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 September 30, 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
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(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: 3,067,000 shares as of November
10, 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.
2
ABINGTON BANCORP, INC.
FORM 10-Q
INDEX
PAGE
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and December 31, 1999.......................................... 4
Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 2000 and 1999.................... 5
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Nine Months Ended
September 30, 2000 and 1999................................................ 6
Consolidated Statements of Comprehensive Income for the Three and
Nine Months Ended September 30, 2000 and 1999.............................. 7
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 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....................................... 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................... 33
Part II Other Information
Item 1. Legal Proceedings.......................................................... 34
Item 2. Change in Securities....................................................... 34
Item 3. Defaults upon Senior Securities............................................ 34
Item 4. Submission of Matters to a Vote of Security Holders........................ 34
Item 5. Other Information.......................................................... 34
Item 6. Exhibits and Reports on Form 8-K........................................... 34
Signature Page............................................................................... 38
Index to Exhibits ........................................................................... 39
3
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ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, December 31,
2000 1999
---- ----
(In Thousands)
ASSETS
Cash and due from banks..................... $ 28,746 $ 33,497
Short-term investments...................... 1,707 225
------- -------
Total cash and cash equivalents........... 30,453 33,722
------- -------
Loans held for sale......................... 6,538 2,730
Securities available for sale - at
market value............................ 277,772 235,623
Loans....................................... 379,536 389,681
Less:
Allowance for possible loan losses...... (3,808) (3,701)
------- -------
Loans, net.............................. 375,728 385,980
------- -------
Federal Home Loan Bank stock................ 12,910 12,910
Banking premises and equipment, net......... 9,598 9,037
Other real estate owned, net................ - -
Intangible assets........................... 2,823 3,161
Bank owned life insurance - contract value.. 3,456 3,348
Other assets................................ 9,140 9,739
------- -------
$ 728,418 $ 696,250
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................... $ 437,069 $ 389,692
Short-term borrowings....................... 85,579 152,551
Long-term debt.............................. 155,916 107,200
Accrued taxes and expenses.................. 3,414 2,552
Other liabilities........................... 1,725 4,413
------- -------
Total liabilities....................... 683,703 656,408
------- -------
Guaranteed preferred beneficial interest in the
Company's junior subordinated debentures, net 12,068 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; 4,873,000 and 4,834,000
shares issued in 2000 and 1999, respectively 487 483
Additional paid-in capital................ 22,815 22,610
Retained earnings......................... 28,811 26,176
------- -------
52,113 49,269
Treasury stock - 1,806,000 and 1,641,000 shares
in 2000 and 1999, respectively, at cost... (17,584) (15,885)
Compensation plans........................ 112 29
Other accumulated comprehensive income -
Net unrealized loss on available for
sale securities, net of taxes........... (1,994) (5,581)
------- -------
Total stockholders' equity.............. 32,647 27,832
------- -------
$ 728,418 $ 696,250
======= =======
See accompanying notes to unaudited consolidated financial statements.
4
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans.................................. $ 7,332 $ 7,004 $ 21,988 $ 20,548
Interest on mortgage-backed investments..................... 3,227 2,443 9,050 6,862
Interest on bonds and obligations........................... 1,489 1,185 4,032 3,071
Dividend income............................................. 272 174 740 509
Interest on short-term investments.......................... 16 15 43 32
---------- ---------- ----------- ----------
Total interest and dividend income........................ 12,336 10,821 35,853 31,022
---------- ---------- ----------- ----------
Interest expense:
Interest on deposits......................................... 3,307 2,878 9,407 8,459
Interest on short-term borrowings............................ 1,459 1,280 5,550 3,124
Interest on long-term debt................................... 2,623 1,813 6,001 5,148
---------- ---------- ----------- ----------
Total interest expense.................................... 7,389 5,971 20,958 16,731
---------- ---------- ----------- ----------
Net interest income........................................... 4,947 4,850 14,895 14,291
Provision for possible loan losses............................ - 190 60 450
---------- ---------- ----------- ----------
Net interest income, after provision for
Possible loan losses........................................ 4,947 4,660 14,835 13,841
---------- ---------- ----------- ----------
Non-interest income:
Loan servicing fees......................................... 80 91 239 279
Other customer service fees................................. 1,739 1,194 4,475 3,229
Gain on sales of securities, net............................ 99 152 402 557
Gain on sales of mortgage loans, net........................ 336 384 878 906
Gain on sales and write-down of
other real estate owned, net............................... - - - 68
