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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
-------------------------
FORM 10-K
ANNUAL REPORT SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1996
Commission File No. 0-16018
ABINGTON BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3334127
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
538 Bedford Street, Abington, Massachusetts 02351
(Address of Principal Executive Offices) (Zip Code)
(617) 982-3200
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Title of Class: Common Stock, par value $0.10 per share
Indicate by check mark whether the Registrant (together with its predecessor in
interest) (1) has filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sales price for the Registrant's Common Stock
on March 4,1997, as reported by the Nasdaq Stock Market, was $ 36,183,000.
The number of shares outstanding of the Registrant's Common Stock as of March
4,1997:1,893,238 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part II (Items 6, 7 and 8) of this Form is
incorporated by reference herein from the Registrant's Annual Report to
Stockholders for the year ended December 31, 1996 (the "Annual Report").
Information required by Part III (Items 9 and 10) of this Form is
incorporated by reference herein from the Registrant's definitive proxy
statement (the "Proxy Statement") relating to the 1997 Annual Meeting of
Stockholders of the Registrant.
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PART I
Item 1. Business
General
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 Bank operated as a Massachusetts-chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From December 1992 to the present, the Bank has
operated as a stock-owned savings Bank.
The Bank is engaged principally in the business of attracting deposits from
the general public, borrowing funds and investing those deposits and funds. In
its investments, the Bank has emphasized various types of residential and
commercial real estate loans, residential construction loans, consumer loans,
and investments in securities. The Bank considers its principal market area to
be Plymouth County, Massachusetts; primarily Abington, Halifax, Holbrook,
Kingston, Whitman, Hull, Pembroke and Holbrook, where it has banking offices,
and nearby Rockland, Duxbury, Pympton, Brockton, Hanover, East Bridgewater,
Plymouth, Carver, Weymouth, Bridgewater and Hanson.
The Bank presently has three wholly-owned subsidiaries: Holt Park Place
Development Corporation and Norroway Pond Development Corporation, which own
properties being marketed for sale, and Abington Securities Corporation, which
invests primarily in United States Government obligations and obligations of
related agencies and equity securities. ABBK Corporation, which had previously
invested in real estate development limited partnerships engaged in qualified
housing projects was dissolved in January 1997.
The Bank has grown from $315.1 million in assets and $202.1 million in
deposits at December 31, 1992 to $487.0 million in assets and $300.4 million in
deposits at December 31, 1996. Deposits in the Bank have been insured by the
Federal Deposit Insurance Corporation ("FDIC") since 1975. Deposits are insured
by the Bank Insurance Fund of the FDIC up to FDIC limits (generally $100,000 per
depositor) and by the Depositors Insurance Fund of the Mutual Savings Central
Fund, Inc. (the "Depositors Insurance Fund" or "Central Fund") for the portion
of deposits in excess of that insured by the FDIC.
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On June 3, 1994, the Bank acquired Hull Co-Operative Bank ("Hull") by
merger. On June 26, 1995, the Bank acquired the deposits and certain assets and
other liabilities of the Holbrook branch of The First National Bank of Boston
("Holbrook"). These recent acquisitions are consistent with the Bank's ongoing
strategy of planned growth which will enable the Bank to have a greater regional
presence.
In March, 1994 the Bank reinstated its policy of paying cash dividends
given management's and the Board's determination that the Bank had returned to a
consistently profitable level. The Bank declared a $.10 quarterly cash dividend
payable in April, 1994. Since that time the Bank has declared cash dividends in
each successive quarter amounting to $.10 per share.
Market Area and Offices
The Bank considers its primary service area to be Plymouth County,
Massachusetts; primarily the towns of Abington, Halifax, Kingston, Whitman,
Hull, Holbrook and Pembroke, where it has banking offices, and nearby Rockland,
Duxbury, Scituate, Cohasset, Plympton, Brockton, Hanover, East Bridgewater,
Plymouth, Carver, Weymouth, Bridgewater and Hanson.
The Bank has its corporate headquarters in Abington, Massachusetts, and
branch offices in Abington, Halifax, Whitman, Pembroke, Kingston, Holbrook and
Hull, Massachusetts. The Bank provides the full range of its services at each of
these offices. An Operations Center is located in Abington. The Bank has an
additional branch office at the Abington High School which is open on a
part-time basis.
