost of the securities. The unrealized losses above are primarily related to the current market environment. The overall declines in market value are not significant, and management of the Company believes that these values will recover as the market environment improves and the securities continue to perform. The Company does not currently have plans to sell any these securities, nor does it anticipate that it will be required to sell any these securities prior to a recovery of their cost basis.

LOANS RECEIVABLE AND REAL ESTATE OWNED

Loans receivable consist of the following:


	September 30, 2010			December 31, 2009

One-to four-family residential	$	403,484,220		$	432,004,572
Multi-family residential and commercial		140,238,650			135,482,758
Construction		147,660,950			203,642,336
Home equity lines of credit		42,731,261			36,273,685
Commercial business loans		17,832,142			18,876,987
Consumer non-real estate loans		722,626			2,358,063


Total loans		752,669,849			828,638,401

Less:
Construction loans in process		(32,457,299	)		(54,198,647	)
Deferred loan fees, net		(704,683	)		(789,460	)
Allowance for loan losses		(4,685,160	)		(9,090,353	)


Loans receivable—net	$	714,822,707		$	764,559,941

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


	Nine Months Ended			Year Ended			Nine Months Ended
	September 30, 2010			December 31, 2009			September 30, 2009

Balance—beginning of year	$	9,090,353		$	11,596,784		$	11,596,784
Provision for loan losses		563,445			18,736,847			12,324,090
Charge-offs		(6,188,410	)		(21,394,378	)		(5,265,747	)
Recoveries		1,219,772			151,100			146,650

Charge-offs—net		(4,968,638	)		(21,243,278	)		(5,119,097	)

Balance—end of period	$	4,685,160		$	9,090,353		$	18,801,777

The provision for loan losses is charged to expense to maintain the allowance for loan losses at a level that management considers adequate to provide for losses based upon an evaluation of the loan portfolio, including an evaluation of impaired loans, that considers a number of factors such as past loan loss experience, 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. Management’s evaluation of these factors is done separately for each type of 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. For this purpose, delays less than 90 days are generally considered to be insignificant. During the periods presented, loan impairment was evaluated based on the fair value of the loans’ collateral. The determination of fair value for the collateral underlying a loan is more fully described in Note 9. Impairment losses are included in the provision for loan losses. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment, except for those loans restructured under a troubled debt restructuring. Loans collectively evaluated for impairment include smaller balance commercial real estate loans, residential real estate loans and consumer loans.

As of September 30, 2010 and December 31, 2009, the recorded investment in loans that were considered to be impaired was as follows.


	September 30,		December 31,
	2010		2009

Impaired collateral-dependent loans with a valuation allowance	$	6,983,798	$	18,111,166
Impaired collateral-dependent loans with no valuation allowance		5,637,136		10,237,145

Total Impaired collateral-dependent loans	$	12,620,934	$	28,348,311


Average impaired loan balance	$	24,566,097	$	23,575,378

Valuation allowance on impaired loans	$	685,626	$	3,605,504

Interest income recognized on impaired loans	$	—	$	—

Our loan portfolio at September 30, 2010 included an aggregate of $12.6 million of impaired loans compared to $28.3 million of impaired loans at December 31, 2009. Non-accrual loans at September 30, 2010 and December 31, 2009 amounted to approximately $12.0 million and $28.3 million, respectively. Our impaired loans at September 30, 2010 included two mortgage loans with an aggregate outstanding balance of $583,000 that were continuing to accrue interest. The other impaired loans at September 30, 2010 and all of our impaired loans at December 31, 2009 were on non-accrual status. One- to four-family residential loans are typically placed on non-accrual at the time the loan is 120 days delinquent, and all other loans are typically placed on non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Loans are charged off when the loan is deemed uncollectible. 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, 2010 and December 31, 2009 amounted to approximately $12.2 million and $34.6 million, respectively. For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest. At September 30, 2010 we had $183,000 of loans that were 90 days or more past due, but still accruing interest compared to $6.2 million at December 31, 2009.

We had three troubled debt restructurings (“TDRs”) at September 30, 2010 and one TDR at December 31, 2009. Two of the TDRs at September 30, 2010 were for mortgage loans that were modified during the year to allow a period of interest-only payments. The loans have continued to pay in accordance with their contractual terms, and based on the loan-to-value ratios of these loans, no portion of the allowance for loan losses was allocated to these loans at September 30, 2010. The other TDR at September 30, 2010, which was also the TDR at December 31, 2009, is for a commercial real estate loan with an outstanding balance of $1.4 million and $2.5 million, respectively, at September 30, 2010 and December 31, 2009. The commercial property which collateralizes this loan is currently listed for sale by the borrower. At September 30, 2010 and December 31, 2009, approximately $150,000 and $1.0 million of our allowance for loan losses, respectively, was allocated to this loan,

which was classified as non-accrual and considered to be impaired at such dates. During the second quarter of 2010, we charged-off approximately $950,000 of the outstanding loan balance of this loan. We have no commitments to lend additional funds to the borrower under this loan. The loan has been classified as a TDR based on modified payment terms that reduce the total monthly payment. The modified payments were further reduced during the third quarter of 2010. In both cases, the reduced payments, which include both principal and interest, were agreed to in order to relieve some of the cash flow burden on the borrower’s overall position. In addition to this loan, we have three additional loans to this borrower with an aggregate outstanding balance of $14.4 million and $13.4 million, respectively, at September 30, 2010 and December 31, 2009. These three loans were each classified at September 30, 2010 and December 31, 2009, with an aggregate of $386,000 and $670,000, respectively, of our allowance for loan losses allocated to these loans at such dates. Although none of the additional three loans were considered to be impaired or on non-accrual status at September 30, 2010 or December 31, 2009, two of the loans, with an aggregate outstanding balance of $6.0 million at December 31, 2009, were over 90 days past due at such date. These two loans, which were included in our construction loan portfolio at December 31, 2009, were refinanced with permanent commercial real estate loans during the second quarter of 2010. The reclassified loans are not considered to be TDRs at September 30, 2010. The third loan was included in our construction loan portfolio at both September 30, 2010 and December 31, 2009.

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, 2010 and 2009, no interest income was recognized on non-accrual loans. Interest income foregone on non-accrual loans was approximately $686,000 and $452,000, respectively, for the nine months ended September 30, 2010 and 2009.

Following is a summary of changes in the balance of real estate owned for the periods presented:


	Nine Months Ended			Year Ended
	September 30, 2010			December 31, 2009

Balance—beginning of period	$	22,818,856		$	1,739,599
Additions		6,975,000			25,582,818
Capitalized improvements		281,524			1,129,046
Valuation adjustments		(350,981	)		(4,501,580	)
Dispositions		(9,696,435	)		(1,131,027	)


Balance—end of period	$	20,027,964		$	22,818,856

During the nine months ended September 30, 2010, two properties, a mixed-use commercial/residential development and retail commercial building, with an aggregate outstanding balance of $7.0 million at September 30, 2010, were added to REO. During the first nine months of 2010, we sold five REO properties including a 40-unit high rise residential condominium project in Center City, Philadelphia with an aggregate outstanding balance of $8.4 million at December 31, 2009 and four one- to four-family residential properties with an aggregate outstanding balance of approximately $1.2 million at December 31, 2009. During the first nine months of 2010, a net loss on real estate owned of approximately $385,000 in the aggregate was recognized on the settlement of these five properties. An additional valuation adjustment of approximately $215,000 was also recognized to write-down the value of two other REO properties during the first nine months of 2010. Our net loss on REO for the nine months ended September 30, 2010 also includes approximately $390,000 in non-capitalized expenses on our REO properties.

