SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended March 31, 2001
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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: 3,108,852 shares as of May 4,
2001.
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Further, any statements contained in this Form 10-Q that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "expect," "anticipate," "plan,"
"believe," "seek," "estimate," "internal" and similar words are intended to
identify expressions that may be forward-looking statements. Forward-looking
statements involve certain risks and uncertainties, and actual results may
differ materially from those contemplated by such statements. For example,
actual results may be adversely affected by the following possibilities: (1)
competitive pressure among depository institutions may increase; (2) changes in
interest rates may reduce banking interest margins; (3) general economic
conditions and real estate values may be less favorable than contemplated; and
(4) adverse legislation or regulatory requirements may be adopted. Many of such
factors are beyond the Company's ability to control or predict. Readers of this
Form 10-Q are accordingly cautioned not to place undue reliance on
forward-looking statements. The Company disclaims any intent or obligation to
update publicly any of the forward-looking statements herein, whether in
response to new information, future events or otherwise.
ABINGTON BANCORP, INC.
FORM 10-Q
INDEX
Page
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Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001
(Unaudited) and December 31, 2000...........................................................................4
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended March 31, 2001 and 2000..................................................................5
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
March 31, 2001 and 2000.....................................................................................6
Consolidated Statements of Comprehensive Income (Unaudited) for the
Three Months Ended March 31,2001 and 2000...................................................................7
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2001 and 2000..........................................................8
Notes to Unaudited Consolidated Financial Statements.......................................................10
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.....................................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................................29
Part II Other Information
Item 1. Legal Proceedings..........................................................................................30
Item 2. Change in Securities.......................................................................................30
Item 3. Defaults upon Senior Securities............................................................................30
Item 4. Submission of Matters to a Vote of Security Holders........................................................30
Item 5. Other Information..........................................................................................30
Item 6. Exhibits and Reports on Form 8-K...........................................................................30
Signature Page......................................................................................................34
Index to Exhibits...................................................................................................35
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ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited)
March 31, December 31,
2001 2000
--------- ---------
(In Thousands)
ASSETS
Cash and due from banks .............................................. $ 31,061 $ 27,374
Short-term investments ............................................... 237 235
--------- ---------
Total cash and cash equivalents .................................... 31,298 27,609
--------- ---------
Loans held for sale .................................................. 10,624 3,617
Securities available for sale - at
market value ..................................................... 312,290 290,211
Loans ................................................................ 376,353 374,377
Less:
Allowance for possible loan loss ................................. (3,838) (3,856)
--------- ---------
Loans, net ....................................................... 372,515 370,521
--------- ---------
Federal Home Loan Bank stock, at cost ................................ 12,910 12,910
Banking premises and equipment, net .................................. 9,351 9,481
Other real estate owned, net ......................................... 355 --
Intangible assets .................................................... 2,597 2,710
Bank-owned life insurance - contract value ........................... 3,551 3,511
Other assets ......................................................... 8,100 7,679
--------- ---------
$ 763,591 $ 728,249
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................. $ 478,556 $ 454,747
Short-term borrowings ................................................ 27,883 49,565
Long-term debt ....................................................... 185,850 172,567
Accrued taxes and expenses ........................................... 4,200 3,582
Other liabilities .................................................... 18,667 1,397
--------- ---------
Total liabilities ................................................ 715,156 681,858
--------- ---------
