##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ______________ to ____________________
 Commission file number: 0-52705
 Abington Bancorp, Inc.
 
  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)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ABINGTON BANCORP, INC.
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSUnaudited Consolidated Statements of Financial Condition as of September 30, 2009 and
December 31, 2008
    
    
    1Unaudited Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2009 and 2008
    
    
    2Unaudited Consolidated Statements of Stockholders Equity for the Nine Months Ended
September 30, 2009 and 2008
    
    
    3Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2009 and 2008
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    34ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    51ITEM 4. CONTROLS AND PROCEDURES
    
    
    54PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    54ITEM 1A. Risk Factors
    
    
    54ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54ITEM 3. Defaults upon Senior Securities
    
    
    55ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    55ITEM 5. Other Information
    
    
    55ITEM 6. Exhibits
    
    
    55SIGNATURES
    
    
    56CERTIFICATIONSExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



ABINGTON BANCORP, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30, 2009
    
    
    December 31, 2008ASSETSCash and due from banks
    
    $
    19,182,155
    
    
    $
    23,074,990Interest-bearing deposits in other banks
    
    
    31,987,069
    
    
    
    8,788,354Total cash and cash equivalents
    
    
    51,169,224
    
    
    
    31,863,344Investment securities held to maturity (estimated fair
value2009, $21,571,775; 2008, $20,590,495)
    
    
    20,387,484
    
    
    
    20,389,106Investment securities available for sale (amortized cost
2009, $74,346,782; 2008, $67,782,158)
    
    
    76,345,679
    
    
    
    69,323,505Mortgage-backed securities held to maturity (estimated fair
value2009, $75,000,027; 2008, $81,702,915)
    
    
    73,344,525
    
    
    
    83,093,064Mortgage-backed securities available for sale (amortized cost
2009, $132,649,367; 2008, $148,601,190)
    
    
    137,902,351
    
    
    
    151,628,507Loans receivable, net of allowance for loan losses
(2009, $18,801,777; 2008, $11,596,784)
    
    
    768,063,889
    
    
    
    756,552,352Accrued interest receivable
    
    
    4,541,822
    
    
    
    4,856,707Federal Home Loan Bank stockat cost
    
    
    14,607,700
    
    
    
    14,607,700Cash surrender value  bank owned life insurance
    
    
    40,538,368
    
    
    
    39,184,889Property and equipment, net
    
    
    10,650,464
    
    
    
    11,070,542Real estate owned
    
    
    18,180,990
    
    
    
    1,739,599Deferred tax asset
    
    
    7,247,741
    
    
    
    4,456,103Prepaid expenses and other assets
    
    
    4,447,757
    
    
    
    988,060TOTAL ASSETS
    
    $
    1,227,427,994
    
    
    $
    1,189,753,478LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    42,157,760
    
    
    $
    37,194,591Interest-bearing
    
    
    775,527,193
    
    
    
    627,755,843Total deposits
    
    
    817,684,953
    
    
    
    664,950,434Advances from Federal Home Loan Bank
    
    
    152,754,813
    
    
    
    257,051,203Other borrowed money
    
    
    22,332,653
    
    
    
    17,609,637Accrued interest payable
    
    
    4,654,465
    
    
    
    2,617,721Advances from borrowers for taxes and insurance
    
    
    821,663
    
    
    
    3,275,285Accounts payable and accrued expenses
    
    
    7,636,733
    
    
    
    6,148,613Total liabilities
    
    
    1,005,885,280
    
    
    
    951,652,893COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred 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: 21,674,639 shares in 2009,
23,369,916 shares in 2008
    
    
    244,602
    
    
    
    244,602Additional paid-in capital
    
    
    201,793,667
    
    
    
    201,378,465Treasury stockat cost, 2,785,601 shares in 2009,
1,090,324 shares in 2008
    
    
    (23,162,583
    )
    
    
    (10,525,100
    )Unallocated common stock held by:Employee Stock Ownership Plan (ESOP)
    
    
    (14,509,138
    )
    
    
    (15,138,418
    )Recognition & Retention Plan Trust (RRP)
    
    
    (4,321,617
    )
    
    
    (5,593,821
    )Deferred compensation plans trust
    
    
    (989,350
    )
    
    
    (1,190,857
    )Retained earnings
    
    
    57,771,143
    
    
    
    66,007,138Accumulated other comprehensive income
    
    
    4,715,990
    
    
    
    2,918,576Total stockholders equity
    
    
    221,542,714
    
    
    
    238,100,585TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,227,427,994
    
    
    $
    1,189,753,478
  1




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##### Table of Contents



ABINGTON BANCORP, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOME:Interest on loans
    
    $
    9,872,855
    
    
    $
    10,266,825
    
    
    $
    30,050,716
    
    
    $
    31,582,679Interest and
dividends on investment and mortgage-backed securities:Taxable
    
    
    2,736,909
    
    
    
    3,158,686
    
    
    
    9,022,260
    
    
    
    8,600,152Tax-exempt
    
    
    401,062
    
    
    
    374,661
    
    
    
    1,204,646
    
    
    
    1,010,059Interest and dividends on other interest-earning assets
    
    
    6,607
    
    
    
    206,824
    
    
    
    33,537
    
    
    
    1,031,230Total interest income
    
    
    13,017,433
    
    
    
    14,006,996
    
    
    
    40,311,159
    
    
    
    42,224,120INTEREST EXPENSE:Interest on deposits
    
    
    3,801,382
    
    
    
    3,842,347
    
    
    
    11,889,584
    
    
    
    13,015,386Interest on Federal Home Loan Bank advances
    
    
    1,794,970
    
    
    
    2,342,205
    
    
    
    5,783,241
    
    
    
    6,755,223Interest on other borrowed money
    
    
    19,879
    
    
    
    91,429
    
    
    
    56,214
    
    
    
    321,002Total interest expense
    
    
    5,616,231
    
    
    
    6,275,981
    
    
    
    17,729,039
    
    
    
    20,091,611NET INTEREST INCOME
    
    
    7,401,202
    
    
    
    7,731,015
    
    
    
    22,582,120
    
    
    
    22,132,509PROVISION FOR LOAN LOSSES
    
    
    8,802,678
    
    
    
    309,372
    
    
    
    12,324,090
    
    
    
    1,035,360NET INTEREST
(LOSS) INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    (1,401,476
    )
    
    
    7,421,643
    
    
    
    10,258,030
    
    
    
    21,097,149NON-INTEREST (LOSS) INCOMEService charges
    
    
    388,850
    
    
    
    416,449
    
    
    
    1,175,515
    
    
    
    1,222,899Income on bank owned life insurance
    
    
    451,713
    
    
    
    476,406
    
    
    
    1,353,479
    
    
    
    1,436,381Net loss on real estate owned
    
    
    (5,152,887
    )
    
    
    
    
    
    
    (4,983,805
    )
    
    
    Net gain on sale of securities
    
    
    5,102
    
    
    
    
    
    
    
    5,102
    
    
    
    146,375Impairment charge on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330,527
    )Other income
    
    
    160,998
    
    
    
    91,564
    
    
    
    451,836
    
    
    
    308,388Total non-interest (loss) income
    
    
    (4,146,224
    )
    
    
    984,419
    
    
    
    (1,997,873
    )
    
    
    2,783,516NON-INTEREST EXPENSESSalaries and employee benefits
    
    
    2,736,723
    
    
    
    2,668,866
    
    
    
    8,503,992
    
    
    
    8,487,776Occupancy
    
    
    630,544
    
    
    
    553,075
    
    
    
    1,734,540
    
    
    
    1,594,913Depreciation
    
    
    228,583
    
    
    
    214,231
    
    
    
    676,657
    
    
    
    612,572Professional services
    
    
    335,623
    
    
    
    302,437
    
    
    
    1,034,023
    
    
    
    888,585Data processing
    
    
    383,011
    
    
    
    358,183
    
    
    
    1,175,790
    
    
    
    1,119,805Deposit insurance premium
    
    
    331,735
    
    
    
    105,436
    
    
    
    1,486,239
    
    
    
    186,478Advertising and promotions
    
    
    128,613
    
    
    
    156,828
    
    
    
    309,669
    
    
    
    375,299Director compensation
    
    
    224,709
    
    
    
    224,867
    
    
    
    673,564
    
    
    
    634,096Other
    
    
    518,032
    
    
    
    567,601
    
    
    
    1,767,573
    
    
    
    1,799,341Total non-interest expenses
    
    
    5,517,573
    
    
    
    5,151,524
    
    
    
    17,362,047
    
    
    
    15,698,865(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (11,065,273
    )
    
    
    3,254,538
    
    
    
    (9,101,890
    )
    
    
    8,181,800(BENEFIT) PROVISION FOR INCOME TAXES
    
    
    (4,089,152
    )
    
    
    876,629
    
    
    
    (3,900,369
    )
    
    
    2,138,847NET (LOSS) INCOME
    
    $
    (6,976,121
    )
    
    $
    2,377,909
    
    
    $
    (5,201,521
    )
    
    $
    6,042,953BASIC (LOSS) EARNINGS PER COMMON SHARE
    
    $
    (0.36
    )
    
    $
    0.11
    
    
    $
    (0.26
    )
    
    $
    0.27DILUTED (LOSS) EARNINGS PER COMMON SHARE
    
    $
    (0.36
    )
    
    $
    0.10
    
    
    $
    (0.26
    )
    
    $
    0.26BASIC AVERAGE COMMON SHARES OUTSTANDING:
    
    
    19,635,808
    
    
    
    21,855,861
    
    
    
    19,963,132
    
    
    
    22,112,239DILUTED AVERAGE COMMON SHARES OUTSTANDING:
    
    
    19,635,808
    
    
    
    22,668,249
    
    
    
    19,963,132
    
    
    
    22,908,703
  2




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##### Table of Contents



ABINGTON
BANCORP, INC.
 
 UNAUDITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 CommonStock
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Acquired by
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Common
    
    
    Paid-in
    
    
    Treasury
    
    
    Benefit
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Stock
    
    
    Plans
    
    
    Earnings
    
    
    Income
    
    
    EquityBALANCEJANUARY 1, 2009
    
    
    24,460,240
    
    
    $
    244,602
    
    
    $
    201,378,465
    
    
    $
    (10,525,100
    )
    
    $
    (21,923,096
    )
    
    $
    66,007,138
    
    
    $
    2,918,576
    
    
    $
    238,100,585Comprehensive 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
    
    
    
    1,770,924Amortization of unrecognized
deferred costs on SERP, net
of tax benefit of $13,647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,490
    
    
    
    26,490Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,617Excess tax liability on
stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (57,690
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,690
    )Stock options expense
    
    
    
    
    
    
    
    
    
    
    665,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    665,202Common stock released from
benefit plans
    
    
    
    
    
    
    
    
    
    
    (175,790
    )
    
    
    
    
    
    
    2,146,155
    
    
    
    
    
    
    
    
    
    
    
    1,970,365Common 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
 Common
    
    
    
    
    
    
    AccumulatedStock
    
    
    
    
    
    
    OtherCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Acquired by
    
    
    
    
    
    
    Comprehensive
    
    
    TotalStock
    
    
    Common
    
    
    Paid-in
    
    
    Treasury
    
    
    Benefit
    
    
    Retained
    
    
    Income
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Stock
    
    
    Plans
    
    
    Earnings
    
    
    (Loss)
    
    
    EquityBALANCEJANUARY 1, 2008
    
    
    24,460,240
    
    
    $
    244,602
    
    
    $
    200,634,467
    
    
    $
    (104,997
    )
    
    $
    (18,994,133
    )
    
    $
    68,360,520
    
    
    $
    (225,399
    )
    
    $
    249,915,060Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,042,953
    
    
    
    
    
    
    
    6,042,953Net unrealized holding loss on
available for sale securities
arising during the period, net
of tax benefit of $241,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (469,751
    )
    
    
    (469,751
    )Amortization of unrecognized
deferred costs on SERP, net
of tax expense of $31,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,353
    
    
    
    60,353Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,633,555Cash dividends declared,
($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,386,147
    )
    
    
    
    
    
    
    (3,386,147
    )Treasury stock purchased
(525,442 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,069,641
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,069,641
    )Excess tax benefit on stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    50,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,474Stock options expense
    
    
    
    
    
    
    
    
    
    
    638,335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    638,335Common stock released from
benefit plans
    
    
    
    
    
    
    
    
    
    
    (31,529
    )
    
    
    
    
    
    
    1,847,406
    
    
    
    
    
    
    
    
    
    
    
    1,815,877Common stock acquired by
benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,394,254
    )
    
    
    
    
    
    
    
    
    
    
    (5,394,254
    )BALANCE
SEPTEMBER 30, 2008
    
    
    24,460,240
    
    
    $
    244,602
    
    
    $
    201,291,747
    
    
    $
    (5,174,638
    )
    
    $
    (22,540,981
    )
    
    $
    71,017,326
    
    
    $
    (634,797
    )
    
    $
    244,203,259
  3




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##### Table of Contents



ABINGTON
BANCORP, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,2009
    
    
    2008OPERATING ACTIVITIES:Net (loss) income
    
    $
    (5,201,521
    )
    
    $
    6,042,953Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Provision for loan losses
    
    
    12,324,090
    
    
    
    1,035,360Depreciation
    
    
    676,657
    
    
    
    612,572Stock-based compensation expense
    
    
    2,390,896
    
    
    
    2,446,412Net loss on real estate owned
    
    
    4,983,805
    
    
    
    Net gain on sale of investments and mortgage-backed securities
    
    
    (5,102
    )
    
    
    (146,375
    )Impairment charge on investment securities
    
    
    
    
    
    
    330,527Deferred income tax benefit
    
    
    (3,717,579
    )
    
    
    (647,315
    )Amortization of:Deferred loan fees
    
    
    (914,230
    )
    
    
    (653,811
    )Premiums and discounts, net
    
    
    (170,249
    )
    
    
    (43,479
    )Income from bank owned life insurance
    
    
    (1,353,479
    )
    
    
    (1,436,381
    )Changes in assets and liabilities which (used) provided cash:Accrued interest receivable
    
    
    314,885
    
    
    
    (376,914
    )Prepaid expenses and other assets
    
    
    (3,459,697
    )
    
    
    699,207Accrued interest payable
    
    
    2,036,744
    
    
    
    1,301,152Accounts payable and accrued expenses
    
    
    1,729,765
    
    
    
    345,769Net cash provided by operating activities
    
    
    9,634,985
    
    
    
    9,509,677INVESTING ACTIVITIES:Principal collected on loans
    
    
    101,476,923
    
    
    
    149,395,643Disbursements for loans
    
    
    (145,312,378
    )
    
    
    (193,771,665
    )Purchases of:Mortgage-backed securities held to maturity
    
    
    (9,972,266
    )
    
    
    (44,779,804
    )Mortgage-backed securities available for sale
    
    
    (20,732,549
    )
    
    
    (52,261,898
    )Investments available for sale
    
    
    (37,557,039
    )
    
    
    (29,689,384
    )Federal Home Loan Bank stock
    
    
    
    
    
    
    (4,876,400
    )Property and equipment
    
    
    (256,579
    )
    
    
    (902,634
    )Additions to real estate owned, net
    
    
    (1,159,940
    )
    
    
    (545,328
    )Proceeds from:Sales and maturities of mortgage-backed securities available for sale
    
    
    2,955,058
    
    
    
    10,043,930Sales and maturities of investments available for sale
    
    
    30,999,102
    
    
    
    48,771,425Principal repayments of mortgage-backed securities held to maturity
    
    
    19,649,063
    
    
    
    6,348,995Principal repayments of mortgage-backed securities available for sale
    
    
    33,971,342
    
    
    
    16,908,923Redemption of Federal Home Loan Bank stock
    
    
    
    
    
    
    1,596,800Sales of real estate owned
    
    
    648,802
    
    
    
    Net cash used in investing activities
    
    
    (25,290,461
    )
    
    
    (93,761,397
    )FINANCING ACTIVITIES:Net increase in demand deposits and savings accounts
    
    
    100,539,191
    
    
    
    38,497,334Net increase (decrease) in certificate accounts
    
    
    52,195,328
    
    
    
    (16,841,257
    )Net increase in other borrowed money
    
    
    4,723,016
    
    
    
    2,954,143Advances from Federal Home Loan Bank
    
    
    30,935,000
    
    
    
    573,415,000Repayments of advances from Federal Home Loan Bank
    
    
    (135,231,390
    )
    
    
    (510,929,305
    )Net decrease in advances from borrowers for taxes and insurance
    
    
    (2,453,622
    )
    
    
    (2,057,296
    )Proceeds from exercise of stock options
    
    
    50,617
    
    
    
    Excess tax (liability) benefit from stock-based compensation
    
    
    (57,690
    )
    
    
    50,474Acquisition of stock for benefit plans
    
    
    
    
    
    
    (5,356,588
    )Purchase of treasury stock
    
    
    (12,704,620
    )
    
    
    (5,069,641
    )Payment of cash dividend
    
    
    (3,034,474
    )
    
    
    (3,386,147
    )Net cash provided by financing activities
    
    
    34,961,356
    
    
    
    71,276,717NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    19,305,880
    
    
    
    (12,975,003
    )CASH AND CASH EQUIVALENTSBeginning of period
    
    
    31,863,344
    
    
    
    68,055,461CASH AND CASH EQUIVALENTSEnd of period
    
    $
    51,169,224
    
    
    $
    55,080,458
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ABINGTON BANCORP, INC.  UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 Nine Months Ended September 30,2009
    
    2008SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for:Interest on deposits and other borrowings
    
    $
    15,692,295
    
    
    $
    18,790,459Income taxes
    
    $
    750,000
    
    
    $
    2,475,000Non-cash transfer of loans to real estate owned
    
    $
    20,914,058
    
    
    $
    Acquisition of stock for deferred compensation plans trust
    
    $
    43,164
    
    
    $
    37,666Release of stock from deferred compensation plans trust
    
    $
    244,671
    
    
    $
    7,800
  5




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ABINGTON BANCORP, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIESBasis 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, and 1210
Chestnut Realty LLC. The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.The 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 and 1210 Chestnut Realty LLC is to own
and manage certain properties that were acquired as real estate owned. Keswick Services II, and
its wholly owned subsidiaries, and Abington Corp. are currently inactive subsidiaries.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
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, 2008, which are included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2008. The results for the
three and nine months ended September 30, 2009 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2009, or any other period.The Company follows accounting standards set by the Financial Accounting Standards Board (the
FASB). The FASB sets generally accepted accounting principles (GAAP) that we follow to
ensure we consistently report our financial condition, results of operations and cash flows.
References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards
Codification (the Codification or the ASC). The FASB established the Codification as the
source of authoritative accounting principles effective for interim and annual periods ending on
or after September 15, 2009. Prior FASB standards are no longer being issued by the FASB. The
Company
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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, 2009. In preparing these financial statements, the Company evaluated the events
and transactions that occurred from September 30, 2009 through November 6, 2009, the date these
financial statements were issued.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, including Federal Home Loan Bank
stock, 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 charge was recognized during the three or
nine months ended September 30, 2009. An impairment charge of approximately $331,000 was
recognized during the three and nine months ended September 30, 2008.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.
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The allowance consists of specific allowances for impaired loans, a general allowance on all
classified loans which are not impaired and a general allowance on the remainder of the
portfolio. Although we determine the amount of each element of the allowance separately, the
entire allowance for loan losses is available for the entire portfolio. 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 loans which are not
impaired relates to loans that are classified as either doubtful, substandard or special
mention. Such classifications are based on identified weaknesses that increase the credit risk
of the loan. The general allowance on non-classified 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 current economic environment.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. The determination of fair
value for the collateral underlying a loan is more fully described in Note 8. 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 (loss) are as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net unrealized gain (loss) on securities
arising during the period, net of tax
    
    $
    1,381,656
    
    
    $
    (461,515
    )
    
    $
    1,774,291
    
    
    $
    (591,291
    )Plus: reclassification adjustment for net (gain)
loss included in net income, net of tax
    
    
    (3,367
    )
    
    
    
    
    
    
    (3,367
    )
    