DEPOSITS

Deposits consist of the following major classifications:


	September 30, 2010					December 31, 2009
Type of Account	Amount		Percent			Amount		Percent

Certificates	$	458,817,908		50.9	%	$	456,773,978		53.8	%
Passbook and MMDA		311,788,964		34.5			265,487,994		31.2
NOW		87,758,020		9.7			82,791,871		9.7
DDA		43,997,062		4.9			45,146,650		5.3


Total	$	902,361,954		100.0	%	$	850,200,493		100.0	%

DEFERRED INCOME TAXES

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


	September 30,			December 31,
	2010			2009

Deferred tax assets:
Allowance for loan losses	$	1,592,954		$	3,090,720
Deferred compensation		2,007,795			2,048,647
Write-down of impaired investments		295,529			295,526
Write-down of real estate owned		286,728			1,530,537
Other assets		613,369			181,702


Total deferred tax assets		4,796,375			7,147,132


Deferred tax liabilities:
Unrealized gain on securities available-for-sale		(2,692,400	)		(2,082,171	)
Deferred loan fees		(342,366	)		(333,723	)
Other liabilities		(9,774	)		(19,791	)


Total deferred tax liabilities		(3,044,540	)		(2,435,685	)


Net deferred tax asset	$	1,751,835		$	4,711,447

PENSION, PROFIT SHARING AND STOCK COMPENSATION PLANS

In addition to the plans disclosed below, the Company also maintains an executive deferred compensation plan for selected executive officers, which was frozen retroactive to January 1, 2005, a deferred compensation plan for directors, a supplemental retirement plan for directors and selected executive officers and a 401(k) retirement plan for substantially all of its employees. Further detail of these plans can be obtained from the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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 an aggregate of 914,112 shares of common stock for approximately $7.4 million, an average price of $8.06 per share. These shares are being 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 being released over a 30-year period. No additional purchases are expected to be made by the ESOP. At September 30, 2010, the ESOP held approximately 1.5 million unallocated shares of Company common stock with a fair value of $15.6 million and approximately 466,000 allocated shares with a fair value of $4.9 million. During the three-month periods ended September 30, 2010 and 2009, approximately 24,000 shares were committed to be released to participants in each period, resulting in recognition of approximately $232,000 and $195,000 in compensation expense, respectively. During the nine-month periods ended September 30, 2010 and 2009, approximately 72,000 shares were committed to be released to participants in each period, resulting in recognition of approximately $627,000 and $584,000 in compensation expense, respectively.

Recognition and Retention Plans

In June 2005, the shareholders of Abington Community Bancorp, the predecessor to the Company, 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 exchanged for shares of Company common stock. Certain senior officers of the Bank have been designated as Trustees of the 2005 RRP. The 2005 RRP provides for the grant of shares of common stock of the Company to certain officers, employees and directors of the Company. In order to fund the 2005 RRP, the 2005 Recognition Plan Trust (the “2005 Trust”) acquired 457,056 shares of common stock in the open market for approximately $3.7 million, an average price of $8.09 per share. The Company made sufficient contributions to the 2005 Trust to fund the purchase of these shares. No additional purchases are expected to be made by the 2005 Trust under this plan. Pursuant to the terms of the plan, all 457,056 shares acquired by the 2005 Trust have been granted to certain officers, employees and directors of the Company, however, due to the forfeiture of shares by certain officers of the Company, 4,416 shares remain available for future grant. 2005 RRP shares generally vest at the rate of 20% per year over five years.

In January 2008, the shareholders of the Company approved the adoption of the 2007 Recognition and Retention Plan (the “2007 RRP”). In order to fund the 2007 RRP, the 2007 Recognition Plan Trust (the “2007 Trust”) acquired 520,916 shares of the Company’s common stock in the open market for approximately $5.4 million, an average price of $10.28 per share. The Company made sufficient contributions to the 2007 Trust to fund the purchase of these shares. Pursuant to the terms of the plan, all 520,916 shares acquired by the 2007 Trust have been granted to certain officers, employees and directors of the Company, however, due to the forfeiture of shares by certain officers of the Company, 39,816 shares remain 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 June 30, 2010 and 2009, and changes during the nine months ended September 30, 2010 and 2009 are presented below:


	Nine Months Ended September 30,
	2010					2009
				Weighted					Weighted
	Number of			average grant		Number of			average grant
	shares			date fair value		shares			date fair value

Nonvested at the beginning of the year		481,272		$	8.79		661,763		$	8.72
Granted		—			—		—			—
Vested		(177,096	)		8.38		(181,311	)		8.38
Forfeited		(3,876	)		7.95		(2,400	)		9.11

Nonvested at the end of the period		300,300		$	9.03		478,052		$	8.84

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, 2010, approximately 25,000 and 115,000 RRP shares, respectively, were amortized to expense, based on the proportional vesting of the awarded shares, resulting in recognition of approximately $236,000 and $983,000 in compensation expense, respectively. A tax benefit of approximately $114,000 and $304,000, respectively, was recognized during these periods with respect to the 2005 and 2007 RRPs. During the three- and nine-month periods ended September 30, 2009, approximately 45,000 and 137,000 RRP shares, respectively, were amortized to expense, based on the proportional vesting of the awarded shares, resulting in recognition of approximately $377,000 and $1.1 million in compensation expense, respectively. A tax benefit of approximately $139,000 and $331,000, respectively, was recognized during these periods with respect to the 2005 and 2007 RRPs. As of September 30, 2010, approximately $2.1 million in additional compensation expense will be recognized over the remaining lives of the RRP awards. At September 30, 2010, the weighted average remaining lives of the RRP awards was approximately 2.4 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 not less than the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. As of September 30, 2010, a total of 1,142,640 shares of common stock were reserved for future issuance pursuant to the 2005 Option Plan, of which 15,896 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 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, 2010, a total of 1,302,990 shares of common stock were reserved for future issuance pursuant to the 2007 Option Plan, of which 176,290 shares remain available for grant.

A summary of the status of the Company’s stock options under the 2005 and 2007 Option Plans as of September 30, 2010 and 2009, and changes during the nine months ended September, 2010 and 2009 are presented below:


	Nine Months Ended September 30,
	2010					2009
				Weighted					Weighted
	Number of			average		Number of			average
	shares			exercise price		shares			exercise price

Outstanding at the beginning of the year		2,198,888		$	8.47		2,206,296		$	8.48
Granted		—			—		—			—
Exercised		(9,648	)		8.02		(4,176	)		7.51
Forfeited		(8,340	)		8.06		(3,200	)		9.11

Outstanding at the end of the period		2,180,900		$	8.47		2,198,920		$	8.48


Exercisable at the end of the period		1,437,404		$	8.13		1,015,860		$	7.98

The following table summarizes all stock options outstanding under the 2005 and 2007 Option Plans as of September 30, 2010:


	Options Outstanding						Options Exercisable
			Weighted		Weighted Average				Weighted
	Number of		Average		Remaining		Number of		Average
Exercise Price	Shares		Exercise Price		Contractual Life		Shares		Exercise Price
	(in years)

$6.00 - $7.00		12,500	$	6.72		9.2		—	$	—
7.01 - 8.00		905,920		7.51		4.8		905,920		7.51
8.01 - 9.00		7,200		8.35		5.2		5,760		8.35
9.01 - 10.00		1,216,000		9.15		7.3		501,900		9.16
Over 10.00		39,280		10.18		6.1		23,824		10.18


Total		2,180,900	$	8.47		6.2		1,437,404	$	8.13


Intrinsic value	$	4,514,000					$	3,457,794

No options were granted during the first nine months of 2010 or 2009.

During the three and nine months ended September 30, 2010, approximately $143,000 and $578,000, respectively, was recognized in compensation expense for the Option Plans. A tax benefit of approximately $13,000 and $55,000, respectively, was recognized during each of these periods with respect to the Option Plans. During the three and nine months ended September 30, 2009, approximately $220,000 and $665,000, respectively, was recognized in compensation expense for the Option Plans. A tax benefit of approximately $23,000 and $68,000, respectively, was recognized during each of these periods with respect to the Option Plans. At September 30, 2010, approximately $1.3 million in additional compensation expense for awarded options remained unrecognized. The weighted average period over which this expense will be recognized is approximately 1.2 years.

COMMITMENTS AND CONTINGENCIES

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each 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, 2010 and December 31, 2009, commitments to originate loans and commitments under unused lines of credit, including undisbursed portions of construction loans in process, for which the Bank was obligated amounted to approximately $116.5 million and $125.9 million, respectively, in the aggregate.

The Bank had approximately $4.2 million in outstanding mortgage loan commitments at September 30, 2010. All of the loans expected to be made pursuant to such commitments are expected to be funded within 90 days and will have fixed rates of interest ranging from 4.125% to 5.5%. These loans were not originated for sale. Also outstanding at September 30, 2010 were unused home equity lines of credit totaling approximately $31.0 million and unused commercial lines of credit totaling approximately $48.9 million. The unused portion of our construction loans in process at September 30, 2010 amounted to approximately $32.5 million.