Guaranteed preferred beneficial interest in the
Company's junior subordinated debentures ............................ 12,105 12,086
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; 4,913,000 and 4,875,000
shares issued in 2001 and 2000, respectively ..................... 491 488
Additional paid-in capital ......................................... 22,968 22,915
Retained earnings .................................................. 30,493 29,570
--------- ---------
53,952 52,973
Treasury stock - 1,807,000 shares in 2001
and 2000, at cost .............................................. (17,584) (17,584)
Compensation plans ................................................. 111 111
Other accumulated comprehensive income -
Net unrealized loss on available for
sale securities, net of taxes .................................... (149) (1,195)
--------- ---------
Total stockholders' equity ....................................... 36,330 34,305
--------- ---------
$ 763,591 $ 728,249
========= =========
See accompanying notes to unaudited consolidated financial statements
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
Three Months Ended
March 31
--------
2001 2000
---------- ----------
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans ............ $ 7,241 $ 7,295
Interest on mortgage-backed investments 3,527 2,786
Interest on bonds and obligations ..... 1,452 1,254
Dividend income ....................... 292 215
Interest on short-term investments .... 14 15
---------- ----------
Total interest and dividend income .. 12,526 11,565
---------- ----------
Interest expense:
Interest on deposits ................... 3,831 3,002
Interest on short-term borrowings ...... 522 1,989
Interest on long-term debt ............. 2,855 1,638
---------- ----------
Total interest expense .............. 7,208 6,629
---------- ----------
Net interest income ..................... 5,318 4,936
Provision for possible loan losses ...... -- --
---------- ----------
Net interest income after provision for
possible loan losses .................. 5,318 4,936
---------- ----------
Non-interest income:
Loan servicing fees ................... 78 83
Customer service fees ................. 1,713 1,125
Gain on securities, net ............... 72 245
Gain on sales of mortgage loans, net .. 460 243
Gain on sales and write-down of
other real estate owned, net .......... -- --
Other ................................... 123 101
---------- ----------
Total non-interest income ........... 2,446 1,797
---------- ----------
Non-interest expense:
Salaries and employee benefits ........ 3,059 2,514
Occupancy and equipment expense ....... 861 904
Trust preferred securities expense .... 280 280
Other non-interest expenses ........... 1,663 1,285
---------- ----------
Total non-interest expense .......... 5,863 4,983
---------- ----------
Income before provision for income
taxes ................................ 1,901 1,750
Provision for income taxes .............. 668 617
---------- ----------
Net income .......................... $ 1,233 $ 1,133
========== ==========
Earnings per share
Basic -
Net income per share ............. $ .40 $ .36
========== ==========
Weighted average common shares ... 3,078,000 3,112,000
========== ==========
Diluted -
Net income per share ................. $ .38 $ .35
========== ==========
Weighted average common shares and
share equivalents ..................... 3,208,000 3,249,000
========== ==========
Dividends per share .................... $ .10 $ .09
========== ==========
See accompanying notes to unaudited consolidated financial statements.
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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(Unaudited)
Net
Unrealized
Gain
(Loss) on
Additional Available
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion Plans Total
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Balance at December 31, 2000 .................. $488 $22,915 $ 29,570 $(17,584) $(1,195) $111 $ 34,305
Net income .................................... -- -- 1,233 -- -- -- 1,233
Issuance of stock ............................. 3 53 -- -- -- -- 56
Change in obligation related to directors
deferred stock plan ....................... -- -- -- -- -- -- --
Decrease in unrealized loss on
available for sale securities, net of taxes -- -- -- -- 1,046 -- 1,046
Repurchase of stock ........................... -- -- -- -- -- -- --
Dividends declared ($.10 per share) ........... -- -- (310) -- -- -- (310)
---- ------- -------- -------- ------- ---- --------
Balance at March 31, 2001 ..................... $491 $22,968 $ 30,493 $(17,584) $ (149) $111 $ 36,330
==== ======= ======== ======== ======= ==== ========
Balance at December 31, 1999 .................. $483 $22,610 $ 26,176 $(15,885) $(5,581) $ 29 $ 27,832
Net income .................................... -- -- 1,133 -- -- -- 1,133
Change in obligation related to directors
deferred stock plan ....................... -- -- -- -- -- 12 12
Decrease in unearned compensation - ESOP ...... -- 14 -- -- -- 20 34
Decrease in unrealized loss on available
for sale securities, net of taxes ......... -- -- -- -- 1,356 -- 1,356
Issuance of stock ............................. -- -- -- -- -- -- --
Repurchase of stock ........................... -- -- -- (1,699) -- -- (1,699)
Dividends declared ($.09 per share) ........... -- -- (271) -- -- -- 271)
---- ------- -------- -------- ------- ---- --------
Balance at March 31, 2000 ..................... $483 $22,624 $ 27,038 $(17,584) $(4,225) $ 61 $ 28,397
==== ======= ======== ======== ======= ==== ========
See accompanying notes to unaudited consolidated financial statements.
