SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended March 31, 2000
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Commission File Number 0-16018
ABINGTON BANCORP, INC.
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-3334127
----------------- ---------------------------
(State or Other Jurisdiction (I.R.S. Identification No.)
of Incorporation or Organization)
536 Washington Street, Abington, Massachusetts 02351
- ---------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 982-3200
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 3,033,800 shares as of May 5,
2000.
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Further, any statements contained in this Form 10-Q that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "expect," "anticipate," "plan,"
"believe," "seek," "estimate," "internal" and similar words are intended to
identify expressions that may be forward-looking statements. Forward-looking
statements involve certain risks and uncertainties, and actual results may
differ materially from those contemplated by such statements. For example,
actual results may be adversely affected by the following possibilities: (1)
competitive pressure among depository institutions may increase; (2) changes in
interest rates may reduce banking interest margins; (3) general economic
conditions and real estate values may be less favorable than contemplated; and
(4) adverse legislation or regulatory requirements may be adopted. Many of such
factors are beyond the Company's ability to control or predict. Readers of this
Form 10-Q are accordingly cautioned not to place undue reliance on
forward-looking statements. The Company disclaims any intent or obligation to
update publicly any of the forward-looking statements herein, whether in
response to new information, future events or otherwise.
ABINGTON BANCORP, INC.
FORM 10-Q
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INDEX
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PAGE
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999.............................. 4
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended March 31, 2000 and 1999..................... 5
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
March 31, 2000 and 1999........................................ 6
Consolidated Statements of Comprehensive Income for the Three
Months Ended March 31, 2000 and 1999........................... 7
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2000 and 1999............. 8
Notes to Unaudited Consolidated Financial Statements........... 10
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.................. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 28
Part II Other Information
Item 1. Legal Proceedings ............................................. 29
Item 2. Change in Securities .......................................... 29
Item 3. Defaults upon Senior Securities................................ 29
Item 4. Submission of Matters to a Vote of Security Holders............ 29
Item 5. Other Information.............................................. 29
Item 6. Exhibits and Reports on Form 8-K............................... 29
Signature Page................................................................... 33
Index to Exhibits ............................................................... 34
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ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Unaudited)
March 31, December 31,
2000 1999
---- ----
(In Thousands)
ASSETS
Cash and due from banks..................... $ 19,217 $ 33,497
Short-term investments...................... 227 225
-------- --------
Total cash and cash equivalents........... 19,444 33,722
-------- --------
Loans held for sale......................... 3,564 2,730
Securities available for sale - at
market value............................ 258,495 235,623
Loans....................................... 387,647 389,681
Less:
Allowance for possible loan losses...... (3,767) (3,701)
-------- --------
Loans, net.............................. 383,880 385,980
-------- --------
Federal Home Loan Bank stock................ 12,910 12,910
Banking premises and equipment, net......... 9,209 9,037
Other real estate owned, net................ - -
Intangible assets........................... 3,049 3,161
Bank owned life insurance - contract value.. 3,382 3,348
Other assets................................ 9,117 9,739
-------- --------
$703,050 $696,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................... $411,290 $389,692
Short-term borrowings....................... 131,503 152,551
Long-term debt.............................. 110,917 107,200
Accrued taxes and expenses.................. 2,849 2,552
Other liabilities........................... 6,067 4,413
-------- --------
Total liabilities....................... 662,626 656,408
-------- --------
Guaranteed preferred beneficial interest in the
Company's junior subordinated debentures, net 12,027 12,010
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued. - -
Common stock, $.10 par value 12,000,000
shares authorized; 4,834,000 shares issued
in 2000 483 483
Additional paid-in capital................ 22,624 22,610
Retained earnings......................... 27,038 26,176
-------- --------
50,145 49,269
Treasury stock - 1,806,000 and 1,641,000 shares
for 2000 and 1999, respectively, at cost.. (17,584) (15,885)
Compensation plans........................ 61 29
Other accumulated comprehensive income -
Net unrealized loss on available for
sale securities, net of taxes........... (4,225) (5,581)
-------- --------
Total stockholders' equity..... 28,397 27,832
-------- --------
$703,050 $696,250
======== ========
See accompanying notes to unaudited consolidated financial statements.
4
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
Three Months Ended
March 31
--------
2000 1999
---- ----
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans ..................................... $ 7,295 $ 6,782
Interest on mortgage-backed investments ........................ 2,786 2,158
Interest on bonds and obligations .............................. 1,254 846
Dividend income ................................................ 215 169
Interest on short-term investments ............................. 15 9
---------- ----------
Total interest and dividend income ........................... 11,565 9,964
---------- ----------
Interest expense:
Interest on deposits ............................................ 3,002 2,829
Interest on short-term borrowings ............................... 1,989 828
Interest on long-term debt ...................................... 1,638 1,634
---------- ----------
Total interest expense ....................................... 6,629 5,291
---------- ----------
Net interest income .............................................. 4,936 4,673
Provision for possible loan losses ............................... -- 190
---------- ----------
Net interest income, after provision for
Possible loan losses ........................................... 4,936 4,483
---------- ----------
Non-interest income:
Loan servicing fees ............................................ 83 97
Other customer service fees .................................... 1,125 947
Gain on sales of securities, net ............................... 245 177
Gain on sales of mortgage loans, net ........................... 243 163
Gain on sales and write-down of
other real estate owned, net .................................. -- --
Other ............................................................ 101 95
---------- ----------
Total non-interest income .................................... 1,797 1,479
---------- ----------
Non-interest expense:
Salaries and employee benefits ................................. 2,514 2,090
Occupancy and equipment expenses ............................... 904 753
Trust preferred securities expense ............................. 280 261
Other non-interest expense ..................................... 1,285 1,195
---------- ----------
Total non-interest expense ................................... 4,983 4,299
---------- ----------
Income before provision for income
taxes ......................................................... 1,750 1,663
Provision for income taxes ....................................... 617 602
---------- ----------
Net income ................................................... $ 1,133 $ 1,061
========== ==========
Earnings per share
Basic -
Net income per share ...................................... $ .36 $ .32
========== ==========
Weighted average common shares ............................ 3,112,000 3,347,000
========== ==========
Diluted -
Net income per share .......................................... $ .35 $ .30
========== ==========
Weighted average common and common share and
share equivalents ............................................. 3,249,000 3,537,000
========== ==========
Dividends per share ............................................. $ .09 $ .20
========== ==========
See accompanying notes to unaudited consolidated financial statements.
