<PAGE> 1
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 March 31, 1997
----------------------------------
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)
538 Bedford Street, Abington, Massachusetts 02351
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 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: 1,864,738 shares as of May 5,
1997.
<PAGE> 2
ABINGTON BANCORP, INC.
FORM 10-Q
---------
INDEX
-----
Page
----
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(Unaudited) and December 31, 1996 .................................3
Consolidated Statements of Operations (Unaudited)
for the Three Ended March 31, 1997 and 1996........................4
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
March 31, 1997 and 1996............................................5
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1997 and 1996.................6
Notes to (Unaudited) Consolidated Financial Statements.............8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ....................11
Part II Other Information
Item 1. Legal Proceedings..................................................25
Item 2. Change in Securities...............................................25
Item 3. Defaults upon Senior Securities....................................25
Item 4. Submission of Matters to a Vote of Security Holders................25
Item 5. Other Information..................................................25
Item 6. Exhibits and Reports on Form 8-K...................................25
Signature Page..............................................................28
Index to Exhibits...........................................................29
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<PAGE> 3
ABINGTON BANCORP, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Unaudited
March 31, December 31,
1997 1996
-------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks .............................. $ 9,885 $ 9,556
Short-term investments ............................... 1,952 152
-------- --------
Total cash and cash equivalents .................... 11,837 9,708
-------- --------
Loans held for sale .................................. 321 3,176
Securities:
Mortgage-backed investments - held for
investment - market value of $60,109
in 1997 and $62,456 in 1996 ..................... 62,239 63,670
Securities available for sale - at
market value .................................... 95,375 91,561
Loans ................................................ 301,761 297,605
Less:
Allowance for possible loan losses ........... (1,945) (1,811)
-------- --------
Loans, net ................................... 299,816 295,794
-------- --------
Federal Home Loan Bank stock ......................... 7,903 7,903
Banking premises and equipment, net .................. 6,231 6,346
Other real estate owned, net ......................... 395 500
Intangible assets .................................... 3,614 3,685
Other assets ......................................... 4,327 4,615
-------- --------
$492,058 $486,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................. $305,674 $300,445
Short-term borrowings ................................ 50,950 63,171
Long-term debt ....................................... 96,886 84,353
Accrued taxes and expenses ........................... 2,448 3,447
Other liabilities .................................... 2,265 1,996
-------- --------
Total liabilities ................................. 458,223 453,412
-------- --------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued ......... -- --
Common stock, $.10 par value 7,000,000
shares authorized; 2,330,738 and 2,330,238
shares issued in 1997 and 1996, respectively ..... 233 233
Additional paid-in capital ......................... 20,931 20,923
Retained earnings .................................. 17,318 16,455
-------- --------
38,482 37,611
Treasury stock - 437,000 shares, at cost ........... (3,703) (3,703)
Unearned compensation - ESOP ....................... (292) (312)
Net unrealized loss on available for
sale securities, net of taxes .................... (652) (50)
-------- --------
Total stockholders' equity ...................... 33,835 33,546
-------- --------
$492,058 $486,958
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
-3-
<PAGE> 4
ABINGTON BANCORP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
--------- ---------
(In thousands, except per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans .................... $ 6,039 $ 5,514
Interest on mortgage-backed investments........ 2,230 2,335
Interest on bonds and obligations.............. 393 347
Dividend income................................ 147 138
Interest on short-term investments............. 8 10
--------- ---------
Total interest and dividend income........... 8,817 8,344
--------- ---------
Interest expense:
Interest on deposits........................... 2,680 2,624
Interest on short-term borrowings.............. 817 925
Interest on long-term debt..................... 1,267 1,268
--------- ---------
Total interest expense....................... 4,764 4,817
--------- ---------
Net interest income............................. 4,053 3,527
Provision for possible loan losses.............. 158 120
--------- ---------
Net interest income, after provision for
possible loan losses........................... 3,895 3,407
--------- ---------
Non-interest income:
Loan servicing fees............................ 143 177
Other customer service fees.................... 680 559
Gain on sales of securities, net............... 110 121
Gains on sales of mortgage loans, net.......... 81 133
Net gain (loss) on sales and writedown of
other real estate owned....................... 16 --
Other........................................... 107 84
--------- ---------
Total non-interest income.................... 1,137 1,074
--------- ---------
Non-interest expense:
Salaries and employee ......................... 1,620 1,433
Occupancy and equipment expenses............... 580 625
Other non-interest expense..................... 1,091 1,070
--------- ---------
Total non-interest expense................... 3,291 3,128
--------- ---------
Income before provision for income
taxes..................................... 1,741 1,353
Provision for income taxes...................... 689 519
--------- ---------
Net income................................... $ 1,052 $ 834
========= =========
Dividends per share............................. $ .10 $ .10
========= =========
Earnings per share.............................. $ .52 $ .42
========= =========
Weighted average common and common share
equivalents.................................... 2,007,000 1,977,000
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE> 5
<TABLE>