The Bank had approximately $2.1 million in outstanding mortgage loan commitments at December 31, 2009. All of such commitments, which were for fixed rates of interest ranging from 4.875% to 5.50%, were funded within 90 days of December 31, 2009. These loans were not originated for sale. Also outstanding at December 31, 2009 were unused home equity lines of credit totaling approximately $27.6 million and unused commercial lines of credit totaling approximately $42.0 million. The unused portion of our construction loans in process at December 31, 2009 amounted to approximately $54.2 million.

Letters of credit are conditional commitments issued by the Bank guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financings and similar transactions. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Collateral may be required to support letters of credit based upon 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 letters of credit expire within one year. At September 30, 2010 and December 31, 2009, the Bank had letters of credit outstanding of approximately $48.5 million and $48.5 million, respectively, of which $47.7 million and $47.6 million, respectively, were standby letters of credit. At September 30, 2010 and December 31, 2009, the uncollateralized portion of the letters of credit extended by the Bank was approximately $7,000 and $219,000, respectively, all of which was for standby letters of credit in both periods. The current amount of the liability for guarantees under letters of credit was not material as of September 30, 2010 and December 31, 2009.

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

Among the Company’s contingent liabilities, are exposures to limited recourse arrangements with respect to the sales of whole loans and participation interests. At September 30, 2010, the exposure, which represents a portion of credit risk associated with the sold interests, amounted to $185,000. The exposure is for the life of the related loans and payable, on our proportional share, as losses are incurred.

FAIR VALUE MEASUREMENTS

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

In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

•

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

•

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

•

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

In accordance with ASC 820, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820.

Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the 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, 2010 and December 31, 2009, the Company did not have any assets that were measured at fair value on a recurring basis that use Level 3 measurements.

Following is a description of valuation methodologies used in determining the fair value for our assets and liabilities.

Cash and Cash Equivalents —These assets are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

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.

Loans Receivable —We do not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for footnote disclosure purposes. However, from time to time, we record nonrecurring fair value adjustments to loans to reflect partial write-downs for impairment or the full charge-off of the loan carrying value. The valuation of impaired loans is discussed below. The fair value estimate for footnote disclosure purposes differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by loan type and rate. The fair value of one- to four-family residential mortgage loans is estimated by discounting contractual cash flows using discount rates based on current industry pricing, adjusted for prepayment and credit loss estimates. The fair value of loans is estimated by discounting contractual cash flows using discount rates based on our current pricing for loans with similar characteristics, adjusted for prepayment and credit loss estimates.

Impaired Loans —A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in the amount of payments does not necessarily result in the loan being identified as impaired. We establish an allowance on certain impaired loans for the amount by which the discounted cash flows, observable market price or fair value of collateral, if the loan is collateral dependent, is lower than the carrying value of the loan. Fair value is generally based upon independent market prices or appraised value of the collateral. During the periods presented, loan impairment was evaluated based on the fair value of the loans’ collateral. Our appraisals are typically performed by independent third party appraisers, and are obtained as soon as practicable once indicators of possible impairment are identified. We obtained current appraisals of the collateral underlying all of our impaired loans for the periods presented. For appraisals of commercial and construction properties, comparable properties within the area may not be available. In such circumstances, our appraisers will rely on certain judgments in determining how a specific property compares in value to other properties that are not identical in design or in geographic area. Our impaired loans at September 30, 2010 and December 31, 2009, are secured by commercial and construction properties for which there are no comparable properties available and, accordingly, all of our impaired loans were classified as Level 3 assets at such dates.

Accrued Interest Receivable —This asset is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

FHLB Stock —Although Federal Home Loan Bank (“FHLB”) stock is an equity interest in the FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the carrying amount. FHLB stock is evaluated for impairment based on the ultimate recoverability of the par value of the security. We have evaluated our FHLB stock for impairment, and we have determined that the stock was not impaired at September 30, 2010.

Real Estate Owned —Real estate owned includes foreclosed properties securing commercial and construction loans. Real estate properties acquired through foreclosure are initially recorded at the fair value of the property at the date of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell. As is the case for collateral of impaired loans, fair value is generally based upon independent market prices or appraised value of the collateral. Our appraisal process for real estate owned is identical to our appraisal process for the collateral of impaired loans. Our current portfolio of real estate owned is comprised of commercial and construction properties for which comparable properties within the area are not available. Our appraisers have relied on certain judgments in determining how our specific properties compare in value to other properties that are not identical in design or in geographic area and, accordingly, we classify real estate owned as a Level 3 asset.

Deposits —Deposit liabilities are carried at cost. As such, valuation techniques discussed herein for deposits are primarily for estimating fair value for footnote disclosure purposes. The fair value of deposits is discounted based on rates available for borrowings of similar maturities. A decay rate is estimated for non-time deposits. The discount rate for non-time deposits is adjusted for servicing costs based on industry estimates.

Advances from Federal Home Loan Bank —Advances from the FHLB are carried at amortized cost. However, we are required to estimate the fair value of this debt for footnote disclosure purposes. The fair value is based on the contractual cash flows, which are discounted using rates currently offered for new notes with similar remaining maturities.

Other Borrowed Money —These liabilities are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Accrued Interest Payable —This liability is carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Commitments to Extend Credit and Letters of Credit —The majority of the Bank’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

The tables below presents the balances of assets measured at fair value on a recurring basis:


	September 30, 2010
	Total		Level 1		Level 2		Level 3

Investment securities available for sale:
Debt securities:
Agency bonds	$	91,033,164	$	—	$	91,033,164	$	—
Corporate bonds and commercial paper		2,121,390		—		2,121,390		—
Municipal bonds		20,378,594		—		20,378,594		—
Equity securities:
Mutual funds		2,714,568		2,714,568		—		—

Total investment securities available for sale		116,247,716		2,714,568		113,533,148		—


Mortgage-backed securities available for sale:
GNMA pass-through certificates	$	2,159	$	—	$	2,159	$	—
FNMA pass-through certificates		36,009,737		—		36,009,737		—
FHLMC pass-through certificates		33,743,909		—		33,743,909		—
Collateralized mortgage obligations		97,038,118		—		97,038,118		—

Total mortgage-backed securities available for sale		166,793,923		—		166,793,923		—


Total	$	283,041,639	$	2,714,568	$	280,327,071	$	—


	December 31, 2009
	Total		Level 1		Level 2		Level 3

Investment securities available for sale:
Debt securities:
Agency bonds	$	56,459,667	$	—	$	56,459,667	$	—
Corporate bonds and commercial paper		3,121,440		—		3,121,440		—
Municipal bonds		22,055,175		—		22,055,175		—
Certificates of deposit		99,000		—		99,000		—
Equity securities:
Common stock		9		9		—		—
Mutual funds		2,581,980		2,581,980		—		—

Total investment securities available for sale		84,317,271		2,581,989		81,735,282		—


Mortgage-backed securities available for sale:
GNMA pass-through certificates	$	2,833	$	—	$	2,833	$	—
FNMA pass-through certificates		48,079,095		—		48,079,095		—
FHLMC pass-through certificates		51,201,450		—		51,201,450		—
Collateralized mortgage obligations		39,345,214		—		39,345,214		—


Total mortgage-backed securities available for sale		138,628,592		—		138,628,592		—


Total	$	222,945,863	$	2,581,989	$	220,363,874	$	—

For assets measured at fair value on a nonrecurring basis that were still held at the end of the period, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at September 30, 2010 and December 31, 2009:


	September 30, 2010
	Total		Level 1		Level 2		Level 3

Impaired loans:
Multi-family residential and commerical	$	1,226,972	$	—	$	—	$	1,226,972
Construction		5,071,200		—		—		5,071,200

Total impaired loans		6,298,172		—		—		6,298,172
Real estate owned		20,027,964		—		—		20,027,964


Total	$	26,326,136	$	—	$	—	$	26,326,136


	December 31, 2009
	Total		Level 1		Level 2		Level 3

Impaired loans:
Multi-family residential and commerical	$	3,646,396	$	—	$	—	$	3,646,396
Construction		10,859,266		—		—		10,859,266

Total impaired loans		14,505,662		—		—		14,505,662
Real estate owned		22,818,856		—		—		22,818,856


Total	$	37,324,518	$	—	$	—	$	37,324,518

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies as described above. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.