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
March 31,
2001 2000
------ ------
(Dollars in thousands)
Net income, as reported .......................... $1,233 $1,133
Change in unrealized gains/(losses) on available
for sale securities, net of taxes .............. 1,093 1,515
Less: Reclassification adjustment for available
for sale securities gains included in net income,
net of taxes .................................... 47 159
------ ------
Comprehensive income ............................. $2,279 $2,489
====== ======
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
(In thousands)
Cash flows from operating activities:
Net income ................................................................. $ 1,233 $ 1,133
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Provision for loan losses .................................................. -- --
(Gain) loss on sales and write-down of
other real estate owned, net ............................................. -- --
Amortization, accretion and depreciation,
Net ...................................................................... 405 647
Gain on sales of securities, net ........................................... (72) (245)
Loans originated for sale in the
secondary market ......................................................... (37,603) (11,700)
Proceeds from sales of loans ............................................... 31,056 11,109
Gain on sales of mortgage loans, net ....................................... (460) (243)
Other, net ................................................................. 16,731 1,407
-------- --------
Net cash provided (used) by operating
activities ............................................................... 11,290 2,108
-------- --------
Cash flows from investing activities:
Proceeds from sales of available for sale
securities ............................................................... 21,691 459
Proceeds from principal payments on and maturities of
available for sale securities ............................................ 24,303 5,004
Purchase of available for sale securities .................................. (66,114) (25,950)
Loans (originated/purchased) paid, net ..................................... (2,349) (2,100)
Purchases of FHLB stock .................................................... -- --
See accompanying notes to unaudited consolidated financial statements.
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ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
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(Unaudited)
Three Months Ended
March 31,
---------
2001 2000
-------- --------
(In thousands)
Purchase of banking premises and equipment
and improvements to other real estate
owned ............................................ $ (288) $ (536)
Proceeds from sales of other real estate
owned ............................................ -- --
-------- --------
Net cash provided by (used for) investing
activities ....................................... (22,757) (18,923)
-------- --------
Cash flows from financing activities:
Net increase in deposits ........................... 23,809 21,598
Net increase (decrease) in borrowings with original
maturities of three months or less ............... (21,862) (16,048)
Proceeds from short-term borrowings with
maturities in excess of three months ............. -- --
Principal payments issuance of short-term borrowings
with maturities in excess of
three months ..................................... -- (5,000)
Proceeds from issuance of long-term debt ........... 30,000 12,717
Principal payments on long term debt ............... (16,717) (9,000)
Proceeds from issuance of stock .................... 56 12
Purchase of treasury stock ......................... -- (1,699)
Cash paid for dividends ............................ (310) (163)
-------- --------
Net cash provided (used) by financing
activities ....................................... 15,156 2,417
-------- --------
Net increase (decrease) in cash and cash
equivalents ...................................... 3,689 (14,278)
Cash and cash equivalents at beginning of
period ........................................... 27,609 33,722
-------- --------
Cash and cash equivalents at end of period ......... $ 31,298 $ 19,444
.................................................... ======== ========
Supplemental cash flow information:
Interest paid on deposits .......................... $ 3,836 $ 3,004
Interest paid on borrowed funds .................... 3,398 3,626
Income taxes paid .................................. 909 638
Transfer of loans to other real estate owned,
net .............................................. 355 --
See accompanying notes to unaudited consolidated financial statements.
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
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A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") (a Massachusetts Corporation) and its wholly-owned
subsidiaries, Abington Savings Bank (the "Bank") and Abington Bancorp Capital
Trust. The Bank also includes its wholly-owned subsidiaries Abington Securities
Corporation, which invests primarily in obligations of the United States
Government and its agencies and equity securities, Old Colony Mortgage
Corporation, which originates and sells residential mortgages to investors on a
servicing released basis, and Holt Park Place Development Corporation and
Norroway Pond Development Corporation, each typically owning properties being
marketed for sale.
The accompanying consolidated financial statements as of March 31, 2001 and for
the three month periods ended March 31, 2001 and 2000 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
accounting principles generally accepted in the United States 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, 2000, which are included in the Company's Annual
Report on Form 10-K. 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.
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (continued)
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B) DIVIDEND DECLARATION
The Board of Directors of Abington Bancorp., Inc. declared a cash dividend of
$.10 per share to holders of its common stock in March, 2001. This dividend was
payable on April 19, 2001 to stockholders of record as of the close of business
on April 5, 2001.
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (continued)
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C) Stock Repurchase Program
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its currently
outstanding common stock from time to time at prevailing market prices. On
February 24, 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase an additional 10% (347,000) of its
outstanding common stock, as adjusted for amounts remaining to be repurchased
under the March 1997 plan. On March 25, 1999, the Board of Directors authorized
the Company to repurchase an additional 10% (320,000) of its outstanding common
stock, as adjusted for amounts remaining to be purchased under the previously
authorized plans. The Board delegated to the discretion of the Company's senior
management the authority to determine the timing of the repurchase program's
commencement, subsequent purchases and the prices at which the repurchases will
be made.
As of May 10, 2001, 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 March 31, 2001, based on the closing price of the Company's
stock of $13.19, there were approximately 188,500 options with exercise prices
ranging from $13.50 to $20.75 which would not be considered dilutive for
purposes of earnings per share.
