SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended September 30, 1999
-------------------------------------------
Commission File Number 0-16018
ABINGTON BANCORP, INC.
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-3334127
(State or Other Jurisdiction (I.R.S. Identification No.)
of Incorporation or Organization)
536 WASHINGTON STREET, ABINGTON, MASSACHUSETTS 02351
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 982-3200
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: 3,275,000 shares as of November
5, 1999.
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; (4)
adverse legislation or regulatory requirements may be adopted; and (5) the
impact of the Year 2000 issue may be more significant than currently
anticipated. 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, 1999
(Unaudited) and December 31, 1998............................. 4
Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 1999 and 1998....... 5
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Nine Months Ended
September 30, 1999 and 1998................................... 6
Consolidated Statements of Comprehensive Income for the Nine
Months Ended September 30, 1999 and
1998.......................................................... 7
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1999 and 1998....... 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..... 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
ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
----------- ------------
(In Thousands)
ASSETS
Cash and due from banks ......................... $ 16,167 $ 15,424
Short-term investments .......................... 224 4,293
--------- ---------
Total cash and cash equivalents ............... 16,391 19,717
--------- ---------
Loans held for sale ............................. 4,269 3,901
Securities available for sale - at
market value ................................ 220,767 181,346
Loans ........................................... 384,058 359,911
Less:
Allowance for possible loan losses .......... (3,543) (3,077)
--------- ---------
Loans, net .................................. 380,515 356,834
--------- ---------
Federal Home Loan Bank stock .................... 11,383 9,538
Banking premises and equipment, net ............. 8,895 8,328
Other real estate owned, net .................... -- --
Intangible assets ............................... 3,275 2,789
Other assets .................................... 10,866 8,698
--------- ---------
$ 656,361 $ 591,151
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ........................................ $ 382,783 $ 363,953
Short-term borrowings ........................... 105,654 66,628
Long-term debt .................................. 122,200 110,500
Accrued taxes and expenses ...................... 2,434 3,286
Other liabilities ............................... 1,540 1,790
--------- ---------
Total liabilities ........................... 614,611 546,157
--------- ---------
Guaranteed preferred beneficial interest in
the Company's junior subordinated
debentures, net ............................... 11,991 11,934
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; 4,826,000 and 4,795,000
shares issued in 1999 and 1998, respectively 483 480
Additional paid-in capital .................... 21,970 21,830
Retained earnings ............................. 25,363 23,182
--------- ---------
47,816 45,492
Treasury stock - 1,551,000 and 1,448,000 shares
for 1999 and 1998, respectively, at cost ...... (14,759) (13,283)
Compensation plans ............................ (3) (114)
Other accumulated comprehensive income -
Net unrealized gain (loss) on available for
sale securities, net of taxes ............... (3,295) 965
--------- ---------
Total stockholders' equity .................. 29,759 33,060
--------- ---------
656,361 $ 591,151
========= =========
See accompanying notes to unaudited consolidated financial statements.
7
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans ............... $ 7,004 $ 6,521 $ 20,548 $ 19,702
Interest on mortgage-backed investments .. 2,443 2,104 6,862 6,103
Interest on bonds and obligations ........ 1,185 865 3,071 2,166
Dividend income .......................... 174 161 509 465
Interest on short-term investments ....... 15 15 32 94
---------- ---------- ---------- ----------
Total interest and dividend income ..... 10,821 9,666 31,022 28,530
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits ...................... 2,878 3,005 8,459 8,776
Interest on short-term borrowings ......... 1,280 423 3,124 1,614
Interest on long-term debt ................ 1,813 1,926 5,148 5,782
---------- ---------- ---------- ----------
Total interest expense ................. 5,971 5,354 16,731 16,172
---------- ---------- ---------- ----------
Net interest income ........................ 4,850 4,312 14,291 12,358
Provision for possible loan losses ......... 190 190 450 570
---------- ---------- ---------- ----------
Net interest income, after provision for
Possible loan losses ..................... 4,660 4,122 13,841 11,788
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing fees ...................... 91 119 279 358
Other customer service fees .............. 1,194 972 3,229 2,755
Gain on sales of securities, net ......... 152 366 557 1,388
Gain on sales of mortgage loans, net ..... 384 128 906 342
Gain on sales and write-down of
other real estate owned, net ............ -- -- 68 43
Other ...................................... 82 115 301 269
---------- ---------- ---------- ----------
Total non-interest income .............. 1,903 1,700 5,340 5,155
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits ........... 2,289 2,103 6,768 5,766
Occupancy and equipment expenses ......... 837 747 2,411 2,059
Trust preferred securities expense ....... 280 259 840 325
Other non-interest expense ............... 1,555 1,075 4,202 3,618
---------- ---------- ---------- ----------
Total non-interest expense ............. 4,961 4,184 14,221 11,768
---------- ---------- ---------- ----------
Income before provision for income
taxes ................................... 1,602 1,638 4,960 5,175
Provision for income taxes ................. 569 573 1,784 1,820
---------- ---------- ---------- ----------
Net income ............................. $ 1,033 $ 1,065 $ 3,176 $ 3,355
========== ========== ========== ==========
Earnings per share
Basic -
Net income per share ................ $ .32 $ .31 $ .96 $ .95
========== ========== ========== ==========
Weighted average common shares ...... 3,277,000 3,470,000 3,299,000 3,539,000
========== ========== ========== ==========
Diluted -
Net income per share .................... $ .30 $ .29 $ .91 $ .89
========== ========== ========== ==========
Weighted average common and common share and
share equivalents ....................... 3,441,000 3,687,000 3,481,000 3,781,000
========== ========== ========== ==========
Dividends per share ....................... $ .05 $ .05 $ .30 $ .25
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Net
Unrealized
Gain
(Loss) on
Additional Available
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion Plans Total
------ -------- --------- -------- --------- -------- -------
(In thousands)
Balance at December 31, 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 compen-
sation - 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
------ -------- --------- -------- --------- -------- -------
------ -------- --------- -------- --------- -------- -------
Balance at December 31, 1997 ............ $ 468 $ 21,094 $ 19,858 $ (5,931) $ 1,063 $ (231) $ 36,321
Net income .............................. -- -- 3,355 -- -- -- 3,355
Decrease in unearned compen-
sation - ESOP ......................... -- -- -- -- -- 61 61
Effect of reclassification of securities
from held-to-maturity to available for
sale, net of taxes ...................... -- -- -- -- 245 -- 245
Issuance of stock ....................... 12 739 -- -- -- -- 751
Increase in unrealized gain on
available for sale securities,
net of taxes .......................... -- -- -- -- 1,775 -- 1,775
Repurchase of stock ..................... -- -- -- (7,352) -- -- (7,352)
Dividends declared ($.25 per share) ..... -- -- (880) -- -- -- (880)
