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| ABBC > SEC Filings for ABBC > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
(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 a net loss of $7.0 million for the quarter ended September 30, 2009, compared to net income of $2.4 million for the quarter ended September 30, 2008. Basic and diluted loss per share were both $0.36 for the third quarter of 2009 compared to basic and diluted earnings per share of $0.11 and $0.10, respectively, for the third quarter of 2008. We recorded a net loss of $5.2 million for the nine months ended September 30, 2009, compared to net income of $6.0 million for the nine months ended September 30, 2008. Basic and diluted loss per share were both $0.26 for the first nine months of 2009 compared to basic and diluted earnings per share of $0.27 and $0.26, respectively, for the first nine months of 2008. The net losses for the quarter and the nine-month periods were due primarily to our provision for loan losses, which amounted to $8.8 million for the third quarter of 2009 and $12.3 million for the first nine months of 2009. Additionally, we recorded an expense of $4.5 million in the aggregate to write-down the value of certain properties held as real estate owned ("REO") during the third quarter of 2009. Net interest income was $7.4 million and $22.6 million for the three and nine months ended September 30, 2009, respectively, compared to $7.7 million and $22.1 million for the three and nine months ended September 30, 2008, respectively. The fluctuation in our net interest income period over period was due to lower interest income that was partially or fully offset by reductions in our interest expense. Our average interest rate spread decreased slightly to 2.34% for the three months ended September 30, 2009 from 2.37% for the three months ended September 30, 2008. Our average interest rate spread of 2.34% for the nine months ended September 30, 2009 represented an increase over an average interest rate spread of 2.17% for the nine months ended September 30, 2008. Our net interest margin decreased period-over-period to 2.71% and 2.76%, respectively, for the three-month and nine-month periods ended September 30, 2009 from 2.99% and 2.88%, respectively, for the three-month and nine-month periods
ended September 30, 2008. The decreases in our net interest margin for both
periods occurred primarily as a result of our deposit growth, which outpaced the
growth in our interest-earning assets.
The increases in our provision for loan losses to $8.8 million in the quarter
ended September 30, 2009 and $12.3 million for the nine months ended
September 30, 2009 were due primarily to provisions with respect to the
Company's participation interest in certain shared national credit loans, as
well as a growing number of delinquent loans, including certain relatively large
loans, primarily within our construction loan portfolio (which includes land
acquisition and development loans).
The Company's total assets increased $37.7 million, or 3.2%, to $1.23 billion at
September 30, 2009 compared to $1.19 billion at December 31, 2008. Our total
deposits increased $152.7 million or 23.0% to $817.7 million at September 30,
2009 compared to $665.0 million at December 31, 2008 due to growth in both core
deposits and certificate accounts. Our total stockholders' equity decreased to
$221.5 million at September 30, 2009 from $238.1 million at December 31, 2008
due primarily to the net losses incurred, as well as costs incurred for our
stock repurchase programs during the first nine months of 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 and to
general practices within the banking industry. The preparation of the Company's
consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Management evaluates these estimates and assumptions on an ongoing basis
including those related to the allowance for loan losses and deferred income
taxes. Management bases its estimates on historical experience and various other
factors and assumptions that are believed to be reasonable under the
circumstances. These form the bases for making judgments on the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Allowance for Loan Losses-The allowance for loan losses is increased by charges
to income through the provision for loan losses and decreased by charge-offs
(net of recoveries). The allowance is maintained at a level that management
considers adequate to provide for losses based upon evaluation of the known and
inherent risks in the loan portfolio. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
the volume and composition of lending conducted by the Company, adverse
situations that may affect a borrower's ability to repay, the estimated value of
any underlying collateral, current economic conditions and other factors
affecting the known and inherent 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 commercial and
residential loan portfolios. All of these estimates may be susceptible to
significant change.
The allowance consists of specific allowances for impaired loans, a general
allowance, 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. 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 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 target rate for the allowance percentage to
be assigned to the loans within that category. The allowance percentage, which
is refined based on the specific circumstances of each classified loan, 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. 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 specific
allowances, have not been allocated to particular problem loans. This general
valuation allowance is determined by segregating the loans by loan category and
assigning allowance percentages 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. For our commercial real estate and
construction loan portfolios, a further analysis is made in which we segregated
the loans by type based on the purpose of the loan and the collateral properties
securing the loan. Various risk factors for each type of loan are considered,
including the impact of general economic and business conditions, collateral
value trends, credit quality trends and historical loss experience. In prior
periods, we have 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 for the first six months of 2009 as the primary factor in
analyzing our historical losses. This analysis resulted in our conclusion that
there should be a significant increase in the historical loss factor with
respect to our construction loan portfolio, while the loss factors ascribed to
our other loan categories remained relatively consistent with our analyses in
prior periods.
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.