Lending Activities
General. Loans currently originated and purchased for the Bank's own
portfolio primarily have terms to maturity or repricing of 15 years or less,
such as residential construction loans and adjustable-rate and fixed-rate
mortgages on owner-occupied residential property. See "Item 7 - Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for discussion of the Bank's
asset-liability strategy. The Bank also originates one-year and three-year
adjustable-rate mortgages on non-owner-occupied residential property as well as
commercial real estate loans. In recent years, commercial real estate or
commercial construction lending has not been a primary source of loan
originations, although the Bank had higher levels of origination in commercial
real estate loan originations in 1996 as compared to previous years and does
anticipate a greater emphasis in 1997 and beyond for this type of loan
origination. The Bank has stressed the origination of shorter-term 15-year fixed
rate residential mortgage loans or the purchase of seasoned 15-30 year fixed
rate residential mortgage loans for its own portfolio in connection with the
asset/liability management of the Bank. (See "Lending Activities-Residential and
Commercial Construction and Commercial Real Estate Loans.") At December 31,
1996, the
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Bank's loan portfolio included $183.0 million in fixed-rate mortgage
loans of which $3.2 million were held for sale.
The Bank's net loan portfolio, including loans held for sale, totaled $299
million at December 31, 1996, representing approximately 61.4% of its total
assets. The majority of the Bank's loans are secured by real estate and are made
within Plymouth County, although the Bank also makes loans in other areas of
Massachusetts. On occasion, the Bank makes loans outside of Massachusetts, and
the Bank has purchased mortgage loans at times on properties outside of
Massachusetts as well. Generally, loans purchased outside of Massachusetts are
well seasoned and reflect an adequate payment history. The Bank originated $17.5
million in commercial and commercial real estate loans and $56.4 million in
residential first mortgage loans during the year ended December 31, 1996. Of the
latter amount, loans aggregating $38.1 million were retained for the Bank's own
portfolio, of which approximately $3.2 million were held for sale at December
31, 1996, and loans aggregating $15.3 million were sold in the secondary market.
As of December 31, 1996, loan commitments to potential borrowers of $10.7
million were outstanding. In addition, as of December 31, 1996, the Bank had
committed to advance $2.7 million under existing construction loans, $ 6.4
million in residential loans, and $12.6 million under existing lines of credit
(including home equity loans).
Residential Loans. The Bank's current residential first mortgage loan
activities concentrate primarily on origination and purchase of fixed-rate and
one- and three-year adjustable-rate mortgages. The Bank currently sells in the
secondary market most longer term fixed-rate and some adjustable-rate first
mortgage loans on owner-occupied residential property. The Bank sells packages
of loans it has originated to investors on a non-recourse basis. The Bank has
generally retained the servicing rights on sold loans, although it sold
approximately $4.4 million on a servicing released basis in 1996 and plans to
sell the rights along with the loans at the time of origination in the future.
The Bank receives annual loan servicing fees generally ranging from .25% to
.425% of the principal balance of the loans plus all late charges. At December
31, 1996, the Bank's loan servicing portfolio amounted to $235.9 million. The
Bank also originates for its own portfolio adjustable-rate and fixed-rate
mortgage loans on owner- and non-owner occupied residential property, with an
amortization period of up to 30 years.
As of December 31, 1996, the outstanding balance of residential first
mortgage loans totaled $236.6 million or 77.7% of the gross loans in the Bank's
loan portfolio. Residential first mortgage loans are written in amounts up to
95% of value if the property is owner-occupied. Borrowers on residential first
mortgage loans with a loan-to-value ratio in excess of 80% are required to carry
private mortgage insurance. Adjustable-rate mortgage loans to owner occupants of
one- to four-family residential property are subject to certain requirements and
limitations under guidelines issued by the Massachusetts Commissioner of Banks
(the "Commissioner"), including limitations on the amount and frequency of
changes in interest rates.