Other......................................................... 127 82 357 301
---------- ---------- ----------- ----------
Total non-interest income................................. 2,381 1,903 6,351 5,340
---------- ---------- ----------- ----------
Non-interest expense:
Salaries and employee benefits.............................. 2,926 2,289 8,033 6,768
Occupancy and equipment expenses............................ 718 837 2,392 2,411
Trust preferred securities expense ......................... 280 280 840 840
Other non-interest expense.................................. 1,592 1,555 4,579 4,202
---------- ---------- ----------- ----------
Total non-interest expense................................ 5,516 4,961 15,844 14,221
---------- ---------- ----------- ----------
Income before provision for income
taxes...................................................... 1,812 1,602 5,342 4,960
Provision for income taxes.................................... 632 569 1,887 1,784
---------- ---------- ----------- ----------
Net income ............................................... $ 1,180 $1,033 $ 3,455 $ 3,176
========== ========== =========== ==========
Earnings per share
Basic -
Net income per share................................... $ .39 $ .32 $ 1.13 $ .96
========== ========== =========== ==========
Weighted average common shares.. ...................... 3,055,000 3,277,000 3,068,000 3,299,000
========== ========== =========== ==========
Diluted -
Net income per share....................................... $ .37 $ .30 $ 1.08 $ .91
========== ========== =========== ==========
Weighted average common shares and
share equivalents.......................................... 3,167,000 3,441,000 3,191,000 3,481,000
========== ========== =========== ==========
Dividends per share.......................................... $ .09 $ .05 $ .27 $ .30
========== ========== =========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
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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 $27,832
Net income..................................... - - 3,455 - - - 3,455
Issuance of stock.............................. 4 156 - - - - 160
Change in obligation related to directors
deferred stock plan......................... - - - - - 22 22
Amortization of unearned compen-
sation - ESOP................................ - 49 - - - 61 110
Decrease in unrealized loss on
available for sale securities,
net of taxes................................. - - - - 3,587 - 3,587
Repurchase of stock............................ - - - (1,699) - - (1,699)
Dividends declared ($.27 per share)............ - - (820) - - - (820)
----- -------- -------- -------- -------- ------- -------
Balance at September 30, 2000 ................. $ 487 $ 22,815 $ 28,811 $(17,584) $(1,994) $ 112 $32,647
===== ======== ======== ======== ======== ======= =======
Balance at December 31, 1998................... $ 480 $ 21,830 $ 23,182 $(13,283) $ 965 $ (114) $33,060
Net income..................................... - - 3,176 - - - 3,176
Change in obligation related to directors
deferred stock plan......................... - - - - - 49 49
Decrease in unearned compensation - ESOP....... - - - - - 62 62
Decrease in unrealized gain on available for sale
securities, net of taxes.................... - - - - (4,260) - (4,260)
Issuance of stock.............................. 3 140 - - - - 143
Repurchase of stock............................ - - - (1,476) - - (1,476)
Dividends declared ($.30 per share)............ - - (995) - - - (995)
----- -------- -------- -------- -------- ------- -------
Balance at September 30, 1999.................. $ 483 $ 21,970 $ 25,363 $(14,759) $(3,295) $ (3) $29,759
===== ======== ======== ======== ======== ======= =======
See accompanying notes to unaudited consolidated financial statements.
6
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
Net income, as reported $1,180 $1,033 $3,455 $3,176
Change in unrealized gains/(losses) on available
for sale securities, net of taxes 2,646 (1,362) 3,848 (3,904)
Less: Reclassification adjustment for available
for sale securities gains included in net income,
net of taxes 64 97 261 356
------- ---------- -------- -------
Comprehensive income (loss) $ 3,762 $ (426) $ 7,042 $(1,084)
======= ========== ======== ========
7
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended
September 30,
-------------------------------
2000 1999
---- ----
(In thousands)
Cash flows from operating activities:
Net income.................................................... $ 3,455 $ 3,176
Adjustments to reconcile net income to net
cash provided (used) by operating
activities
Provision for loan losses..................................... 60 450
(Gain) loss on sales and write-down of
other real estate owned, net................................ - (68)
Amortization, accretion and depreciation,
net ....................................................... 1,388 1,361
Gain on sales of securities, net.............................. (402) (557)
Loans originated for sale in the
secondary market............................................ (48,975) ( 78,415)
Proceeds from sales of loans................................ 46,045 78,953
Gain on sales of mortgage loans, net........................ (878) (906)
Other, net.................................................. (2,030) (511)
----------- --------
Net cash provided (used) by operating
activities.................................................. $ (1,337) $3,483
----------- -------
Cash flows from investing activities:
Net cash paid for Old Colony acquisition...................... - (1,113)
Proceeds from sales of available for sale
securities.................................................. 4,613 6,350
Proceeds from principal payments on
available for sale securities............................... 16,297 29,866
Purchase of available for sale securities..................... (58,212) (82,083)
Loans (originated/purchased) paid, net........................ 10,194 (20,559)
Purchases of FHLB stock....................................... - (1,845)
See accompanying notes to unaudited consolidated financial statements.