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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(Unaudited)
Net
Unrealized
Gain
(Loss) on
Additional Available
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion Plans Total
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1999 .................... $483 $ 22,610 $ 26,176 $(15,885) $ (5,581) $ 29 $ 27,832
Net income ...................................... -- -- 1,133 -- -- -- 1,133
Change in obligation related to directors
deferred stock plan .......................... -- -- -- -- -- 12 12
Decrease in unearned compen-
sation - ESOP ................................. -- 14 -- -- -- 20 34
Decrease in unrealized loss on
available for sale securities,
net of taxes .................................. -- -- -- -- 1,356 -- 1,356
Repurchase of stock ............................. -- -- -- (1,699) -- -- (1,699)
Dividends declared ($.09 per share) ............. -- -- (271) -- -- -- (271)
---- -------- -------- -------- -------- ----- --------
Balance at March 31, 2000 ....................... $483 $ 22,624 $ 27,038 $(17,584) $ (4,225) $ 61 $ 28,397
==== ======== ======== ======== ======== ===== ========
Balance at December 31, 1998 .................... $480 $ 21,830 $ 23,182 $(13,283) $ 965 $(114) $ 33,060
Net income ...................................... -- -- 1,061 -- -- -- 1,061
Change in obligation related to
directors deferred stock plan ................ -- -- -- -- -- 19 19
Decrease in unearned compensation
- ESOP ....................... -- 14 -- -- -- 21 35
Decrease in unrealized gain on
available for sale securities,
net of taxes ................................... -- -- -- (456) -- (456)
Repurchase of stock ............................. -- -- -- -- -- -- --
Dividends declared ($.20 per share) ............. -- -- (670) -- -- -- (670)
---- -------- -------- -------- -------- ----- --------
Balance at March 31, 1999 ....................... $480 $ 21,844 $ 23,573 $(13,283) $ 509 $ (74) $ 33,049
==== ======== ======== ======== ======== ===== ========
See accompanying notes to unaudited consolidated financial statements
6
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
March 31,
2000 1999
---- ----
(Dollars in thousands)
Net income, as reported $1,133 $1,061
Change in unrealized gains/(losses) on securities,
net of taxes 1,515 (346)
Less: Reclassification adjustment for securities gains
included in net income, net of taxes 159 110
------ ------
Comprehensive income (loss) $2,489 $ 605
====== ======
7
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
March 31,
-------------------
2000 1999
---- ----
(In thousands)
Cash flows from operating activities:
Net income ........................................................... $ 1,133 $ 1,061
Adjustments to reconcile net income to net
cash provided (used) by operating
activities
Provision for loan losses ............................................ -- 190
(Gain) loss on sales and write-down of
other real estate owned, net ....................................... -- --
Amortization, accretion and depreciation,
net ................................................................ 647 428
Gain on sales of securities, net ..................................... (245) (177)
Loans originated for sale in the
secondary market ................................................... (11,700) (7,529)
Proceeds from sales of loans ....................................... 11,109 10,605
Gain on sales of mortgage loans, net ............................... (243) (163)
Other, net ......................................................... 1,407 516
-------- --------
Net cash provided (used) by operating
activities ......................................................... $ 2,108 $ 4,931
-------- --------
Cash flows from investing activities:
Proceeds from sales of available for sale
securities ......................................................... 459 4,602
Proceeds from principal payments on
available for sale securities ...................................... 5,004 8,661
Purchase of available for sale securities ............................ (25,950) (30,374)
Loans (originated/purchased) paid, net ............................... 2,100 (1,541)
Purchases of FHLB stock .............................................. -- --
See accompanying notes to unaudited consolidated financial statements
8
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
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(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
(In thousands)
Purchase of banking premises and equipment
and improvements to other real estate
owned ........................................... $ (536) $ (764)
Proceeds from sales of other real estate
owned ........................................... -- --
-------- --------
Net cash provided (used) by investing
activities ...................................... (18,923) (19,416)
-------- --------
Cash flows from financing activities:
Net increase in deposits .......................... 21,598 3,747
Net increase (decrease) in borrowings with original
maturities of three months or less .............. (16,048) (376)
Proceeds from short-term borrowings with
maturities in excess of three months ............ -- 5,000
Principal payments on short-term borrow-
ings with maturities in excess of
three months .................................... (5,000) (10,000)
Proceeds from issuance of long-term debt .......... 12,717 10,000
Principal payments on long term debt .............. (9,000) --
Proceeds from issuance of stock ................... 12 14
Purchase of treasury stock ........................ (1,699) --
Cash paid for dividends ........................... (163) (168)
-------- --------
Net cash provided from financing
activities ...................................... 2,417 8,217
-------- --------
Net increase (decrease)in cash and cash
equivalents ..................................... (14,278) (6,268)
Cash and cash equivalents at beginning of
period .......................................... 33,722 19,717
-------- --------
Cash and cash equivalents at end of period ........ $ 19,444 $ 13,449
======== ========
Supplemental cash flow information:
Interest paid on deposits ......................... $ 3,004 $ 2,838
Interest paid on borrowed funds ................... 3,626 2,534
Income taxes paid ................................. 638 27
Transfer to other real estate owned,
net ............................................. -- --
See accompanying notes to unaudited consolidated financial statements.
9
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT
March 31, 2000
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A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") (a Massachusetts Corporation) and its wholly-owned
subsidiaries, Abington Savings Bank (the "Bank") and Abington Bancorp Capital
Trust. The Bank also includes its wholly-owned subsidiaries Abington Securities
Corporation, which invests primarily in obligations of the United States
Government and its agencies and equity securities, Old Colony Mortgage
Corporation, which originates and sells residential mortgages to investors on a
servicing released basis, and Holt Park Place Development Corporation and
Norroway Pond Development Corporation, each typically owning properties being
marketed for sale.
The accompanying consolidated financial statements as of March 31, 2000 and for
the three period ended March 31, 2000 and 1999 have been prepared by the Company
without audit, and reflect all adjustments (consisting of normal recurring
adjustments) which, in the opinion of management, are necessary to reflect a
fair statement of the results of the interim periods presented. Certain
information and footnote disclosures normally included in the annual
consolidated financial statements which are prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Accordingly, the Company believes that although the disclosures are adequate to
make the information presented not misleading, these consolidated financial
statements should be read in conjunction with the footnotes contained in the
Company's consolidated financial statements as of and for the year ended
December 31, 1999, which are included in the Company's Annual Report to
Stockholders. Interim results are not necessarily indicative of results to be
expected for the entire year. All significant intercompany balances and
transactions have been eliminated in consolidation.