------ -------- --------- -------- --------- -------- -------
Balance at September 30, 1998 ........... $ 480 $ 21,833 $ 22,333 $(13,283) $ 3,083 $ (170) $ 34,276
------ -------- --------- -------- --------- -------- -------
------ -------- --------- -------- --------- -------- -------
See accompanying notes to unaudited consolidated financial statements
6
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Net income, as reported .............................. $ 1,033 $ 1,065 $ 3,176 $3,355
Unrealized gains/(losses) on securities, net of taxes (1,362) 2,085 (3,904) 2,608
Less: Reclassification adjustment for securities gains
included in net income, net of taxes ................ 97 220 356 833
----- ----- ----- -----
Comprehensive income (loss) before transfers of
held-to-maturity securities ........................ (426) 2,930 (1,084) 5,130
Add: Net unrealized gains on securities transferred
from held-to-maturity, net of taxes ................ -- -- -- 245
----- ----- ----- -----
Comprehensive income (loss) .......................... $ (426) $ 2,930 $(1,084) $5,375
----- ----- ----- -----
----- ----- ----- -----
7
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
1999 1998
---- ----
(In thousands)
Cash flows from operating activities:
Net income.................................................... $3,176 $3,355
Adjustments to reconcile net income to net
cash provided (used) by operating
activities
Provision for loan losses..................................... 450 570
(Gain) loss on sales and write-down of
other real estate owned, net................................ (68) (43)
Amortization, accretion and depreciation,
net ....................................................... 1,361 1,310
Gain on sales of securities, net.............................. (557) (1,388)
Loans originated for sale in the
secondary market............................................ (78,415) ( 23,988)
Proceeds from sales of loans................................ 78,953 23,112
Gain on sales of mortgage loans, net........................ (906) (342)
Other, net.................................................. (511) (3,099)
----------- --------
Net cash provided (used) by operating
activities.................................................. 3,483 $ (513)
---------- --------
Cash flows from investing activities:
Net cash paid for Old Colony acquisition ..................... (1,113) -
Purchase of held for investment
securities................................................. - (2,844)
Proceeds from principal payments received
on held for investment securities........................... - 5,562
Proceeds from sales of available for sale
securities.................................................. 6,350 58,584
Proceeds from principal payments on
available for sale securities............................... 29,866 33,651
Purchase of available for sale securities..................... (82,083) (115,721)
Loans (originated/purchased) paid, net........................ (20,559) 3,970
Purchases of FHLB stock....................................... (1,845) (1,054)
See accompanying notes to unaudited consolidated financial statements.
8
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------------
1999 1998
------ ------
(In thousands)
Purchase of banking premises and equipment
and improvements to other real estate
owned................................................................ $ (1,566) $ (2,785)
Proceeds from sales of other real estate
owned................................................................ 68 308
------- --------
Net cash provided (used) by investing
activities........................................................... (70,882) (29,329)
-------- ---------
Cash flows from financing activities:
Net increase in deposits............................................... 18,830 23,858
Net increase (decrease) in borrowings with original
maturities of three months or less................................... 65,822 (33,253)
Proceeds from short-term borrowings with
maturities in excess of three months................................. 5,000 25,000
Principal payments on short-term borrow-
ings with maturities in excess of
three months......................................................... (35,000) (20,000)
Proceeds from issuance of long-term debt............................... 46,700 50,000
Principal payments on long term debt................................... (35,000) (29,500)
Proceeds from issuance of stock ....................................... 192 667
Net proceeds of issuance of guaranteed preferred beneficial interest
in junior subordinated debentures.................................... - 11,915
Purchase of treasury stock............................................. (1,476) (7,352)
Cash paid for dividends................................................ (995) (880)
------ --------
Net cash provided from financing
activities........................................................... 64,073 20,455
------ -------
Net increase (decrease)in cash and cash
equivalents.......................................................... (3,326) (387)
Cash and cash equivalents at beginning of
period............................................................... 19,717 13,475
------ -------
Cash and cash equivalents at end of period............................. $ 16,391 $ 13,088
===== =====
Supplemental cash flow information:
Interest paid on deposits.............................................. $ 8,490 $ 8,753
Interest paid on borrowed funds........................................ 8,455 7,479
Income taxes paid...................................................... 1,228 1,863
Transfer to other real estate owned,
net.................................................................. - 265
Transfers of securities from held-to-maturity to available for sale.... - 61,232
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
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT
September 30, 1999
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") and its wholly-owned subsidiaries, Abington Savings Bank
(the "Bank") and Abington Bancorp Capital Trust. The Bank also includes its
wholly-owned subsidiaries and 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
primarily first lien residential mortgages, and Holt Park Place Development
Corporation and Norroway Pond Development Corporation, each typically owning
properties being marketed for sale.
Abington Bancorp, Inc. was reestablished as the Bank's holding company on
January 31, 1997. Previously, the Company's predecessor, also known as
Abington Bancorp, Inc., had served as the Bank's holding company from
February 1988 until its dissolution in December 1992. The Company's primary
business is serving as the holding company of the Bank.
The accompanying consolidated financial statements as of September 30, 1999 and
for the three and nine month periods ended September 30, 1999 and 1998 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, 1998, 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
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (continued)
B) DIVIDEND DECLARATION
The Board of Directors of Abington Bancorp., Inc. declared a cash dividend
of $.05 per share to holders of its common stock in September, 1999. These
dividends were payable on October 21, 1999 to stockholders of record as of the
close of business on October 7, 1999.
11
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (continued)
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 5, 1999, the Company had repurchased 677,400 shares of its common
stock under these plans at a total cost of approximately $11,057,000. All of the
repurchases were subsequent to March 31, 1997.
D) Acquisition of Old Colony Mortgage
On April 1, 1999, the Company acquired all of the outstanding common stock of
Old Colony Mortgage Corporation (OCM) for $1.3 million in cash. OCM is
headquartered in Brockton, Massachusetts and has loan production offices in
Plymouth, Fall River and Auburn, Massachusetts. OCM originated over $125 million
in new home mortgages and refinancings in 1998. OCM primarily originates
residential first-lien mortgages which are subsequently sold on a servicing
released basis to investors, which include a number of banks and mortgage
companies.