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
====================================================================================================================
(Unaudited)
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Additional Available Unearned
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion-ESOP Total
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... $233 $20,923 $16,455 $(3,703) $ (50) $(312) $33,546
Net income....................... -- -- 1,052 -- -- 1,052
Decrease in unearned compen-
sation - ESOP.................. -- -- -- -- -- 20 20
Increase in unrealized loss on
available for sale securities,
net of taxes................... -- -- -- -- (602) -- (602)
Exercise of stock options........ -- 8 -- -- -- -- 8
Dividends declared
($.10 per share)............... -- -- (189) -- -- -- (189)
---- ------- ------- ------- ----- ----- -------
Balance at March 31, 1997........ $233 $20,931 $17,318 $(3,703) $(652) $(292) $33,835
==== ======= ======= ======= ===== ===== =======
Balance at December 31, 1995..... $232 $20,811 $13,676 $(3,703) $ (62) $(393) $30,561
Net income....................... -- -- 834 -- -- -- 834
Decrease in unearned compen-
sation - ESOP................... -- -- -- -- -- 21 21
Increase in unrealized loss on
available for sale securities,
net of taxes................... -- -- -- -- (106) -- (106)
Dividends declared
($.10 per share)............... -- -- (188) -- -- -- (188)
---- ------- ------- ------- ----- ----- -------
Balance at March 31, 1996........ $232 $20,811 $14,322 $(3,703) $(168) $(372) $31,122
==== ======= ======= ======= ===== ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE> 6
================================================================================
ABINGTON BANCORP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
================================================================================
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 1,052 $ 834
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for loan losses ............................ 158 120
Net loss on sales and writedown of
other real estate owned ............................ (16) --
Amortization, accretion and depreciation,
net ................................................ 447 410
Gain on sales of securities, net ........................ (110) (121)
Loans originated for sale in the
secondary market .................................... (3,672) (7,007)
Proceeds from sales of loans ......................... 6,608 8,149
Gain on sales of mortgage loans, net ................. (81) (133)
Other, net ........................................... (106) (2,430)
------- --------
Net cash provided (used) by operating
activities ........................................... $ 4,280 $ (178)
------- --------
Cash flows from investing activities:
Maturities of held for investment
investment securities ................................ -- 548
Purchase of held for investment
investment securities ................................ -- (8,531)
Proceeds from principal payments received
on held for investment securities .................... 1,443 2,050
Proceeds from sales of available for sale
securities ............................................ 7,836 6,264
Proceeds from principal payments on
available for sale securities ......................... 2,892 4,455
Purchase of available for sale securities .............. (15,449) (4,955)
Loans originated/purchased, net ........................ (4,180) (9,639)
Purchases of FHLB stock ................................ -- (284)
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-6-
<PAGE> 7
- --------------------------------------------------------------------------------
ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Purchase of banking premises and equipment
and improvements to other real estate owned .............. (174) $ (204)
Proceeds from sales of other real estate owned ............ 121 178
------- -------
Net cash provided (used) by investing activities............ (7,511) (10,118)
------- -------
Cash flows from financing activities:
Net increase in deposits .................................. 5,229 7,474
Net increase (decrease) in borrowings with original
maturities of three months or less ....................... (5,221) 15,721
Proceeds from short-term borrowings with
maturities in excess of three months ..................... -- --
Proceeds from exercise of stock options ................... 8 --
Principal payments on short-term borrow-
ings with maturities in excess of
three months ............................................. (7,000) (8,500)
Proceeds from issuance of long-term debt .................. 18,000 4,500
Principal payments on long term debt ...................... (5,467) (2,026)
Cash paid for dividends .................................... (189) (188)
------- -------
Net cash provided from financing activities .............. 5,360 16,981
------- -------
Net increase (decrease)in cash and cash equivalents ........ 2,129 6,685
Cash and cash equivalents at beginning of period ........... $ 9,708 $10,611
------- -------
Cash and cash equivalents at end of period ................. $11,837 $17,296
======= =======
Supplemental cash flow information:
Interest paid on deposits ............................... $ 2,680 $ 2,610
Interest paid on borrowed funds ......................... 2,074 2,179
Income taxes paid ....................................... 1,011 17
Transfers to other real estate owned, net ............... -- --
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-7-
<PAGE> 8
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
- --------------------------------------------------------------------------------
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abington Bancorp, Inc. (The "Company") is a one-bank holding company which
owns all of the outstanding capital stock of Abington Savings Bank ("the
Bank"). 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 March 31, 1997
and for the three month periods ended March 31, 1997 and 1996 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. On January 31, 1997, in connection with the
holding company formation, each share of the Bank's common stock
previously outstanding was converted automatically into one share of
common stock of the Company, and the Bank became a wholly-owned subsidiary
of the Company. This reorganization had no impact on the consolidated
financial statements. 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 Bank's consolidated
financial statements as of and for the year ended December 31, 1996, 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.
The consolidated financial statements include the accounts of Abington
Bancorp, Inc. and its wholly-owned subsidiary, Abington Savings Bank.