    
    121,540Net unrealized gain (loss) on securities,
net of tax
    
    $
    1,378,289
    
    
    $
    (461,515
    )
    
    $
    1,770,924
    
    
    $
    (469,751
    )Amortization of deferred costs on
supplemental retirement plan, net of tax
    
    
    8,829
    
    
    
    20,118
    
    
    
    26,490
    
    
    
    60,353Total other comprehensive income (loss),
net of tax
    
    $
    1,387,118
    
    
    $
    (441,397
    )
    
    $
    1,797,414
    
    
    $
    (409,398
    )
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##### Table of Contents



The components of accumulated other comprehensive income are as follows:
 September 30,
    
    
    December 31,2009
    
    
    2008Net unrealized gain on securities
    
    $
    4,786,241
    
    
    $
    3,015,317Unrecognized deferred costs of supplemental
retirment plan
    
    
    (70,251
    )
    
    
    (96,741
    )Total accumulated other comprehensive income
    
    $
    4,715,990
    
    
    $
    2,918,576
 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, 2009, 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 6.The Company also has an employee stock ownership plan (ESOP). This plan is more fully
described in Note 6. 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. 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 be antidilutive.
Consequently, basic and diluted weighted average shares outstanding are equal for the three and
nine months ended September 30, 2009. For both the three and nine months ended September 30,
2009, there were 2,198,920 antidilutive CSEs. For the three and nine months ended September 30,
2008, there were 1,252,240 and 109,740 antidilutive CSEs, respectively. (Loss) earnings per
share were calculated as follows:
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##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedNet (loss) income
    
    $
    (6,976,121
    )
    
    $
    (6,976,121
    )
    
    $
    2,377,909
    
    
    $
    2,377,909Weighted average shares outstanding
    
    
    19,635,808
    
    
    
    19,635,808
    
    
    
    21,855,861
    
    
    
    21,855,861Effect of common stock equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812,388Adjusted weighted average shares used
in earnings per share computation
    
    
    19,635,808
    
    
    
    19,635,808
    
    
    
    21,855,861
    
    
    
    22,668,249(Loss) earnings per share
    
    $
    (0.36
    )
    
    $
    (0.36
    )
    
    $
    0.11
    
    
    $
    0.10
 Nine Months Ended September 30,2009
    
    
    2008Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedNet (loss) income
    
    $
    (5,201,521
    )
    
    $
    (5,201,521
    )
    
    $
    6,042,953
    
    
    $
    6,042,953Weighted average shares outstanding
    
    
    19,963,132
    
    
    
    19,963,132
    
    
    
    22,112,239
    
    
    
    22,112,239Effect of common stock equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    796,464Adjusted weighted average shares used
in earnings per share computation
    
    
    19,963,132
    
    
    
    19,963,132
    
    
    
    22,112,239
    
    
    
    22,908,703(Loss) earnings per share
    
    $
    (0.26
    )
    
    $
    (0.26
    )
    
    $
    0.27
    
    
    $
    0.26
 Recent Accounting PronouncementsIn June 2009, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets, an
amendment of FASB Statement No. 140 (SFAS 166). This statement is not yet included in the
codification, but will impact ASC 860, Transfers and Servicing. This statement prescribes the
information that a reporting entity must provide in its financial reports about a transfer of
financial assets; the effects of a transfer on its financial position, financial performance and
cash flows; and a transferors continuing involvement in transferred financial assets.
Specifically, among other aspects, SFAS 166 amends Statement of Financial Standard No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
or SFAS 140, by removing the concept of a qualifying special-purpose entity from SFAS 140 and
removes the exception from applying FIN 46(R) to variable interest entities that are qualifying
special-purpose entities. It also modifies the financial-components approach used in SFAS 140.
SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company is
continuing to evaluate the impact that this pronouncement will have on our consolidated
financial position and results of operations.In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)(SFAS
167). This statement is not yet included in the codification, but will impact ASC 810,
Consolidation. This statement amends FASB Interpretation No. 46, Consolidation of Variable
Interest Entities (revised December 2003)  an interpretation of ARB No. 51,or FIN 46(R), to
require an enterprise to determine whether its variable interest or interests give it a
controlling financial interest in a variable interest entity. The primary beneficiary of a
variable interest entity is the enterprise that has both (1) the power to direct the activities
of a variable interest entity that most significantly impact the entitys economic performance
and (2) the obligation to absorb losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits from the entity that could
potentially be significant to the variable interest entity. SFAS 167 also amends FIN 46(R) to
require ongoing reassessments of whether an enterprise is the primary
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##### Table of Contents



beneficiary of a variable
interest entity. SFAS 167 is effective for fiscal years beginning after November 15, 2009. The
Company is continuing to evaluate the impact that this pronouncement will have on our
consolidated financial position and results of operations.In August 2009, the FASB issues Accounting Standards Update (ASU) 2009-05, Fair Value
Measurements and Disclosures,which updates ASC 820, Fair Value Measurements and Disclosures.
The updated guidance affirms that the objective of fair value when the market for an asset is
not active is the price that would be received to sell the asset in an orderly transaction and
clarifies and includes additional factors for determining whether there has been a significant
decrease in market activity for an asset when the market for that asset is not active. It also
requires an entity to base its conclusion about whether a transaction was not orderly on the
weight of the evidence. This guidance is effective beginning October 1, 2009. The Company does
not expect that the guidance will have a significant impact on our financial position or results
of operations.ReclassificationsCertain items in the 2008 consolidated financial statements have been
reclassified to conform to the presentation in the 2009 consolidated financial statements. Such
reclassifications did not have a material impact on the presentation of the overall financial
statements.
 2.
    
    INVESTMENT SECURITIESThe amortized cost and estimated fair value of investment securities are summarized as follows:
 Held to MaturitySeptember 30, 2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Municipal bonds
    
    $
    20,387,484
    
    
    $
    1,184,291
    
    
    $
    
    
    
    $
    21,571,775Total debt securities
    
    $
    20,387,484
    
    
    $
    1,184,291
    
    
    $
    
    
    
    $
    21,571,775
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Available for SaleSeptember 30, 2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Agency bonds
    
    $
    48,447,420
    
    
    $
    994,713
    
    
    $
    (6,740
    )
    
    $
    49,435,393Corporate bonds and
commercial paper
    
    
    1,995,903
    
    
    
    4,527
    
    
    
    
    
    
    
    2,000,430Municipal bonds
    
    
    21,248,245
    
    
    
    1,004,771
    
    
    
    
    
    
    
    22,253,016Certificates of deposit
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Total debt securities
    
    
    71,790,568
    
    
    
    2,004,011
    
    
    
    (6,740
    )
    
    
    73,787,839Equity securities:Common stock
    
    
    10
    
    
    
    2
    
    
    
    
    
    
    
    12Mutual funds
    
    
    2,556,204
    
    
    
    1,624
    
    
    
    
    
    
    
    2,557,828Total equity securities
    
    
    2,556,214
    
    
    
    1,626
    
    
    
    
    
    
    
    2,557,840Total
    
    $
    74,346,782
    
    
    $
    2,005,637
    
    
    $
    (6,740
    )
    
    $
    76,345,679
 Held to MaturityDecember 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Municipal bonds
    
    $
    20,389,106
    
    
    $
    300,162
    
    
    $
    (98,773
    )
    
    $
    20,590,495Total debt securities
    
    $
    20,389,106
    
    
    $
    300,162
    
    
    $
    (98,773
    )
    
    $
    20,590,495
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Available for SaleDecember 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDebt securities:Agency bonds
    
    $
    41,962,148
    
    
    $
    1,159,700
    
    
    $
    
    
    
    $
    43,121,848Corporate bonds and
commercial paper
    
    
    1,979,499
    
    
    
    
    
    
    
    (97,319
    )
    
    
    1,882,180Municipal bonds
    
    
    21,073,983
    
    
    
    479,220
    
    
    
    (250
    )
    
    
    21,552,953Certificates of deposit
    
    
    288,000
    
    
    
    
    
    
    
    
    
    
    
    288,000Total debt securities
    
    
    65,303,630
    
    
    
    1,638,920
    
    
    
    (97,569
    )
    
    
    66,844,981Equity securities:Common stock
    
    
    10
    
    
    
    
    
    
    
    (4
    )
    
    
    6Mutual funds
    
    
    2,478,518
    
    
    
    
    
    
    
    
    
    
    
    2,478,518Total equity securities
    
    
    2,478,528
    
    
    
    
    
    
    
    (4
    )
    
    
    2,478,524Total
    
    $
    67,782,158
    
    
    $
    1,638,920
    
    
    $
    (97,573
    )
    
    $
    69,323,505
 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. There were no sales of debt or equity securities during the three months
ended September 30, 2008. During the nine months ended September 30, 2008, a gross gain of
approximately $74,000 was recognized on the sale of certain agency bonds. Proceeds from these
sales were approximately $4.1 million.No impairment charge was recognized on investment securities during the three or nine months
ended September 30, 2009. Additionally, no impairment charge was recognized during the three
months ended September 30, 2008. An impairment charge of approximately $331,000 was recognized
during the nine months ended September 30, 2008. The impairment charge was taken to write-down
the book value of our investment in a mortgage-backed security based mutual fund based on our
determination during the second quarter of 2008 that the investment was other-than-temporarily
impaired.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.
 13




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##### Table of Contents



September 30, 2009Available for Sale
    
    
    Held to MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    3,379,842
    
    
    $
    3,396,906
    
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    53,679,386
    
    
    
    55,105,727
    
    
    
    
    
    
    
    Due after five years through ten years
    
    
    14,731,340
    
    
    
    15,285,206
    
    
    
    7,624,172
    
    
    
    8,075,995Due after ten years
    
    
    
    
    
    
    
    
    
    
    12,763,312
    
    
    
    13,495,780Total
    
    $
    71,790,568
    
    
    $
    73,787,839
    
    
    $
    20,387,484
    
    
    $
    21,571,775
 The table below sets forth investment securities which had an unrealized loss position as of
September 30, 2009:
 Less than 12 months
    
    
    More than 12 monthsGross
    
    
    Estimated
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueSecurities available for sale:Agency bonds
    
    $
    (6,740
    )
    