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 during the past year, the risk inherent in
the loan portfolio could increase resulting in the need for additional
provisions to the allowance for loan losses in future periods. An increase could
also be necessitated by an increase in the size of the loan portfolio or in any
of its components even though the credit quality of the overall portfolio may be
improving. Historically, our estimates of the allowance for loan losses have
approximated actual losses incurred. In addition, the Pennsylvania Department of
Banking and the FDIC, as an integral part of their examination processes,
periodically review our allowance for loan losses. The Pennsylvania Department
of Banking or the FDIC may require the recognition of adjustment to the
allowance for loan losses based on their judgment of information available to
them at the time of their examinations. To the extent that actual outcomes
differ from management's estimates, additional provisions to the allowance for
loan losses may be required that would adversely impact earnings in future
periods.
Fair Value Measurements-We use fair value measurements to record fair value
adjustments to certain assets and to determine fair value disclosures.
Investment and mortgage-backed securities available for sale are recorded at
fair value on a recurring basis. Additionally, from time to time, we may be
required to record at fair value other assets on a nonrecurring basis, such as
impaired loans, real estate owned and certain other assets. These nonrecurring
fair value adjustments typically involve application of lower-of-cost-or-market
accounting or write-downs of individual assets.
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.
• 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, 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, 2009 and December 31, 2008, 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 8 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. For equity securities, 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, 2009 AND DECEMBER 31, 2008
The Company's total assets increased $37.7 million, or 3.2%, to $1.23 billion at
September 30, 2009 compared to $1.19 billion at December 31, 2008. Our total
cash and cash equivalents increased $19.3 million, largely as a result of
$87.6 million in maturities, repayments and sales of investment and
mortgage-backed securities outpacing $68.3 million in purchases of new
investment and mortgage-backed securities. Purchases of $30.7 million of new
collateralized mortgage obligations ("CMO's") offset $7.4 million in repayments
on CMO's and was the primary factor in a $23.5 million increase in the balance
of our CMO's during the first nine months of 2009. The balance of our total
mortgage-backed securities decreased $23.5 million during the first nine months
of 2009, however, as repayments, calls and maturities of all other types of
mortgage-backed securities exceeded the amount of our purchases of new
mortgage-backed securities during the period. The balance of our investment
securities increased $7.0 million during the first nine months of 2009 due
primarily to the purchase of $37.0 million in agency bonds offsetting
$30.5 million in calls and maturities of agency bonds during the period. Our net
loans receivable increased $11.5 million during the first nine months of 2009,
even after the acquisition of collateral properties in settlement of certain
loans resulted in a $16.4 million increase in the balance of our REO during the
first nine months of 2009, $16.3 million of which occurred during the first six
months of 2009. Our largest loan growth was in multi-family residential and
commercial real estate loans, which increased $28.5 million during the first
nine months of 2009. Our balance of home equity lines of credit and commercial
business loans also increased $8.4 million and $4.7 million, respectively,
during the first nine months of 2009. Our new loan originations were primarily
funded by an increase in our deposits.
Our total deposits increased $152.7 million or 23.0% to $817.7 million at
September 30, 2009 compared to $665.0 million at December 31, 2008. The increase
during the first nine months of 2009 was due to growth in both core deposits and
certificate accounts, although the largest increase was in our core deposits.
During the first nine months of 2009, our savings and money market accounts grew
$90.5 million, or 61.1%, and our checking accounts grew $10.0 million, or 9.5%,
resulting in an increase to core deposits of $100.5 million, or 39.6%. Our
certificate accounts also increased during the first nine months of 2009,
growing $52.2 million or 12.7%. Advances from the FHLB decreased $104.3 million
or 40.6% to $152.8 million at September 30, 2009 compared to $257.1 million at
December 31, 2008. The repayment of a portion of our advances was based on a
number of factors including an evaluation of our overall liquidity and leverage
positions, as well as our collateral position with the FHLB. Our liquidity is
discussed further in the next section, "Liquidity and Capital Resources". Our
other borrowed money, which is comprised of security repurchase agreements
entered into with certain commercial checking account customers, increased
$4.7 million or 26.8% to $22.3 million at September 30, 2009 compared to
$17.6 million at December 31, 2008.
Our total stockholders' equity decreased to $221.5 million at September 30, 2009
from $238.1 million at December 31, 2008. The decrease was due primarily to the
net losses incurred, as well as costs incurred for our stock repurchase programs
during the first nine months of 2009. Our retained earnings decreased by
$8.2 million at September 30, 2009 compared to December 31, 2008 primarily as a
result of our $5.2 million loss for the first nine months of 2009 combined with
the payment of quarterly cash dividends in the amount of $3.0 million in the
aggregate. During the first nine months of 2009, we repurchased approximately
1.7 million shares of the Company's common stock for an aggregate cost of
approximately $12.7 million as part of our stock repurchase plans and our
recognition and retention plans. Our decisions to repurchase our common stock
were based on determinations by management and the Board of Directors that the
current trading price of our stock, which remains below book value, provided an
opportunity to utilize our current capital to repurchase shares in a manner
. . .
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