8
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
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Nine Months Ended
September 30,
-----------------------------------------
2000 1999
---- ----
(In thousands)
Purchase of banking premises and equipment
and improvements to other real estate
owned................................................................ $ (1,621) $(1,566)
Proceeds from sales of other real estate
owned................................................................ - 68
----------- --------
Net cash provided (used) by investing
activities........................................................... (28,729) (70,882)
----------- --------
Cash flows from financing activities:
Net increase in deposits............................................... 47,377 18,830
Net increase (decrease) in borrowings with original
maturities of three months or less................................... (61,972) 65,822
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) (35,000)
Proceeds from issuance of long-term debt............................... 66,717 46,700
Principal payments on long term debt................................... (18,000) (35,000)
Proceeds from issuance of stock ....................................... 152 192
Purchase of treasury stock............................................. (1,699) (1,476)
Cash paid for dividends................................................ (778) (995)
----------- --------
Net cash provided from financing
activities........................................................... 26,797 64,073
----------- --------
Net increase (decrease)in cash and cash
equivalents.......................................................... (3,269) (3,326)
Cash and cash equivalents at beginning of
period............................................................... 33,722 19,717
----------- --------
Cash and cash equivalents at end of period............................. $ 30,453 $16,391
=========== ========
Supplemental cash flow information:
Interest paid on deposits.............................................. $ 9,407 $ 8,490
Interest paid on borrowed funds........................................ 11,117 8,455
Income taxes paid...................................................... 1,934 1,228
Transfer to other real estate owned,
net.................................................................. - -
Acquisitions:
Liabilities assumed.................................................. $ - $ 3,370
Less: Assets purchased - 3,688
Premium paid - 795
----------- --------
Net cash paid $ - $(1,113)
=========== ========
See accompanying notes to unaudited consolidated financial statements.
9
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September 30, 2000 and
for the three and nine month periods ended September 30, 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
September 30, 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 September, 2000. This dividend
was payable on October 25, 2000 to stockholders of record as of the close of
business on October 11, 2000.
11
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 November 10, 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 options 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 September 30, 2000 there were approximately 296,600
options with exercise prices ranging from $10.50 to $20.75 which were considered
anti-dilutive and were excluded from fully diluted calculations.
12
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (continued)
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E) Business Segments
September 30, 2000:
Community Mortgage
Banking Banking Other Elimination Total
--------- -------- ----- ----------- -----
Securities $ 277,772 $ - $ - $ - $277,772
Net loans 382,194 6,538 - (6,466) 382,266
Net assets 740,714 7,965 47,254 (67,515) 728,418
Total deposits 438,997 - - (1,928) 437,069
Total borrowings 241,495 6,466 - (6,466) 241,495
Total liabilities 685,492 6,605 (8,394) 683,703
Three months ended
Total interest income $ 12,354 $ 74 $ 13 $(105) $ 12,336
Total interest expense 7,419 75 - (105) 7,389
Net interest margin 4,935 (1) 13 - 4,947
Provisions for possible loan losses - - - - -
Total non-interest income 2,045 367 - (31) 2,381
Total non-interest expense 4,824 370 322 - 5,516
Net income 1,412 (10) (202) (20) 1,180
Nine months ended
Total interest income $ 35,883 $ 234 $ 51 $(315) $ 35,853
Total interest expense 21,054 219 - (315) 20,958
Net interest margin 14,829 15 51 - 14,895
Provisions for possible loan losses 60 - - - 60
Total non-interest income 5,473 1,068 - (190) 6,351
Total non-interest expense 13,753 1,141 950 - 15,844
Net income 4,235 (64) (591) (125) 3,455
13
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (continued)
- -------------------------------------------------------------------------------
E) Business Segments (continued)
September 30 1999:
Community Mortgage
Banking Banking Other Elimination Total
--------- -------- ----- ----------- -----
Securities $ 220,767 $ - $ - $ - $220,767
Net loans 384,694 4,269 - (4,179) 384,784
Net assets 656,288 5,759 45,515 (51,201) 656,361
Total deposits 388,137 - - (5,354) 382,783
Total borrowings 227,854 4,179 - (4,179) 227,854
Total liabilities 619,832 4,312 - (9,533) 614,611
Three months ended
Total interest income $ 10,821 $ 80 $ 9 $ (89) $ 10,821
Total interest expense 5,987 73 - (89) 5,971
Net interest margin 4,834 7 - - 4,850
Provisions for possible loan losses 190 - 9 - 190
Total non-interest income 1,532 434 - (63) 1,903
Total non-interest expense 4,215 431 315 - 4,961
Net income 1,270 (2) (196) (39) 1,033
Nine months ended
Total interest income $ 31,001 $ 132 $ 16 $ (127) $31,022
Total interest expense 16,736 122 - (127) 16,731
Net interest margin 14,265 10 16 - 14,291
Provisions for possible loan losses 450 - - - 450
Total non-interest income 4,610 793 - (63) 5,340
Total non-interest expense 12,452 826 943 - 14,221
Net income 3,814 (22) (577) (39) 3,176
14
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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F) Pension Plan Curtailment
As part of a program to redesign its retirement benefits, the Board of Directors
voted October 10, 2000 to freeze the Company's defined benefit, non-contributory
pension plan (the Plan) effective as of October 31, 2000 and terminate the Plan
effective on or about December 31, 2000. In connection therewith, the Company
intends to amend the Plan to improve the benefit formula for current employees
and permit payment of lump sums from the
Plan.
Excess assets of the Plan, after considering the impact of Plan amendments,
asset returns and other associated administrative expenses are expected to be
adequate to be able to satisfy the obligations of the Plan, as amended. Any
residual excess will be refunded to the Company.
As part of the redesign of retirement benefits, the Bank added, effective in
November 2000, a 3% automatic contribution to the 401(k) plan for all employees
even if they do not separately contribute to that plan. Such contribution is
being made for all eligible participants based on their W-2 compensation.