    $
    1,991,260
    
    
    $
    
    
    
    $
    Total securities available for sale
    
    
    (6,740
    )
    
    
    1,991,260
    
    
    
    
    
    
    
    
 14




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##### Table of Contents



Less than 12 months
    
    
    More than 12 monthsGross
    
    
    Estimated
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueSecurities held to maturity:Municipal bonds
    
    $
    (76,549
    )
    
    $
    2,406,781
    
    
    $
    (22,224
    )
    
    $
    355,946Total securities held to maturity
    
    
    (76,549
    )
    
    
    2,406,781
    
    
    
    (22,224
    )
    
    
    355,946Securities available for sale:Corporate bonds and
commercial paper
    
    $
    (31,898
    )
    
    $
    950,540
    
    
    $
    (65,421
    )
    
    $
    931,640Municipal bonds
    
    
    (250
    )
    
    
    506,658
    
    
    
    
    
    
    
    Equity securities
    
    
    (4
    )
    
    
    6
    
    
    
    
    
    
    
    Total securities available for sale
    
    
    (32,152
    )
    
    
    1,457,204
    
    
    
    (65,421
    )
    
    
    931,640Total
    
    $
    (108,701
    )
    
    $
    3,863,985
    
    
    $
    (87,645
    )
    
    $
    1,287,586
  15




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##### Table of Contents



3. MORTGAGE-BACKED SECURITIES
  Held to MaturitySeptember 30, 2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGNMA pass-through
certificates
    
    $
    10,988,903
    
    
    $
    559,753
    
    
    $
    
    
    
    $
    11,548,656FNMA pass-through
certificates
    
    
    29,577,944
    
    
    
    1,319,169
    
    
    
    
    
    
    
    30,897,113FHLMC pass-through
certificates
    
    
    14,079,852
    
    
    
    517,398
    
    
    
    
    
    
    
    14,597,250Collateralized mortgage
obligations
    
    
    18,697,826
    
    
    
    66,789
    
    
    
    (807,607
    )
    
    
    17,957,008Total
    
    $
    73,344,525
    
    
    $
    2,463,109
    
    
    $
    (807,607
    )
    
    $
    75,000,027
 Available for saleSeptember 30, 2009Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGNMA pass-through
certificates
    
    $
    2,590
    
    
    $
    334
    
    
    $
    
    
    
    $
    2,924FNMA pass-through
certificates
    
    
    48,643,296
    
    
    
    2,316,991
    
    
    
    
    
    
    
    50,960,287FHLMC pass-through
certificates
    
    
    53,687,955
    
    
    
    2,540,254
    
    
    
    (6,185
    )
    
    
    56,222,024Collateralized mortgage
obligations
    
    
    30,315,526
    
    
    
    482,120
    
    
    
    (80,530
    )
    
    
    30,717,116Total
    
    $
    132,649,367
    
    
    $
    5,339,699
    
    
    $
    (86,715
    )
    
    $
    137,902,351
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##### Table of Contents



Held to MaturityDecember 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGNMA pass-through
certificates
    
    $
    19,780,669
    
    
    $
    
    
    
    $
    
    
    
    $
    19,780,669FNMA pass-through
certificates
    
    
    35,800,959
    
    
    
    917,098
    
    
    
    (58,079
    )
    
    
    36,659,978FHLMC pass-through
certificates
    
    
    16,613,987
    
    
    
    299,956
    
    
    
    
    
    
    
    16,913,943Collateralized mortgage
obligations
    
    
    10,897,449
    
    
    
    
    
    
    
    (2,549,124
    )
    
    
    8,348,325Total
    
    $
    83,093,064
    
    
    $
    1,217,054
    
    
    $
    (2,607,203
    )
    
    $
    81,702,915
 Available for saleDecember 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueGNMA pass-through
certificates
    
    $
    2,948
    
    
    $
    308
    
    
    $
    
    
    
    $
    3,256FNMA pass-through
certificates
    
    
    60,266,060
    
    
    
    1,217,941
    
    
    
    (2,037
    )
    
    
    61,481,964FHLMC pass-through
certificates
    
    
    73,505,894
    
    
    
    1,733,749
    
    
    
    (75,063
    )
    
    
    75,164,580Collateralized mortgage
obligations
    
    
    14,826,288
    
    
    
    185,637
    
    
    
    (33,218
    )
    
    
    14,978,707Total
    
    $
    148,601,190
    
    
    $
    3,137,635
    
    
    $
    (110,318
    )
    
    $
    151,628,507
    17




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Less than 12 months
    
    
    More than 12 monthsGross
    
    
    Estimated
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueSecurities held to maturity:Collateralized mortgage
obligations
    
    $
    
    
    
    $
    
    
    
    $
    (807,607
    )
    
    $
    8,146,294Total securities held to maturity
    
    
    
    
    
    
    
    
    
    
    (807,607
    )
    
    
    8,146,294Securities available for sale:FHLMC pass-through
certificates
    
    
    
    
    
    
    
    
    
    
    (6,185
    )
    
    
    1,434,770Collateralized mortgage
obligations
    
    
    (80,530
    )
    
    
    10,968,690
    
    
    
    
    
    
    
    Total securities available for sale
    
    
    (80,530
    )
    
    
    10,968,690
    
    
    
    (6,185
    )
    
    
    1,434,770Total
    
    $
    (80,530
    )
    
    $
    10,968,690
    
    
    $
    (813,792
    )
    
    $
    9,581,064
 18




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##### Table of Contents



Less than 12 months
    
    
    More than 12 monthsGross
    
    
    Estimated
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueSecurities held to maturity:FNMA pass-through
certificates
    
    $
    
    
    
    $
    
    
    
    $
    (58,079
    )
    
    $
    7,746,498Collateralized mortgage
obligations
    
    
    (415,128
    )
    
    
    522,693
    
    
    
    (2,133,996
    )
    
    
    7,825,632Total securities held to maturity
    
    
    (415,128
    )
    
    
    522,693
    
    
    
    (2,192,075
    )
    
    
    15,572,130Securities available for sale:FNMA pass-through
certificates
    
    
    (2,037
    )
    
    
    1,859,605
    
    
    
    
    
    
    
    FHLMC pass-through
certificates
    
    
    (15,846
    )
    
    
    5,655,458
    
    
    
    (59,217
    )
    
    
    3,292,856Collateralized mortgage
obligations
    
    
    (25,031
    )
    
    
    2,855,731
    
    
    
    (8,187
    )
    
    
    137,235Total securities available for sale
    
    
    (42,914
    )
    
    
    10,370,794
    
    
    
    (67,404
    )
    
    
    3,430,091Total
    
    $
    (458,042
    )
    
    $
    10,893,487
    
    
    $
    (2,259,479
    )
    
    $
    19,002,221
  19




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##### Table of Contents



4.
    
    LOANS RECEIVABLE  NETLoans receivable consist of the following:
 September 30, 2009
    
    
    December 31, 2008One-to four-family residential
    
    $
    438,987,710
    
    
    $
    452,922,968Multi-family residential and commercial
    
    
    130,577,248
    
    
    
    102,088,507Construction
    
    
    213,236,750
    
    
    
    219,542,552Home equity lines of credit
    
    
    35,485,053
    
    
    
    27,119,068Commercial business loans
    
    
    23,714,382
    
    
    
    18,966,744Consumer non-real estate loans
    
    
    2,489,707
    
    
    
    2,811,075Total loans
    
    
    844,490,850
    
    
    
    823,450,914Less:Construction loans in process
    
    
    (57,209,422
    )
    
    
    (54,797,754
    )Deferred loan fees, net
    
    
    (415,762
    )
    
    
    (504,024
    )Allowance for loan losses
    
    
    (18,801,777
    )
    
    
    (11,596,784
    )Loans receivablenet
    
    $
    768,063,889
    
    
    $
    756,552,352
 Following is a summary of changes in the allowance for loan losses:
 Nine Months Ended
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008Balancebeginning of year
    
    $
    11,596,784
    
    
    $
    1,811,121Provision for loan losses
    
    
    12,324,090
    
    
    
    9,759,936Charge-offs
    
    
    (5,265,747
    )
    
    
    (63,788
    )Recoveries
    
    
    146,650
    
    
    
    89,515(Charge-offs)/recoveriesnet
    
    
    (5,119,097
    )
    
    
    25,727Balanceend of period
    
    $
    18,801,777
    
    
    $
    11,596,784
 The provision for loan losses is charged to expense to maintain the allowance for loan
losses at a level that management considers adequate to provide for losses based upon an
evaluation of the loan portfolio, 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 8. Impairment
losses are included in the provision for loan losses. Large groups of smaller balance,
homogeneous loans are collectively
 20




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##### Table of Contents



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, 2009 and December 31, 2008, the recorded investment in loans that were
considered to be impaired was as follows.
 September 30,
    
    
    December 31,2009
    
    
    2008Impaired collateral-dependent loans with a
valuation allowance
    
    $
    27,029,861
    
    
    $
    22,439,654Impaired collateral-dependent loans with no
valuation allowance
    
    
    4,946,948
    
    
    
    751,727Total Impaired collateral-dependent loans
    
    $
    31,976,809
    
    
    $
    23,191,381Average impaired loan balance
    
    $
    25,807,171
    
    
    $
    11,948,700Valuation allowance on impaired loans
    
    $
    15,216,299
    
    
    $
    7,455,469Interest income recognized on impaired loans
    
    $
    
    
    