	September 30, 2010				December 31, 2009
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In Thousands)

Assets:
Cash and cash equivalents	$	70,429	$	70,429	$	44,714	$	44,714
Investment securities		136,633		137,842		104,704		105,105
Mortgage-backed securities		228,559		230,308		215,779		215,926
Loans receivable—net		714,823		732,689		764,560		769,058
FHLB stock		14,608		14,608		14,608		14,608
Accrued interest receivable		4,276		4,276		4,279		4,279

Liabilities:
Deposits	$	902,362	$	894,044	$	850,200	$	836,176
Advances from Federal Home Loan Bank		109,891		116,709		146,739		152,773
Other borrowed money		18,020		18,020		16,673		16,673
Accrued interest payable		4,022		4,022		1,807		1,807
Off balance sheet financial instruments		—		—		—		—

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2010 and December 31, 2009. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since September 30, 2010 and December 31, 2009 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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 in 2007. The Bank is a wholly owned subsidiary of the Company. The Company’s results of operations are primarily dependent on the results of the Bank. 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 twelve other full service branches and seven limited service facilities located in Montgomery, Bucks and Delaware Counties, Pennsylvania. The Bank is principally engaged in the business of accepting customer deposits and investing these funds in loans.

We recorded net income of $2.2 million for the quarter ended September 30, 2010, compared to a net loss of $7.0 million for the quarter ended September 30, 2009. Basic and diluted earnings per share were $0.12 and $0.11, respectively for the third quarter of 2010 compared to basic and diluted loss per share of $0.36 for the third quarter of 2009. Additionally, we reported net income of $5.7 million for the nine months ended September 30, 2010, compared to a net loss of $5.2 million for the nine months ended September 30, 2009. Basic and diluted earnings per share were $0.31 and $0.29, respectively, for the first nine months of 2010 compared to basic and diluted loss per share of $0.26 for the first nine months of 2009.

Net interest income was $8.5 million and $24.9 million for the three and nine months ended September 30, 2010, respectively, representing increases of 14.4% and 10.5% over the comparable 2009 periods, respectively. The increase in our net interest income for the 2010 periods over the 2009 periods occurred as lower interest expense more than offset a reduction in interest income. Our average interest rate spread increased to 2.76% and 2.72%, respectively, for the three-month and nine-month periods ended September 30, 2010 from 2.34% for both the three-month and nine-month periods ended September 30, 2009. The improvement in our average interest rate spread occurred as a decrease in the average yield earned on our interest-earning assets was more than offset by a decrease in the average rate paid on our interest-bearing liabilities. Our net interest margin also increased period-over-period to 2.98% and 2.95%, respectively, for the three-month and nine-month periods ended September 30, 2010 from 2.71% and 2.76%, respectively, for the three-month and nine-month periods ended September 30, 2009.

No provision for loan losses was recorded during the third quarter of 2010. Our provision for loan losses amounted to $563,000 for the nine months ended September 30, 2010. For the quarter and nine months ended September 30, 2009, our provision for loan losses amounted to $8.8 million and $12.3 million, respectively. Our non-accrual loans decreased $9.9 million or 45.2% during the third quarter of 2010 to $12.0 million at September 30, 2010 compared to $22.0 million at June 30, 2010 and $28.3 million at December 31, 2009. Our total non-performing assets, amounted to $32.2 million at September 30, 2010 compared to $35.3 million at June 30, 2010 and $57.4 million at December 31, 2009, representing a decrease of 43.8% during the first nine months of 2010.

Our total assets increased $19.9 million, or 1.6%, to $1.26 billion at September 30, 2010 compared to $1.24 billion at December 31, 2009. Our total deposits increased $52.2 million or 6.1% to $902.4 million at September 30, 2010 compared to $850.2 million at December 31, 2009, due primarily to growth in our core deposits. Our total stockholders’ equity decreased to $212.9 million at September 30, 2010 from $214.2 million at December 31, 2009.

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 (“U.S. GAAP”) and to general practices within the banking industry. The Financial Accounting Standards Board (the “FASB”) established the Accounting Standards Codification (the “Codification” or the “ASC”) as the authoritative source for U.S. GAAP. The preparation of the 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, fair value measurements, other-than-temporary impairment of securities, and deferred income taxes. Management bases its estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Allowance for Loan 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 losses in the portfolio. This evaluation is inherently subjective as it requires material estimates including, among others, the amount and timing of expected future cash flows on impacted loans, exposure at default, value of collateral, and estimated losses on our loan portfolio. All of these estimates may be susceptible to significant change.

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

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. Current appraisals are typically obtained as soon as practicable once indicators of possible impairment are identified. 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 typically establish a general valuation allowance on classified and criticized loans which are not impaired. In establishing the general valuation allowance, we segregate these loans by category. The categories used by the Company include “doubtful,” “substandard” and “special mention.” For commercial and construction loans, the determination of the category for each loan is based on periodic reviews of each loan by our lending officers as well as an independent, third-party consultant. The reviews include a consideration of such factors as recent payment history, current financial data and cash flow projections, collateral evaluations, and current economic and business conditions. Categories for mortgage and consumer loans are determined through a similar review. Classification of a loan within a category is based on identified weaknesses that increase the credit risk of loss on the loan. Each category carries a general rate for the allowance percentage to be assigned to the loans within that category. The general allowance percentage is determined based on inherent losses associated with each type of lending as determined through consideration of our loss history with each type of loan, trends in credit quality and collateral values, and an evaluation of current economic and business conditions. Although the classification of a loan within a given category assists us in our analysis of the risk of loss, the actual allowance percentage assigned to each loan within a category is adjusted for the specific circumstances of each classified loan, including an evaluation of the appraised value of the specific collateral for the loan, and will often differ from the general rate for the category. These classified loans, in the aggregate, represent an above-average credit risk and it is expected that more of these loans will prove to be uncollectible compared to loans in the general portfolio.

We establish a general allowance on non-classified loans to recognize the inherent losses associated with lending activities, but which, unlike amounts which have been specifically identified with respect to particular classified and criticized loans, is not established on an individual loan-by-loan basis. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages to each category. An evaluation of each category is made to determine the need to further segregate the loans within each category by type. For our residential mortgage and consumer loan portfolios, we identify similar characteristics throughout the portfolio including credit scores, loan-to-value ratios and collateral. These portfolios generally have high credit scores and strong loan-to-value ratios (typically below 80% at origination), and have not been significantly impacted by recent housing price depreciation. For our commercial real estate and construction loan portfolios, a further analysis is made in which we segregate the loans by type based on the purpose of the loan and the collateral properties securing the loan. Various risk factors are then considered for each type of loan, including the impact of general economic and business conditions, collateral value trends, credit quality trends and historical loss experience. In prior periods, we evaluated our loss experience using a time period of five years to capture a full cycle of trends over the lives of our loans. Due to the significant downturn in economic and business conditions in recent periods, however, as well as our changing loss experience during that time, we placed a higher reliance on our recent loss history than on our prior loss history in determining our expectation of future losses. More specifically, we considered our loss history beginning in 2009 as the primary factor in analyzing our historical losses. This analysis was first used during 2009, and resulted in a significant increase in the historical loss factor with respect to our construction loan portfolio at that time, compared to the historical loss figure for the five-year period. The loss factors utilized with respect to our other loan categories at that time in establishing our allowance for loan losses remained relatively consistent with our analyses used in prior periods. The analysis for the period ended September 30, 2010, which included the loss history for all of 2009 and the first nine months of 2010, resulted in loss factors comparable to those used at December 31, 2009.

The allowance is adjusted for significant other factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors, many of which have been previously discussed, may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, loss experience in particular segments of the portfolio, duration of the current business cycle, and bank regulatory examination results. The applied loss factors are reevaluated each reporting period to ensure their relevance in the current economic environment. Although we review key ratios, such as the allowance for loan losses as a percentage of non-performing loans and total loans receivable, in order to help us understand the trends in our loan portfolio, we do not try to maintain any specific target range for these ratios.

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

In accordance with ASC 820, we group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

•

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

•

In accordance with ASC 820, we base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820. Fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid and other market information. Substantially all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. In certain cases, however, when market observable inputs for model-based valuation techniques may not be readily available, we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations. At September 30, 2010 and December 31, 2009, while we did not have any assets that were measured at fair value on a recurring basis using Level 3 measurements, we did have assets that were measured at fair value on a nonrecurring basis using Level 3 measurements. See Note 9 in the Notes to the Unaudited Consolidated Financial Statements herein for a further description of our fair value measurements.

Other-Than-Temporary Impairment of Securities— Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline and whether or not management intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery of the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income, except for equity securities, where the full amount of the other-than-temporary impairment is recognized in earnings.