As of April 1, 1999, OCM had approximately $4.1 million in assets, which were
primarily loans held for sale, and liabilities of approximately $3.3 million,
most of which were borrowings outstanding on a warehouse line with an
independent third party. This transaction was accounted for under the purchase
method of accounting.
E) Earnings per Share
The primary difference between basic and fully diluted average common shares
outstanding for the periods presented relates to options issued to officers and
directors which are currently exercisable and are not anti-dilutive. The
calculation of common stock equivalents for fully diluted per share computations
excludes shares which are not yet currently exercisable and /or have an exercise
price in excess of the average closing price of the Company's stock for the
period presented. At September 30, 1999, there were approximately 56,400 options
with an exercise price of $14.00 to $15.50 which were vested but anti-dilutive
and non-vested options of approximately 152,000 shares with exercise prices
ranging from $13.50 to $20.75 which were excluded from fully diluted
calculations.
12
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (continued)
F) Business Segments
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 655,434 5,759 45,333 (50,165) 656,361
Total deposits 388,157 -- -- (5,374) 382,783
Total borrowings 227,854 4,179 -- (4,179) 227,854
Total liabilities 614,478 4,312 -- (4,179) 614,611
Three months ended
Total interest income $ 10,821 $ 80 $ 9 $ (89) $ 10,821
Total interest expense 5,978 73 9 (89) 5,971
Net interest margin 4,843 7 -- -- 4,850
Provisions for possible loan losses 190 -- -- -- 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 16,720 122 16 (127) 16,731
Net interest margin 14,281 10 -- -- 14,291
Provisions for possible loan losses 570 -- -- -- 570
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
13
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (continued)
F) Business Segments (continued)
September 30, 1998:
Community Mortgage
Banking Banking Other Elimination Total
------- ------- ----- ----------- -----
Securities $ 190,551 $-- $ -- $ -- $ 190,551
Net loans 327,470 -- -- -- 327,470
Net assets 559,671 -- 43,262 (43,155) 559,778
Total deposits 356,744 -- -- (7,952) 348,792
Total borrowings 158,157 -- -- -- 158,157
Total liabilities 521,539 -- -- (7,952) 513,587
Three months ended
Total interest income $ 9,666 $-- $ 39 $ (39) $ 9,666
Total interest expense 5,354 -- 39 (39) 5,354
Net interest margin 4,312 -- -- -- 4,312
Provisions for possible loan losses 190 -- -- -- 190
Total non-interest income 1,700 -- -- -- 1,700
Total non-interest expense 3,899 -- 285 -- 4,184
Net income 1,261 -- (196) -- 1,065
Nine months ended
Total interest income $ 28,530 $ -- $ 55 $ (55) $ 28,530
Total interest expense 16,172 -- 55 (55) 16,172
Net interest margin 12,358 -- -- -- 12,358
Provisions for possible loan losses 570 -- -- -- 570
Total non-interest income 5,155 -- -- -- 5,155
Total non-interest expense 11,396 -- 372 -- 11,768
Net income 3,667 -- (312) -- 3,355
14
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
3.11% and 3.20% for the quarter and nine months ended September 30, 1999,
respectively and 3.20% and 3.10% for the quarter and nine months ended September
30, 1998, respectively. The results for the first nine months of 1998 included
approximately $400,000 of accelerated premium amortization related to purchased
loan portfolios which experienced unusually high customer prepayment activity.
This reflects the lower long term interest rates which existed in 1998 and into
1999 which has caused generally lower yields on newly originated or purchased
loans and investment securities.
The level of nonaccrual (impaired) loans and other real estate owned can have an
impact on net interest income but has generally been immaterial in 1998 and
1999. At September 30, 1999, the Company had $648,000 in non-accrual loans, and
no other real estate owned, compared to $681,000 in nonaccrual loans and no
other real estate owned as of December 31, 1998 and $588,000 in non-accrual
loans and no other real estate owned as of September 30, 1998.
15
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
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
(In Thousands)
Interest and dividend income:
Interest and fees on loans.............. $ 7,004 $ 6,521 $20,548 $19,702
Interest on mortgage-backed investments. 2,443 2,104 6,862 6,103
Interest on bonds and obligations....... 1,185 865 3,071 2,166
Dividend income......................... 174 161 509 465
Interest on short-term investments...... 15 15 32 94
------- ------- ------- -------
Total interest and dividend income..... $10,821 $ 9,666 $31,022 28,530
------- ------- ------- -------
Interest expense:
Interest on deposits.................... 2,878 3,005 8,459 8,776
Interest on short-term borrowings....... 1,280 423 3,124 1,614
Interest on long-term debt.............. 1,813 1,926 5,148 5,782
------- ------- ------- -------
Total interest expense................. 5,971 5,354 16,731 16,172
------- ------- ------- -------
Net interest income...................... $ 4,850 $ 4,312 $14,291 $12,358
------- ------- ------- -------
------- ------- ------- -------
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
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
Weighted average yield earned on:
Loans.................................. 7.53% 7.85% 7.55% 7.83%
Mortgage-backed investments............ 6.43 6.81 6.49 6.64
Bonds and obligations.................. 6.80 7.22 6.65 7.09
Marketable and other equity securities. 4.02 4.55 4.15 4.57
Short-term investments................. 6.50 6.57 6.37 5.90
Weighted average yield earned on
interest-earning assets................ 7.07 7.45 7.10 7.39
Weighted average rate paid on:
NOW and non-interest NOW deposits...... .44 .85 .47 .85
Savings deposits..................... 2.20 2.24 2.16 2.22
Time deposits........................ 5.11 5.62 5.12 5.63
Total deposits....................... 3.01 3.47 3.03 3.48
Short-term borrowings................ 5.19 5.57 5.07 5.53
Long-term debt....................... 5.99 6.08 5.89 6.04
Weighted average rate paid on
deposits and borrowings................ 3.97 4.25 3.91 4.29
Net interest-rate spread.................. 3.11% 3.20% 3.20% 3.10%
16
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
-----------------------------------------------
1999 vs. 1998
Increase (Decrease)
Due to
Volume Rate Total
------ ---------- -------
(In thousands)
Interest and dividend income:
Loans.............................. $ 932 $ (449) $ 483
Mortgage-backed investments........ 543 (204) 339
Bonds and obligations........ 407 (87) 320
Equity securities............ 45 (32) 13
Short-term investments............. - - -
------ ---------- -------
Total interest and dividend
income........................ 1,927 (772) 1,155
-------- ----------- -------
Interest expense:
NOW deposits....................... 59 (127) (68)
Savings deposits................... 95 (16) 79
Time deposits...................... 162 (300) (138)
Short-term borrowings.............. 908 (51) 857
Long-term debt..................... (104) (9) (113)
------ ----------- --------
Total interest expense......... 1,120 (503) 617
------- ------------ -------
Net interest income.................. $ 807 $ (269) $ 538
======= ======= =======
17
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Nine Months Ended September 30
--------------------------------------------
1999 Vs. 1998
Increase (Decrease)
Due to
Volume Rate Total
------- ---------- ---------
(In thousands)
Interest and dividend income:
Loans.............................. $ 1,283 $ (437) $ 846
Mortgage-backed investments........ 835 (76) 759
Bonds and obligations.............. 984 (79) 905
Equity securities.................. 72 (28) 44
Short-term investments............. (66) 4 (62)
------- ---------- ---------
Total interest and dividend
income........................ 3,108 (616) 2,492
-------- ----------- -------
Interest expense:
NOW deposits....................... 17 (187) (170)
Savings deposits................... 202 (24) 178
Time deposits...................... 118 (443) (325)
Short-term borrowings.............. 1,590 (80) 1,510
Long-term debt..................... (577) (57) (634)
------- ----------- --------
Total interest expense......... $ 1,350 (791) 559
--------- ------------ -------
Net interest income.................. $ 1,758 $ 175 $ 1,933
======= ======= =======
18
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL. Net income for the quarter ended September 30, 1999 was $1,033,000 or
$.30 per diluted share compared to net income of $1,065,000 or $.29 per diluted
share in the corresponding period of 1998, a net decrease of $32,000 or 3.0%.