Abington Savings Bank also includes its' wholly-owned subsidiaries, Holt
Park Place Development Corporation and Norroway Pond Development
Corporation each owning properties being marketed for sale, ABBK
Corporation, which invests in real estate limited partnerships and was
dissolved in January 1997, and Abington Securities Corporation, which
invests primarily in obligations of the United States Government and its
agencies and equity securities. All significant intercompany balances and
transactions have been eliminated in consolidation.
-8-
<PAGE> 9
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 (continued)
B) DIVIDEND DECLARATION
The Board of Directors of Abington Bancorp., Inc. declared a cash dividend
of $.10 per share to holders of its common stock in March 1997. The
dividend was payable on April 24, 1997 to stockholders of record as of the
close of business on April 11, 1997.
C) EARNINGS PER SHARE
In February 1997, Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share" (SFAS No. 128) was issued. This Statement is
effective for both interim and annual periods ending after December 15,
1997, and replaces the presentation of "primary" earnings per share (EPS)
with a presentation of "basic" EPS. Basic EPS excludes dilution and is
computed by dividing income available to holders of common stock by the
weighted-average number of common shares outstanding during the period.
The Statement also requires the presentation of diluted EPS, if
applicable, which is computed similarly to "fully diluted" EPS, under
existing accounting rules.
If the Company were to compute its pro forma earnings per share for the
three month period ended March 31, 1997 and 1996 using the methods
prescribed by SFAS No. 128, the results would be as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
---- ----
(In thousands except per share and share data)
<S> <C> <C>
Net Income.......................... $ 1,052 $ 834
========= =========
EARNINGS PER SHARE:
Basic-
Earnings per share $ .56 $ .44
========= =========
Weighted average common shares 1,894,000 1,884,000
========= =========
Diluted
Earnings per share $ .52 $ .42
========= =========
Weighted average common shares
and share equivalents............... 2,007,000 1,977,000
========= =========
</TABLE>
-9-
<PAGE> 10
ABINGTON BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 (continued)
D) Stock Repurchase Program
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (187,000 shares) of its
currently outstanding Common stock from time to time at prevailing market
prices. The Board delegated to the discretion of the Company's senior
management the authority to determine the timing of the repurchase
program's commencement, subsequent purchases and the prices at which the
repurchases will be made.
As of May 5, 1997, the Company has repurchased 29,000 shares of its
common stock under this plan at a total cost of $622,875. All of the
repurchases were subsequent to March 31, 1997.
E) Stock Option Plan
In March 1997, the Board of Directors has approved an Incentive and
Non-qualified Stock Option Plan, subject to approval by the stockholders
of the Company at its annual meeting in June 1997.
The 1997 Stock Option Plan authorizes the grant of (i) options to purchase
Common Stock intended to qualify as incentive stock options ("Incentive
Options"), as defined in Section 422 of the Code, and (ii) options that do
not so qualify ("Nonqualified Options"). Up to 150,000 shares of Common
Stock(subject to adjustment upon certain changes in the capitalization of
the Company) may be issued pursuant to awards granted under the 1997 Stock
Compensation Committee(the"Compensation Committee"). The Compensation
Committee will select the individuals to whom awards are granted and will
determine the terms of each award, subject to the provisions of the 1997
Stock Option Plan. Incentive Options may be granted under the 1997 Stock
Option Plan only to officers and other employees of the Company or its
subsidiaries. Nonqualified Options may be granted under the 1997 Stock
Option Plan to officers or other employees of the Company or its
subsidiaries, and to members of the Board of Directors and consultants or
other persons who render services to the Company. As of April 28, 1997, 11
non-employee directors and approximately 28 officers and 169 non-officer
employees were eligible to participate in the 1997 Stock Option Plan.
-10-
<PAGE> 11
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 loan
fees and sales and 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 Company 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 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 and in particular,
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 3.36% for the quarter ended March
31, 1997, and 3.02% for the quarter ended March 31, 1996.
The level of impaired loans and other real estate owned also has an
impact on net interest income. At March 31, 1997, the Company had
$795,000 in impaired loans, and $395,000 in other real estate owned,
compared to $1,028,000 in non-accrual loans and $500,000 in other real
estate owned, respectively, as of December 31, 1996. All impaired loans
for the respective periods noted were accounted for on a non-accrual
basis.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
<TABLE>
The table below presents the components of interest income and expense for
the major categories of assets and liabilities for the periods indicated.