10
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)
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B) DIVIDEND DECLARATION
The Board of Directors of Abington Bancorp., Inc. declared a cash dividend
of $.09 per share to holders of its common stock in March, 2000. This dividend
was payable on April 20, 2000 to stockholders of record as of the close of
business on April 6, 2000.
11
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)
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C) Stock Repurchase Program
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its currently
outstanding common stock from time to time at prevailing market prices. On
February 24, 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase an additional 10% (347,000) of its
outstanding common stock, as adjusted for amounts remaining to be repurchased
under the March 1997 plan. On March 25, 1999, the Board of Directors authorized
the Company to repurchase an additional 10% (320,000) of its outstanding common
stock, as adjusted for amounts remaining to be purchased under the previously
authorized plans. The Board delegated to the discretion of the Company's senior
management the authority to determine the timing of the repurchase program's
commencement, subsequent purchases and the prices at which the repurchases will
be made.
As of May 5, 2000, the Company had repurchased 932,600 shares of its common
stock under these plans at a total cost of approximately $13,882,000.
D) Earnings per Share
The primary difference between basic and fully diluted average common shares
outstanding for the periods presented relates to options issued to officers and
directors which are currently exercisable and are not anti-dilutive. The
calculation of common stock equivalents for fully diluted per share computations
excludes shares which are not yet currently exercisable and /or have an exercise
price in excess of the average closing price of the Company's stock for the
period presented. At March 31, 2000 there were approximately 147,000 options
with exercise prices ranging from $11.20 to $15.50 which were vested but
anti-dilutive and non-vested options of approximately 145,083 options with
exercise prices ranging from $13.50 to $20.75. These options were excluded from
fully diluted calculations.
12
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)
- --------------------------------------------------------------------------------
E.) Business Segments
March 31, 2000:
Community Mortgage
Banking Banking Other Elimination Total
--------- --------- ----- ----------- -----
Securities ........................ $258,495 $ -- $ -- $ -- $258,495
Net loans ......................... 387,426 5,214 -- (5,196) 387,444
Net assets ........................ 698,993 6,688 45,345 (47,796) 703,050
Total deposits .................... 414,098 -- -- (2,808) 411,290
Total borrowings .................. 242,420 5,196 -- (5,196) 242,420
Total liabilities ................. 665,163 5,327 140 662,626
Three months ended
Total interest income ............. $ 11,551 $ 67 $ 27 $ (80) $ 11,565
Total interest expense ............ 6,656 53 -- (80) 6,629
Net interest margin ............... 4,895 14 27 -- 4,936
Provisions for possible loan losses -- -- -- -- --
Total non-interest income ......... 1,554 293 -- (50) 1,797
Total non-interest expense ........ 4,274 395 314 -- 4,983
Net income ........................ 1,419 (63) (190) (33) 1,133
13
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (continued)
- --------------------------------------------------------------------------------
E.) Business Segments (continued)
March 31, 1999:
Community Mortgage
Banking Banking Other Elimination Total
--------- --------- ----- ----------- -----
Securities ........................ $197,934 $ -- $ -- $ -- $197,934
Net loans ......................... 359,173 -- -- -- 359,173
Net assets ........................ 599,915 -- 45,500 (45,434) 599,981
Total deposits .................... 374,852 -- -- (7,152) 367,700
Total borrowings .................. 181,752 -- -- -- 181,752
Total liabilities ................. 562,132 -- -- (7,152) 554,980
Three months ended
Total interest income ............. $ 9,964 $ -- $ 27 $ (27) $ 9,964
Total interest expense ............ 5,318 -- -- (27) 5,291
Net interest margin ............... 4,646 -- 27 -- 4,673
Provisions for possible loan losses 190 -- -- -- 190
Total non-interest income ......... 1,479 -- -- -- 1,479
Total non-interest expense ........ 3,985 -- 314 -- 4,299
Net income ........................ 1,269 -- (208) -- 1,061
14
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
The Company's results of operations depend primarily on its net interest income
after provision for possible loan losses, its revenue from other banking
services and non-interest expenses. The Company's net interest income depends
upon the net interest rate spread between the yield on the Company's loan and
investment portfolios and the cost of funds, consisting primarily of interest
expense on deposits and Federal Home Loan Bank advances. The interest rate
spread is affected by the match between the maturities or repricing intervals of
the Company's assets and liabilities, the mix and composition of interest
sensitive assets and liabilities, economic factors influencing general interest
rates, loan prepayment speeds, loan demand and savings flows, as well as the
effect of competition for deposits and loans. The Company's net interest income
is also affected by the performance of its loan portfolio, amortization or
accretion of premiums or discounts on purchased loans and mortgage - backed
securities, and the level of non-earning assets. Revenues from loan fees and
other banking services depend upon the volume of new transactions and the market
level of prices for competitive products and services. Non-interest expenses
depend upon the efficiency of the Company's internal operations and general
market and economic conditions.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Company's net interest rate spread was
2.96% for the quarter ended March 31, 2000 and 3.27% for the quarter ended March
31, 1999.
The level of nonaccrual (impaired) loans and other real estate owned can have an
impact on net interest income but balances in these categories have generally
been immaterial in 1999 and 2000. At March 31, 2000, the Company had $585,000 in
non-accrual loans, and no other real estate owned, compared to $616,000 in
non-accrual loans and no other real estate owned as of December 31, 1999 and
$698,000 in non-accrual loans and no other real estate owned as of March 31,
1999.