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (continued)
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E) Business Segments
March 31, 2001:
Community Mortgage
Banking Banking Other Elimination Total
------- ------- ----- ----------- -----
Securities ....................... $312,290 $ -- $ -- $ -- $312,290
Net loans ........................ 383,162 10,755 -- (10,778) 383,139
Net assets ....................... 764,215 12,415 49,078 (62,117) 763,591
Total deposits ................... 480,034 -- -- (1,478) 478,556
Total borrowings ................. 213,733 10,778 -- (10,778) 213,733
Total liabilities ................ 716,383 11,029 -- (12,256) 715,156
Three months ended
Total interest income ............ $ 12,545 $ 143 $ 8 $ (170) $ 12,526
Total interest expense ........... 7,239 139 -- (170) 7,208
Net interest income .............. 5,306 4 8 -- 5,318
Provision for possible loan losses -- -- -- -- --
Total non-interest income ........ 1,991 455 -- -- 2,446
Total non-interest expense ....... 5,174 409 280 -- 5,863
Net income ....................... 1,395 18 (180) -- 1,233
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ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 (continued)
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E) Business Segments (continued)
March 31, 2000:
Community Mortgage
Banking Banking Other Elimination Total
------- ------- ----- ----------- -----
Securities ....................... $258,495 $ -- $ -- $ -- $258,495
Net loans ........................ 387,426 5,214 -- (5,196) 387,444
Net assets ....................... 698,993 6,688 45,345 (47,796) 703,050
Total deposits ................... 414,098 -- -- (2,808) 411,290
Total borrowings ................. 242,420 5,196 -- (5,196) 242,420
Total liabilities ................ 665,163 5,327 140 (8,004) 662,626
Three months ended
Total interest income ............ $ 11,551 $ 67 $ 27 $ (80) $ 11,565
Total interest expense ........... 6,656 53 -- (80) 6,629
Net interest income .............. 4,895 14 27 -- 4,936
Provision for possible loan losses -- -- -- -- --
Total non-interest income ........ 1,554 293 -- (50) 1,797
Total non-interest expense ....... 4,274 395 314 -- 4,983
Net income ....................... 1,419 (63) (190) (33) 1,133
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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 the Company's employee retirement benefits, the
Board of Directors voted October 10, 2000 to freeze the Company's Pension Plan
effective as of October 31, 2000 and terminate the Pension Plan effective on
December 31, 2000. In connection therewith, the Company has amended the Pension
Plan to improve the benefit formula for current employees and permit payment of
lump sums from the Pension Plan.
Assets of the Pension Plan, after considering the impact of amendments, asset
returns and other associated administrative expenses are expected to be adequate
to be able to satisfy the obligations of the Pension Plan, as amended. Any
residual excess will be refunded to the Company subject to excise and income
taxes.
As part of the redesign of retirement benefits, the Bank added, effective in
January 2001, a 3% automatic contribution to the 401(k) plan for all employees
even for employees who do not separately contribute to that plan. Such
contribution is being made for all eligible participants based on their W-2
compensation.
These excess assets of the Plan, as estimated, on October 31, 2000 were
approximately $1 million.
G) Adoption of SFAS No. 140
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities. This Statement
replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, and rescinds SFAS Statement No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125.
SFAS No. 140 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The Company has adopted SFAS No. 140 on its
consolidated financial statements as of January 1, 2001. The adoption of this
statement did not have a material impact on its consolidated financial position
or results or operations.
H) Adoption of SFAS No. 133
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, on January 1, 2001. This
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and to measure those instruments at fair value.
Adoption of this statement had no impact on the Company's consolidated financial
statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
The Company's results of operations depend primarily on its net interest income
after provision for possible loan losses, its revenue from other banking
services and non-interest expenses. The Company's net interest income depends
upon the net interest rate spread between the yield on the Company's loan and
investment portfolios and the cost of funds, consisting primarily of interest
expense on deposits and Federal Home Loan Bank advances. The interest rate
spread is affected by the match between the maturities or repricing intervals of
the Company's assets and liabilities, the mix and composition of interest
sensitive assets and liabilities, economic factors influencing general interest
rates, loan prepayment speeds, loan demand and savings flows, as well as the
effect of competition for deposits and loans. The Company's net interest income
is also affected by the performance of its loan portfolio, amortization or
accretion of premiums or discounts on purchased loans and mortgage-backed
securities, and the level of non-earning assets. Revenues from loan fees and
other banking services depend upon the volume of new transactions and the market
level of prices for competitive products and services. Non-interest expenses
depend upon the efficiency of the Company's internal operations and general
market and economic conditions.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Company's net interest rate spread was
3.06% for the quarter ended March 31, 2001 and 2.96% for the quarter ended March
31, 2000.