Income Taxes —Management makes estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. Management also estimates a reserve for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision from 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, 2010 AND DECEMBER 31, 2009

The Company’s total assets increased $19.9 million, or 1.6%, to $1.26 billion at September 30, 2010 compared to $1.24 billion at December 31, 2009. The most significant increases were in our cash and cash equivalents and our investment and mortgage-backed securities, which grew by $25.7 million and $44.7 million, respectively, during the first nine months of 2010. The $31.9 million increase in our investment securities was due primarily to the purchase of $139.2 million of agency bonds that was largely offset by $105.1 million in calls and maturities of agency bonds. The increase in mortgage-backed securities was due primarily to the purchase of $69.9 million of collateralized mortgage obligations (“CMOs”) issued by the FNMA, the FHLMC, and the GNMA that was partially offset by maturities and repayments of certain of our mortgage-backed securities. These increase in cash and cash equivalents and the purchases of investment and mortgage-backed securities were largely funded by our deposit growth and our loan repayments. Our net loans receivable decreased $49.7 million or 6.5% to $714.8 million at September 30, 2010 from $764.6 million at December 31, 2009. Our gross construction loans decreased $56.0 million during the first nine months of 2010, however, this was partially offset by a $21.7 million decrease in the balance of our loans-in-process. Our one- to four-family residential loans also decreased significantly during the first nine months of 2010 to $403.5 million at September 30, 2010 from $432.0 million at December 31, 2009. Our multi-family residential and commercial real estate loans and our home equity lines of credit increased $4.8 million and $6.5 million, respectively, during the first nine months of 2010. Our real estate owned (“REO”) decreased to $20.0 million at September 30, 2010 from $22.8 million at December 31, 2009 as the settlement of five REO properties earlier in the year were largely offset by the addition of two properties during the third quarter of 2010 with an aggregate carrying value of $7.1 million at September 30, 2010.

Our total deposits increased $52.2 million or 6.1% to $902.4 million at September 30, 2010 compared to $850.2 million at December 31, 2009. The increase during the first nine months of 2010 was due primarily to growth in our core deposits. During the first nine months of 2010, our core deposits increased $50.1 million or 12.7% driven by an increase in our savings and money market accounts of $46.3 million, or 17.4%. During the first nine months of 2010, our checking accounts increased $3.8 million or 3.0% and our certificate accounts increased $2.0 million or 0.4%. Our advances from the Federal Home Loan Bank (the “FHLB”) decreased $36.8 million or 25.1% to $109.9 million at September 30, 2010 from $146.7 million at December 31, 2009, as we continued to repay existing balances. Our repayment of advances from the FHLB is described further in the next section, “Liquidity and Capital Resources”.

Our total stockholders’ equity decreased to $212.9 million at September 30, 2010 from $214.2 million at December 31, 2009. The decrease was due primarily to our purchases of treasury stock, partially offset by our net income for the period. During the first nine months of 2010 we repurchased approximately 860,000 shares of the Company’s common stock for an aggregate cost of approximately $7.4 million as part of our stock repurchase plans. We have continued to implement our stock repurchase programs based on determinations by management and the Board of Directors that the trading price of our stock, which has been below book value, provided an opportunity to utilize our current capital to repurchase shares in a manner intended to positively affect shareholder value. Our flexibility to undertake such a strategy has been the result of our strong overall capital position. The Bank’s regulatory capital levels continue to far exceed requirements for well capitalized institutions (see chart in next section, “Liquidity and Capital Resources”).

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are from deposits, amortization of loans, loan prepayments and pay-offs, cash flows from mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity. At September 30, 2010, our cash and cash equivalents amounted to $70.4 million. In addition, at that date we had $6.0 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 $283.0 million at September 30, 2010.

We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At September 30, 2010, we had certificates of deposit maturing within the next 12 months of $271.3 million. Based upon historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flow from loans and securities as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs. Our borrowings consist primarily of advances from the FHLB of Pittsburgh, of which we are a member. Under terms of the collateral agreement with the FHLB, we pledge substantially all of our residential mortgage loans and mortgage-backed securities as well as all of our stock in the FHLB as collateral for such advances. As of September 30, 2010, we had $109.9 million in outstanding FHLB advances, and we had $391.9 million in additional FHLB advances available to us. During the first nine months of 2010, we continued to reduce our outstanding balance of advances from the FHLB. We determined to repay a portion of our FHLB advances due to a number of factors, including an evaluation of our overall liquidity and leverage positions, as well as our collateral position with the FHLB. Should we decide to utilize sources of funding other than advances from the FHLB, we believe that additional funding is available in the form of advances or repurchase agreements through various other sources.

Our total stockholders’ equity amounted to $212.9 million at September 30, 2010 compared to total stockholders’ equity of $214.2 million at December 31, 2009. We continue to maintain a strong capital base and, as indicated below, Abington Bank continues to exceed all regulatory capital requirements and is deemed “well capitalized”.

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 currently subject to any regulatory capital requirements.


	Actual Ratios At
	September 30,			December 31,			Regulatory			To Be Well
	2010			2009			Minimum			Capitalized
Capital Ratios :
Tier 1 leverage ratio		13.49	%		13.14	%		4.00	%		5.00	%
Tier 1 risk-based capital ratio		22.36			20.04			4.00			6.00
Total risk-based capital ratio		22.98			21.16			8.00			10.00

SHARE-BASED COMPENSATION

The Company accounts for its share-based compensation awards in accordance with the stock compensation topic of the ASC. Under ASC 718, the Company recognizes the cost of employee services received in share-based payment transactions and measures the cost based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

At September 30, 2010, the Company has four share-based compensation plans, the 2005 and the 2007 Recognition and Retention Plans (the “2005 RRP” and “2007 RRP”) and the 2005 and 2007 Stock Option Plans (the “2005 Option Plan” and “2007 Option Plan”). Share awards were first issued under the 2005 plans in July 2005. Share awards were first issued under the 2007 plans in January 2008. See Note 7 in the Notes to the Unaudited Consolidated Financial Statements herein for a further description of these plans.

The Company also has an employee stock ownership plan (“ESOP”). See Note 7 in the Notes to the Unaudited Consolidated Financial Statements herein for a further description of this plan. Shares held under the ESOP are also accounted for under ASC 718. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and the unused portions of lines of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Commitments to extend credit and lines of credit are not recorded as an asset or liability by us until the instrument is exercised. At September 30, 2010 and December 31, 2009, we had no commitments to originate loans for sale.

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, 2010, the exposure, which represents a portion of credit risk associated with the sold interests, amounted to $185,000. The exposure is for the life of the related loans and payable, on our proportional share, as losses are incurred.

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, 2010.


			Amount of Commitment Expiration — Per Period
					After One to		After Three
	Total Amounts		To		Three		to Five		After Five
	Committed		One Year		Years		Years		Years
	(In Thousands)
Letters of credit	$	48,518	$	20,173	$	28,189	$	—	$	156
Recourse obligations on loans sold		185		—		—		—		185
Commitments to originate loans		4,205		4,205		—		—		—
Unused portion of home equity lines of credit		30,966		—		—		—		30,966
Unused portion of commercial lines of credit		48,911		48,911		—		—		—
Undisbursed portion of construction loans in process		32,457		18,293		14,164		—		—

Total commitments	$	165,242	$	91,582	$	42,353	$	—	$	31,307

The following table summarizes our contractual cash obligations at September 30, 2010. The balances included in the table do not reflect the interest due on these obligations.


			Payments Due By Period
					After One to		After Three
			To		Three		to Five		After Five
	Total		One Year		Years		Years		Years
	(In Thousands)
Certificates of deposit	$	458,818	$	271,344	$	69,920	$	53,899	$	63,655

FHLB advances		109,891		20,604		38,010		41,496		9,781
Repurchase agreements		18,020		18,020		—		—		—

Total debt		127,911		38,624		38,010		41,496		9,781

Operating lease obligations		4,233		873		1,510		890		960

Total contractual obligations	$	590,962	$	310,841	$	109,440	$	96,285	$	74,396

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

General. We recorded net income of $2.2 million for the quarter ended September 30, 2010, compared to a net loss of $7.0 million for the quarter ended September 30, 2009. The Company’s basic and diluted earnings per share were $0.12 and $0.11, respectively for the third quarter of 2010 compared to basic and diluted loss per share of $0.36 for the third quarter of 2009. Net interest income was $8.5 million for the three months ended September 30, 2010, compared to $7.4 million for the three months ended September 30, 2009, an increase of 14.4%. The increase in our net interest income for the third quarter of 2010 compared to the third quarter of 2009 occurred as a decrease in our interest expense quarter-over-quarter exceeded the decrease in our interest income. Our average interest rate spread increased 42 basis points to 2.76% for the three months ended September 30, 2010 from 2.34% for the three months ended September 30, 2009. The improvement in our average interest rate spread occurred as a decrease in the average yield on our interest-earning assets was more than offset by a decrease in the average rate paid on our interest- bearing liabilities. Our net interest margin also increased quarter-over-quarter to 2.98% for the three months ended September 30, 2010 from 2.71% for the three months ended September 30, 2009.