The overall decline in net income was mainly attributable to lower gains on
sales of securities and increases in non-interest expenses, including salaries
expense and other expenses, offset in part by increases in net interest income,
customer service fees and gains on sales of mortgages.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $1,155,000
or 12.0% during the three month period ended September 30, 1999, as compared to
the same period in 1998. The increase was attributable to increases in earning
assets offset in part by reductions in the yield earned on those assets. The
balance of average earning assets for the three month period ended September 30,
1999 was approximately $612,119,000 as compared to $518,986,000 for the same
period in 1998, an overall increase of $93,133,000 or 18.0%. The increase in
earning assets was, in part, due to increases in average loan balances which
were $372,047,000 for the three months ended September 30, 1999, as compared to
$332,355,000 for the same period in 1998, an increase of $39,692,000 or 11.9%.
This increase was generally caused by larger volumes of commercial loan
originations in 1998 and into 1999 as well as higher residential loan balances
which were the result of the steady volume of loan originations and purchases
throughout 1998 and into 1999. See "Liquidity and Capital Resources" and
"Asset/Liability Management" for further discussion of the Company's investment
strategies.
The average yield earned on loans decreased for the third quarter of 1999 as
compared to 1998 primarily due to the effect of higher prepayments on higher
yielding residential loans and lower rates earned on newer originations or
purchases, particularly over the past year. The yield on loans for the three
months ended September 30, 1999 was 7.53% as compared to 7.85% for the same
period in 1998. Loan yields in 1999 have been affected by consistently high
levels of prepayment activity experienced throughout 1998 into 1999 on higher
yielding residential loans which were in turn replaced by lower yielding loans
due to a generally lower interest rate environment. Loan yields for the third
quarter of 1998 had been adversely affected by approximately $400,000 of
unfavorable yield adjustments on higher yielding loans that had been purchased
at a premium which was caused by unusually high prepayment activity. Yields on
loans were positively affected by growth in the Company's commercial loan
portfolio which has grown to approximately $69,100,000 at September 30, 1999
from $59,500,000 at September 30, 1998, an increase of $9,600,000 or 16.1%.
Commercial loans typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and bond investment securities
were $152,089,000 and $69,726,000, respectively, for the three months ended
September 30, 1999 as compared to $123,600,000 and $47,954,000, respectively,
for the corresponding period in 1998. These balances, when combined, increased
$50,261,000 or 29.3%. The yield on mortgage-backed investments and bonds
declined to 6.43% and 6.80%, respectively, in the third quarter of 1999, as
compared to 6.81% and 7.22%, respectively, in the same period in 1998. The
yields on these portfolios declined as a result of the lower interest rate
environment, which has generally existed over the past year.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
INTEREST EXPENSE. Interest expense for the quarter ended September 30, 1999
increased $617,000 or 11.5% compared to the same period in 1998, generally due
to increases in the average balances of deposits and borrowed funds, which were
partially offset by decreases in the rates paid on deposits and borrowed funds.
The average balance of core and time deposits rose to $217,436,000 and
$165,246,000, respectively, for the third quarter of 1999 as compared to
$186,911,000 and $159,930,000, respectively, for the corresponding period in
1998, for increases of 16.3% and 3.3%, respectively. The Company will continue
to closely manage its cost of deposits by continuing to seek methods of
acquiring new core deposits and maintaining its current core deposits while
prudently adding time deposits at reasonable rates in comparison to local
markets and other funding alternatives, including borrowings. The average
balances of borrowed funds increased overall during the third quarter of 1999 as
compared to 1998, to $219,670,000 from $156,993,000, an increase of 39.9%. 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 3.97%
for the three months ended September 30, 1999 as compared to 4.25% for the same
period in 1998. The weighted average rates paid on deposits was 3.01% for the
quarter ended September 30, 1999 as compared to 3.47% for the same period in
1998. The overall cost of deposits has declined in the third quarter of 1999 as
compared to the same period in 1998, generally due to the continued success of
promotional efforts to attract core deposits (NOW accounts, demand deposits,
savings and money markets), which typically have a lower cost of funds than time
deposits and borrowings. The overall weighted average rates paid on borrowed
funds decreased to approximately 5.63% for the quarter ended September 30, 1999
from 5.98% in 1998. This decrease represents the renewal of certain borrowings
which came due in 1998 at lower rates than they had been obtained for
previously, which is reflective of the net cumulative effect of recent actions
taken by the Federal Reserve over the past year to reduce the inter-bank
borrowing rate by 25 basis points. The Company will continue to evaluate the use
of borrowing as an alternative funding source for asset growth in future
periods. See "Asset/Liability Management" for further discussion of the
competitive market for deposits and overall strategies for uses of borrowed
funds.