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 2000 and 2001. At March 31, 2001, the Company had $398,000 in
non-accrual loans, and $355,000 of other real estate owned, compared to $549,000
in non-accrual loans and no other real estate owned as of December 31, 2000 and
$585,000 in non-accrual loans and no other real estate owned as of March 31,
2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
Three Months Ended
March 31
--------
2001 2000
------- -------
(In Thousands)
Interest and dividend income:
Interest and fees on loans ............ $ 7,241 $ 7,295
Interest on mortgage-backed investments 3,527 2,786
Interest on bonds and obligations ..... 1,452 1,254
Dividend income ....................... 292 215
Interest on short-term investments .... 14 15
------- -------
Total interest and dividend income ... $12,526 $11,565
======= =======
Interest expense:
Interest on deposits .................. $ 3,831 $ 3,002
Interest on short-term borrowings ..... 522 1,989
Interest on long-term debt ............ 2,855 1,638
------- -------
Total interest expense ............... 7,208 6,629
------- -------
Net interest income .................... $ 5,318 $ 4,936
======= =======
A breakdown of the components of the Company's net interest-rate spread is as
follows:
March 31
--------
2001 2000
---- ----
Weighted average yield earned on:
Loans ................................ 7.77% 7.58%
Mortgage-backed investments .......... 6.91 6.81
Bonds and obligations ................ 7.27 6.53
Marketable and other equity securities 5.21 4.27
Short-term investments ............... 6.47 3.54
Weighted average yield earned on
interest-earning assets .............. 7.37 7.11
Weighted average rate paid on:
NOW and non-interest NOW deposits .... .41 .43
Savings deposits ..................... 2.22 2.23
Time deposits ........................ 6.00 5.16
Total deposits ....................... 3.38 3.04
Short-term borrowings ................ 5.79 5.76
Long-term debt ....................... 6.34 6.12
Weighted average rate paid on
deposits and borrowings .............. 4.30 4.14
Net interest-rate spread ................ 3.06% 2.96%
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
The following tables present, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
THREE MONTHS ENDED MARCH 31
--------------------------------
2001 vs. 2000
INCREASE (DECREASE)
--------------------------------
DUE TO
--------------------------------
VOLUME RATE TOTAL
--------------------------------
(In thousands)
Interest and dividend income:
Loans .......................... $ (227) $ 173 $ (54)
Mortgage-backed investments .... 573 168 741
Bonds and obligations .......... 109 89 198
Equity securities .............. 26 51 77
Short-term investments ......... (10) 9 (1)
------- ----- -------
Total interest and dividend
income ................... 471 490 961
------- ----- -------
Interest expense:
NOW deposits .................. 19 (7) 12
Savings deposits .............. 87 (4) 83
Time deposits ................. 345 389 734
Short-term borrowings ......... (1,477) 10 (1,467)
Long-term debt ................ 1,156 61 1,217
------- ----- -------
Total interest expense .... 130 449 579
------- ----- -------
Net interest income ............. $ 341 $ 41 $ 382
======= ===== =======
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
GENERAL. Net income for the quarter ended March 31, 2001 was $1,233,000 or $.38
per diluted share compared to net income of $1,133,000 or $ .35 per diluted
share in the corresponding period of 2000, a net increase of $100,000 or 8.8% in
net income or 8.6% in diluted earnings per share. The overall increase in net
income was mainly attributable to increases in net interest income, customer
service fees and gains on sales of mortgage loans partially offset by decreases
in net security gains and increases in non-interest expenses.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $961,000 or
8.3% during the three month period ended March 31, 2001, as compared to the same
period in 2000. The increase was attributable to increases in the volume of
earning assets and the yield earned on those assets. The balance of average
earning assets for the three month period ended March 31, 2001 was approximately
$680,193,000 as compared to $650,844,000 for the same period in 2000, an overall
increase of $29,349,000 or 4.5%.