Interest Income. Our total interest income for the three months ended September 30, 2010 decreased $47,000 or 0.4% over the comparable 2009 period to $13.0 million. The slight decrease occurred as growth in the average balance of our total interest-earning assets was more than offset by a decrease in the average yield earned on those assets. The average balance of our total interest-earning assets increased $44.1 million or 4.0% to $1.14 billion for the third quarter of 2010 from $1.09 billion for the third quarter of 2009. The increase was driven by increases in the average balances of our investment securities, mortgage-backed securities and other interest-earning assets of $54.6 million, $7.7 million and $26.8 million, respectively. These increases were partially offset by a $45.0 million decrease in the average balance of our loans receivable quarter-over-quarter. The average yield earned on our total interest-earning assets decreased 20 basis points to 4.57% for the third quarter of 2010 from 4.77% for the third quarter of 2009. The most significant declines in yield occurred on our investment and mortgage-backed securities, which experiences declines of 77 and 78 basis points, respectively, quarter-over-quarter. The decrease in the average yield earned on our interest-earning assets was primarily the result of the current interest rate environment.

Interest Expense. Our total interest expense for the three months ended September 30, 2010 decreased $1.1 million or 19.8% from the comparable 2009 period to $4.5 million. The decrease in our interest expense occurred as a decrease in the average rate paid on our total interest-bearing liabilities more than offset an increase in the average balance of those liabilities. The average rate we paid on our total interest-bearing liabilities decreased 62 basis points to 1.81% for the third quarter of 2010 from 2.43% for the third quarter of 2009. The average rate we paid on our total deposits decreased 53 basis points quarter-over-quarter, driven by a 55 basis point decrease in the average rate paid on our certificates of deposit. The average balance of our total deposits increased $97.9 million or 13.1% to $844.1 million for the third quarter of 2010 from $746.2 million for the third quarter of 2009 due primarily to growth in our core deposits. The average balance of our core deposits increased $94.2 million or 32.5% to $384.2 million for the third quarter of 2010 from $290.0 million for the third quarter of 2009. The average rate paid on our advances from the FHLB decreased 49 basis points for the third quarter of 2010 compared to the third quarter of 2009, resulting in a decrease to our interest expense on FHLB advances of $492,000 or 27.4% when combined with a decline of $29.0 million or 19.0% in the average balance of those advances quarter-over-quarter.

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,
	2010							2009
	Average				Average			Average				Average
	Balance		Interest		Yield/Rate			Balance		Interest		Yield/Rate
	(Dollars in Thousands)
Interest-earning assets:
Investment securities(1)	$	142,125	$	909		2.56	%	$	87,501	$	728		3.33	%
Mortgage-backed securities		214,271		2,084		3.89			206,596		2,410		4.67
Loans receivable(2)		713,794		9,951		5.58			758,773		9,873		5.20
Other interest-earning assets		65,002		26		0.16			38,226		6		0.06

Total interest-earning assets		1,135,192		12,970		4.57			1,091,096		13,017		4.77

Cash and non-interest bearing balances		22,744							22,432
Other non-interest-earning assets		106,671							94,427

Total assets	$	1,264,607						$	1,207,955

Interest-bearing liabilities:

Deposits:
Savings and money market accounts	$	298,913		612		0.82		$	212,983		632		1.19
Checking accounts		85,267		10		0.05			76,994		12		0.06
Certificate accounts		459,896		2,557		2.22			456,240		3,157		2.77

Total deposits		844,076		3,179		1.51			746,217		3,801		2.04
FHLB advances		123,795		1,303		4.21			152,806		1,795		4.70
Other borrowings		24,451		20		0.33			26,961		20		0.30


Total interest-bearing liabilities		992,322		4,502		1.81			925,984		5,616		2.43

Non-interest-bearing liabilities:
Non-interest-bearing demand accounts		45,118							44,057
Real estate tax escrow accounts		2,721							2,843
Other liabilities		11,913							8,337

Total liabilities		1,052,074							981,221
Stockholders’ equity		212,533							226,734

Total liabilities and stockholders’ equity	$	1,264,607						$	1,207,955

Net interest-earning assets	$	142,870						$	165,112

Net interest income; average interest rate spread			$	8,468		2.76	%			$	7,401		2.34	%

Net interest margin(3)						2.98	%						2.71	%


(1)		Investment securities for the 2010 period include 125 tax-exempt municipal bonds with an aggregate average balance of $39.7 million and an average yield of 3.9%. Investment securities for the 2009 period include 135 tax-exempt municipal bonds with an aggregate average balance of $42.0 million and an average yield of 3.9%. The tax-exempt income from such securities has not been presented on a tax equivalent basis.

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

(3)		Equals net interest income divided by average interest-earning assets.

Provision for Loan Losses. No provision for loan losses was recorded during the third quarter of 2010. Our provision for loan losses amounted to $8.8 million for the quarter ended September 30, 2009. Management determined that no provision was required during the third quarter of 2010 based on our evaluation of the overall adequacy of the allowance for loan losses in relation to the loan portfolio, and in consideration of a number of factors including a decrease in the outstanding balance of our loans receivable, the resolution or charge-off of certain large-balance, non-performing loans, and the recognition of a recovery to the allowance for loan losses during the second quarter of $1.2 million in the aggregate.

Our non-accrual loans decreased $9.9 million or 45.2% during the third quarter of 2010 to $12.0 million at September 30, 2010 compared to $22.0 million at June 30, 2010 and $28.3 million at December 31, 2009. The decrease was due primarily to the transfer of two construction loans with an aggregate outstanding balance of $9.8 million at June 30, 2010 to REO during the quarter. In conjunction with these transfers, an aggregate of approximately $2.5 million of the outstanding loan balances was charged-off through the allowance for loan losses. At June 30, 2010, approximately $2.0 million of our allowance for loan losses was allocated to these loans. Our total non-performing loans, defined as non-accruing loans and accruing loans 90 days or more past due, decreased to $12.2 million at September 30, 2010, from $22.1 million at June 30, 2010 and $34.6 million at December 31, 2009. Primarily as a result of the aforementioned transfers, our REO increased to $20.0 million at September 30, 2010 from $13.1 million at June 30, 2010 and $22.8 million at December 31, 2009. Our total non-performing assets, which consists of non-performing loans and REO, amounted to $32.2 million at September 30, 2010 compared to $35.3 million at June 30, 2010 and $57.4 million at December 31, 2009, representing a decrease of 43.8% during the first nine months of 2010. At September 30, 2010 and December 31, 2009, our non-performing loans amounted to 1.70% and 4.47%, respectively, of loans receivable, and our allowance for loan losses amounted to 38.34% and 26.28%, respectively, of non-performing loans. At September 30, 2010 and December 31, 2009, our non-performing assets amounted to 2.56% and 4.64% of total assets, respectively.

During the remainder of 2010, our oversight of the Company’s loan portfolio, particularly our construction loans, and resolution efforts with respect to non-performing assets will continue to be a central focus of our management team. While we have made significant strides in reducing our non-performing assets, no assurance can be given that additional provisions for loan losses or loan charge-offs may not be required in the coming quarters.

The following table shows the amounts of our non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due and real estate owned) at the date indicated.