    $
    278,550
 Our loan portfolio at September 30, 2009 included an aggregate of $32.0 million of impaired
loans compared to $23.2 million of impaired loans at December 31, 2008. The increase was due
primarily to the classification of five construction loans (which includes land acquisition and
development loans) as impaired during the first nine months of 2009 with an aggregate
outstanding balance of $24.5 million at September 30, 2009. At September 30, 2009, $11.6 million
of our allowance for loan losses was allocated to these loans. The most significant of these
additions were related to the Companys participation interests in three shared national credit
loans described below.The first of the shared national credit loans is a working capital credit facility to a national
residential developer. The Company has a 4.2% participation interest in this loan with a
carrying value of $8.3 million as of September 30, 2009. While all payments on this loan have
been made to the Company as scheduled since the loans origination, the borrower is under severe
financial pressure, does not have adequate cash flow to service its outstanding obligations and
has filed for Chapter 11 bankruptcy protection. Based on a review of the current status of the
borrower, the loan is deemed to be impaired and has been placed on non-accrual status at
September 30, 2009. During the quarter ended September 30, 2009, $6.6 million of our provision
for loan losses was allocated to this loan. The Company understands that the borrower has
recently entered into a non-binding letter of intent to sell substantially all of its assets to
a third party. While no assurance can be given that the borrower will be successful in entering
into such a sale transaction, if the borrower does enter into a binding agreement on terms that
are similar to those in the letter of intent, the Company may recover some of the losses
announced herein in future periods.The second shared national credit loan is a real estate acquisition, construction and
development loan for a planned unit development. The Company has an 11.8% participation interest
in this loan with a carrying value of $3.9 million as of September 30, 2009. This loan, which is
not related to or affiliated with the first shared national credit previously described herein,
was placed on non-accrual status and deemed impaired by the Company in June 2009. As previously
announced, an additional provision for loan losses of approximately $947,000 with respect to
this loan was recognized during the quarter ended September 30, 2009, and as of September 30,
2009, a total of $2.1 million of our allowance for loan losses has been allocated to this loan.
 21




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##### Table of Contents



A third shared national credit loan was also made to a residential development that is
affiliated with the residential developer which is the borrower in the first impaired shared
national credit loan described above. This loan, which has an outstanding balance to the Company
of $4.7 million at September 30, 2009, was also determined to be impaired during the quarter and
was placed on non-accrual status at September 30, 2009, however, we believe that we have sufficient collateral securing this loan and no provision for
loan losses were made with respect to this loan during the quarter ended September 30, 2009.Substantially offsetting these additions were three construction loans with an aggregate
outstanding balance of $15.1 million at December 31, 2008 that were transferred to real estate
owned (REO) during the first quarter of 2009. These three loans were for the construction of
a 40-unit, high rise residential condominium project in Center City, Philadelphia. At September
30, 2009, the high rise property had a carrying value of $8.4 million after an expense of $3.9
million was recognized during the third quarter of 2009 to write-down the value of the property
to reflect a newly received, updated appraisal as well as the sales price indicated in a letter
of intent to sell the property. Three additional construction loans (which includes land
acquisition and development loans) with an aggregate outstanding balance of $10.2 million at
December 31, 2008 were also transferred to REO during the first nine months of 2009, however,
these loans were not classified as impaired at December 31, 2008. After write-downs on each of
these three REO properties, the three properties had an aggregate outstanding balance of $8.6
million at September 30, 2009.Non-accrual loans at September 30, 2009 and December 31, 2008, amounted to approximately $32.0
million and $23.2 million, respectively. At September 30, 2009, all of our impaired loans were
on non-accrual status. Commercial loans and commercial real estate loans are placed on
non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in
the process of collection. Commercial loans are charged off when the loan is deemed
uncollectible. Residential real estate loans are typically placed on non-accrual only when the
loan is 120 days delinquent and not well secured and in the process of collection. Other
consumer loans are typically charged off at 90 days delinquent. In all cases, loans must be
placed on non-accrual or charged off at an earlier date if collection of principal or interest
is considered doubtful. 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, 2009, we have $11.6 million of loans that are 90
days or more past due, but still accruing interest. This balance consists primarily of six loans
included in our construction loan portfolio with an aggregate outstanding balance of $9.6
million at such date. For each of these loans we have either received payments or have had
discussions with the borrower which lead us to believe that the loans will be brought current
during the fourth quarter of 2009.Interest payments on 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, 2009 no cash basis interest income was recognized
on non-accrual loans. For the nine months ended September 30, 2008, $279,000 in cash basis
interest income was recognized on non-accrual loans. Interest income foregone on non-accrual
loans for the nine months ended September 30, 2009 and 2008 was approximately $452,000 and
$308,000, respectively.Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more
past due, at September 30, 2009 and December 31, 2008, amounted to approximately $43.6 million
and $23.5 million, respectively. As was the case with our impaired loans, the increase in
non-performing loans during the first nine months of 2009 was primarily due to the addition of
the aforementioned shared national credit loans with an aggregate outstanding balance of $16.8
million at September 30,
 22




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##### Table of Contents



2009. Also contributing to the increase was a growing number of
delinquent loans, including certain, relatively large loans, primarily within our construction
loan portfolio (which includes land acquisition and development loans). As of September 30,
2009, we had an aggregate of $42.3 million of non-performing construction loans, constituting
27.1% of our $156.0 million of total outstanding construction loans at such date. As of
September 30, 2009, $17.4 million, or 92.5%, of our allowance for loan losses was allocated to
construction loans. At September 30, 2009 and December 31, 2008, our non-performing loans
amounted to 5.53% and 3.06% of loans receivable, respectively, and our allowance for loan losses
amounted to 43.17% and 49.35% of non-performing loans, respectively.The following table shows the amounts of our non-performing assets (defined as non-accuring
loans, accruing loans 90 days or more past due and real estate owned) at the date indicated. We
did not have troubled debt restructurings at any of the dates indicated.
 September 30, 2009
    
    
    June 30, 2009
    
    
    December 31, 2008(Dollars in Thousands)Non-accruing loans:One- to four-family residential
    
    $
    239
    
    
    $
    240
    
    
    $
    Multi-family residential and
commercial real estate
    
    
    261
    
    
    
    561
    
    
    
    2,597Construction
    
    
    31,477
    
    
    
    19,647
    
    
    
    20,594Commercial business
    
    
    
    
    
    
    
    
    
    
    Home equity lines of credit
    
    
    
    
    
    
    
    
    
    
    Consumer non-real estate
    
    
    
    
    
    
    
    
    
    
    Total non-accruing loans
    
    
    31,977
    
    
    
    20,448
    
    
    
    23,191Accruing loans 90 days or more past due:One- to four-family residential
    
    
    633
    
    
    
    748
    
    
    
    311Multi-family residential and
commercial real estate
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    10,844
    
    
    
    17,853
    
    
    
    Commercial business
    
    
    
    
    
    
    
    
    
    
    Home equity lines of credit
    
    
    97
    
    
    
    18
    
    
    
    Consumer non-real estate
    
    
    
    
    
    
    
    
    
    
    Total accruing loans 90 days or
more past due
    
    
    11,574
    
    
    
    18,619
    
    
    
    311Total non-performing loans(1)
    
    
    43,551
    
    
    
    39,067
    
    
    
    23,502Real estate owned, net
    
    
    18,181
    
    
    
    18,083
    
    
    
    1,740Total non-performing assets
    
    $
    61,732
    
    
    $
    57,150
    
    
    $
    25,242Total non-performing loans as a
percentage of loans
    
    
    5.53
    %
    
    
    5.04
    %
    
    
    3.06
    %Total non-performing loans as a
percentage of total assets
    
    
    3.55
    %
    
    
    3.30
    %
    
    
    1.98
    %Total non-performing assets as a
percentage of total assets
    
    
    5.03
    %
    
    
    4.83
    %
    
    
    2.12
    %
 
 (1)
    
    Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past
due. 23




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##### Table of Contents



Type
    
    
    Loan ClassificationAllowanceAccruing
    
    
    for LoanLoans 90
    
    
    LossesTotal
    
    
    
    
    
    
    One- to
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Days or
    
    
    Allocated toNo. of
    
    
    Balance
    
    
    Land
    
    
    Four-
    
    
    Multi-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special
    
    
    
    
    
    
    More Past
    
    
    ConstructionRange
    
    Loans
    
    
    Outstanding
    
    
    Only
    
    
    Family
    
    
    Family
    
    
    Commercial
    
    
    Doubtful
    
    
    Substandard
    
    
    Mention
    
    
    Non-Accrual(1)
    
    
    Due
    
    
    Loans(Dollars in Thousands)Loans over $10.0 million
    
    
    1
    
    
    $
    17,487
    
    
    $
    
    
    
    $
    
    
    
    $
    17,487
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans $5.0 million to $10.0 million
    
    
    7
    
    
    
    45,102
    
    
    
    7,125
    
    
    
    13,522
    
    
    
    5,000
    
    
    
    19,455
    
    
    
    15,402
    
    
    
    7,077
    
    
    
    6,603
    
    
    
    15,402
    
    
    
    
    
    
    
    10,068Loans $2.5 million to $5.0 million
    
    
    13
    
    
    
    47,004
    
    
    
    6,965
    
    
    
    26,573
    
    
    
    
    
    
    
    13,466
    
    
    
    7,461
    
    
    
    4,708
    
    
    
    24,500
    
    
    
    12,169
    
    
    
    
    
    
    
    5,984Loans $1.0 million to $2.5 million
    
    
    24
    
    
    
    40,422
    
    
    
    10,580
    
    
    
    21,313
    
    
    
    2,350
    
    
    
    6,179
    
    
    
    
    
    
    
    13,031
    
    
    
    9,264
    
    
    
    3,351
    
    
    
    8,066
    
    
    
    1,160Loans under $1.0 million
    
    
    20
    
    
    
    6,012
    
    
    
    555
    
    
    
    3,203
    
    
    
    1,905
    
    
    
    349
    
    
    
    
    
    
    
    1,539
    
    
    
    785
    
    
    
    555
    
    
    
    2,778
    
    
    
    188Total construction loans
    
    
    65
    
    
    $
    156,027
    
    
    $
    25,225
    
    
    $
    64,611
    
    
    $
    26,742
    
    
    $
    39,449
    
    
    $
    22,863
    
    
    $
    26,355
    
    
    $
    41,152
    
    
    $
    31,477
    
    
    $
    10,844
    
    
    $
    17,400
 
 (1)
    
    Of the $31.5 million of non-accrual construction loans at September 30, 2009, $22.9 million
are classified doubtful and $8.6 million are classified substandard. 24




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##### Table of Contents



5. DEFERRED INCOME TAXES
  September 30,
    
    
    December 31,2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    6,392,604
    
    
    $
    3,942,907Deferred compensation
    
    
    1,701,422
    
    
    
    1,803,336Write-down of impaired investments
    
    
    295,526
    
    
    