The increase in earning assets was primarily driven by increases in average
mortgage-backed investments and investment securities which were $204,172,000
and $79,853,000, respectively for the quarter ended March 31, 2001 as compared
to $170,599,000 and $73,668,000, respectively for the same period in 2000. These
balances when combined increased $39,758,000 or 16.3%. The yield on
mortgage-backed investments and investment securities increased to 6.91% and
7.27%, respectively, in the three months ended March 31, 2001 as compared to
6.81% and 6.53%, respectively in the same period of 2000. These yields increased
primarily due to the rising interest rate environment which existed for most of
2000. From June 1999 to July 2000, the Federal Reserve Bank increased rates 175
basis points. While the investments purchased by the Company are generally not
tied to prime, many other rates and indices which do impact the yield on assets
purchased also increased. Additionally, an agency investment security which was
called by the issuer resulted in a discount being taken to income of
approximately $74,000 in the first quarter of 2001. This had the effect of
increasing the yield on investment securities approximately 37 basis points in
the same period.
The average balance of loans decreased to $372,891,000 for the three months
ended March 31, 2001 from $384,728,000 for the same period in 2000, a decline of
$11,837,000 or 3.1%. These balances declined as a result of fewer residential
loans being purchased and/or originated for the Company's loan portfolio in
2000. The yield on loans increased to 7.77% in the first three months of 2001 as
compared to 7.58% for the same period in 2000. This was generally due to the
rising rate environment which existed for most of 2000, which impacted new loan
originations. This increase was also reflective of increases in commercial loans
which generally earn higher rates than residential loans. Commercial loans were
$84,121,000 at March 31, 2001 as compared to $72,640,000 at March 31, 2000.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2001
increased $579,000 or 8.7% compared to the same period in 2000, 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 $256,750,000 and $196,818,000, respectively, for the first quarter of
2001 as compared to $222,738,000 and $171,955,000, respectively, for the
corresponding period in 2000, for increases of 15.3% and 14.5%, respectively.
The increases noted for the three month period ended March 31, 2001, generally
relate 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 decreased overall during the first quarter of 2001 as
compared to 2000, to $216,180,000 from $245,107,000, a decrease of 11.8%. The
decrease in borrowings was achieved due to the Company's success in attracting
deposits over the past year.
The blended weighted average rate paid on deposits and borrowed funds was 4.30%
for the three months ended March 31, 2001 as compared to 4.14% for the same
period in 2000. The overall weighted average rates paid on borrowed funds
increased to approximately 6.24% for the quarter ended March 31, 2001 from 5.92%
in 2000. This increase is reflective of actions taken by the Federal Reserve
Bank in 1998 and 1999. From June 1999 to July 2000, the Federal Reserve raised
the inter-bank borrowing rate 175 basis points. During the first quarter of
2001, the Federal Reserve decreased rates 150 basis points with another 50 basis
point decline in April, 2001. It is anticipated, given the current rate
environment, that the rates paid on borrowed funds could decline further in
future quarters as borrowings are refinanced as they reach maturity. 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 3.38%
for the quarter ended March 31, 2001 as compared to 3.04% for the same period in
2000. The overall cost of deposits has increased slightly in the first quarter
of 2001 at rate consistent with borrowed funds generally due to the interest
rate environment noted as well as due to intense competition on the pricing of
time deposits which has existed since the third quarter of 2000.
NON-INTEREST INCOME. Total non-interest income increased $649,000 or 36.1% in
the first quarter of 2001 in comparison to the same period in 2000. Customer
service fees, which were $1,713,000 for the quarter ended March 31, 2001 as
compared to $1,125,000 for 2000, for an increase of $588,000 or 52.3%, 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 $78,000 and $460,000, respectively, for the
first quarter of 2001 as compared to $83,000 and $243,000, respectively, for the
same period in 2000, a combined increase of $212,000 or 65.0%. This generally is
reflective of the improved market for loan originations and related higher
volume of loans being originated and sold in the first quarter of 2001 as
compared to the same period in 2000. 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.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Realized gains on securities, net, were $72,000 for the first quarter of 2001 as
compared to $245,000 for 2000 for a decrease of $173,000 or 70.6%. The results
from the first quarter 2001 include $492,000 of gains generated generally from
higher coupon mortgage-backed investments and discounted callable agency
securities which were at a higher risk of being prepaid or called within the
year. These gains were offset, in part, by a realized loss on a corporate bond
recorded to reflect management's change in its intent with regard to this
investment which has a current market value below the amortized cost.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended March 31,
2001 increased $880,000 or 17.7% compared to the same period in 2000. Salaries
and employee benefits increased 21.7% or $545,000. This increase was
attributable to several factors, including increases in incentive compensation
and benefit accruals (approximately $178,000) relating to commissions on
insurance sales (the Company received regulatory approval to sell annuities in
May 2000); increased costs associated with the opening of the Canton branch in
November 2000 and other increased retail staffing ($125,000); increases in
retirement and insurance benefits ($150,000); 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. Occupancy expenses decreased $43,000 or 4.8%. These expenses
decreased approximately $165,000 due to the expiration of maintenance contracts
on the Company's former mainframe computer as well as the fact that the system
is no longer being depreciated due to its conversion to a third-party service
bureau (see increase in other non-interest expense). The decrease was offset in
part due to higher costs associated with the opening of Canton (approximately
$30,000) and higher costs associated with snow removal and utilities in the
first quarter of 2001 as compared to the same period in 2000. Other non-interest
expenses, including trust preferred expenses, also increased $378,000 or 24.2%
for the quarter ended March 31, 2001 in comparison to the same period in 2000.