NON-INTEREST INCOME. Total non-interest income increased $203,000 or 11.9% in
the third quarter of 1999 in comparison to the same period in 1998. Customer
service fees, which were $1,194,000 for the quarter ended September 30, 1999 as
compared to $972,000 for 1998, for an increase of $222,000 or 22.8%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Loan servicing fees and gains on sales of mortgage loans were
$91,000 and $384,000, respectively, for the third quarter of 1999 as compared to
$119,000 and $128,000, respectively, for the same period in 1998, a combined
increase of $228,000 or 92.3%. This generally is reflective of the Company's
acquisition of Old Colony Mortgage in April, 1999 and continued strength of the
overall refinance market for residential consumers 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.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gains on sales of securities were $152,000 for the third quarter of 1999 as
compared to $366,000 for 1998 for a decrease of $214,000 or 58.5%. While the
equity markets remained relatively strong through the third quarter of 1999,
management has elected to sell fewer holdings.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended September 30,
1999 increased $777,000 or 18.6% compared to the same period in 1998. Salaries
and employee benefits increased 8.8% or $186,000 primarily due to the
acquisition of Old Colony Mortgage (approximately $330,000) and increases in
supermarket branch staffing (approximately $110,000) offset in part by the fact
that one-time charges of $120,000 were taken in the same quarter in 1998 for
which there was not a corresponding charge in 1999 as well as other general
declines in the cost of various benefits. The increases in supermarket branch
staff are related to two additional branches: Hanson (September 1998) and
Brockton (May 1999), which have opened since June 1998. These increases
correspond with the Company's strategic focus of attracting core deposits and
new customer relationships. Occupancy expenses increased $90,000 or 12.1%
primarily due to the acquisition of Old Colony Mortgage (approximately $29,000),
the two new supermarket branches as previously noted (approximately $77,000) and
the general inflationary and capital expenditure increases, particularly in
technology. Other non-interest expenses, including trust preferred expenses,
also increased $501,000 or 37.6% for the quarter ended September 30, 1999 in
comparison to the same period in 1998. Of this amount, approximately $21,000 of
the aforementioned increases relates to expenses related to trust preferred
securities which were issued in June 1998, the acquisition of Old Colony
Mortgage (approximately $115,000) and supermarket branch growth ($39,000).
Additionally, the Company has experienced higher expense levels due to
advertising expenses associated with home equity loan promotions in the third
quarter of 1999 as well as expenses associated with customer promotional gifts
for checking account openings, which comprised the balance of this expense
increase.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$190,000 for the quarter ended September 30, 1999 as compared to $190,000 for
the quarter ended September 30, 1998.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended September 30, 1999 was 36% compared to 35.0% for the quarter ended
September 30, 1998. 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.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
GENERAL. Net income for the nine months ended September 30, 1999 was $3,176,000
or $.91 per diluted share compared to a net income of $3,355,000 or $.89 per
diluted share in the corresponding period of 1998, a net decrease of $179,000 or
5.3%. The overall decline in net income was mainly attributable to lower gains
on sales of securities and increases in non-interest expenses, including
salaries expense and trust preferred securities, offset in part by increases in
net interest income, customer service fees and gains on sales of mortgages.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $2,492,000
or 8.7% during the nine month period ended September 30, 1999, as compared to
the same period in 1998. The increase was attributable to increases in earning
assets offset in part by reductions in the yield earned on those assets. The
balance of average earning assets for the nine month period ended September 30,
1999 was approximately $582,271,000 as compared to $514,511,000 for the same
period in 1998, an overall increase of $67,760,000 or 13.2%. The increase in
earning assets was in part due to increases in average loan balances which were
$362,765,000 for the nine months ended September 30, 1999, as compared to
$335,448,000 for the same period in 1998, an increase of $27,317,000 or 8.1%.
This increase was generally caused by larger volumes of commercial loan
originations in 1998 and into 1999 as well as higher residential loan balances
which were the result of the steady volume of loan originations and purchases
throughout 1998 and into 1999. See "Liquidity and Capital Resources" and
"Asset/Liability Management" for further discussion of the Company's investment
strategies.
The average yield earned on loans decreased for the nine months ended September
30, 1999 as compared to 1998 primarily due to the effect of higher prepayments
on higher yielding residential loans and lower rates earned on newer
originations or purchases, particularly over the past nine months. The yield on
loans for the nine months ended September 30, 1999 was 7.55% as compared to
7.83% for the same period in 1998. Loan yields in 1999 have been affected by
consistently high levels of prepayment activity experienced throughout 1998 into
1999 on higher yielding residential loans which were in turn replaced by lower
yielding loans due to the lower interest rate environment. Loan yields for the
first half of 1998 had been adversely affected by approximately $400,000 of
unfavorable yield adjustments or higher yielding loans which had been purchased
at a premium which was caused by unusually high prepayment activity. Yields on
loans were positively affected by growth in the Company's commercial loan
portfolio which has grown to approximately $69,100,000 at September 30, 1999
from $59,500,000 at September 30, 1998, an increase of $9,600,000 or 16.1%.
Commercial loans typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and bond investments were
$140,900,000 and $61,572,000, respectively, for the nine months ended September
30, 1999 as compared to $122,636,000 and $40,738,000, respectively, for the
corresponding period in 1998. These balances, when combined, increased
$39,098,000 or 23.9%. The yield on mortgage-backed investments and bond
investments declined to 6.49% and 6.65%, respectively in the first nine months
of 1999, as compared to 6.64% and 7.09%, respectively in the same period in
1998. As with loan yields, these yields were adversely affected by general rate
declines over the past two years.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Also, the yield on bond investments decreased generally due to some of the
Company's higher yielding bonds being called by the issuers with proceeds being
reinvested at lower rates.
INTEREST EXPENSE. Interest expense for the nine months ended September 30, 1999
increased $559,000 or 3.5% compared to the same period in 1998, generally due to
increases in the average balances of deposits and borrowed funds, which was
partially offset by decreases in the rates paid on deposit and borrowed funds.