	September 30, 2010			June 30, 2010			December 31, 2009
	(Dollars in Thousands)
Non-accruing loans:
One-to four-family residential	$	—		$	—		$	237
Multi-family residential and commercial real estate(1)		3,455			3,502			4,801
Construction		8,583			18,456			23,303
Commercial business		—			—			—
Home equity lines of credit		—			—			—
Consumer non-real estate		—			—			—

Total non-accruing loans		12,038			21,958			28,341

Accruing loans 90 days or more past due:
One- to four-family residential		60			63			110
Multi-family residential and commercial real estate		—			—			—
Construction		16			—			5,998
Commercial business		—			—			—
Home equity lines of credit		107			109			141
Consumer non-real estate		—			—			—

Total accruing loans 90 days or more past due		183			172			6,249

Total non-performing loans(2)		12,221			22,130			34,590

Real estate owned, net		20,028			13,142			22,819

Total non-performing assets		32,249			35,272			57,409

Performing troubled debt restructurings:
One- to four-family residential(3)		583			—			—
Multi-family residential and commercial real estate		—			—			—
Construction		—			—			—
Commercial business		—			—			—
Home equity lines of credit		—			—			—
Consumer non-real estate		—			—			—

Total performing troubled debt restructurings	$	583		$	—		$	—

Total nonperforming assets and performing troubled debt restructurings	$	32,832		$	35,272		$	57,409

Total non-performing loans as a percentage of loans		1.70	%		2.98	%		4.47	%

Total non-performing loans as a percentage of total assets		0.97	%		1.73	%		2.79	%

Total non-performing assets as a percentage of total assets		2.56	%		2.78	%		4.64	%


(1)		Included in this category of non-accruing loans at September 30, 2010, June 30, 2010, and December 31, 2009 is one troubled debt restructuring with a balance of $1.4 million, $1.4 million and $2.5 million, respectively, which was classified as non-accrual at such dates.

(2)		Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.

(3)		Two performing troubled debt restructurings (“TDRs”) included in one- to four-family residential loans with an aggregate outstanding balance of $583,000 at June 30, 2010 were identified as a result of enhanced procedures, although no such balances were previously reported at such date.

The following table shows the composition of our construction loan portfolio by type and size of the loan, as well as the composition of the classification and allowance for loan losses for the loans within the construction loan portfolio at September 30, 2010.


																							Allowance
																					Accruing		for Loan
					Type								Loan Classification								Loans 90		Losses
			Total				One- to														Days or		Allocated to
	No. of		Balance		Land		Four-		Multi-		Commercial						Special				More Past		Construction
Range	Loans		Outstanding		Only		Family		Family		Real Estate		Doubtful		Substandard		Mention		Non-Accrual(1)		Due		Loans
	(Dollars in Thousands)

Loans over $10.0 million		1	$	19,259	$	—	$	—	$	19,259	$	—	$	—	$	—	$	19,259	$	—	$	—	$	—
Loans $5.0 million to $10.0 million		6		36,929		—		17,768		5,000		14,161		—		8,386		10,283		—		—		843
Loans $2.5 million to $5.0 million		7		26,594		3,445		11,025		—		12,124		—		3,445		3,332		—		—		624
Loans $1.0 million to $2.5 million		15		26,352		6,651		14,779		—		4,922		—		12,048		3,726		6,820		—		940
Loans under $1.0 million		15		6,070		1,155		3,367		1,548		—		—		2,218		2,058		1,763		16		218


Total construction loans		44	$	115,204	$	11,251	$	46,939	$	25,807	$	31,207	$	—	$	26,097	$	36,658	$	8,583	$	16	$	2,625


(1)		All of the $8.6 million of non-accrual construction loans at September 30, 2010 are classified substandard.

Non-interest Income. Our total non-interest income increased to $611,000 for the third quarter of 2010 from a loss of $4.1 million for the third quarter of 2009. The increase was due primarily to a $4.9 million improvement in our net loss on REO for the third quarter of 2010 compared to the third quarter of 2009. The higher expense during the 2009 period related primarily to a charge taken to write-down the value of a 40-unit high rise residential condominium project in Center City, Philadelphia by $3.9 million. This property was sold during the second quarter of 2010. Additionally, our service charge income decreased $108,000 or 27.9% quarter-over-quarter, primarily due to a decrease in our overdraft fees.

Non-interest Expenses. Our total non-interest expenses for the third quarter of 2010 amounted to $6.2 million, representing an increase of $643,000 or 11.7% from the third quarter of 2009. The largest increases were in our salaries and employee benefits, professional services and deposit insurance premium expenses, which increased $198,000, $174,000 and $191,000, respectively, quarter-over-quarter. The increase in salaries and employee benefits expenses was due primarily to an increase in our employee profit sharing expense. We had no expense for employee profit sharing during the third quarter of 2009 as a result of our net loss for the quarter. This increase was partially offset by a decrease in our expense for our 2005 Stock Option Plan and 2005 Recognition and Retention Plan, for which the majority of awarded shares became fully vested in July 2010. The increase in professional services expenses was due primarily to legal fees incurred in relation to the resolution of certain non-performing loans and real estate owned. The increase in the deposit insurance premium was due to an increase in our regular quarterly premium as a result of a new fee structure implemented by the FDIC.

Income Tax Expense. We recorded an income tax expense of approximately $754,000 for the third quarter of 2010 compared to an income tax benefit of approximately $4.1 million for the third quarter of 2009. The fluctuation in our income tax expense was primarily a result of the change in our pre-tax income.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

General. We recorded net income of $5.7 million for the nine months ended September 30, 2010, compared to a net loss of $5.2 million for the nine months ended September 30, 2009. Basic and diluted earnings per share were $0.31 and $0.29, respectively, for the first nine months of 2010 compared to basic and diluted loss per share of $0.26 for the first nine months of 2009. Net interest income was $24.9 million for the nine months ended September 30, 2010, compared to $22.6 million for the nine months ended September 30, 2009, an increase of 10.5%. As was the case for the three months ended September 30, 2010, the increase in our net interest income for the first nine months of 2010 compared to the first nine months of 2009 occurred as a decrease in our interest expense period-over-period exceeded the decrease in our interest income. Our average interest rate spread increased 38 basis points to 2.72% for the nine months ended September 30, 2010 from 2.34% for the nine months ended September 30, 2009. As was the case for the three month period ended September 30, 2010, the improvement in our average interest rate spread occurred as a decrease in the average yield on our interest-earning assets was more than offset by a decrease in the average rate paid on our interest-bearing liabilities. Our net interest margin also increased period-over-period to 2.95% for the nine months ended September 30, 2010 from 2.76% for the nine months ended September 30, 2009.

Interest Income. Our total interest income for the nine months ended September 30, 2010 decreased $1.3 million or 3.3% over the comparable 2009 period to $39.0 million. As was the case for the three-month period, the decrease occurred as growth in the average balance of our total interest-earning assets was more than offset by a decrease in the average yield earned on those assets. The average balance of our total interest-earning assets increased $34.4 million or 3.1% to $1.13 billion for the first nine months of 2010 from $1.09 billion for the first nine months of 2009. The increase was driven by a $43.2 million increase in the average balance of our investment securities as well as a $26.3 million increase in the average balance of our other interest-earning assets. These increases were partially offset by decreases in the average balance of our loans receivable and mortgage-backed securities of $28.9 million and $6.2 million, respectively, period-over-period. The average yield earned on our total interest-earning assets decreased 31 basis points to 4.61% for the first nine months of 2010 from 4.92% for the first nine months of 2009. As was the case for the three-month period, the most significant declines in yield occurred on our investment and mortgage-backed securities, which experienced declines of 106 and 67 basis points, respectively, period-over-period. The decrease in the average yield earned on our interest-earning assets was primarily the result of the current interest rate environment.

Interest Expense. Our total interest expense for the nine months ended September 30, 2010 decreased $3.7 million or 20.9% from the comparable 2009 period to $14.0 million. As was the case for 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 69 basis points to 1.89% for the first nine months of 2010 from 2.58% for the first nine months of 2009. The average rate we paid on our total deposits decreased 70 basis points period-over-period, driven by a 78 basis point decrease in the average rate paid on our certificates of deposit. The average balance of our total deposits increased $130.2 million or 18.5% to $833.6 million for the first nine months of 2010 from $703.4 million for the first nine months of 2009 due primarily to growth in our core deposits. The average balance of our core deposits increased $114.4 million or 44.6% to $371.1 million for the first nine months of 2010 from $256.7 million for the first nine months of 2009. Although the average rate we paid on our advances from the FHLB increased 22 basis points for the first nine months of 2010 compared to the first nine months of 2009, this increase was more than offset by a decrease of $56.7 million or 29.9% in the average balance of those advances period-over-period. The average rate of our FHLB advances increased in the 2010 period, as we relied less on overnight advances than we did during the 2009 period. The average rate paid on overnight advances is substantially below the average rate paid on our other, longer-term advances from the FHLB.