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
Three Months Ended
March 31
--------
2000 1999
---- ----
(In Thousands)
Interest and dividend income:
Interest and fees on loans ............ $ 7,295 $6,782
Interest on mortgage-backed investments 2,786 2,158
Interest on bonds and obligations ..... 1,254 846
Dividend income ....................... 215 169
Interest on short-term investments .... 15 9
------- ------
Total interest and dividend income ... $11,565 $9,964
------- ------
Interest expense:
Interest on deposits .................. 3,002 2,829
Interest on short-term borrowings ..... 1,989 828
Interest on long-term debt ............ 1,638 1,634
------- ------
Total interest expense ............... 6,629 5,291
------- ------
Net interest income .................... $ 4,936 $4,673
======= ======
A breakdown of the components of the Company's net interest-rate spread is as
follows:
Three Months Ended
March 31
--------
2000 1999
---- ----
Weighted average yield earned on:
Loans ................................ 7.58% 7.58%
Mortgage-backed investments .......... 6.81 6.66
Bonds and obligations ................ 6.53 6.62
Marketable and other equity securities 4.27 4.37
Short-term investments ............... 3.54 5.35
Weighted average yield earned on
interest-earning assets .............. 7.11 7.19
Weighted average rate paid on:
NOW and non-interest NOW deposits .... .43 .53
Savings deposits ................... 2.23 2.15
Time deposits ...................... 5.16 5.22
Total deposits ..................... 3.04 3.13
Short-term borrowings .............. 5.76 5.01
Long-term debt ..................... 6.12 5.79
Weighted average rate paid on
deposits and borrowings .............. 4.14% 3.91%
Net interest-rate spread ................ 2.96% 3.27%
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
The following tables present, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
Three Months Ended March 31
---------------------------
2000 Vs. 1999
Increase (Decrease)
-------------------
Due to
--------------------------
Volume Rate Total
----------------------------------
(In thousands)
Interest and dividend income:
Loans .......................... $ 510 $ 3 $ 513
Mortgage-backed investments .... 671 (43) 628
Bonds and obligations .......... 383 25 408
Equity securities .............. 50 (4) 46
Short-term investments ......... 10 (4) 6
------- ----- -------
Total interest and dividend
income ................... 1,624 (23) 1,601
------- ----- -------
Interest expense:
NOW deposits .................. 16 (25) (9)
Savings deposits .............. 66 21 87
Time deposits ................. 119 (24) 95
Short-term borrowings ......... 1,020 141 1,161
Long-term debt ................ (86) 90 4
------- ----- -------
Total interest expense .... 1,135 203 1,338
------- ----- -------
Net interest income ............. $ 489 $(226) $ 263
======= ===== =======
17
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
GENERAL. Net income for the quarter ended March 31, 2000 was $1,133,000 or $.35
per diluted share compared to net income of $1,061,000 or $.30 per diluted share
in the corresponding period of 1999, a net increase of $72,000 or 6.8%. The
overall increase in net income was mainly attributable to increases in net
interest income, customer service fees and gains on mortgage loans, and
decreases in the provision for possible loan losses, offset in part by increases
in non-interest expense.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $263,000 or
5.6% during the three month period ended March 31, 2000, as compared to the same
period in 1999. The increase was attributable to increases in earning assets
offset in part by reductions in the yield earned on those assets. The balance of
average earning assets for the three month period ended March 31, 2000 was
approximately $650,844,000 as compared to $554,704,000 for the same period in
1999, an overall increase of $96,140,000 or 17.3%. The increase in earning
assets was, in part, due to increases in average loan balances which were
$384,728,000 for the three months ended March 31, 2000, as compared to
$357,833,000 for the same period in 1999, an increase of $26,895,000 or 7.5%.
This increase was generally caused by larger volumes of commercial loan
originations in 1999 and into 2000 as well as higher residential loan balances
which were the result of the steady volume of loan originations and purchases
throughout 1999 and into 2000. See "Liquidity and Capital Resources" and
"Asset/Liability Management" for further discussion of the Company's investment
strategies.
The average yield earned on loans remained flat at 7.58% for the first quarter
of 2000. Loan yields in 2000 have been affected by consistently high levels of
prepayment activity on higher yielding loans experienced in the first half of
1999 and slight increases in the yields on loans originated/purchased in the
second half of 1999 and into 2000. Yields on loans were positively affected by
growth in the Company's commercial loan portfolio which has grown to
approximately $73,100,000 at March 31, 2000 from $63,900,000 at March 31, 1999,
an increase of $9,200,000 or 14.4%. Commercial loans typically carry a higher
yield than residential mortgages.
Average balances of mortgage-backed investments and bond investment securities
were $170,599,000 and $73,668,000, respectively, for the three months ended
March 31, 2000 as compared to $129,581,000 and $51,135,000, respectively, for
the corresponding period in 1999. These balances, when combined, increased
$63,551,000 or 35.2%. The yield on mortgage-backed investments declined to 6.53%
in the first quarter of 2000, generally due to the level of prepayment activity
on higher yielding securities during the first six months of 1999 and the
reinvestment of proceeds into lower yielding securities during that period.
The yield on bond investment securities increased to 6.81% for the three months
ended March 31, 2000 as compared to 6.62% for the same period in 1999. This
increase is generally due to the acquisitions of higher yielding securities in
the latter half of 1999 which favorably affected the comparative yields for the
first quarter of 2000.
18
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2000
increased $1,338,000 or 25.3% compared to the same period in 1999, generally due
to increases in the average balances of deposits and borrowed funds. The average
balance of core and time deposits rose to $222,738,000 and $171,955,000,
respectively, for the first quarter of 2000 as compared to $199,176,000 and
$162,754,000, respectively, for the corresponding period in 1999, for increases
of 11.8% and 5.7%, respectively. The Company will continue to closely manage its
cost of deposits by continuing to seek methods of acquiring new core deposits
and maintaining its current core deposits while prudently adding time deposits
at reasonable rates in comparison to local markets and other funding
alternatives, including borrowings. The average balances of borrowed funds
increased overall during the first quarter of 2000 as compared to 1999, to
$245,107,000 from $178,923,000, an increase of 37.0%. These increased borrowings
were used to fund earning asset growth over the past year. The blended weighted
average rate paid on deposits and borrowed funds was 4.14% for the three months
ended March 31, 2000 as compared to 3.91% for the same period in 1999. The
weighted average rates paid on deposits was 3.04% for the quarter ended March
31, 2000 as compared to 3.13% for the same period in 1999. The overall cost of
deposits has declined in the first quarter of 2000 as compared to the same
period in 1999, generally due to the continued success of promotional efforts to
attract core deposits (NOW accounts, demand deposits, savings and money
markets), which typically have a lower cost of funds than time deposits and
borrowings. The overall weighted average rates paid on borrowed funds increased
to approximately 5.92% for the quarter ended March 31, 2000 from 5.50% in 1999.
This increase is reflective of the net cumulative effect of actions taken by the
Federal Reserve over the past six to eight months to increase the inter-bank
borrowing rate by 100 basis points. The Company will continue to evaluate the
use of borrowing as an alternative funding source for asset growth in future
periods. See "Asset/Liability Management" for further discussion of the
competitive market for deposits and overall strategies for uses of borrowed
funds.