Other operating expenses increased generally as the result of the opening of the
Canton branch ($61,000); costs associated with the third-party service bureau
contract ($159,000); and other costs associated with customer volumes and
general cost increases.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses for
the quarters ended March 31, 2001 and 2000 were $0. The 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 .99% of period end loans at March 31, 2001 as
compared to 1.02% and .96% at December 31, and March 31, 2000, respectively.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended March 31, 2001 was 35.1% compared to 35.3% for the quarter ended
March 31, 2000. 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.
- --------------------------------------------------------------------------------
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 5.6%
-200 .9%
- --------------------------------------------------------------------------------
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.
The Company also emphasizes loans with terms to maturity or repricing of 5 years
or less, such as certain adjustable rate residential mortgage loans, residential
construction loans and home equity loans.
- --------------------------------------------------------------------------------
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 55% of the average interest earning assets for the first three
months of 2001. 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 also expects to become more active in
pursuing wholesale opportunities to purchase loans. During the first three
months of 2001 and 2000, the Company acquired approximately $12,000,000 and $0,
respectively, of residential first mortgages which are serviced by others.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
investments and as an overall asset/liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have provided the Company with greater reinvestment
flexibility. The level of the Company's liquid assets and the mix of its
investments may vary, depending upon management's judgment as to market trends,
the quality of specific investment opportunities and the relative attractiveness
of their maturities and yields.
One of the factors influencing earning asset levels and their yields since 1997
has been the intensity of prepayment activity on mortgage related assets which
have been prompted by the very attractive refinancing opportunities that the
market has presented consumers for the better part of the past two years.
Management estimates that over 60% of its earning assets at December 31, 1997
have paid off by December 31, 2000 and were replaced with similar assets at
generally lower yields. This has contributed to the continued downward trend in
asset yields in 1998 and 1999. This effect was offset in part by the
acquisition/origination of loans and investments at higher yields in 2000, due
to the rising interest rate environment which existed. Management does
anticipate, however, given the early market trends and interest rate forecasts
by economists and decline in rates to date in 2001, that prepayment activity and
declining asset yield trends may develop in 2001.
Management has been aggressively promoting the Company's core deposit products
since the first quarter of 1995, particularly checking and NOW accounts. The
success of this program has favorably impacted the overall deposit growth to
date, despite interest rate and general market pressures, and has helped the
Company to increase its customer base. However, given the strong performance of
mutual funds and the equity markets in general, the Company and many of its
peers have begun to see lower levels of growth in time deposits as compared to
prior years as customers reflect their desire to increase their returns on
investment. This pressure has been exacerbated currently by the historically low
long-term economic interest rates. Management believes that the markets for
future time deposit growth, particularly with terms of 1 to 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
$213,733,000 at March 31, 2001 compared to $222,132,000 at December 31, 2000.
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.