As a result of the decision to freeze and terminate the Plan, the Company does
not expect to recognize a material curtailment gain (or loss). A settlement gain
is expected to be recognized after the receipt of all necessary regulatory
approvals and settlement of plan obligations which are expected to occur in
2001.
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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
2.88% and 2.94% for the quarter and nine months ended September 30, 2000,
respectively and 3.11% and 3.20% for the quarter and nine months ended September
30, 1999, respectively.
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 September 30, 2000, the Company had
$280,000 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 $648,000 in non-accrual loans and no other real estate owned as of
September 30, 1999.
16
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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 Nine Months Ended
September 30 September 30
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands)
Interest and dividend income:
Interest and fees on loans................. $ 7,332 $ 7,004 $ 21,988 $20,548
Interest on mortgage-backed investments.... 3,227 2,443 9,050 6,862
Interest on bonds and obligations.......... 1,489 1,185 4,032 3,071
Dividend income............................ 272 174 740 509
Interest on short-term investments......... 16 15 43 32
----------- --------- ----------- --------
Total interest and dividend income........ $ 12,336 $ 10,821 $ 35,853 $31,022
----------- --------- ----------- --------
Interest expense:
Interest on deposits....................... 3,307 2,878 9,407 8,459
Interest on short-term borrowings.......... 1,459 1,280 5,550 3,124
Interest on long-term debt................. 2,623 1,813 6,001 5,148
----------- --------- ----------- --------
Total interest expense.................... 7,389 5,971 20,958 16,731
----------- --------- ----------- --------
Net interest income......................... $ 4,947 $ 4,850 $ 14,895 $ 14,291
=========== ========= =========== ========
A breakdown of the components of the Company's net interest-rate spread is as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Weighted average yield earned on:
Loans..................................... 7.73% 7.53% 7.65% 7.55%
Mortgage-backed investments............... 6.89 6.43 6.69 6.49
Bonds and obligations..................... 7.01 6.80 6.91 6.65
Marketable and other equity securities.... 4.95 4.02 4.65 4.15
Short-term investments.................... 7.99 6.50 5.50 6.37
Weighted average yield earned on
interest-earning assets.................... 7.31 7.07 7.20 7.10
Weighted average rate paid on:
NOW and non-interest NOW deposits.......... .42 .44 .43 .47
Savings deposits......................... 2.27 2.20 2.25 2.16
Time deposits............................ 5.67 5.11 5.38 5.12
Total deposits........................... 3.15 3.01 3.07 3.03
Short-term borrowings.................... 6.70 5.19 6.10 5.07
Long-term debt........................... 6.56 5.99 6.34 5.89
Weighted average rate paid on
deposits and borrowings.................... 4.43 3.97 4.26 3.91
Net interest-rate spread...................... 2.88% 3.11% 2.94% 3.20%
17
- -------------------------------------------------------------------------------
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 SEPTEMBER 30
----------------------------------------------
2000 vs. 1999
INCREASE (DECREASE)
----------------------------------------------
DUE TO
----------------------------------------------
VOLUME RATE TOTAL
----------------------------------------------
(In thousands)
Interest and dividend income:
Loans.............................. $ 249 $ 79 $ 328
Mortgage-backed investments........ 727 57 784
Bonds and obligations.............. 294 10 304
Equity securities.................. 81 17 98
Short-term investments............. (4) 5 1
-------- ----------- --------
Total interest and dividend
income........................ 1,347 168 1,515
-------- ----------- --------
Interest expense:
NOW deposits....................... 26 (7) 19
Savings deposits................... 52 6 58
Time deposits...................... 228 124 352
Short-term borrowings.............. (347) 526 179
Long-term debt..................... 755 55 810
-------- ----------- --------
Total interest expense......... 714 704 1,418
-------- ----------- --------
Net interest income.................. $ 633 $ (536) $ 97
======== =========== ========
18
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------------
2000 vs. 1999
INCREASE (DECREASE)
------------------------------------------------
DUE TO
------------------------------------------------
VOLUME RATE TOTAL
------------------------------------------------
(In thousands)
Interest and dividend income:
Loans.............................. $ 1,233 $ 207 $ 1,440
Mortgage-backed investments........ 2,021 167 2,188
Bonds and obligations.............. 866 95 961
Equity securities.................. 177 54 231
Short-term investments............. 17 (6) 11
-------- ----------- --------
Total interest and dividend
income........................ 4,314 517 4,831
-------- ----------- --------
Interest expense:
NOW deposits....................... 60 (34) 26
Savings deposits................... 176 61 237
Time deposits...................... 407 278 685
Short-term borrowings.............. 1,836 590 2,426
Long-term debt..................... 504 349 853
-------- ----------- --------
Total interest expense......... 2,983 1,244 4,227
-------- ----------- --------
Net interest income.................. $ 1,331 $ (727) $ 604
======== =========== ========
19
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
GENERAL. Net income for the quarter ended September 30, 2000 was $1,180,000 or
$.37 per diluted share compared to net income of $1,033,000 or $.30 per diluted
share in the corresponding period of 1999, a net increase of $147,000 or 14.2%
in net income or 23.3% on a per diluted share basis. The overall increase in net
income was mainly attributable to increases in net interest income and customer
service fees and decreases in provision for loan losses, offset in part by
increases in non-interest expense.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $1,515,000
or 14.0% during the three month period ended September 30, 2000, as compared to
the same period in 1999. The increase was attributable to increases in the
volume of earning assets and to a lesser degree the yield earned on those
assets. The balance of average earning assets for the three month period ended
September 30, 2000 was approximately $674,643,000 as compared to $612,119,000
for the same period in 1999, an overall increase of $62,524,000 or 10.2%. The
increase in earning assets was, in part, due to increases in average loan
balances which were $379,621,000 for the three months ended September 30, 2000,
as compared to $372,047,000 for the same period in 1999, an increase of
$7,574,000 or 2.0%. 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 loan originations/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 increased to 7.73% for the third quarter of
2000 from 7.53% for the corresponding period in 1999. Loan yields in 2000 have
been affected by increases in yields on loans originated/purchased in the second
half of 1999 and into 2000, which has been influenced by the increasing of
interest rates by the Federal Reserve Bank (see later discussion). The yield on
loans was also positively affected by growth in the Company's commercial loan
portfolio which has grown to approximately $76,800,000 at September 30, 2000
from $68,500,000 at September 30, 1999, an increase of $8,300,000 or 12.1%.