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---- ----
Interest and dividend income:
Interest and fees on loans................. $6,039 $5,514
Interest on mortgage-backed investments.... 2,230 2,335
Interest on bonds and obligations.......... 393 347
Dividend income............................ 147 138
Interest on short-term investments......... 8 10
------ ------
Total interest and dividend income........ 8,817 8,344
------ ------
Interest expense:
Interest on deposits....................... 2,680 2,624
Interest on short-term borrowings.......... 817 925
Interest on long-term debt................. 1,267 1,268
------ ------
Total interest expense.................... 4,764 4,817
------ ------
Net interest income......................... $4,053 $3,527
====== ======
A breakdown of the components of the Company's net interest-rate spread is as
follows:
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average yield earned on:
Loans..................................... 8.10% 8.22%
Mortgage-backed investments............... 6.88 6.58
Bonds and obligations..................... 7.32 6.00
Marketable and other equity securities.... 4.92 5.22
Short-term investments.................... 2.55 3.92
Weighted average yield earned on
interest-earning assets................. 7.62 7.50
Weighted average rate paid on:
NOW and non-interest NOW deposits......... .86 .83
Savings deposits.......................... 2.29 2.41
Time deposits............................. 5.66 5.87
Total deposits............................ 3.58 3.74
Short-term borrowings..................... 5.38 5.83
Long-term debt............................ 5.84 5.91
Weighted average rate paid on
interest-bearing liabilities............. 4.26 4.48
Net interest-rate spread..................... 3.36% 3.02%
</TABLE>
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
The following table presents, 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.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 vs. 1996
Increase (decrease)
-----------------------------
Due to
-----------------------------
Volume Rate Total
------ ----- -----
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans.............................. $1,035 $(510) $ 525
Mortgage-backed investments........ (630) 525 (105)
Bonds and obligations.............. (137) 183 46
Equity securities.................. 50 (41) 9
Short-term investments............. 10 (12) (2)
------ ----- -----
Total interest and dividend
income........................ 328 145 473
------ ----- -----
Interest expense:
NOW deposits....................... 17 3 20
Savings deposits................... 80 (91) (11)
Time deposits...................... 380 (333) 47
Short-term borrowings.............. (39) (69) (108)
Long-term debt..................... 65 (66) (1)
------ ----- -----
Total interest expense......... 503 (556) (53)
------ ----- -----
Net interest income.................. $ (175) $ 701 $ 526
====== ===== =====
</TABLE>
-13-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
GENERAL. Net income for the quarter ended March 31, 1997 was $1,052,000 or $.52
per share compared to a net income of $834,000 or $.42 per share in the
corresponding period of 1996, a net increase of $218,000 or 26.1%. The overall
improvement in net income was mainly attributable to increases in net interest
income and customer service fees.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $473,000 or
5.7% during the three month period ended March 31, 1997 as compared to the same
period in 1996. The increase was attributable to increases in earning assets and
the rates earned on the Company's mortgage-backed and investment security
portfolios which were partially offset by general decreases in rates earned on
loans. The balance of average earning assets for the three month period ended
March 31, 1997 was approximately $462,640,000 as compared to $445,111,000 for
the same period in 1996, an overall increase of $17,529,000 or 3.9%. The
increase in earning assets was generally due to increases in average loan
balances which were $298,254,000 for the three months ended March 31, 1997, as
compared to $268,335,000 for the same period in 1996, an increase of 11.2%. This
increase was generally caused by larger volumes of commercial loan originations
in the latter half of 1996 and into 1997 as well as higher residential loan
balances which were the result of the steady volume of loan originations and
purchases in this area throughout 1996 and into 1997. See "Liquidity and Capital
Resources" and "Asset-Liability Management" for further discussion of the
Company's investment strategies. The average yield earned on loans declined for
the first quarter of 1997 as compared to 1996 primarily due to overall declines
in the yields on loans originated and purchased, which averaged 8.10% in the
first quarter of 1997 as compared to 8.22% in the same period in 1996. These
declines were generally caused by continued declines in long-term interest rates
since the beginning of 1995 and into 1996, which impacted new loan purchases
and/or originations as well as generated higher prepayments over the past year
on higher yielding loans within the Bank's residential loan portfolio within the
same period. In March 1997, the Company experienced increases in general
economic rates, including the prime lending rate, which generally coincided with
the Federal Reserve's decision to increase the Federal discount rate 25 basis
points earlier in the month. Management expects that while this rate increase
did not have a material impact on the results for the three months ended March
31, 1997, this could have a favorable impact on rates earned on future loan
production should these conditions persist. Average balances of mortgage-backed
and investment securities were $129,699,000 and $21,486,000, respectively in the
first quarter of 1997, as compared to $142,047,000 and $23,124,000,
respectively, for the same period in 1996. These balances, when combined,
generally declined as
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
investment portfolio run-off was generally being re-invested into loan
production throughout 1996 and into 1997.
The yield on the mortgage-backed and investment securities portfolios increased
to 6.88% and 7.32%, respectively, from 6.58% and 6.00%, respectively, despite
the generally declining interest rate environment. This was generally achieved
through the sale of various lower yielding securities held by the Bank in its
portfolio of securities available for sale and the acquisition of securities at
higher yields, both of which took place at the end of the third quarter and
beginning of the fourth quarter of 1996.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1997
decreased $53,000 or 1.1% compared to the same period in 1996 generally due to
decreases in the average rates paid on savings and time deposits and borrowed
funds despite overall growth in the deposit portfolio. The weighted average rate
paid on interest-bearing liabilities was 4.26% for the three months ended March
31, 1997 as compared to 4.48% for the same period in 1996. The weighted average
rates paid on deposits was 3.58% for the quarter ended March 31, 1997 as
compared to 3.74% for the same period in 1996. The overall cost of deposits has
declined in the first quarter of 1997 as compared to the same period in 1996,
generally due to the success of continued promotional efforts to attract core
deposits, (NOW accounts, savings and money markets), which typically have a
lower cost of funds than time deposits and borrowings, as well as due to overall
declines in the cost of funds related to time deposits. The average balance of
core deposits rose to $158,968,000 for the first quarter of 1997 as compared to
$148,204,000 for the corresponding period in 1996, an increase of 7.3%.