NON-INTEREST INCOME. Total non-interest income increased $318,000 or 21.5% in
the first quarter of 2000 in comparison to the same period in 1999. Customer
service fees, which were $1,125,000 for the quarter ended March 31, 2000 as
compared to $947,000 for 1999, for an increase of $178,000 or 18.8%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Loan servicing fees and gains on sales of mortgage loans were
$83,000 and $243,000, respectively, for the first quarter of 2000 as compared to
$97,000 and $163,000, respectively, for the same period in 1999, a combined
increase of $66,000 or 25.4%. This generally is reflective of the Company's
acquisition of Old Colony Mortgage in April, 1999 and related greater volume of
loans being originated and sold in the first quarter of 2000 as compared to the
same period in 1999. As the Company has been selling loans generally on a
servicing released basis since 1996, the portfolio of loans serviced for others
has declined which has caused the continued drop in loan servicing income.
19
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Gains on sales of securities were $245,000 for the first quarter of 2000 as
compared to $177,000 for 1999 for a increase of $68,000 or 38.4%. The gains on
securities is reflective of the continued strength of the Company's equity
portfolio and the related gains generated on sales activities.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended March 31,
2000 increased $684,000 or 15.9% compared to the same period in 1999. Salaries
and employee benefits increased 20.3% or $424,000 primarily due to the
acquisition of Old Colony Mortgage (approximately $264,000) and increases in
supermarket branch staffing (approximately $47,000), and other general increases
salaries and customer service related staff levels of $113,000. The increases in
supermarket branch staff is related to Brockton, which opened in May 1999. These
increases correspond with the Company's strategic focus of attracting core
deposits and new customer relationships. Occupancy expenses increased $151,000
or 20.1% primarily due to the acquisition of Old Colony Mortgage (approximately
$35,000), the new supermarket branch as previously noted (approximately $23,000)
and the general inflationary and capital expenditure increases, particularly in
technology. Other non-interest expenses, including trust preferred expenses,
also increased $109,000 or 7.5% for the quarter ended March 31, 2000 in
comparison to the same period in 1999. Of this amount, approximately $96,000 of
the aforementioned increases relates to the acquisition of Old Colony Mortgage
and supermarket branch growth ($13,000). Other operating expenses remained
relatively flat for the first quarter of 2000 as compared to 1999, after the
aforementioned consideration of Old Colony Mortgage and the Brockton supermarket
branch.
PROVISION FOR POSSIBLE LOAN LOSSES. There was no provision for possible loan
losses for the quarter ended March 31, 2000 as compared to $190,000 for the
quarter ended March 31, 1999. The reduction is generally attributable to a large
recovery of a previously charged-off commercial real estate loan for
approximately $90,000 as well as the continued strength of other asset quality
factors that management uses to measure and evaluate the adequacy of loan loss
reserve levels. The resulting level of loan loss reserves were approximately
.97% of period end loans at March 31, 2000 as compared to .95% and .89% at
December 31, and March 31, 1999, respectively.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended March 31, 2000 was 35.3% compared to 36.2% for the quarter ended
March 31, 1999. The lower effective tax rate in comparison to statutory rates
for both periods is reflective of income earned by certain non-bank subsidiaries
which are taxed, for state tax purposes, at lower rates.
20
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to ensure that liquidity, capital
and market risk are prudently managed. Asset/liability management is governed by
policies reviewed and approved annually by the Company's Board of Directors
(Board). The Board delegates responsibility for asset/liability management to
the corporate Asset/Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset/liability management activities of
the Company. ALCO also reviews and approves all major funding, capital and
market risk-management programs. ALCO is comprised of members of management and
executive management of the Company and the Bank.
Interest rate risk is the sensitivity of income to variations in interest rates
over both short-term and long-term time horizons. The primary objective of
interest rate risk management is to control this risk within limits approved by
the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company attempts to control interest rate
risk by identifying potential exposures and developing tactical plans to address
such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a more
simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales and, in some cases, hedge strategies are also considered in the
evaluation and management of interest rate risk exposures.
The Company uses simulation analysis to measure the exposure of net interest
income to changes in interest rates over a 1 to 5 year time horizon. Simulation
analysis involves projecting future interest income and expense from the
Company's assets, liabilities, and off-balance sheet positions under various
interest rate scenarios.
The Company's limits on interest rate risk specify that if interest rates were
to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. The
following table reflects the Company's estimated exposure, as a percentage of
estimated net interest income for the next 12 months, which does not materially
differ from the impact on net income, on the above basis:
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
- -------------- ------------------------
+200 (6.0)%
-200 .5%
21
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Interest rate gap analysis provides a static view of the maturity and repricing
characteristics of the on-balance sheet and off-balance sheet positions. The
interest rate gap analysis is prepared by scheduling all assets, liabilities and
off-balance sheet positions according to scheduled repricing or maturity.
Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans that the
Company currently originates or purchases for the Company's own portfolio are
primarily 1-year, 3-year and 5-year adjustable rate mortgages and shorter term
(generally 15-year or seasoned 30-year) fixed rate mortgages. Residential
mortgage loans currently originated by the Company are primarily sold in the
secondary market.
The Company also emphasizes loans with terms to maturity or repricing of 3 years
or less, such as certain adjustable rate residential mortgage loans, commercial
mortgages, business loans, residential construction loans, second mortgages and
home equity loans.
22
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Management desires to expand its interest earning asset base in future periods
primarily through growth in the Company's loan portfolio. Loans comprised
approximately 59.1% of the average interest earning assets for the first three
months of 2000. In the future, the Company intends to continue to be competitive
in the residential mortgage market but plans to place greater emphasis on home
equity and commercial loans. The Company generally has been, and expects to
remain, active in pursuing wholesale opportunities to purchase loans. During the
first quarter of 2000 and 1999, the Company acquired approximately $0 and
$25,800,000, respectively, of residential first mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
investments and as an overall asset/liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have
provided the Company with greater reinvestment flexibility.