Commercial loans typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and bond investment securities
were $187,222,000 and $85,018,000, respectively, for the three months ended
September 30, 2000 as compared to $152,089,000 and $69,726,000, respectively,
for the corresponding period in 1999. These balances, when combined, increased
$50,425,000 or 22.7%. The yield on mortgage-backed investments and bond
investment securities increased to 6.89% and 7.01%, respectively, in the third
quarter of 2000 as compared to 6.43% and 6.80%, for the same period in 1999.
This is generally due to the acquisition of higher yielding securities over the
past year. During 2000, management has strategically acquired mortgage-backed
and investment securities in-lieu of acquiring residential loans in order to
provide the Company with better overall yields. These investments were generally
of AAA-rated quality and represented a better fit to the balance sheet for
asset-liability purposes.
20
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the quarter ended September 30, 2000
increased $1,418,000 or 23.7% compared to the same period in 1999, generally due
to increases in the average balances of deposits and borrowed funds and
increases in the rates paid on those funds. The average balance of core and time
deposits rose to $246,123,000 and $173,672,000, respectively, for the third
quarter of 2000 as compared to $217,436,000 and $165,246,000, respectively, for
the corresponding period in 1999, for increases of 13.2% and 5.1%, respectively.
The increases noted for the three month period ended September 30, 2000,
generally relates to the attractiveness of the Company's retail products and
services to the marketplace it serves as well as reflecting some of the fallout
from recent "in market" bank merger activity which has displaced many customers
who have sought an alternative to their current banking relationship. 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 third quarter of
2000 as compared to 1999, to $247,145,000 from $219,670,000, an increase of
12.5%. 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 4.43%
for the three months ended September 30, 2000 as compared to 3.97% for the same
period in 1999. The overall weighted average rates paid on borrowed funds
increased to approximately 6.61% for the quarter ended September 30, 2000 from
5.63% in 1999. This increase is reflective of the net cumulative effect of
actions taken by the Federal Reserve Bank over the past eighteen months to
increase the inter-bank borrowing rate by 175 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. The weighted average rates paid on deposits was 3.15%
for the quarter ended September 30, 2000 as compared to 3.01% for the same
period in 1999. The overall cost of deposits has increased slightly in the third
quarter of 2000 as compared to 1999 but not as dramatically as borrowed funds
despite the interest rate environment, 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.
NON-INTEREST INCOME. Total non-interest income increased $478,000 or 25.1% in
the third quarter of 2000 in comparison to the same period in 1999. Customer
service fees, which were $1,739,000 for the quarter ended September 30, 2000 as
compared to $1,194,000 for 1999, for an increase of $545,000 or 45.7%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios and continued success in cross selling customers, debit card
activity, and sales of mutual funds and annuities. Loan servicing fees and gains
on sales of mortgage loans were $80,000 and $336,000, respectively, for the
third quarter of 2000 as compared to $91,000 and $384,000, respectively, for the
same period in 1999, a combined decrease of $59,000 or 12.4%. This generally is
reflective of the diminished market for loan originations and related lower
volume of loans being originated and sold in the third 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.
21
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
Gains on sales of securities were $99,000 for the third quarter of 2000 as
compared to $152,000 for 1999 for a decrease of $53,000 or 34.9%. The lower gain
was the result of management's decision to sell fewer securities in the third
quarter of 2000 as compared to 1999.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended September 30,
2000 increased $555,000 or 11.2% compared to the same period in 1999. Salaries
and employee benefits increased 27.8% or $637,000. This increase was
attributable to several factors, including increases in incentive compensation
and benefit accruals (approximately $400,000) relating to commissions on
insurance sales (the Company received regulatory approval to sell annuities in
May 2000); revisions of incentive compensation plan estimates; and other general
increases in salaries and customer service related staff levels. These increases
correspond with the Company's strategic focus of attracting core deposits and
new customer relationships. Management also believes that a portion of the
increase is indirectly related to post conversion activity following the recent
conversion of the Company's computer systems to a third party service bureau,
which has had a temporary impact on increasing overtime hours worked and overall
staffing levels to some degree. Occupancy expenses decreased $119,000 or 14.2%
primarily due to the expiration of various maintenance contracts on the
Company's previous in-house computer system during the third quarter of 2000.