Additionally, the weighted average rate paid on time deposits declined to 5.66%
for the first quarter of 1997, as compared to 5.87% in 1996. This change
reflects the re-financing of various certificates as they have matured at lower
rates than they had been paying in previous periods and is the result of the
generally declining rate environment which has existed over the past year. The
Bank 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. Borrowing
levels decreased slightly, overall, during the first quarter of 1997 as compared
to 1996, to $147,618,000 from $149,256,000, a decline of 1.1%. The Bank 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.
-15-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
NON-INTEREST INCOME. Total non-interest income increased $63,000 or 5.9% in the
first quarter of 1997 in comparison to the first quarter of 1996. Customer
service fees, which were $680,000 for the quarter ended March 31, 1997 as
compared to $559,000 for the quarter ended March 31, 1996, for an increase of
$121,000 or 21.6%, rose primarily due to growth in deposit accounts, primarily
NOW and checking account portfolios. Non-interest income was also favorably
impacted by the sales of various other real estate owned properties at better
than anticipated prices and overall stability of the real estate values of
properties currently held as other real estate owned. Income related to the
sales of other real estate owned was $16,000 for the first quarter of 1997 for
which there was no corresponding income or loss in the same period in 1996. Loan
servicing fees and gains on sales of mortgage loans have declined to $143,000
and $81,000, respectively, for the first quarter of 1997 as compared to $177,000
and $133,000, respectively, for the same period in 1996. This generally is
reflective of management's decision to sell most of its residential mortgage
production on a servicing released basis commencing in 1996, amortization of
previously capitalized servicing rights and also due to fewer loans being
originated for sale in 1997. The average balances of loans serviced for others
declined to $234,358,000 for the first quarter of 1997 as compared to
$251,207,000 in the corresponding period in 1996, a decline of 6.7%. Declining
trends in servicing income are expected to continue due to the Company's
strategic change of selling wholesale mortgage production on a servicing
released basis and also due to accounting changes for loans sold servicing
retained prescribed by FASB No. 122-"Accounting for Mortgage Servicing Rights"
and FASB No. 125-"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". Gains on sales of securities remained relatively
consistent at $110,000 for the first quarter of 1997 as compared to $121,000 for
1996 generally due to a consistently strong market for equity securities.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended March 31,
1997 increased $163,000 or 5.2% compared to the same period in 1996. Salaries
and employee benefits increased 13.0% or $187,000 primarily due to increases in
health insurance costs and staffing levels in the Company's Business Banking and
Retail areas which correspond with the Company's strategic focuses of increasing
commercial loans and attracting core, retail deposits. Occupancy expenses
decreased $45,000 or 7.2% primarily due to lower costs associated with snow
removal and lower costs associated with the operation of the Company's
facilities. Other non-interest expenses also increased $21,000 or 2.0% for the
quarter ended March 31, 1997 in comparison to the same period in 1996, generally
due to increased item processing costs related to checking account growth and
other minor inflationary increases.
-16-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$158,000 for the quarter ended March 31, 1997 as compared to $120,000 for the
same period in 1996. This increase of $38,000 primarily reflects management's
estimate of general increased risk associated with increases in the Company's
commercial loan portfolios over the past year, considering the type of loans
being made and current economic conditions.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for the
quarter ended March 31, 1997 was 39.6% compared to 38.4% for the quarter ended
March 31, 1996. The decrease in the effective tax rate for both periods in
comparison to statutory rates is reflective of the levels of income earned by
certain non-bank subsidiaries which are taxed, for state tax purposes, at lower
rates. The increased effective tax rate for 1997 reflects state taxes accrued
associated with internal dividends from Abington Savings Bank to Abington
Bancorp, Inc.
ASSET/LIABILITY MANAGEMENT
Management uses a variety of investment and loan alternatives and funding
sources in managing the overall levels of the Company's net interest margins.
The Asset/Liability Committee ("ALCO") of the Bank is comprised of members of
management and executive management who represent residential, commercial and
consumer lending, secondary marketing, retail banking, marketing and finance.
ALCO meets monthly to discuss business and market trends, lending and retail
deposit performance and expected goals for the future and specific strategies
designed to maximize the overall net interest margins of the Bank without
subjecting financial results to high degrees of volatility due to future
interest rate movements. A dynamic income simulation model is the primary
mechanism used in assessing the impact on net interest income of anticipated
changes in interest rates. The model reflects management's assumptions with
respect to growth rates of specific interest earning assets and liabilities,
pricing strategies, consensus prepayment rate estimates and other
rate-influenced variables. The model also reflects the impact of any off-balance
sheet hedge strategies which may be in place at a given time. This model then
projects various financial results of the Bank in light of various interest rate
assumptions provided by a notable economic forecasting firm, which are also
based, in part, on industry consensus. These interest rate scenarios typically
include various dramatic interest rate movements which may be less probable than
others. The model is updated monthly, including all assumptions. Management uses
this model as its primary source in measuring interest rate sensitivity.