	Nine Months Ended September 30,
	2010							2009
	Average				Average			Average				Average
	Balance		Interest		Yield/Rate			Balance		Interest		Yield/Rate
	(Dollars in Thousands)
Interest-earning assets:
Investment securities(1)	$	128,555	$	2,603		2.70	%	$	85,376	$	2,405		3.76	%
Mortgage-backed securities		210,353		6,549		4.15			216,523		7,822		4.82
Loans receivable(2)		726,217		29,766		5.47			755,109		30,051		5.31
Other interest-earning assets		62,097		52		0.11			35,838		33		0.12

Total interest-earning assets		1,127,222		38,970		4.61			1,092,846		40,311		4.92

Cash and non-interest bearing balances		22,312							23,040
Other non-interest-earning assets		111,190							85,993

Total assets	$	1,260,724						$	1,201,879

Interest-bearing liabilities:

Deposits:
Savings and money market accounts	$	288,015		1,965		0.91		$	183,923		1,804		1.31
Checking accounts		83,128		29		0.05			72,805		25		0.05
Certificate accounts		462,489		7,707		2.22			446,681		10,061		3.00

Total deposits		833,632		9,701		1.55			703,409		11,890		2.25
FHLB advances		133,141		4,271		4.28			189,806		5,783		4.06
Other borrowings		23,209		54		0.31			23,684		56		0.32


Total interest-bearing liabilities		989,982		14,026		1.89			916,899		17,729		2.58

Non-interest-bearing liabilities:
Non-interest-bearing demand accounts		43,540							41,526
Real estate tax escrow accounts		3,449							3,635
Other liabilities		9,912							8,893

Total liabilities		1,046,883							970,953
Stockholders’ equity		213,841							230,926

Total liabilities and stockholders’ equity	$	1,260,724						$	1,201,879

Net interest-earning assets	$	137,240						$	175,947

Net interest income; average interest rate spread			$	24,944		2.72	%			$	22,582		2.34	%

Net interest margin(3)						2.95	%						2.76	%


(1)		Investment securities for the 2010 period include 133 tax-exempt municipal bonds with an aggregate average balance of $40.4 million and an average yield of 4.0%. Investment securities for the 2009 period include 135 tax-exempt municipal bonds with an aggregate average balance of $42.0 million and an average yield of 3.9%. The tax-exempt income from such securities has not been presented on a tax equivalent basis.

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

(3)		Equals net interest income divided by average interest-earning assets.

Provision for Loan Losses. We recorded a provision for loan losses of $563,000 during the first nine months of 2010 compared to a provision of $12.3 million during the first nine months of 2009. The reduced provision during the 2010 period was primarily based on our evaluation of the overall adequacy of the allowance for loan losses in relation to the loan portfolio, and in consideration of a number of factors including a decrease in the outstanding balance of our loans receivable, the resolution or charge-off of certain large-balance, non-performing loans, and the recognition of a recovery to the allowance for loan losses during the second quarter of 2010, as previously described in the discussion of our results for the three months ended September 30, 2010.

Non-interest Income. Our total non-interest income increased to $1.8 million for the first nine months of 2010 from a loss of $2.0 million for the first nine months 2009. As was the case for the three-month period, the increase was due primarily to a $4.0 million improvement in loss on REO during the 2010 period from a loss of $5.0 million during the first nine months of 2009. Additionally, our service charge income decreased $272,000 or 23.1% to $904,000 for the first nine months of 2010, again, primarily due to a decrease in our overdraft fees.

Non-interest Expenses. Our total non-interest expenses for the first nine months of 2010 amounted to $18.5 million, representing an increase of $1.2 million or 6.7% from the first nine months of 2009. Our largest increases were in our salaries and employee benefits, occupancy, and professional services expenses, which increased $391,000, $335,000, and $495,000, respectively. The increase in occupancy expense was due in part to higher real estate taxes, as well as costs incurred for certain upgrades to our computer network. The increases in salaries and employee benefits and professional services expenses for the nine-month period were driven by the same factors that produced the increases for the three-month period.

Income Tax Expense. We recorded an income tax expense of approximately $1.9 million for the first nine months of 2010 compared to an income tax benefit of approximately $3.9 million for the first nine months of 2009. The fluctuation in our income tax expense was primarily a result of the change 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 at Abington Bank, which is comprised of our President and Chief Executive Officer, three Senior Vice Presidents, one Vice President of Lending and our Controller, and which is responsible for reviewing our asset/liability policies and interest rate risk position. The Asset/Liability Committee meets on a regular basis. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.

Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset and liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income. Our current asset/liability policy provides that our one-year interest rate gap as a percentage of total assets should not exceed positive or negative 20%. This policy was adopted by our management and Board based upon their judgment that it established an appropriate benchmark for the level of interest-rate risk, expressed in terms of the one-year gap, for the Bank. In the event our one-year gap position were to approach or exceed the 20% policy limit, we would review the composition of our assets and liabilities in order to determine what steps might appropriately be taken, such as selling certain securities or loans or repaying certain borrowings, in order to maintain our one-year gap in accordance with the policy. Alternatively, depending on the then-current economic scenario, we could determine to make an exception to our policy or we could determine to revise our policy. In recent periods, our one-year gap position was well within our policy. Our one-year cumulative gap was a positive 0.22% at September 30, 2010, compared to a negative 1.30% at December 31, 2009.

The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at September 30, 2010, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at September 30, 2010, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for adjustable-rate and fixed-rate single-family and multi-family mortgage loans are assumed to range from 7% to 21%. The annual prepayment rate for mortgage-backed securities is assumed to range from 3% to 35%. 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.


				More than			More than			More than
	6 Months			6 Months			1 Year			3 Years			More than			Total
	or Less			to 1 Year			to 3 Years			to 5 Years			5 Years			Amount
	(Dollars in Thousands)
Interest-earning assets (1):
Loans receivable (2)	$	273,128		$	55,392		$	151,012		$	85,900		$	142,038		$	707,470
Mortgage-backed securities		43,348			32,919			81,776			45,745			18,980			222,768
Investment securities		7,253			1,430			70,320			51,910			3,592			134,505
Other interest-earning assets		60,361			—			—			—			—			60,361

Total interest-earning assets		384,090			89,741			303,108			183,555			164,610			1,125,104

Interest-bearing liabilities:
Savings and money market accounts	$	73,209		$	57,619		$	81,738		$	53,952		$	45,271		$	311,789
Checking accounts		—			—			—			—			87,758			87,758
Certificate accounts		184,351			89,859			67,057			53,899			63,652			458,818
FHLB advances		34,817			13,199			29,992			28,308			3,575			109,891
Other borrowed money		18,020			—			—			—			—			18,020

Total interest-bearing liabilities		310,397			160,677			178,787			136,159			200,256			986,276


Interest-earning assets less interest-bearing liabilities	$	73,693		$	(70,936	)	$	124,321		$	47,396		$	(35,646	)	$	138,828


Cumulative interest-rate sensitivity gap (3)	$	73,693		$	2,757		$	127,078		$	174,474		$	138,828


Cumulative interest-rate gap as a percentage of total assets at September 30, 2010		5.86	%		0.22	%		10.10	%		13.87	%		11.04	%


Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at September 30, 2010		123.74	%		100.59	%		119.55	%		122.20	%		114.08	%


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

(2)		For purposes of the gap analysis, loans receivable includes non-performing loans net of the allowance for loan losses, undisbursed loan funds, unamortized discounts and deferred loan fees.

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

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

Not applicable.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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		Maximum Number
	Total				Shares Purchased		of Shares that May
	Number of		Average		as Part of Publicly		Yet be Purchased
	Shares		Price Paid		Announced Plans		Under the Plan or
Period	Purchased		per Share		or Programs		Programs(1)

July 1, – July 31, 2010		174,881	$	8.95		162,380		286,223
August 1, – August 31, 2010		19,233		9.34		18,799		267,424
September 1, – September 30, 2010		1,600		10.00		1,600		265,824


Total		195,714	$	8.99		182,779		265,824


(1)		On January 14, 2010, the Company announced a stock repurchase program to repurchase up to 5% of its outstanding shares, or 1,048,603 shares. This repurchase program is schedule to terminate as of January 14, 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


No.		Description
	31.1	Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.

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

	32.1	Section 1350 Certification.

	32.2	Section 1350 Certification.

SIGNATURES

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


	ABINGTON BANCORP, INC.
Date: November 9, 2010	By:	/s/ Robert W. White
		Robert W. White
		Chairman, President and Chief Executive Officer

Date: November 9, 2010	By:	/s/ Jack J. Sandoski
		Jack J. Sandoski
		Senior Vice President and Chief Financial Officer