    295,526Write-down of real estate owned
    
    
    1,530,537
    
    
    
    Property and equipment
    
    
    
    
    
    
    112,131Other assets
    
    
    183,411
    
    
    
    190,855Total deferred tax assets
    
    
    10,103,500
    
    
    
    6,344,755Deferred tax liabilities:Unrealized gain on securities available-for-sale
    
    
    (2,465,639
    )
    
    
    (1,553,346
    )Deferred loan fees
    
    
    (342,278
    )
    
    
    (320,621
    )Property and equipment
    
    
    (36,008
    )
    
    
    Other liabilities
    
    
    (11,834
    )
    
    
    (14,685
    )Total deferred tax liabilities
    
    
    (2,855,759
    )
    
    
    (1,888,652
    )Net deferred tax asset
    
    $
    7,247,741
    
    
    $
    4,456,103
 6. PENSION, PROFIT SHARING AND STOCK COMPENSATION PLANS
  Employee Stock Ownership Plan
  25




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##### Table of Contents



Recognition and Retention Plans
   26




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##### Table of Contents



A summary of the status of the shares under the 2005 and 2007 RRP as of September 30, 2009
and 2008, and changes during the nine months ended September 30, 2009 and 2008 are presented
below:
 Nine Months Ended September 30,2009
    
    
    2008Weighted average
    
    
    
    
    
    
    Weighted averagegrant date fair
    
    
    
    
    
    
    grant date fairNumber of shares
    
    
    value
    
    
    Number of shares
    
    
    valueNonvested at the beginning of the year
    
    
    661,763
    
    
    $
    8.72
    
    
    
    274,874
    
    
    $
    7.54Granted
    
    
    
    
    
    
    
    
    
    
    524,200
    
    
    
    9.12Vested
    
    
    (181,311
    )
    
    
    8.38
    
    
    
    (89,971
    )
    
    
    7.51Forfeited
    
    
    (2,400
    )
    
    
    9.11
    
    
    
    (42,700
    )
    
    
    9Nonvested at the end of the period
    
    
    478,052
    
    
    $
    8.84
    
    
    
    666,403
    
    
    $
    8.71
 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, 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. During
the three- and nine-month periods ended September 30, 2008, approximately 46,000 and 86,000 RRP shares, respectively, were amortized to expense, based on the proportional vesting of the
awarded shares, resulting in recognition of approximately $384,000 and $1.1 million in
compensation expense, respectively. A tax benefit of approximately $181,000 and $423,000,
respectively, was recognized during these periods with respect to the 2005 and 2007 RRPs. As of
September 30, 2009, approximately $3.5 million in additional compensation expense will be
recognized over the remaining lives of the RRP awards. At September 30, 2009, the weighted
average remaining lives of the RRP awards was approximately 2.8 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 will generally become
vested and exercisable at the rate of 20% per year over five years and are generally exercisable
for a period of ten years after the grant date. As of September 30, 2009, a total of 1,082,304
shares of common stock were reserved for future issuance pursuant to the 2005 Option Plan, of
which 22,684 shares remain available for grant.
 In January 2008, the shareholders of the Company also approved the adoption of the 2007 Stock
Option Plan (the 2007 Option Plan). Options will generally become vested and exercisable at
the rate of 20% per year over five years and are generally exercisable for a period of ten years
after the grant date. As of September 30, 2009, a total of 1,302,990 shares of common stock were
reserved for future issuance pursuant to the 2007 Option Plan, of which 163,690 shares remain
available for grant.
 27




---



##### Table of Contents



A summary of the status of the Companys stock options under the 2005 and 2007 Option Plans as
of September 30, 2009 and 2008, and changes during the nine months ended September 30, 2009 and
2008 are presented below:
 Nine Months Ended September 30,2009
    
    
    2008Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageNumber of shares
    
    
    exercise price
    
    
    Number of shares
    
    
    exercise priceOutstanding at the beginning of the year
    
    
    2,206,296
    
    
    $
    8.48
    
    
    
    1,135,180
    
    
    $
    7.74Granted
    
    
    
    
    
    
    
    
    
    
    1,272,500
    
    
    
    9.12Exercised
    
    
    (4,176
    )
    
    
    7.51
    
    
    
    
    
    
    
    Forfeited
    
    
    (3,200
    )
    
    
    9.11
    
    
    
    (142,440
    )
    
    
    8.69Outstanding at the end of the period
    
    
    2,198,920
    
    
    $
    8.48
    
    
    
    2,265,240
    
    
    $
    8.19Exercisable at the end of the period
    
    
    1,015,860
    
    
    $
    7.98
    
    
    
    635,772
    
    
    $
    7.59
 The following table summarizes all stock options outstanding under the Option Plan as of
September 30, 2009:
 Options Outstanding
    
    
    Options ExercisableWeighted AverageWeighted Average
    
    
    Remaining
    
    
    
    
    
    
    Weighted AverageExercise Price
    
    Number of Shares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Number of Shares
    
    
    Exercise Price(in years)$  7.51
    
    
    917,680
    
    
    $
    7.51
    
    
    

5.8
    
    
    
    734,144
    
    
    $
    7.518.35
    
    
    7,200
    
    
    
    8.35
    
    
    
6.2
    
    
    
    4,320
    
    
    
    8.359.11
    
    
    1,139,300
    
    
    
    9.11
    
    
    
8.3
    
    
    
    228,500
    
    
    
    9.119.63
    
    
    94,500
    
    
    
    9.63
    
    
    
8.1
    
    
    
    32,800
    
    
    
    9.6310.18
    
    
    40,240
    
    
    
    10.18
    
    
    
7.1
    
    
    
    16,096
    
    
    
    10.18Total
    
    
    2,198,920
    
    
    $
    8.48
    
    
    
6.4
    
    
    
    1,015,860
    
    
    $
    7.98Intrinsic value
    
    $
    211,066
    
    
    
    
    
    
    
    
    
    
    $
    168,853
 No options were granted during the first nine months of 2009. The estimated fair value of options
granted during the first nine months of 2008 was $2.14 per share. The fair value was estimated on
the date of grant in accordance with ASC 718 using the Black-Scholes Single Option Pricing Model
with the following weighted average assumptions used:
 Dividend yield
    
    
    1.88 - 1.97
    %Expected volatility
    
    
    23.25 - 23.67
    %Risk-free interest rate
    
    
    3.13 - 3.49
    %Expected life of options
    
    4 - 7 years
 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
 28




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##### Table of Contents



respect to the Option Plans. During the three and nine months ended September 30, 2008,
approximately $221,000 and $638,000, respectively, was recognized in compensation expense for
the Option Plans. A tax benefit of approximately $22,000 and $62,000, respectively, was
recognized during each of these periods with respect to the Option Plans. At September 30, 2009,
approximately $2.1 million in additional compensation expense for awarded options remained
unrecognized. The weighted average period over which this expense will be recognized is
approximately 2.2 years.
 7.
    
    COMMITMENTS AND CONTINGENCIES
 The Bank had approximately $2.9 million in outstanding mortgage loan commitments at September
30, 2009. The commitments are expected to be funded within 90 days. All $2.9 million of the
commitments are for fixed-rate loans with interest rates ranging from 5.25% to 5.875%. The Bank
had approximately $2.1 million in outstanding mortgage loan commitments at December 31, 2008.
None of the loans related to such commitments at September 30, 2009 and December 31, 2008 were
being originated for resale. Also outstanding at September 30, 2009 and December 31, 2008, were
unused lines of credit totaling approximately $84.6 million and $78.5 million, respectively.
 Letters of credit are conditional commitments issued by the Bank guaranteeing payments of drafts
in accordance with the terms of the letter of credit agreements. Commercial letters of credit
are used primarily to facilitate trade or commerce and are also issued to support public and
private borrowing arrangements, bond financings and similar transactions. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the performance of a customer
to a third party. Collateral may be required to support letters of credit based upon
managements evaluation of the creditworthiness of each customer. The credit risk involved in
issuing letters of credit is substantially the same as that involved in extending loan
facilities to customers. Most of the Banks letters of credit expire within one year. At
September 30, 2009 and December 31, 2008, the Bank had letters of credit outstanding of
approximately $46.3 million and $48.9 million, respectively, of which $45.4 million and $47.4
million, respectively, were standby letters of credit. At September 30, 2009 and December 31,
2008, the uncollateralized portion of the letters of credit extended by the Bank was
approximately $357,000 and $109,000, respectively. At September 30, 2009 December 31, 2008, all
of the uncollateralized letters of credit were for standby letters of credit.
 The Company is subject to various pending claims and contingent liabilities arising in the
normal course of business which are not reflected in the accompanying consolidated financial
statements. Management considers that the aggregate liability, if any, resulting from such
matters will not be material.
 Among the Companys contingent liabilities, are exposures to limited recourse arrangements with
respect to the Banks sales of whole loans and participation interests. At September 30, 2008,
the exposure, which represents a portion of credit risk associated with the sold interests,
amounted to $185,000. The exposure is for the life of the related loans and payable, on our
proportional share, as losses are incurred.
 8.
    