The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has been aggressively promoting the Company's
core deposit products since the first quarter of 1995, particularly checking and
NOW accounts. The success of this program has favorably impacted the overall
deposit growth to date, despite interest rate and general market pressures, and
has helped the Company to increase its customer base. However, given the strong
performance of money market mutual funds and the equity markets in general, the
Company and many of its peers have begun to see lower levels of growth in time
deposits as compared to prior years as customers reflect their desire to
increase their returns on investment. This pressure has been exacerbated
currently by the historically low long-term economic interest rates. Management
believes that the markets for future time deposit growth, particularly with
terms in excess of 2 years, will remain highly competitive. Management will
continue to evaluate future funding strategies and alternatives accordingly as
well as to continue to focus its efforts on attracting core, retail deposit
relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company considers it more
advantageous to borrow money from the FHLB of Boston than to raise money through
non-core deposits (i.e., certificates of deposit). Borrowed funds totaled
$242,420,000 at March 31, 2000 compared to $259,751,000 at December 31, 1999.
These borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities. Borrowing levels at
December 31, 1999 also included approximately $18 million of draw-downs of cash
from the Fed to prepare for anticipated larger than average cash withdrawals
associated with potential customer demand in their preparations for the change
of the century. This cash was generally returned to the Fed in early January
2000, with a corresponding decrease to borrowings.
Additionally, the Company obtained funding in June 1998 through the issuance of
trust preferred securities which carry a higher interest rate than similar FHLB
borrowings but at the same time are included as capital, without diluting
earnings per share and are tax deductible. See "Liquidity and Capital Resources"
for further discussion.
23
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at March 31, 2000. The balance of such
accounts has been allocated among the various periods based upon the terms and
repricing intervals of the particular assets and liabilities. For example, fixed
rate mortgage loans and mortgage-backed securities, regardless of "available for
sale" classification, are shown in the table in the time periods corresponding
to projected principal amortization computed based on their respective weighted
average maturities and weighted average rates using prepayment data available
from the secondary mortgage market.
Adjustable rate loans and securities are allocated to the period in which the
rates would be next adjusted. The following table does not reflect partial or
full prepayment of certain types of loans and investment securities prior to
scheduled contractual maturity. Additionally, all securities or borrowings which
are callable at the option of the issuer or lender are reflected in the
following table based upon the likelihood of call options being exercised by the
issuer on certain investments or borrowings in a most likely interest rate
environment. Since regular passbook savings and NOW accounts are subject to
immediate withdrawal, such accounts have been included in the "Other Savings
Accounts" category and are assumed to mature within 6 months. This table does
not include non-interest bearing deposits.
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Company considers its earning assets to be more sensitive to
interest rate movements than its liabilities. In general, assets are tied to
increases that are immediately impacted by interest rate movements while deposit
rates are generally driven by market area and demand which tend to be less
sensitive to general interest rate changes. In addition, other savings accounts
and money market accounts are substantially stable core deposits, although
subject to rate changes. A substantial core balance in these type of accounts is
anticipated to be maintained over time.
24
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
AT MARCH 31, 2000
------------------------------------------------------------------------------
REPRICING/MATURITY INTERVAL
-------------------------------------------------------
(1) (2) (3) (4) (5) (6)
Over
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. 5 Yrs. Total
------------------------------------------------------------------------------
(Dollars in thousands)
Assets subject to interest rate adjustment:
Short-term investments ....................... $ 227 $ -- $ -- $ -- $ -- $ - $ 227
Bonds and obligations ........................ 43,178 8,101 2,993 9,399 10,127 2,681 76,479
Mortgage-backed investments .................. 38,752 14,705 21,145 18,349 30,552 57,744 181,247
Mortgage loans subject to
rate review ................................. 36,137 14,161 16,651 19,057 38,549 5,802 130,357
Fixed-rate mortgage loans .................... 24,517 16,143 32,536 37,993 43,093 83,225 237,508
Commercial and other loans ................... 13,854 3,625 1,577 1,192 2,633 466 23,346
--------- ------- ------- ------- -------- ------- --------
Total .................................... $ 156,665 $ 56,735 $74,902 $85,990 $124,954 $149,918 $649,164
--------- ------- ------- ------- -------- ------- --------
Liabilities subject to interest rate adjustment:
Money market deposit accounts ................ 17,873 -- -- -- -- -- 17,873
Savings deposits - term
certificates ................................ 84,161 51,632 20,317 5,357 13,189 -- 174,656
Other savings accounts ....................... 166,051 -- -- -- -- -- 166,051
Borrowed funds ............................... 156,503 30,067 25,350 -- 10,000 20,500 242,420
--------- ------- ------- ------- -------- ------- --------
Total .......................................... 424,588 81,699 45,667 5,357 23,189 20,500 601,000
--------- ------- ------- ------- -------- ------- --------
Guaranteed preferred beneficial
interest in junior subordinated
debentures ................................... $ -- $ -- $ -- $ -- $ -- $12,027 $12,027
--------- ------- ------- -------- ------- ------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ......................... $(267,923) $(24,964) 29,235 $80,633 $101,765 $117,391 $36,137
--------- ------- ------- ------- -------- ------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities .................... $(267,923) $(292,887)$(263,652)$(183,019) $(81,254) $ 36,137
========== ======= ======= ======== ======== =======
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1) ............................... 36.9% 42.2% 52.2% 67.2% 86.0% 105.9%
(1) Cumulative as to the amounts previously repriced or matured. Assets held
for sale are reflected in the period in which sales are expected to take place.
Securities classified as available for sale are shown at repricing/maturity
intervals as if they are to be held to maturity as there is no definitive plan
of disposition. They are also shown at amortized cost.
25
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Payments and prepayments on the Company's loan and mortgage-backed investment
portfolios, sales of fixed rate residential loans, increases in deposits,
borrowed funds and maturities of various investments comprise the Company's
primary sources of liquidity. The Company is also a voluntary member of the FHLB
of Boston and, as such, is entitled to borrow an amount up to the value of its
qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At March 31, 2000, the Company had
approximately $154,000,000 in unused borrowing capacity that is contingent upon
the purchase of additional FHLB of Boston stock. Use of this borrowing capacity
is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately 1 to 3 months. The Company
utilizes borrowed funds as a primary vehicle to manage interest rate risk, due
to the ability to easily extend or shorten maturities as needed. This enables
the Company to adjust its cash needs to the increased prepayment activity in its
loan and mortgage-backed investment portfolios, as well as to quickly extend
maturities when the need to further balance the Company's GAP position arises.