The average balance of core and time deposits rose to $209,296,000 and
$163,124,000, respectively, for the nine months ended 1999 as compared to
$179,896,000 and $156,276,000, respectively, for the corresponding period in
1998, for increases of 16.3% and 4.4%, respectively. The Company will continue
to closely manage its cost of deposits by continuing to seek methods of
acquiring new core deposits and maintaining its current core deposits while
prudently adding time deposits at reasonable rates in comparison to local
markets and other funding alternatives, including borrowings. The average
balances of borrowed funds increased overall, during the nine month period
ending September 30, 1999 as compared to 1998, to $198,812,000 from
$166,571,000, an increase of 19.4%. This increase generally relates to the
funding of certain asset growth. The blended weighted average rate paid on
deposits and borrowed funds was 3.91% for the nine months ended September 30,
1999 as compared to 4.29% for the same period in 1998. The weighted average
rates paid on deposits was 3.03% for the nine months ended September 30, 1999 as
compared to 3.48% for the same period in 1998. The overall cost of deposits has
declined in the first nine months of 1999 as compared to the same period in
1998, generally due to the continued success of promotional efforts to attract
core deposits (NOW accounts, demand deposits, savings and money markets), which
typically have a lower cost of funds than time deposits and borrowings. The
overall weighted average rates paid on borrowed funds decreased to approximately
5.54% for the nine months ended September 30, 1999 from 5.92% in 1998. This
decrease represents the renewal of certain borrowings which came due in 1998 at
lower rates than they had been obtained for previously. The decrease in the cost
of borrowed money is consistent with the cumulative net effect of the Federal
Reserve's actions taken since June 1998 to reduce the inter-bank borrowing rate
by 25 basis points. The Company will continue to evaluate the use of borrowing
as an alternative funding source for asset growth in future periods. See
"Asset/Liability Management" for further discussion of the competitive market
for deposits and overall strategies for uses of borrowed funds.
NON-INTEREST INCOME. Total non-interest income increased $185,000 or 3.6% in the
first nine months of 1999 in comparison to the same period in 1998. Customer
service fees, which were $3,229,000 for the nine months ended September 30, 1999
as compared to $2,755,000 for 1998, for an increase of $474,000 or 17.2%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Loan servicing fees and gains on sales of mortgage loans were
$279,000 and $906,000, respectively, for the first nine months of 1999 as
compared to $358,000 and $342,000, respectively, for the same period in 1998, a
combined increase of $485,000 or 69.3%. The increase in gains on sales is
generally reflective of the Company's acquisition of Old Colony Mortgage and
also the favorable consumer rates for residential loans in 1999 which has
resulted in increased saleable loan production compared to the same period in
1998. 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.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gains on sales of securities were $557,000 for the first nine months of 1999 as
compared to $1,388,000 for 1998 for a decrease of $831,000 or 59.9%. While the
equity markets remained relatively strong through the first nine months of 1999,
management elected to sell fewer holdings.
NON-INTEREST EXPENSES. Non-interest expenses for the nine months ended September
30, 1999 increased $2,453,000 or 20.9% compared to the same period in 1998.
Salaries and employee benefits increased 17.4% or $1,002,000 primarily due to
the acquisition of Old Colony Mortgage (approximately $620,000), increase in
supermarket branch staff (approximately $342,000). The increases in supermarket
staffing are result of more supermarket branches being open during the nine
month period ended September 30, 1999 than compared to the same period in 1998.
The branches primarily affecting this difference, with their opening dates in
parenthesis, were Randolph (April 1998), Hanson (September 1998) and Brockton
(May 1999). These increases correspond with the Company's strategic focus of
attracting core deposits and new customer relationships. Occupancy expenses
increased $352,000 or 17.1% primarily due to the acquisition of Old Colony
Mortgage (approximately $57,000), the effect of increasing supermarket branches
(approximately $180,000), and increases in other capital and technology
expenditures. Other non-interest expenses, including trust preferred expenses,
also increased $1,099,000 or 27.9% for the nine months ended September 30, 1999
in comparison to the same period in 1998. Of this amount, approximately $515,000
of the aforementioned increases relates to expenses related to trust preferred
securities which were issued in June 1998, and approximately $227,000 related to
Old Colony Mortgage and additional $132,000 related to increases in supermarket
branches.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
reduced to $450,000 for the nine months ended September 30, 1999 from $570,000
for the same period in 1998, a decline of $120,000 or 21.1%. The primary reason
for the reduction was due to the recovery of approximately $90,000 on a
previously charged-off commercial real estate loan as well as the continued
strength of other asset quality factors that management uses to evaluate the
adequacy of loan loss reserve levels.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the nine
months ended September 30, 1999 was 36% compared to 35% for the nine months
ended September 30, 1998. 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.
Additionally, the overall effective tax rate is influenced by the proportion of
income generated by non-bank subsidiaries. In 1998, a greater portion of income
was generated through non-bank subsidiaries as compared to the same period in
1999.
24
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 2.0%
-200 2.5%
25
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.
26
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 58.6% of the average interest earning assets for the first nine
months of 1999. In the future, the Company intends to continue to be competitive
in the residential mortgage market but plans to place greater emphasis on
consumer and commercial loans. The Company also has been, and expects to remain,
active in pursuing wholesale opportunities to purchase loans. During the first
nine months of 1999 and 1998, the Company acquired approximately $73,000,000 and
$46,500,000, respectively, of residential first mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
investments and as an overall asset/liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have provided the Company with greater reinvestment
flexibility.
The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has been aggressively promoting the Company's
core deposit products since the first quarter of 1995, particularly checking and
NOW accounts. The success of this program has favorably impacted the overall
deposit growth to date, despite interest rate and general market pressures, and
has helped the Company to increase its customer base. However, given the strong
performance of money market mutual funds and the equity markets in general, the
Company and many of its peers have begun to see lower levels of growth in time
deposits as compared to prior years as customers reflect their desire to
increase their returns on investment. This pressure has been exacerbated
currently by the historically low long-term economic interest rates. Management
believes that the markets for future time deposit growth, particularly with
terms in excess of 2 years, will remain highly competitive. Management will
continue to evaluate future funding strategies and alternatives accordingly as
well as to continue to focus its efforts on attracting core, retail deposit
relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company considers it more
advantageous to borrow money from the FHLB of Boston than to raise money through
non-core deposits (i.e., certificates of deposit). Borrowed funds totaled
$227,854,000 at September 30, 1999 compared to $177,128,000 at December 31,
1998. 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.
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.