    FAIR VALUE MEASUREMENTS
 The Company uses fair value measurements to record fair value adjustments to certain assets 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.
 29




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##### Table of Contents



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, 2009 and December 31, 2008,
the Company did not have any assets that were measured at fair value on a recurring basis that
use Level 3 measurements.Following is a description of valuation methodologies used for assets recorded at fair value.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
 30




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##### Table of Contents



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 amount
of payments does not necessarily result in the loan being identified as impaired. We establish
an allowance on certain impaired loans for the amount by which the discounted cash flows,
observable market price or fair value of collateral, if the loan is collateral dependent, is
lower than the carrying value of the loan. Fair value is generally based upon independent market
prices or appraised value of the collateral. Our appraisals are typically performed by
independent third party appraisers. For appraisals of commercial and construction properties,
comparable properties within the area may not be available. In such circumstances, our appraisers will rely on certain judgments in determining
how a specific property compares in value to other properties that are not identical in design
or in geographic area. Our impaired loans at September, 2009 and December 31, 2008, are secured
by commercial and construction properties for which there are no comparable properties available
and, accordingly, we classify impaired loans as Level 3.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, 2009.
 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
 31




---



##### Table of Contents



of real estate owned is comprised of commercial and
construction properties for which comparable properties within the area are not available. Our
appraisers have relied on certain judgments in determining how our specific properties compare
in value to other properties that are not identical in design or in geographic area and,
accordingly, we classify real estate owned as Level 3.
 DepositsDeposit liabilities are carried at cost. As such, valuation techniques discussed
herein for loans 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 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 table below presents the balances of assets measured at fair value on a recurring basis:
 September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment securities
available for sale
    
    $
    76,345,679
    
    
    $
    2,557,840
    
    
    $
    73,787,839
    
    
    $
    Mortgage-backed securities
available for sale
    
    
    137,902,351
    
    
    
    
    
    
    
    137,902,351
    
    
    
    Total
    
    $
    214,248,030
    
    
    $
    2,557,840
    
    
    $
    211,690,190
    
    
    $
    
 32




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##### Table of Contents



December 31, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment securities
available for sale
    
    $
    69,323,505
    
    
    $
    2,478,524
    
    
    $
    66,844,981
    
    
    $
    Mortgage-backed securities
available for sale
    
    
    151,628,507
    
    
    
    
    
    
    
    151,628,507
    
    
    
    Total
    
    $
    220,952,012
    
    
    $
    2,478,524
    
    
    $
    218,473,488
    
    
    $
    
 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, 2009 and December 31, 2008:
 September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    11,813,562
    
    
    $
    
    
    
    $
    
    
    
    $
    11,813,562Real estate owned
    
    
    18,180,990
    
    
    
    
    
    
    
    
    
    
    
    18,180,990Total
    
    $
    29,994,552
    
    
    $
    
    
    
    $
    
    
    
    $
    29,994,552
 December 31, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    14,984,185
    
    
    $
    
    
    
    $
    
    
    
    $
    14,984,185Real estate owned
    
    
    1,739,599
    
    
    
    
    
    
    
    
    
    
    
    1,739,599Total
    
    $
    16,723,784
    
    
    $
    
    
    
    $
    
    
    
    $
    16,723,784
 33




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##### Table of Contents



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, 2009
    
    
    December 31, 2008Estimated
    
    
    
    
    
    
    EstimatedCarrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In Thousands)Assets:Cash and cash equivalents
    
    $
    51,169
    
    
    $
    51,169
    
    
    $
    31,863
    
    
    $
    31,863Investment securities
    
    
    96,733
    
    
    
    97,917
    
    
    
    89,713
    
    
    
    89,914Mortgage-backed securities
    
    
    211,247
    
    
    
    212,902
    
    
    
    234,722
    
    
    
    233,331Loans receivablenet
    
    
    768,064
    
    
    
    757,839
    
    
    
    756,552
    
    
    
    784,239FHLB stock
    
    
    14,608
    
    
    
    14,608
    
    
    
    14,608
    
    
    
    14,608Accrued interest receivable
    
    
    4,542
    
    
    
    4,542
    
    
    
    4,857
    
    
    
    4,857Liabilities:Deposits
    
    $
    817,685
    
    
    $
    795,582
    
    
    $
    664,950
    
    
    $
    651,922Advances from FederalHome Loan Bank
    
    
    152,755
    
    
    
    159,259
    
    
    
    257,051
    
    
    
    264,048Other borrowed money
    
    
    22,333
    
    
    
    22,333
    
    
    
    17,610
    
    
    
    17,610Accrued interest payable
    
    
    4,654
    
    
    
    4,654
    
    
    
    2,618
    
    
    
    2,618Off balance
sheet financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 The fair value estimates presented herein are based on pertinent information available to
management as of September 30, 2009 and December 31, 2008. 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,
2009 and December 31, 2008 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
   34




---



##### Table of Contents



Overview
    35




---



##### Table of Contents



Critical Accounting Policies, Judgments and Estimates
 Allowance for Loan Losses
   36




---



##### Table of Contents



37




---



##### Table of Contents



Fair Value Measurements
  
    
    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.
  38




---



##### Table of Contents



Other-Than-Temporary Impairment of Securities
 Income Taxes
  39




---



##### Table of Contents



COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
    40




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      Actual Ratios AtSeptember 30,
    
    December 31,
    
    Regulatory
    
    To Be Well2009
    
    2008
    
    Minimum
    
    CapitalizedCapital Ratios:Tier 1 leverage ratio
    
    
    13.57
    %
    
    
    14.20
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier 1 risk-based capital ratio
    
    
    20.27
    
    
    
    22.06
    
    
    
    4.00
    
    
    
    6.00Total risk-based capital ratio
    
    
    21.54
    
    
    
    23.32
    
    
    
    8.00
    
    
    
    10.00
 41




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##### Table of Contents



SHARE-BASED COMPENSATION
    COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
    42




---



##### Table of Contents



Amount of Commitment Expiration - Per PeriodAfter One
    
    
    After ThreeTotal Amounts
    
    
    To
    
    
    to Three
    
    
    to Five
    
    
    After FiveCommitted
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    Years(In Thousands)Letters of credit
    
    $
    46,263
    
    
    $
    20,672
    
    
    $
    10,402
    
    
    $
    15,189
    
    
    $
    Recourse obligations on loans
sold
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Commitments to originate loans
    
    
    2,893
    
    
    
    2,893
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity
lines of credit
    
    
    27,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,893Unused portion of commercial
lines of credit
    
    
    56,710
    
    
    
    56,710
    
    
    
    
    
    
    
    
    
    
    
    Undisbursed portion of
construction loans in process
    
    
    57,209
    
    
    
    9,502
    
    
    
    47,707
    
    
    
    
    
    
    
    Total commitments
    
    $
    191,153
    
    
    $
    89,777
    
    
    $
    58,109
    
    
    $
    15,189
    
    
    $
    28,078
 43




---



##### Table of Contents



Payments Due By PeriodAfter One
    
    
    After ThreeTo
    
    
    to Three
    
    
    to Five
    
    
    After FiveTotal
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    Years(In Thousands)Certificates of deposit
    
    $
    463,519
    
    
    $
    355,701
    
    
    $
    49,515
    
    
    $
    26,969
    
    
    $
    31,334FHLB advances
    
    
    152,755
    
    
    
    30,686
    
    
    
    30,288
    
    
    
    56,538
    
    
    
    35,243Repurchase agreements
    
    
    22,333
    
    
    
    22,333
    
    
    
    
    
    
    
    
    
    
    
    Total debt
    
    
    175,088
    
    
    
    53,019
    
    
    
    30,288
    
    
    
    56,538
    
    
    
    35,243Operating lease obligations
    
    
    6,528
    
    
    
    872
    
    
    
    1,656
    
    
    
    1,234
    
    
    
    2,766Total contractual obligations
    
    $
    645,135
    
    
    $
    409,592
    
    
    $
    81,459
    
    
    $
    84,741
    
    
    $
    69,343
 COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 General.
 Interest Income.
 44




---



##### Table of Contents



Interest Expense.
 45




---



##### Table of Contents



Average Balances, Net Interest Income, and Yields Earned and Rates Paid.
 Three Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(Dollars in Thousands)Interest-earning assets:Investment securities(1)
    
    $
    87,501
    
    
    $
    728
    
    
    
    3.33
    %
    
    $
    102,286
    
    
    $
    1,158
    
    
    
    4.53
    %Mortgage-backed securities
    
    
    206,596
    
    
    
    2,410
    
    
    
    4.67
    
    
    
    197,102
    
    
    
    2,375
    
    
    
    4.82Loans receivable(2)
    
    
    758,773
    
    
    
    9,873
    
    
    
    5.20
    
    
    
    699,101
    
    
    
    10,267
    
    
    
    5.87Other interest-earning assets
    
    
    38,226
    
    
    
    6
    
    
    
    0.06
    
    
    
    36,102
    
    
    
    207
    
    
    
    2.29Total interest-earning assets
    
    
    1,091,096
    
    
    
    13,017
    
    
    
    4.77
    
    
    
    1,034,591
    
    
    
    14,007
    
    
    
    5.42Cash and non-interest bearing
balances
    
    
    22,432
    
    
    
    
    
    
    
    
    
    
    
    22,782Other non-interest-earning assets
    
    
    94,427
    
    
    
    
    
    
    
    
    
    
    
    70,247Total assets
    
    $
    1,207,955
    
    
    
    
    
    
    
    
    
    
    $
    1,127,620Interest-bearing liabilities:Deposits:Savings and money market accounts
    
    $
    212,983
    
    
    
    632
    
    
    
    1.19
    
    
    $
    125,169
    
    
    
    518
    
    
    
    1.66Checking accounts
    
    
    76,994
    
    
    
    12
    
    
    
    0.06
    
    
    
    64,096
    
    
    
    5
    
    
    
    0.03Certificate accounts
    
    
    456,240
    
    
    
    3,157
    
    
    
    2.77
    
    
    
    401,901
    
    
    
    3,320
    
    
    
    3.30Total deposits
    
    
    746,217
    
    
    
    3,801
    
    
    
    2.04
    
    
    
    591,166
    
    
    
    3,843
    
    
    
    2.60FHLB advances
    
    
    152,806
    
    
    
    1,795
    
    
    
    4.70
    
    
    
    210,680
    
    
    
    2,342
    
    
    
    4.45Other borrowings
    
    
    26,961
    
    
    
    20
    
    
    
    0.30
    
    
    
    21,705
    
    
    
    91
    
    
    
    1.68Total interest-bearing liabilities
    
    
    925,984
    
    
    
    5,616
    
    
    
    2.43
    
    
    
    823,551
    
    
    
    6,276
    
    
    
    3.05Non-interest-bearing liabilities:Non-interest-bearing demand
accounts
    
    
    44,057
    
    
    
    
    
    
    
    
    
    
    
    43,111Real estate tax escrow accounts
    
    
    2,843
    
    
    
    
    
    
    
    
    
    
    
    3,085Other liabilities
    
    
    8,337
    
    
    
    
    
    
    
    
    
    
    
    11,310Total liabilities
    
    
    981,221
    
    
    
    
    
    
    
    
    
    
    
    881,057Stockholders equity
    
    
    226,734
    
    
    