Other non-interest expenses, including trust preferred expenses, also increased
$37,000 or 2.4% for the quarter ended September 30, 2000 in comparison to the
same period in 1999. Other operating expenses increased generally as the result
of customer volumes and general cost increases.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses for
the quarter ended September 30, 2000 was $0 as compared to $190,000 for the
quarter ended September 30, 1999. The low levels of provision in both periods is
generally attributable to the continued strength of asset quality factors that
management uses to measure and evaluate the adequacy of loan loss reserve
levels, which include delinquency rates, charge offs, problem or "watched"
assets and anticipated losses. The resulting level of loan loss reserves were
approximately 1.00% of period end loans at September 30, 2000 as compared to
.95% and .91% at December 31, and September 30, 1999, respectively.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended September 30, 2000 was 34.9% compared to 35.5% for the quarter
ended September 30, 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.
22
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
GENERAL. Net income for the nine months ended September 30, 2000 was $3,455,000
or $1.08 per diluted share compared to net income of $3,176,000 or $.91 per
diluted share in the corresponding period of 1999, a net increase of $279,000 or
8.8% on a net income basis or an increase of $.17 or 18.7% on a per diluted
share basis. The overall increase in net income was mainly attributable to
increases in net interest income, customer service fees 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 $4,831,000
or 15.6% during the nine month period ended September 30, 2000, as compared to
the same period in 1999. The increase was attributable to increases in earning
assets and, to a lesser degree, increases in the yield earned on those assets.
The balance of average earning assets for the nine month period ended September
30, 2000 was approximately $663,709,000 as compared to $582,271,000 for the same
period in 1999, an overall increase of $81,438,000 or 14.0%. The increase in
earning assets was, in part, due to increases in average loan balances which
were $383,329,000 for the nine months ended September 30, 2000, as compared to
$362,765,000 for the same period in 1999, an increase of $20,564,000 or 5.7%.
This increase in balances 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 loan originations/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 increased slightly to 7.65% for the nine month
period ended September 30, 2000 from 7.55% for the first nine months of 1999.
Loan yields in 2000 have been affected by increases in the yields on loans
originated/purchased in the second half of 1999 and into 2000. Yields on loans
were also positively affected by growth in the Company's commercial loan
portfolio which has grown to approximately $76,800,000 at September 30, 2000
from $68,500,000 at September 30, 1999, an increase of $8,300,000 or 12.1%.
Commercial loans typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and bond investment securities
were $180,281,000 and $77,836,000, respectively, for the nine months ended
September 30, 2000 as compared to $140,900,000 and $61,572,000, respectively,
for the corresponding period in 1999. These balances, when combined, increased
$55,645,000 or 27.5%. The yields on mortgage-backed investments and bond
investment securities rose to 6.69% and 6.91%, respectively, in the first nine
months of 2000, from 6.49% and 6.65%, respectively, in the corresponding period
in 1999. This was generally due to the acquisition of higher yielding securities
over the past year. During 2000, management has strategically acquired generally
AAA-rated, mortgage-backed and investment securities in-lieu of aggressively
acquiring residential loans in order to provide the Company with better overall
yields without sacrificing credit quality. These investments were also deemed to
be a better fit for the balance sheet for asset-liability purposes.
23
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2000
increased $4,227,000 or 25.3% compared to the same period in 1999, generally due
to increases in the average balances of deposits and borrowed funds as well as
the rates paid on those funds. The average balance of core and time deposits
rose to $235,789,000 and $172,208,000, respectively, for the third quarter of
2000 as compared to $209,296,000 and $163,124,000, respectively, for the
corresponding period in 1999, for increases of 12.7% and 5.6%, respectively. The
increases noted for the nine months ended September 30, 2000 as compared to the
same period in 1999 relates to the attractiveness of the Company's retail
products and services in the marketplace it serves as well as reflecting some of
the fallout from recent "in market" bank merger activity which has displaced
many customers who have sought an alternative to their current banking
relationship. 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
nine month period ending September 30, 2000 as compared to 1999, to $247,567,000
from $198,812,000, an increase of 24.5%. 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 4.26%
for the nine months ended September 30, 2000 as compared to 3.91% for the same
period in 1999. The overall weighted average rates paid on borrowed funds
increased to approximately 6.22% for the nine months ended September 30, 2000
from 5.54% in 1999. This increase is reflective of the net cumulative effect of
actions taken by the Federal Reserve over the past eighteen months to increase
the inter-bank borrowing rate by 175 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. The weighted average rates paid on deposits was 3.07% for the nine months
ended September 30, 2000 as compared to 3.03% for the same period in 1999. The
overall cost of deposits has remained relatively stable, despite increases in
economic interest rates, in the first nine months 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.