27
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, 1999. 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.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
At September 30, 1999
--------------------------------------------------------------------------------
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 ...... $ 224 $ -- $ -- $ -- $ -- $ -- $ 224
Bonds and obligations ....... 33,589 9,024 8,101 -- 16,616 2,011 69,341
Mortgage-backed investments . 25,914 20,998 17,944 15,575 26,399 43,677 150,507
Mortgage loans subject to
rate review ................ 30,447 21,507 14,601 17,393 41,789 11,827 137,564
Fixed-rate mortgage loans ... 24,235 16,452 29,235 38,790 56,982 63,485 229,179
Commercial and other loans .. 12,612 2,938 1,723 1,335 2,614 362 21,584
--------- ------- ------- ------- ------- ------- ---------
Total ................... $ 127,021 $ 70,919 $ 71,604 $ 73,093 $ 144,400 $ 121,362 $ 608,399
--------- ------- ------- ------- ------- ------- ---------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 17,058 -- -- -- -- -- 17,058
Savings deposits - term
certificates ............... 64,222 54,853 36,814 4,680 6,483 -- 167,052
Other savings accounts ...... 154,338 -- -- -- -- -- 154,338
Borrowed funds .............. 165,654 9,000 43,700 4,000 5,000 500 227,854
--------- ------- ------- ------- ------- ------- ---------
Total ......................... 401,272 63,853 80,514 8,680 11,483 500 566,302
--------- ------- ------- ------- ------- ------- ---------
Guaranteed preferred beneficial
interest in junior subordinated
debentures .................... $-- $-- $-- $-- $-- $ 11,991 $ 11,991
--------- ------- ------- ------- ------- ------- ---------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ........ $(274,251) $ 7,066 (8,910) $ 64,413 $ 132,917 $ 108,871 $ 30,106
--------- ------- ------- ------- ------- ------- ---------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities ... $(274,251) $(267,185) $(276,095) $(211,682) $ (78,765) $ 30,106
--------- ------- ------- ------- ------- -------
--------- ------- ------- ------- ------- -------
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1) .............. 31.7% 42.6% 49.4% 61.9% 86.1% 103.0%
(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.
29
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, 1999, the Company had
approximately $158,000,000 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 $656,000 at September 30, 1999, compared to $731,000
at December 31, 1998, a decrease of $75,000 or 10.3%. The Company's percentage
of delinquent loans to total loans was .47% at September 30, 1999, as compared
to .36% at December 31, 1998. Management believes that while delinquency rates
and non-performing assets remain at relatively low levels at September 30, 1999,
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, 1999, the Company had outstanding commitments to originate,
purchase and sell residential mortgage loans in the secondary market amounting
to $13,239,700, $0 and $4,269,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $13,107,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $10,262,000 as of September 30, 1999.
The Company believes it has adequate sources of liquidity to fund these
commitments.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Company's total stockholders' equity was $29,759,000 or 4.5% of total assets
at September 30, 1999, compared with $33,060,000 or 5.6% of total assets at
December 31, 1998. The decrease in total stockholders' equity of approximately
$3,301,000 or 10.0% primarily resulted from decreases in the unrealized gain on
market value of available for sale securities, net of taxes, stock repurchases
and dividends paid, offset in part by earnings of 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, 1999,
approximately $11,000,000 of these securities was included in Tier 1 capital.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At September 30, 1999, the Company's Tier 1 leverage capital
ratio was approximately 6.22%. 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, 1999, the Company's Tier 1 and total
risk-based capital ratios were approximately 11.26% and 12.51%, 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, 1999.
Impact of the Year 2000
The Year 2000 problem, which is common to most companies, concerns the inability
of information systems, primarily (but not exclusively) computer software
programs, to properly recognize and process date-sensitive information as the
Year 2000 approaches. The following constitutes the Company's Year 2000
readiness disclosure under the Year 2000 Information and Readiness Disclosure
Act.
The mission critical information systems of the Company are generally processed
in-house using programs or software provided by third party vendors. Thus, the
direct effort to correct Year 2000 issues has generally been undertaken by
larger companies outside of the Company's control. The Company believes that it
has brought its mission critical systems into compliance with Year 2000
generally through software upgrades and releases, covered primarily through
pre-existing maintenance contracts on such software or, for some limited
exceptions, through the acquisition and installation of compliant alternative
solutions.
Bank regulators have issued additional guidance under which they are assessing
Year 2000 readiness. The failure of a financial institution, such as the
Company, to address deficiencies in the Year 2000 management process may result
in enforcement actions which could have a material adverse effect on such
institution, result in the imposition of civil money penalties or result in the
delay (or receipt of an unfavorable or critical evaluation of management of a
financial institution in connection with regulatory review) of applications
seeking to expand the institutions activities or to acquire other entities.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Company has had a Year 2000 Task Force (the "Task Force") comprised of
middle and senior management personnel starting in 1997. The managers on this
Task Force represent all operating areas of the Company including those who have
limited responsibilities for internal system applications but may have Year 2000
exposure resulting from vendor or correspondent relationships. A formal Year
2000 Action Plan has been developed and was approved by the Board of Directors
in 1997. The Task Force has had regularly scheduled monthly meetings since its
formation with bi-weekly meetings since March 1998 and provides updates to the
full Board of Directors on a monthly basis. The Company also established a Year
2000 Committee in June 1998 comprised of the Chief Executive Officer, Chief
Operations Officer, Director of Management Information Systems and three outside
Directors of the Company. This group has reviewed all Year 2000 plans and the
Company's progress against the detailed plans and objectives established in the
Year 2000 Action Plan. This Committee meets quarterly. The Task Force has
completed an assessment, identifying mission critical systems, and has initiated
formal communications with all third party vendors, including correspondent
financial institutions, to determine the compliance status of all systems
utilized by the Company. Mission critical systems include hardware, software,
program interfaces, operating systems and network. Based upon the results of the
assessment, the Company did not determine a need to replace significant portions
of existing hardware or software systems.
The Company's plan to address the Year 2000 issue was developed along the
five-phase project management process outlined in the Federal Financial
Institutions Examination Council (FFIEC) Year 2000 statement of May 5, 1997 ((i)
awareness; (ii) assessment; (iii) renovation; (iv) validation; and (v)
implementation). The awareness phase has generally been completed. The
assessment phase has consisted of assessing and documenting the Company's
business risk, information systems, and third party vendors, including those who
are not software and hardware or operating system providers.
This phase also included an assessment of the Company's exposure to additional
credit risk as a result of Year 2000 issues with its customers, particularly for
commercial and commercial real estate loans and also for large depositors. At
this point in time, after the completion of such assessment, management does not
believe that there is a material risk or exposure in these specific areas to
credit losses or liquidity problems as a result of Year 2000. Although credit
risk associated with Year 2000 appears to be low for the Company based upon
current assessments, it is not possible to fully evaluate the true magnitude of
increased credit risk associated with Year 2000 at this point in time. The
impact that Year 2000 has on borrowers could result in increases in problem
loans and credit losses in future years. Management will continue, however, to
monitor developments in these areas. The overall assessment phase has certain
elements, including impact of reliance upon outside vendors, which are currently
ongoing. The majority of the assessment phase is otherwise complete with no
critical issues noted.