    
    
    
    
    
    
    
    
    246,563Total liabilities and stockholders
equity
    
    $
    1,207,955
    
    
    
    
    
    
    
    
    
    
    $
    1,127,620Net interest-earning assets
    
    $
    165,112
    
    
    
    
    
    
    
    
    
    
    $
    211,040Net interest income; average
interest rate spread
    
    
    
    
    
    $
    7,401
    
    
    
    2.34
    %
    
    
    
    
    
    $
    7,731
    
    
    
    2.37
    %Net interest margin(3)
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %
 
 (1)
    
    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%. Investment securities
for the 2008 period include 126 tax-exempt municipal bonds with an aggregate average balance
of $38.6 million and an average yield of 3.9%. 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. 46




---



##### Table of Contents



Provision for Loan Losses.
     47




---



##### Table of Contents



Non-interest Income.
 Non-interest Expenses.
 Income Tax Expense.
 48




---



##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 General.
 Interest Income.
 Interest Expense.
 49




---



##### Table of Contents



Average Balances, Net Interest Income, and Yields Earned and Rates Paid.
 Nine Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(Dollars in Thousands)Interest-earning assets:Investment securities(1)
    
    $
    85,376
    
    
    $
    2,405
    
    
    
    3.76
    %
    
    $
    107,868
    
    
    $
    3,690
    
    
    
    4.56
    %Mortgage-backed securities
    
    
    216,523
    
    
    
    7,822
    
    
    
    4.82
    
    
    
    172,752
    
    
    
    5,920
    
    
    
    4.57Loans receivable(2)
    
    
    755,109
    
    
    
    30,051
    
    
    
    5.31
    
    
    
    695,546
    
    
    
    31,583
    
    
    
    6.05Other interest-earning assets
    
    
    35,838
    
    
    
    33
    
    
    
    0.12
    
    
    
    49,570
    
    
    
    1,031
    
    
    
    2.77Total interest-earning assets
    
    
    1,092,846
    
    
    
    40,311
    
    
    
    4.92
    
    
    
    1,025,736
    
    
    
    42,224
    
    
    
    5.49Cash and non-interest bearing
balances
    
    
    23,040
    
    
    
    
    
    
    
    
    
    
    
    22,826Other non-interest-earning assets
    
    
    85,993
    
    
    
    
    
    
    
    
    
    
    
    63,104Total assets
    
    $
    1,201,879
    
    
    
    
    
    
    
    
    
    
    $
    1,111,666Interest-bearing liabilities:Deposits:Savings and money market accounts
    
    $
    183,923
    
    
    
    1,804
    
    
    
    1.31
    
    
    $
    111,498
    
    
    
    1,278
    
    
    
    1.53Checking accounts
    
    
    72,805
    
    
    
    25
    
    
    
    0.05
    
    
    
    62,470
    
    
    
    14
    
    
    
    0.03Certificate accounts
    
    
    446,681
    
    
    
    10,061
    
    
    
    3.00
    
    
    
    415,225
    
    
    
    11,723
    
    
    
    3.76Total deposits
    
    
    703,409
    
    
    
    11,890
    
    
    
    2.25
    
    
    
    589,193
    
    
    
    13,015
    
    
    
    2.95FHLB advances
    
    
    189,806
    
    
    
    5,783
    
    
    
    4.06
    
    
    
    196,684
    
    
    
    6,755
    
    
    
    4.58Other borrowings
    
    
    23,684
    
    
    
    56
    
    
    
    0.32
    
    
    
    21,126
    
    
    
    321
    
    
    
    2.03Total interest-bearing liabilities
    
    
    916,899
    
    
    
    17,729
    
    
    
    2.58
    
    
    
    807,003
    
    
    
    20,091
    
    
    
    3.32Non-interest-bearing liabilities:Non-interest-bearing demand
accounts
    
    
    41,526
    
    
    
    
    
    
    
    
    
    
    
    41,425Real estate tax escrow accounts
    
    
    3,635
    
    
    
    
    
    
    
    
    
    
    
    3,529Other liabilities
    
    
    8,893
    
    
    
    
    
    
    
    
    
    
    
    11,093Total liabilities
    
    
    970,953
    
    
    
    
    
    
    
    
    
    
    
    863,050Stockholders equity
    
    
    230,926
    
    
    
    
    
    
    
    
    
    
    
    248,616Total liabilities and stockholders
equity
    
    $
    1,201,879
    
    
    
    
    
    
    
    
    
    
    $
    1,111,666Net interest-earning assets
    
    $
    175,947
    
    
    
    
    
    
    
    
    
    
    $
    218,733Net interest income; average
interest rate spread
    
    
    
    
    
    $
    22,582
    
    
    
    2.34
    %
    
    
    
    
    
    $
    22,133
    
    
    
    2.17
    %Net interest margin(3)
    
    
    
    
    
    
    
    
    
    
    2.76
    %
    
    
    
    
    
    
    
    
    
    
    2.88
    %
 
 (1)
    
    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%. Investment securities
for the 2008 period include 126 tax-exempt municipal bonds with an aggregate average balance
of $34.2 million and an average yield of 3.9%. 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. 50




---



##### Table of Contents



Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expenses.
 Income Tax Expense.
 
 ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Asset/Liability Management and Market Risk.
  51




---



##### Table of Contents



Gap Analysis.
  52




---



##### Table of Contents



More than
    
    
    More than
    
    
    More than6 Months
    
    
    6 Months
    
    
    1 Year
    
    
    3 Years
    
    
    More than
    
    
    Totalor Less
    
    
    to 1 Year
    
    
    to 3 Years
    
    
    to 5 Years
    
    
    5 Years
    
    
    Amount(Dollars in Thousands)Interest-earning assets (1):Loans receivable (2)
    
    $
    292,043
    
    
    $
    63,114
    
    
    $
    176,335
    
    
    $
    94,809
    
    
    $
    141,573
    
    
    $
    767,874Mortgage-backed
securities
    
    
    40,446
    
    
    
    27,484
    
    
    
    67,244
    
    
    
    35,565
    
    
    
    35,255
    
    
    
    205,994Investment securities
    
    
    4,939
    
    
    
    995
    
    
    
    36,390
    
    
    
    17,220
    
    
    
    35,190
    
    
    
    94,734Other interest-earning
assets
    
    
    46,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,595Total interest-earning
assets
    
    
    384,023
    
    
    
    91,593
    
    
    
    279,969
    
    
    
    147,594
    
    
    
    212,018
    
    
    
    1,115,197Interest-bearing liabilities:Savings and money market
accounts
    
    $
    35,227
    
    
    $
    35,227
    
    
    $
    89,980
    
    
    $
    41,411
    
    
    $
    36,783
    
    
    $
    238,628Checking accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,380
    
    
    
    73,380Certificate accounts
    
    
    244,306
    
    
    
    114,817
    
    
    
    46,093
    
    
    
    26,969
    
    
    
    31,334
    
    
    
    463,519FHLB advances
    
    
    59,909
    
    
    
    10,909
    
    
    
    34,781
    
    
    
    27,833
    
    
    
    19,323
    
    
    
    152,755Other borrowed money
    
    
    22,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,333Total interest-bearing
liabilities
    
    
    361,775
    
    
    
    160,953
    
    
    
    170,854
    
    
    
    96,213
    
    
    
    160,820
    
    
    
    950,615Interest-earning assets less
interest-bearing liabilities
    
    $
    22,248
    
    
    $
    (69,360
    )
    
    $
    109,115
    
    
    $
    51,381
    
    
    $
    51,198
    
    
    $
    164,582Cumulative interest-rate
sensitivity gap (3)
    
    $
    22,248
    
    
    $
    (47,112
    )
    
    $
    62,003
    
    
    $
    113,384
    
    
    $
    164,582Cumulative interest-rate gap
as a percentage of total
assets at September 30, 2009
    
    
    1.81
    %
    
    
    (3.84
    )%
    
    
    5.05
    %
    
    
    9.24
    %
    
    
    13.41
    %Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities at September 30,
2009
    
    
    106.15
    %
    
    
    90.99
    %
    
    
    108.94
    %
    
    
    114.36
    %
    
    
    117.31
    %
 
 (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. 53




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##### Table of Contents



ITEM 4.   CONTROLS AND PROCEDURES
   
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (a)
    
    Not applicable.(b)
    
    Not applicable.(c)
    
    Purchases of Equity Securities
 54




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##### Table of Contents



Total Number of
    
    Maximum Number ofTotal
    
    
    
    
    
    Shares Purchased as
    
    Shares that May YetNumber of
    
    Average
    
    Part of Publicly
    
    be Purchased UnderShares
    
    Price Paid
    
    Announced Plans or
    
    the Plan orPeriod
    
    Purchased(1)
    
    per Share
    
    Programs
    
    Programs (2)July 1  July 31, 2009
    
    
    45,180
    
    
    $
    7.97
    
    
    
    32,385
    
    
    
    731,378August 1  August 31, 2009
    
    
    29,876
    
    
    
    8.18
    
    
    
    29,400
    
    
    
    701,978September 1  September
30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701,978Total
    
    
    75,056
    
    
    $
    8.05
    
    
    
    61,785
    
    
    
    701,978
 
 (1)
    
    Certain shares purchased during the quarter were acquired as part of the
Companys recognition and retention plan. In conjunction with the plan, participants may
elect to have a portion of their awarded shares withheld upon vesting solely to pay for
any related tax liabilities on these awards.(2)
    
    On March 16, 2009, the Company announced a stock repurchase program to repurchase
up to 5% of its outstanding shares, or 1,104,168 shares. This repurchase program is
scheduled to terminate as of March 16, 2010. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 No.
    
    Description31.1
    
    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.
 55




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##### Table of Contents



SIGNATURES
  ABINGTON BANCORP, INC.Date: November 6, 2009
    By:
    /s/ Robert W. WhiteRobert W. WhiteChairman, President and
Chief Executive OfficerDate: November 6, 2009
    By:
    /s/ Jack J. SandoskiJack J. SandoskiSenior Vice President and
Chief Financial Officer 56




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##### Table of Contents



EXHIBIT INDEX
 No.
    
    Description31.1
    
    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.
 57