The Company regularly monitors its asset quality to determine the level of its
loan loss reserves through periodic credit reviews by members of the Company's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Company's Board of Directors, also works on the
collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, levels of potential problem
loans on the watched asset reports and the impact that they may have on loan
collateral and repayment. Workout approach and financial condition of borrowers
are also key considerations to the evaluation of non-performing loans.
Non-performing assets were $585,000 at March 31, 2000, compared to $616,000 at
December 31, 1999, a decrease of $31,000 or 5.0%. The Company's percentage of
delinquent loans to total loans was .37% at March 31, 2000, as compared to .28%
at December 31, 1999. Management believes that while delinquency rates and
non-performing assets remain at relatively low levels at March 31, 2000, it is
likely that at some point in the future some degree of economic slow down is
likely which in turn may result in future increases in problem assets and loan
loss provisions. Management continues to monitor the overall economic
environment and its potential effects on future credit quality on an ongoing
basis.
At March 31, 2000, the Company had outstanding commitments to originate,
purchase and sell residential mortgage loans in the secondary market amounting
to $12,896,000, $0 and $3,564,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $13,866,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $14,599,000 as of March 31, 2000. The
Company believes it has adequate sources of liquidity to fund these commitments.
26
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
The Company's total stockholders' equity was $28,397,000 or 4.0% of total assets
at March 31, 2000, compared with $27,832,000 or 4.0% of total assets at December
31, 1999. The increase in total stockholders' equity of approximately $565,000
or 2.0% primarily resulted from decreases in the unrealized loss on market value
of available for sale securities, net of taxes, and net income for the first
quarter of 2000, offset in part by stock repurchases and dividend paid or
payable, by the Company.
The Company issued $12,650,000 of 8.25% Trust Preferred Securities in June 1998.
Under current regulatory guidelines, trust preferred securities are allowed to
represent up to approximately 25% of the Company's Tier 1 capital with any
excess amounts available as Tier 2 capital. As of March 31, 2000, approximately
$10,874,000 of these securities was included in Tier 1 capital.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At March 31, 2000, the Company's Tier 1 leverage capital ratio
was approximately 5.75%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At March 31, 2000, the Company's Tier 1 and total
risk-based capital ratios were approximately 10.51% and 11.33%, respectively.
The Company is categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also
categorized as "well-capitalized" as of March 31, 2000.
27
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
IMPACT OF INFLATION
The Consolidated Financial Statements of the Company and related Financial Data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
PROPOSED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement, as amended for SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company does not expect that the
adoption of this Statement will have a material impact on the Company's
financial position or results of operation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is incorporated by reference from Item 2 of
Part I of this Form 10-Q, entitled "Management's Discussion and Analysis -
Asset/Liability Management."
28
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a defendant in various legal matters, none of which is believed
by management to be material to the consolidated financial statements.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
2.1 Plan of Reorganization and Acquisition dated as
of October 15, 1996 between the Company and
Abington Savings Bank incorporated by reference
to the Company's Registration Statement on Form
8-A, effective January 13, 1997.
3.1 Articles of Organization of the Company
incorporated by reference to the Company's
Registration Statement on Form 8-A, effective
January 13, 1997.
3.2 By-Laws of the Company, filed herewith.
4.1 Specimen stock certificate for the Company's
Common Stock incorporated by reference to the
Company's Registration Statement on Form 8-A,
effective January 31, 1997.
4.2 Form of Indenture between Abington Bancorp, Inc.
and State Street Bank and Trust Company
incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.3 Form of Junior Subordinated Debenture
incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.4 Form of Amended and Restated Trust Agreement by
and among the Company, State Street Bank and
Trust Company, Wilmington Trust Company and the
Administrative
29
Trustees of the Trust incorporated by reference
to Exhibit 4.4 of the Registration Statement on
Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement
by and between the Company and State Street Bank
and Trust Company incorporated by reference to
Exhibit 4.6 of the Registration Statement on Form
S-2 of the Company and Abington Bancorp Capital
Trust, filed on May 12, 1998.
*10.1 (a) Amended and Restated Special Termination
Agreement dated as of January 1997 among the
Company, the Bank and James P. McDonough
incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996 filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and James P.
McDonough, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13,
1997.
*10.2 Special Termination Agreement dated as of
November 2, 1998 among the Company, the Bank and
Kevin M. Tierney, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the third quarter of 1998, filed on November 12,
1998.
*10.3 Special Termination Agreement dated as of May
28, 1998 among the Company, the Bank and John R.
Sylva, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1998, filed on August 10,
1998.
*10.4 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Mario A. Berlinghieri
incorporated by reference to the Company's
Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and Mario A.
Berlinghieri, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13,
1997.
(c) Amendment No. 2 to Amended and Restated
Special Termination Agreement, dated as of
April 16, 1998, by and among the Company, the
Bank and Mario A. Berlinghieri, incorporated by
reference to the Company's quarterly report on
Form 10-Q for the first quarter of 1998, filed
on May 8, 1998.
*10.5 Abington Bancorp, Inc. Incentive and
Nonqualified Stock Option Plan, as amended and
restated to reflect holding company formation
incorporated by reference to the Company's
Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
*10.6 Senior Management Incentive Plan, incorporated
by reference to the Company's Annual Report for
the year ended December 31, 1999 on Form 10-K
filed on March 28, 2000.
30
*10.7 Revised Long Term Performance Incentive Plan
dated January 2000 incorporated by reference to
the Company's Annual Report for the year ended
December 31, 1999 on Form 10-K filed on March
28, 2000.
10.8 (a) Lease for office space located at 538
Bedford Street, Abington, Massachusetts
("lease"), used for the Bank's principal and
administrative offices dated January 1, 1996
incorporated by reference to the Company's
Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry,
Jr., who beneficially own more than 5% of the
Company's Common Stock, are the principal
beneficial owners of Northeast Terminal
Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's
Annual Report for the year ended December 31,
1997 on Form 10-K filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan
is incorporated by reference herein to the
Company's Registration Statement on Form S-3,
effective January 31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's
proxy statement relating to its special meeting
in lieu of annual meeting held on June 17,
1997, filed with the Commission on April 29,
1997.
*10.11 (a) Special Termination Agreement dated as of
July 1, 1997 among the Company, the Bank and
Robert M. Lallo, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the second quarter of 1997, filed on August 13,
1997.
(b) Amendment No. 1 to Special Termination
Agreement, dated April 16, 1998, by and among
the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's
quarterly report on Form 10-Q for the first
quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of
August 28, 1997, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for
the third quarter of 1997, filed on November 15,
1997.