The Bank's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans which
the Bank currently originates and retains for
-17-
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
the Bank's own portfolio are primarily 1 and 3-year adjustable rate mortgages.
Fixed rate residential mortgage loans originated by the Bank are primarily sold
in the secondary market, although in each year since 1989 the Bank has
originated or purchased approximately $30,000,000 primarily in shorter-term
fixed rate mortgage loans (generally 10 to 15-year) to be held in portfolio, in
order to provide a hedge against the Bank's asset sensitivity.
The Bank also emphasizes loans with terms to maturity or repricing of 3 years or
less, such as certain adjustable rate residential mortgage loans, residential
construction loans, commercial mortgages, business loans, second mortgages and
home equity loans.
In addition, to help manage interest rate sensitivity, in July 1994, the Bank
entered into an interest rate swap agreement with an international investment
banking firm whereby the Bank receives a fixed rate of interest of 5.35% and
pays interest based on the 6- month floating LIBOR rate which resets
semi-annually (February and August).
The notional amount of this swap was initially $15,000,000. This amount
amortizes down at a rate consistent with the amortization and prepayments of a
referenced pool of residential mortgages as specified in the agreement. The
notional amount of this swap was approximately $12,939,000 at March 31, 1997. In
addition to the fixed rate of interest, the Bank also received a discount of
$300,000 from the investment banking firm in cash upon execution of this
agreement. This discount is also being accreted to income over the life of the
swap agreement at a rate consistent with the payment and prepayment levels of
the referenced pool of mortgages. The resulting yield received by the Bank,
including the impact of this accretion was approximately 6.25%. This agreement
terminates, regardless of the balance remaining on the referenced collateral, on
August 25, 1997. The Bank entered into this agreement as a micro-hedge against
its one year adjustable rate mortgage portfolio (including those held as
mortgage-backed securities). Interest income (expense) associated with this swap
is recognized generally by the accrual method with monthly settlements. Before
the implementation of this strategy, ALCO reviewed various stress tests
performed on the interest rate swap and the Bank's one-year adjustable rate
mortgage portfolio. The results of this testing indicated that the hedge
strategy would not result in a material amount of lost income (as compared to
results without the interest rate swap) in the most disadvantageous scenario
presented.
Management desires to expand its interest earning asset base in future periods
primarily through growth in the Bank's loan portfolio. Loans comprised
approximately 61.1% of the average interest earning assets in the first quarter
of 1997. Over the past few years, this ratio has been negatively impacted by
several factors. First, the acquisitions of Holbrook (June 1995), Hull (June
1994) and Landmark (June 1992), were predominately
-18-
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
assumption's of deposits; loans acquired in those transactions accounted for
only 29.2% of the total deposits acquired of approximately $91,153,000. Also
during this period, the Bank has gone through two key cycles in the residential
lending market, which has historically been the Bank's primary source of loan
growth. In 1992 and through the early portion of 1994, interest rates on
mortgages generally declined to levels which were the lowest in recent history.
While this market was very favorable for loan originations, it also had a
negative impact on the balances of loans outstanding primarily due to high
prepayment rates, a competitive marketplace for loan originations and the types
of loans being made. Loan origination volumes represented loans which were
generally not as desirable for the Bank's asset-liability purposes (i.e.,
30-year fixed rate mortgages). Since early 1994 and through the early part of
1995, interest rates rose, which resulted in slower prepayments on the Bank's
loan portfolios. However, due to the overall decreased refinancing demand, the
competition increased among residential mortgage lenders and loan origination
volumes began to slow. As long term interest rates eased in late 1995 and
through the early part of 1996, the market became more favorable for residential
loan originations. In the future, the Bank intends to be competitive in the
residential mortgage market, but plans to place greater emphasis on consumer and
commercial loans. The Bank also has remained, and expects to remain, active in
pursuing wholesale opportunities to purchase loans. During the first quarter of
1997 and 1996, the Bank acquired approximately $7,700,000 and $14,000,000,
respectively, of residential first mortgages.
In light of the residential lending environment over the last few years and the
level of funds received by the Bank as a result of the Landmark and the Holbrook
acquisitions and deposit growth during 1995 and into 1996, the Bank has relied
more heavily on mortgage-backed investments (typically with weighted average
lives of 5 to 7 years) as a vehicle for fixed and adjustable rate investment and
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 Bank with greater reinvestment flexibility.
The level of the Bank's liquid assets and the mix of its investments may vary,
depending upon management's judgement 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 Bank'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 pressures, and has helped the Bank
to increase its customer base.