NON-INTEREST INCOME. Total non-interest income increased $1,011,000 or 18.9% in
the first nine months of 2000 in comparison to the same period in 1999. Customer
service fees, which were $4,475,000 for the nine months ended September 30, 2000
as compared to $3,229,000 for 1999, for an increase of $1,246,000 or 38.6%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Also, in May 2000, the Company was granted regulatory approval to
sell insurance annuities. This and other brokerage related activities accounted
for approximately $464,000 of the aforementioned increase in customer service
fees. Loan servicing fees and gains on sales of mortgage loans were $239,000 and
$878,000, respectively, for the first nine months of 2000 as compared to
$279,000 and $906,000, respectively, for the same period in 1999, a combined
decrease of $68,000 or 5.7%. This generally is reflective of the diminished
market for residential loan originations in 2000 as compared to 1999 and related
lower volume of loans being originated and sold in the first nine months 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.
24
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
Gains on sales of securities were $402,000 for the first nine months of 2000 as
compared to $557,000 for 1999 for a decrease of $155,000 or 27.8%. The decrease
in gains on securities in 2000 is reflective of management's decision to sell
fewer securities for gains in 2000 as compared to 1999.
NON-INTEREST EXPENSES. Non-interest expenses for the nine months ended September
30, 2000 increased $1,623,000 or 11.4% compared to the same period in 1999.
Included in this increase in 2000, was approximately $220,000 of
non-capitalizable, identifiable and quantifiable non-recurring expenses which
related to the Company's conversion of its computer systems from an in-house
mainframe to a third party service bureau. This expense was spread across
various categories and is noted in the analyses below. Salaries and employee
benefits increased 18.7% or $1,265,000 primarily due to the acquisition of Old
Colony Mortgage in April 1999 (approximately $208,000); increases related to the
Brockton branch (opened May 1999) (approximately $40,000); the conversion of
computer systems to an outside service bureau ($33,000) increases in commissions
(particularly commissions on insurance sales) and estimates related to various
other incentive compensation accruals ($409,000) and other general increases in
salaries, commissions paid and customer service related staff levels. These
increases correspond with the Company's strategic focus of attracting core
deposits and new customer relationships. Management also believes that a portion
of the salaries expense increase, not previously specifically identified, is
attributable to post-conversion activity which has had a temporary impact on
increasing overtime hours worked and overall staffing levels to some degree.
Occupancy expenses decreased $19,000 or .8% primarily due the expiration of
maintenance contracts on the Company's prior mainframe system. These decreases
are net of the effect of increases relating to the acquisition of Old Colony
Mortgage (approximately $46,000), the new supermarket branch as previously noted
(approximately $25,000) and the system conversion ($17,000). Other non-interest
expenses, including trust preferred expenses, also increased $377,000 or 7.5%
for the nine months ended September 30, 2000 in comparison to the same period in
1999. The aforementioned increases relates to the acquisition of Old Colony
Mortgage ($60,000), the Brockton branch ($26,000) and the systems conversion
($170,000) in addition to other inflationary and volume related increases.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses for
the nine months ended September 30, 2000 was $60,000 as compared to $450,000 for
the same period in 1999. The low levels of provision is generally attributable
to continued strength and improvements in other asset quality factors, such as
delinquency, charge offs, non-performing and "watched" assets that management
uses to measure and evaluate the adequacy of loan loss reserve levels. The
resulting level of loan loss reserves were approximately 1.00% of period end
loans at September 30, 2000 as compared to .95% and .91% at December 31, and
September 30, 1999, respectively.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the nine
months ended September 30, 2000 was 35.3% compared to 36% for the nine months
ended September 30, 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.
25
- -------------------------------------------------------------------------------
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 (3.50)%
-200 1.68%
26
- -------------------------------------------------------------------------------
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.
27
- -------------------------------------------------------------------------------
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 58% of the average interest earning assets for the first nine
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 historically has been, and expects to
remain, active in pursuing wholesale opportunities to purchase loans. During the
first nine months of 2000 and 1999, the Company acquired approximately $0 and
$73,000,000, respectively, of residential first mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 3 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. Additionally, the Company,
as well as many other area banks, has been the beneficiary of customer
disruption and fallout related to in market bank mergers of larger institutions
which has caused their customers to re-evaluate, and in some instances, change
their banking relationships. 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. 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
$241,495,000 at September 30, 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.
28
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at September 30, 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.