Also, 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.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at March 31, 2001. 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 residential 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.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
At March 31, 2001
------------------------------------------------------------------------------------
Repricing/Maturity Interval
------------------------------------------------------------------------------------
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 ...... $ 237 $ -- $ -- $ -- $ -- $ -- $ 237
Bonds and obligations ....... 42,526 4,967 9,401 3,800 3,980 3,112 67,786
Mortgage-backed investments . 46,078 17,746 28,275 25,662 38,522 79,211 235,494
Mortgage loans subject to
rate review ................ 39,392 12,593 16,222 37,581 20,689 6,942 133,419
Fixed-rate mortgage loans ..... 68,953 22,412 31,601 29,978 36,455 42,011 231,410
Commercial and other loans .. 12,203 3,650 1,721 1,337 2,736 501 22,148
--------- --------- --------- --------- --------- -------- --------
Total ................... 209,389 61,368 87,220 98,358 102,382 131,777 690,494
--------- --------- --------- --------- --------- -------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 17,838 -- -- -- -- -- 17,838
Savings deposits - term
certificates ............... 77,830 61,456 37,317 5,762 16,062 -- 198,427
Other savings accounts ...... 197,434 -- -- -- -- -- 197,434
Borrowed funds .............. 65,233 19,000 75,000 20,000 5,000 29,500 213,733
--------- --------- --------- --------- --------- -------- --------
Total ......................... 358,335 80,456 112,317 25,762 21,062 29,500 627,432
--------- --------- --------- --------- --------- -------- --------
Guaranteed preferred beneficial
interest in junior subordinated
debentures .................... -- -- -- -- -- 12,105 12,105
--------- --------- --------- --------- --------- -------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ........ (148,946) (19,088) (25,097) 72,596 81,320 90,172 50,957
--------- --------- --------- --------- --------- -------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities(1) $(148,946) $(168,034) $(193,131) $(120,535) $ (39,215) $ 50,957
========= ========= ========= ========= ========= ========
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (cumulative) .... 58.4% 61.7% 65.0% 79.1% 93.4% 108.0%
(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.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- -------------------------------------------------------------------------------
Liquidity and Capital Resources
Payments and prepayments on the Company's loan and mortgage-backed investment
portfolios, sales of fixed rate residential loans, increases in deposits,
borrowed funds and maturities of various investments comprise the Company's
primary sources of liquidity. The Company is also a voluntary member of the FHLB
of Boston and, as such, is entitled to borrow an amount up to the value of its
qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At March 31, 2001, the Company had
approximately $228,500,000 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 Loan 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, which generally have varying degrees of loan collateral and repayment
issues, on the watched asset reports. Workout approach and financial condition
of borrowers are also key considerations to the evaluation of non-performing
loans.
Non-performing assets were $753,000 at March 31, 2001, compared to $556,000 at
December 31, 2000, an increase of $197,000 or 35.4%. The Company's percentage of
delinquent loans to total loans was .21% at March 31, 2001, as compared to .22
at December 31, 2000. Management believes that while delinquency rates and
non-performing assets remain at relatively low levels, these factors are at
historic lows, and at some point in the future some degree of economic slow down
is likely which in turn may result in future increases in problem assets and
loan loss provisions. Management continues to monitor the overall economic
environment and its potential effects on future credit quality on an ongoing
basis.
At March 31, 2001, the Company had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $35,449,000 and
$10,624,000, respectively. The Company also has outstanding commitments to grant
advances under existing home equity lines of credit amounting to $15,224,000.
Unadvanced commitments under outstanding commercial and construction loans
totaled $19,509,000 as of March 31, 2001. The Company believes it has adequate
sources of liquidity to fund these commitments.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
The Company's total stockholders' equity was $36,330,000 or 4.8% of total assets
at March 31, 2001, compared with $34,305,000 or 4.7% of total assets at December
31, 2000. The increase in total stockholders' equity of approximately $2,025,000
or 5.9% primarily resulted from decrease in the unrealized loss on the market
value of available for sale securities, net of taxes, offset in part by
dividends paid or payable, by the Company.
The Company issued $12,650,000 or 8.25% Trust Preferred Securities in June 1998.
Under current regulatory guidelines, trust preferred securities are allowed to
represent up to approximately 25% of the Company's Tier 1 capital with any
excess amounts available as Tier 2 capital. As of March 31, 2001, approximately
$11,989,000 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 March 31, 2001, the Company's Tier 1 leverage capital ratio
was approximately 5.94%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At March 31, 2001, the Company's Tier 1 and total
risk-based capital ratios were approximately 11.87% and 12.90%, respectively.
The Company is categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also
categorized as "well-capitalized" as of March 31, 2001.
- --------------------------------------------------------------------------------
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
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis - Asset/Liability Management."
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.
3.3 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 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, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
first quarter of 2001, filed on November 15, 2000.
*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, 2000 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, 2000 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 first quarter
of 2001, 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, 2000
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.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the first quarter of
2001.
- ---------------------------------------------------
* Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ABINGTON BANCORP, INC.
----------------------
(Company)
Date: May 9, 2001 By /s/James P. McDonough
-------------------------
James P. McDonough
President and Chief Executive Officer
Date: May 9, 2001 By /s/Robert M. Lallo
----------------------
Robert M. Lallo
Treasurer
(Principal Financial Officer)