The Bank has also sought prudent deposit growth by pricing deposits
competitively in its market area, although it does not necessarily
-19-
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
offer the highest rates available for deposits. During the latter portion of
1994 and into 1995, the market area in which the Bank operates began to show
some signs of pricing competitiveness for deposits, particularly certificates of
deposit. At the same time, the banks in the Bank's market area have not been
aggressive in pricing core deposits. This has resulted in many banks
experiencing a shift from core deposits to certificates of deposit reflecting
consumers' desire to increase the rate of return on their deposits. The Bank
experienced migration of approximately $10 million of core deposits to
certificates of deposit in early 1995. While no such material migration occurred
in 1996 or thus far in 1997, similar migrations of core deposits to certificates
of deposit could continue to the extent that customers perceive that the rates
paid on certificates of deposit exceed those paid on core deposits by amounts
they will perceive to be so advantageous that they are willing to sacrifice
their short-term liquidity for increases in yield.
The Bank is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Bank in managing its asset/liability
growth because, at times, the Bank 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 $147,836,000 at March
31, 1997 compared to $147,524,000 at December 31. 1996. These borrowings are
primarily comprised of FHLB of Boston advances and have primarily funded
residential loan originations and purchase of mortgage-backed investments.
The following table sets forth maturity and repricing information relating to
interest-sensitive assets and liabilities and the Bank's interest rate swap at
March 31, 1997. 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 held in portfolio or 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 table on
the following page does not reflect partial or full prepayment of certain types
of loans and investment securities prior to scheduled contractual maturity.
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 NOW accounts.
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Company considers its earning assets
-20-
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
to be more sensitive to interest rate movements than its liabilities are subject
to interest rate adjustments. 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.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------------------------------------------------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments ....... $ 1,952 $ -- $ -- $ -- $ -- $ -- $ 1,952
Bonds and obligations ........ 4,220 -- 35 -- 2,076 27,062 33,393
Mortgage-backed investments .. 33,451 20,196 15,208 13,656 21,463 29,237 133,211
Mortgage loans subject to
rate review ................. 44,552 17,176 13,179 29,683 2,687 -- 107,277
Fixed-rate mortgage loans .... 14,844 12,879 24,438 21,704 39,356 62,996 176,217
Commercial and other loans ... 7,659 3,719 3,800 2,305 1,703 447 19,633
--------- --------- --------- --------- -------- -------- --------
Total .................... 106,678 53,970 56,660 67,348 67,285 119,742 471,683
--------- --------- --------- --------- -------- -------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 16,531 -- -- -- -- -- 16,531
Savings deposits - term
certificates ................ 63,245 28,384 20,025 17,331 11,230 -- 140,215
Other savings accounts ....... 120,191 -- -- -- -- -- 120,191
Borrowed funds ............... 77,836 17,000 25,000 19,000 9,000 -- 147,836
--------- --------- --------- --------- -------- -------- --------
Total .......................... 277,803 45,384 45,025 36,331 20,230 -- 424,773
--------- --------- --------- --------- -------- -------- --------
Impact of interest rate swap ... -- -- -- -- -- -- --
--------- --------- --------- --------- -------- -------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ......... $(171,125) $ 8,586 $ 11,635 $ 31,017 $ 47,055 $119,742 $ 46,910
--------- --------- --------- --------- -------- -------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities .... $(171,125) $(162,539) $(150,904) $(119,887) $(72,832) $ 46,910
========= ========= ========= ========= ======== ========
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1)................ 38.4% 49.7% 59.0% 70.4% 82.8% 111.0%
</TABLE>
(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.
-21-
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Payments on the Bank's loan and mortgage-backed investment portfolios,
prepayments on loans, sales of fixed-rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Bank's primary sources of liquidity. The Bank is also a voluntary member of the
FHLB of Boston and as such, is entitled to borrow an amount up to the value of
its qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At March 31, 1997 the Bank had approximately
$104,000,000 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 Bank's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately one to nine months. The Bank
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 Bank 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 Bank's GAP position arises.
The Bank regularly monitors its asset quality to determine the level of its loan
loss reserves through periodic credit reviews by members of the Bank's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Bank's Board of Directors, also works on the
collection of non-accrual loans and the 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 and the expectations for the
future state of the regional economy and the potential impact that it may have
on loan collateral and future delinquencies. Workout approach and financial
condition of borrowers are also key considerations to the evaluation of
non-performing loans. Non-performing assets were $1,462,000 at March 31, 1997
compared to $1,672,000 at December 31, 1996 a decrease of $210,000 or 12.6%. The
Bank's ratio of delinquent loans to total loans was 1.02% at March 31, 1997 as
compared to .72% at December 31, 1996. Management believes that overall levels
of delinquencies and non-performing assets continue to be favorable in 1997 and
show signs of portfolio stability currently.
-22-
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
During the first quarter of 1997, the Bank maintained a general reserve for
other real estate owned in light of the level of foreclosures, softness of the
local real estate market (particularly commercial) and costs associated with
selling properties. No provisions were made for possible losses on other real
estate owned in the first quarter of 1997 given management's assessment of the
adequacy of the reserve for possible losses on other real estate owned at March
31, 1997. The balance of the general other real estate owned reserves at March
31, 1997 was approximately $149,400 compared to $159,400 at December 31, 1996.