29
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
AT SEPTEMBER 30, 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........ $ 1,707 $ - $ - $ - $ - $ - $ 1,707
Bonds and obligations......... 59,271 3,921 2,005 16,559 3,651 2,045 87,452
Mortgage-backed investments... 26,441 24,234 24,898 23,014 30,408 57,185 186,180
Mortgage loans subject to
rate review ................. 35,236 15,390 22,005 34,399 23,744 4,913 135,687
Fixed-rate mortgage loans..... 46,772 12,158 26,661 28,805 38,019 74,647 227,062
Commercial and other loans.... 13,760 3,038 1,673 1,299 3,070 485 23,325
-------- -------- -------- -------- --------- --------- --------
Total..................... $183,187 $ 58,741 $ 77,242 $ 104,076 $ 98,892 $ 139,275 $661,413
-------- -------- -------- -------- --------- --------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 16,655 - - - - - 16,655
Savings deposits - term
certificates................. 85,395 38,384 35,728 7,971 13,664 - 181,142
Other savings accounts........ 177,650 - - - - - 177,650
Borrowed funds................ 141,645 26,350 64,000 - - 9,500 241,495
-------- ------- -------- -------- -------- ------- --------
Total..................... 421,345 64,734 99,728 7,971 13,664 9,500 616,942
-------- ------- -------- -------- -------- ------- --------
Guaranteed preferred beneficial
interest in junior subordinated
debentures...................... $ - $ - $ - $ - $ - $ 12,068 $12,068
-------- ------- -------- -------- -------- ------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities.......... $(238,158) $ (5,993) $ (22,486) $ 96,105 $ 85,228 $ 117,707 $32,403
-------- ------- -------- -------- -------- ------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities..... $ (238,158) $(244,151) $ (266,637) $(170,532) $ (85,304) $ 32,403
======== ========= ========== ========= ========== =========
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1)................ 43.5% 49.8% 54.5% 71.3% 86.0% 105.2%
(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.
30
- -------------------------------------------------------------------------------
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 September 30, 2000, the Company had
approximately $168,000,000 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 $280,000 at September 30, 2000, compared to $616,000
at December 31, 1999, a decrease of $336,000 or 54.6%. The Company's percentage
of delinquent loans to total loans was .46% at September 30, 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 September 30, 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 September 30, 2000, the Company had outstanding commitments to originate,
purchase and sell residential mortgage loans in the secondary market amounting
to $16,785,000, $0 and $6,538,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $14,726,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $23,095,000 as of September 30, 2000.
The Company believes it has adequate sources of liquidity to fund these
commitments.
31
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
The Company's total stockholders' equity was $32,647,000 or 4.5% of total assets
at September 30, 2000, compared with $27,832,000 or 4.0% of total assets at
December 31, 1999. The increase in total stockholders' equity of approximately
$4,815,000 or 17.3% primarily resulted from net income earned in the first nine
months of 2000, and decreases in the unrealized loss on market value of
available for sale securities, net of taxes, offset in part by stock repurchases
and dividends 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 September 30, 2000,
approximately $11,547,000 of these securities were 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 September 30, 2000, the Company's Tier 1 leverage capital
ratio was approximately 5.95%. 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 September 30, 2000, the Company's Tier 1 and total
risk-based capital ratios were approximately 11.12% and 12.45%, 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 September 30, 2000.
32
- -------------------------------------------------------------------------------
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 Nos. 137 and 138, 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."
33
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, incorporated by reference
to the Company's quarterly report on Form 10-Q
for the first quarter of 2000, filed on May 12,
2000.
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.
34
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 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
September 13, 2000 among the Company, the Bank
and Cynthia A. Mulligan, filed herewith.
*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.
35
*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.
(c) Amendment to lease dated June 30, 2000,
incorporated by reference to the Company's
quarterly report on Form 10-Q for the third
quarter of 2000, filed herein.
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.
36
*10.16 Abington Bancorp, Inc. 2000 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's
proxy statement relating to its annual meeting
held on May 16, 2000, filed with the Commission
on April 13, 2000.
*10.17 Abington Bancorp, Inc. Board of Directors
Transition and Retirement Plan, incorporated by
reference to the Company's quarterly report on
Form 10-Q for the second quarter of 2000, filed
on August 11, 2000.
11.1 A statement regarding the computation of earnings
per share is included in Note D to Unaudited
Consolidated Financial Statements included in
this Report.
27.1 Financial Data Schedule, September 30, 2000
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the third quarter of
2000.
- ---------------------------------------------------
* Management contract or compensatory plan or arrangement.
37
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: November 10, 2000 By /s/ James P. McDonough
---------------------------
James P. McDonough
President and Chief Executive Officer
Date: November 10, 2000 By /s/ Robert M. Lallo
---------------------------
Robert M. Lallo
Treasurer
(Principal Financial Officer)
38
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, incorporated by reference to the Company's
quarterly report on Form 10-Q for the first quarter of 2000, filed on
May 12, 2000.
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 September 13, 2000 among the
Company, the Bank and Cynthia A. Mulligan, filed herewith.
39
*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.
(c) Amendment to lease dated June 30, 2000, incorporated by reference
to the Company's quarterly report on Form 10-Q for the third quarter of
2000, filed herein.
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.
40
*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 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.
*10.16 Abington Bancorp, Inc. 2000 Incentive and Nonqualified Stock Option
Plan, incorporated by reference herein to Appendix A to the Company's
proxy statement relating to its annual meeting held on May 16, 2000,
filed with the Commission on April 13, 2000.
*10.17 Abington Bancorp, Inc. Board of Directors Transition and Retirement
Plan, incorporated by reference to the Company's quarterly report on
Form 10-Q for the second quarter of 2000, filed on August 11, 2000.
11.1 A statement regarding the computation of earnings per share is included
in Note D to Unaudited Consolidated Financial Statements included in
this Report.
27.1 Financial Data Schedule, September 30, 2000
- --------------------
* Management contract or compensatory plan or arrangement.
41