The validation phase, which includes actual testing of software, hardware,
network, telecom and programming applications, is also complete. There have not
been any material issues or developments as a result of such testing.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Company has developed contingency plans to ensure that critical operations
continue in the event that its information systems or other vendors are unable
to achieve Year 2000 requirements. At this point, the Company has not identified
any mission critical vendors who have missed target dates or appear to be at
material risk of not achieving Year 2000 requirements.
The chief components of the Company's Year 2000 expenses are generally relating
to the costs of acquiring testing systems, independent auditors and consultants
to assist the Task Force and management in assessing the adequacy of its plan,
testing of its systems, and propriety of its conclusions and, in some instances,
minor programming for system interfaces and the purchase of non-mission critical
software replacements which were necessitated as a result of management's Year
2000 risk assessment and/or testing. It is estimated that the Company directly
incurred $150,000 in expenses in 1998 related to Year 2000 and management
conservatively estimates that approximately $100,000 to $150,000 in additional
expenses may be incurred in 1999. Costs of the project, however, are based on
current estimates and actual results could vary significantly from such
estimates once detailed testing and contingency planning is completed.
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 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.
a) 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 Registration Statement on Form 8-A,
effective January 13, 1997.
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 May 28, 1998
among the Company, the Bank and John R. Sylva,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1998,
filed on August 10, 1998.
*10.4 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the
Bank and Mario A. Berlinghieri incorporated by
reference to the Company's Annual Report for the year
ended December 31, 1996 on Form 10-K, filed on March
31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement dated as of July 1, 1997 among
the Company, the Bank and Mario A. Berlinghieri,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated Special
Termination Agreement, dated as of April 16, 1998 by
and among the Company, the Bank and Mario A.
Berlinghieri, incorporated by reference to the
Company's quarterly report on Form 10-Q for the first
quarter of 1998, filed on May 8, 1998.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, as amended and restated to reflect
holding company formation incorporated by reference to
the Company's Annual Report for the year ended
December 31, 1996 on Form 10-K filed on March 31,
1997.
*10.6 Management Incentive Compensation Program dated March
1997, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
35
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("lease"), used for
the Bank's principal and administrative offices dated
January 1, 1996 incorporated by reference to the
Company's Annual Report for the year ended December
31, 1996 on Form 10-K, filed on March 31, 1997.
Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry, Jr.,
who beneficially own more than 5% of the Company's
Common Stock, are the principal beneficial owners of
Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on Form
10-K, filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January
31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified
Stock Option Plan, incorporated by reference herein to
Appendix A to the Company's proxy statement relating
to its special meeting in lieu of annual meeting held
on June 17, 1997, filed with the Commission on April
29, 1997.
*10.11 (a) Special Termination Agreement dated as of
July 1, 1997 among the Company, the Bank and
Robert M. Lallo, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination Agreement
dated April 16, 1998 by and among the Company, the
Bank and Robert M. Lallo, incorporated by reference to
the Company's quarterly report on Form 10-Q for the
first quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of August
28, 1997, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the third quarter of
1997, filed on November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement between
the Bank and James P. McDonough dated as of March 26,
1998, incorporated by reference to the Company's
quarterly report on Form 10-Q for the first quarter of
1998, filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors
effective July 1, 1998, incorporated by reference to
Appendix A to the Company's proxy statement (schedule
14A) for its 1998 Annual Meeting, filed with the
Commission on April 13, 1998.
11.1 A statement regarding the computation of earnings per
share is included in Item 8 of this Report.
36
27.1 Financial Data Schedule, September 30, 1999
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the third quarter of
1999.
- -----------------
* 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 5, 1999 By /s/ JAMES P. MCDONOUGH
----------------------------
James P. McDonough
President and Chief Executive Officer
Date: November 5, 1999 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 Registration Statement on Form 8-A,
effective January 13, 1997.
4.1 Specimen stock certificate for the Company's Common
Stock incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January
31, 1997.
4.2 Form of Indenture between Abington Bancorp, Inc. and
State Street Bank and Trust Company incorporated by
reference to Exhibit 4.1 of the Registration Statement
on Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.
4.3 Form of Junior Subordinated Debenture incorporated by
reference to Exhibit 4.2 of the Registration Statement
on Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.
4.4 Form of Amended and Restated Trust Agreement by and
among the Company, State Street Bank and Trust
Company, Wilmington Trust Company and the
Administrative Trustees of the Trust incorporated by
reference to Exhibit 4.4 of the Registration Statement
on Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement by
and between the Company and State Street Bank and
Trust Company incorporated by reference to Exhibit 4.6
of the Registration Statement on Form S-2 of the
Company and Abington Bancorp Capital Trust, filed on
May 12, 1998.
*10.1 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the
Bank and James P. McDonough incorporated by reference
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement dated as of July 1, 1997 among
the Company, the Bank and James P. McDonough,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.2 Special Termination Agreement dated as of November 2,
1998 among the Company, the Bank and Kevin M. Tierney,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the third quarter of 1998,
filed on November 12, 1998.
*10.3 Special Termination Agreement dated as of May 28, 1998
among the Company, the Bank and John R. Sylva,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1998,
filed on August 10, 1998.
*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
39
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 Management Incentive Compensation Program dated March
1997, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("lease"), used for
the Bank's principal and administrative offices dated
January 1, 1996 incorporated by reference to the
Company's Annual Report for the year ended December
31, 1996 on Form 10-K, filed on March 31, 1997.
Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry, Jr.,
who beneficially own more than 5% of the Company's
Common Stock, are the principal beneficial owners of
Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on Form
10-K, filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January
31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified
Stock Option Plan, incorporated by reference herein to
Appendix A to the Company's proxy statement relating
to its special meeting in lieu of annual meeting held
on June 17, 1997, filed with the Commission on April
29, 1997.
*10.11 (a) Special Termination Agreement dated as of July 1,
1997 among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination Agreement
dated April 16, 1998 by and among the Company, the
Bank and Robert M. Lallo, incorporated by reference to
the Company's quarterly report on Form 10-Q for the
first quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of August
28, 1997, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the third quarter of
1997, filed on November 15, 1997.
40
*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.
11.1 A statement regarding the computation of earnings per
share is included in Item 8 of this Report.
27.1 Financial Data Schedule, September 30, 1999.
- -------------------------
* Management contract or compensatory plan or arrangement.
41