There continue to be uncertainties regarding future events, particularly in both
the New England real estate market and the general economy. These events could
result in additional charge-offs, write-offs, changes in the level of the
allowance for loan or OREO losses and/or in the level of loans on non-accrual or
in foreclosure.
At March 31, 1997, the Bank had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $4,850,000 and
$501,000 respectively. The Bank also has outstanding commitments to grant
advances under existing home equity lines of credit amounts to $10,698,000.
Commercial and construction loans totaling $7,197,000 have been committed to and
remain outstanding as of March 31, 1997. The Bank believes it has adequate
sources of liquidity to fund these commitments.
The Company's total stockholders' equity was $33,835,000 or 6.9% of total assets
at March 31, 1997, compared with $33,546,000, or 6.9% of total assets at
December 31, 1996. The increase in total stockholders' equity, which was
primarily impacted by earnings of the Bank and offset, in part, by dividends
paid and increases in unrealized losses, net of taxes on available for sale
securities, was approximately $289,000 or 0.9%. In accordance with current
guidelines, the net unrealized loss on available for sale securities has not
been included in regulatory capital calculations.
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. At
March 31, 1997, the Bank's Tier 1 leverage capital ratio was 6.27%. 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% and
a minimum ratio of total capital to risk-weighted assets of 8.00%. at March 31,
1997, the Bank's Tier 1 and total risk-based capital ratios were 12.77% and
13.57%, respectively. The Bank is categorized as "well capitalized" under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.).
-23-
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
IMPACT OF INFLATION
The Consolidated Financial Statements of the Company and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
-24-
<PAGE> 25
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
During the quarter ended March 31, 1997 there were no material developments to
items reported in Part I, Item 3 of the Company's Annual Report for the year
ended December 31, 1996 on Form 10-K filed with the Securities and Exchange
Commission on March 31, 1997.
Item 2. Changes in Securities.
(a) On January 31, 1997, pursuant to the Plan of Reorganization and
Acquisition dated October 15, 1996 between the Company and the Bank, the Company
became the owner of all of the issued and outstanding shares of common stock of
the Bank, and each issued and outstanding share of the Bank's common stock, $.10
par value per share, was automatically converted into one share of common stock
of the Company, $.10 par value per share.
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Matters.
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.
-25-
<PAGE> 26
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.
*10.1 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 for the year ended December
31, 1996 on Form 10-K filed on March 31, 1997.
*10.2 Amended and Restated Special Termination Agreement dated as of January
31, 1997 among the Company, the Bank and Edward J. Merritt 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.
*10.3 Amended and Restated Special Termination Agreement dated as of January
31, 1997 among the Company, the Bank and Donna L. Thaxter 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.
*10.4 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.
*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 Executive Incentive Compensation Plan dated March 1993 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.
*10.7 Long Term Performance Incentive Plan dated November 18, 1993
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.
10.8 Lease for office space located at 538 Bedford Street, Abington,
Massachusetts, 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.
-26-
<PAGE> 27
10.9 Dividend reinvestment and Stock Purchase Plan is incorporated by
reference herein to the Company's Registration Statement on Form 8-A,
effective January 31, 1997.
11.1 A statement regarding the computation of earnings per share is included
in Item 1 of this Report.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on February 7, 1997 in which it reported
that the Plan of Reorganization and Acquisition dated as of October 15,
1996 between the Company and the Bank, pursuant to which the Company
became the holding company of the Bank, became effective on
January 31, 1997.
-27-
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ABINGTON BANCORP, INC.
----------------------
(Company)
Date: May 8, 1997 By /s/James P. McDonough
---------------------------------
James P. McDonough
President and Chief
Executive Officer
Date: May 8, 1997 By /s/Edward J. Merritt
---------------------------------
Edward J. Merritt
Treasurer
(Principal Financial Officer)
Date: May 8, 1997 By /s/Robert M. Lallo
---------------------------------
Robert M. Lallo
(Principal Accounting Officer)
-28-
<PAGE> 29
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.
*10.1 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 for the year ended December
31, 1996 on Form 10-K filed on March 31, 1997.
*10.2 Amended and Restated Special Termination Agreement dated as of January
31, 1997 among the Company, the Bank and Edward J. Merritt 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.
*10.3 Amended and Restated Special Termination Agreement dated as of January
31, 1997 among the Company, the Bank and Donna L. Thaxter 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.
*10.4 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.
*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 Executive Incentive Compensation Plan dated March 1993 incorporated by
reference to the Company's Annual Report for
-29-
<PAGE> 30
the year ended December 31, 1996 on Form 10-K filed on March 31, 1997.
*10.7 Long Term Performance Incentive Plan dated November 18, 1993
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.
10.8 Lease for office space located at 538 Bedford Street, Abington,
Massachusetts, 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.
10.9 Dividend reinvestment and Stock Purchase Plan is incorporated by
reference herein to the Company's Registration Statement on Form 8-A,
effective January 31, 1997.
11.1 A statement regarding the computation of earnings per share is included
in Item 1 of this Report.
27.1 Financial Data Schedule.
-30-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABINGTON
BANCORP, INC. FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
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