*10.13 Supplemental Executive Retirement Agreement
between the Bank and James P. McDonough dated as
of March 26, 1998, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the first quarter of 1998, filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors,
effective July 1, 1998 incorporated by reference
to Appendix A to the Company's proxy statement
(schedule 14A) for its 1998 Annual Meeting,
filed with the Commission on April 13, 1998.
*10.15 Special Termination Agreement dated as of
February 7, 2000 among the Company, the Bank and
Jack B. Meehl, incorporated by reference to the
Company's Annual Report for the year ended
December 31, 1999 on Form 10-K filed on March
28, 2000.
11.1 A statement regarding the computation of
earnings per share is included in Item 8 of this
Report.
31
27.1 Financial Data Schedule, March 31, 2000
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the first quarter of
2000.
- ---------------------------------------------------
* Management contract or compensatory plan or arrangement.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ABINGTON BANCORP, INC.
----------------------
(Company)
Date: May 10, 2000 By /s/James P. Mcdonough
-------------------------
James P. McDonough
President and Chief Executive Officer
Date: May 10, 2000 By /s/Robert M. Lallo
----------------------
Robert M. Lallo
Treasurer
(Principal Financial Officer)
33
INDEX TO EXHIBITS
2.1 Plan of Reorganization and Acquisition dated as of October 15, 1996
between the Company and Abington Savings Bank incorporated by reference
to the Company's Registration Statement on Form 8-A, effective January
13, 1997.
3.1 Articles of Organization of the Company incorporated by reference to the
Company's Registration Statement on Form 8-A, effective January 13, 1997.
3.2 By-Laws of the Company, filed herewith.
4.1 Specimen stock certificate for the Company's Common Stock incorporated by
reference to the Company's Registration Statement on Form 8-A, effective
January 31, 1997.
4.2 Form of Indenture between Abington Bancorp, Inc. and State Street Bank
and Trust Company incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.
4.3 Form of Junior Subordinated Debenture incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form S-2 of the Company and
Abington Bancorp Capital Trust, filed on May 12, 1998.
4.4 Form of Amended and Restated Trust Agreement by and among the Company,
State Street Bank and Trust Company, Wilmington Trust Company and the
Administrative Trustees of the Trust incorporated by reference to Exhibit
4.4 of the Registration Statement on Form S-2 of the Company and Abington
Bancorp Capital Trust, filed on May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement by and between the
Company and State Street Bank and Trust Company incorporated by reference
to Exhibit 4.6 of the Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May 12, 1998.
*10.1 (a) Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and James P. McDonough
incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special Termination Agreement,
dated as of July 1, 1997 among the Company, the Bank and James P.
McDonough, incorporated by reference to the Company's quarterly report on
Form 10-Q for the second quarter of 1997, filed on August 13, 1997.
*10.2 Special Termination Agreement dated as of November 2, 1998 among the
Company, the Bank and Kevin M. Tierney, incorporated by reference to the
Company's quarterly report on Form 10-Q for the third quarter of 1998,
filed on November 12, 1998.
*10.3 Special Termination Agreement dated as of May 28, 1998 among the Company,
the Bank and John R. Sylva, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of 1998, filed on
August 10, 1998.
34
*10.4 (a) Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Mario A. Berlinghieri
incorporated by reference to the Company's Annual Report for the year
ended December 31, 1996 on Form 10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special Termination Agreement,
dated as of July 1, 1997 among the Company, the Bank and Mario A.
Berlinghieri, incorporated by reference to the Company's quarterly report
on Form 10-Q for the second quarter of 1997, filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated Special Termination
Agreement, dated as of April 16, 1998, by and among the Company, the Bank
and Mario A. Berlinghieri, incorporated by reference to the Company's
quarterly report on form 10-Q for the first quarter of 1998, filed on May
8, 1998.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified Stock Option Plan, as
amended and restated to reflect holding company formation incorporated by
reference to the Company's Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
*10.6 Senior Management Incentive Plan, incorporated by reference to the
Company's Annual Report for the year ended December 31, 1999 on Form 10-K
filed on March 28, 2000.
*10.7 Revised Long Term Performance Incentive Plan dated January 2000,
incorporated by reference to the Company's Annual Report for the year
ended December 31, 1999 on Form 10-K filed on March 28, 2000.
10.8 (a) Lease for office space located at 538 Bedford Street, Abington,
Massachusetts ("Lease"), used for the Bank's principal and administrative
offices dated January 1, 1996 incorporated by reference to the Company's
Annual Report for the year ended December 31, 1996 on Form 10-K filed on
March 31, 1997. Northeast Terminal Associates, Limited owns the property.
Dennis E. Barry and Joseph L. Barry, Jr., who beneficially own more than
5% of the Company's Common Stock, are the principal beneficial owners of
Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997, incorporated by reference
to the Company's Annual Report for the year ended December 31, 1997 on
Form 10-K filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan is incorporated by
reference herein to the Company's Registration Statement on Form S-3,
effective January 31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified Stock Option Plan,
incorporated by reference herein to Appendix A to the Company's proxy
statement relating to its special meeting in lieu of annual meeting held
on June 17, 1997, filed with the Commission on April 29, 1997.
*10.11 (a) Special Termination Agreement dated as of July 1, 1997 among the
Company, the Bank and Robert M. Lallo, incorporated by reference to the
Company's quarterly report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
35
(b) Amendment No. 1 to Special Termination Agreement, dated as of April
16, 1998, by and among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly report on Form 10-Q
for the first quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of August 28, 1997,
incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the third quarter of 1997, filed on November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement between the Bank and James P.
McDonough dated as of March 26, 1998, incorporated by reference to the
Company's quarterly report on Form 10-Q for the first quarter of 1998,
filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors, effective July 1, 1998
incorporated by reference to Appendix A to the Company's proxy statement
(schedule 14A) for its 1998 Annual Meeting, filed with the Commission on
April 13, 1998.
*10.15 Special Termination Agreement dated as of February 7, 2000 among the
Company, the Bank and Jack B. Meehl, incorporated by reference to the
Company's Annual Report for the year ended December 31, 1999 on Form 10-K
filed on March 28, 2000.
11.1 A statement regarding the computation of earnings per share is included
in Item 8 of this Report.
27.1 Financial Data Schedule, March 31, 2000
- --------------------
* Management contract or compensatory plan or arrangement.
36