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Home Equity Loans. The Bank offers home equity loans, which are revolving
lines of credit secured by the equity in the borrower's residence. Interest
rates on home equity loans are generally adjusted with movements in the prime
lending rate although the Bank does offer fixed rate home equity loans. Home
equity loans are currently written in amounts from $7,500 to $100,000, but
generally not more than the difference between 75% of the appraised value of the
property and the outstanding balance of the existing first mortgage. All home
equity loans must have a current appraisal of the value of the mortgaged
property at origination. At December 31, 1996, the Bank had in its portfolio
approximately $16.4 million of outstanding home equity loans and unused
commitments amounting to $10.7 million.
Residential and Commercial Construction and Commercial Real Estate Loans.
The Bank also originates residential construction loans and, from time to time,
commercial construction and other commercial real estate loans. Most
construction loans are for residential single-family dwellings. They are usually
made for terms of no more than one year. In most cases, permanent financing is
arranged through the Bank on properties for which the Bank has been the
construction lender. At December 31, 1996, gross construction loans totaled $6.0
million, or 1.9% of the Bank's total loan portfolio.
Commercial real estate loans generally relate to commercial property that
is not owner-occupied or property which has a commercial or industrial occupant.
Commercial real estate loans are generally written for maximum terms of 5 years,
and interest rates on these loans generally are fixed. Currently, commercial
real estate loans are written in amounts up to $3,000,000 and are generally not
made outside the Massachusetts counties of Plymouth, Norfolk, Bristol and
Barnstable. At December 31, 1996, the Bank had a total of $24.7 million of
commercial real estate loans, or 8.1% of the Bank's total loan portfolio. The
Bank plans on placing a greater emphasis on commercial real estate lending into
1997 in an attempt to expand the portfolio.
Commercial construction and commercial real estate lending entails greater
risk than residential mortgage (including residential construction) lending to
owner occupants. Compared to residential mortgage loans to owner occupants, the
repayment of these types of loans is more dependent on the underlying business
and financial condition of the borrower and/or cash flows from leases on the
subject properties and, in the case of construction loans, the economic
viability of the project, and is more susceptible to adverse future
developments. In recent years the Bank has not emphasized commercial real estate
or commercial construction lending, primarily limiting commercial loan
originations to existing Bank customers. However, in 1997, given management's
belief that the regional economy has stabilized, a greater emphasis will be
placed on commercial and commercial real estate loan originations.
In the late 1980s and early 1990s, the New England economy and the region's
real estate market experienced a slowdown. As a result, the completion of real
estate projects planned and begun under stronger market conditions was adversely
affected. This slowdown was particularly evident in the New England condominium
and commercial real estate markets,
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where an excessive inventory had a negative impact on prices. Slower sales at
lower prices, in turn, affected the ability of some developers to repay or
refinance their original construction or medium-term loan arrangements.
Residential housing sales have also been subject to seasonal variation with the
heaviest activity occurring in the late spring, summer and early fall. Recently,
in the single family home sector, prices have stabilized and properties are not
taking as long to sell. The Bank cannot predict the impact on future provisions
for possible loan losses current or future market conditions may have. While
there is evidence of stabilization in the regional economy and in the local
residential real estate markets, it is difficult to predict to what extent such
stabilization will continue.
Consumer and Commercial Loans. The Bank also makes a variety of consumer
and commercial loans, such as new and used automobile and boat loans, unsecured
lines of credit, education loans, and passbook and stock-secured loans.
Education loans are periodically sold in the secondary market. The Bank's
consumer and commercial loans totaled $19.9 million at December 31, 1996,
representing 6.6% of its total loan portfolio.
In January of 1990 the Bank commenced an indirect automobile loan program.
During 1995 the Bank discontinued the indirect automobile lending product line
and placed a greater emphasis on direct consumer lending as a source of consumer
loan originations. The Bank intends to continue to retain ownership of its
existing indirect automobile portfolio which was approximately $4.4 million as
of December 31,1996.
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Composition of Loan Portfolio. The following table shows the composition of
the Bank's loan portfolio by type of loan.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------
1996 1995 1994
---------------------- --------------------- --------------------------
Percent Percent Percent
to Gross to Gross to Gross
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Conventional............... $236,213 77.6% $199,919 75.4% $158,001 65.30%
FHA and VA ................ 322 0.1 449 0.2 606 0.3
Second mortgages and home equity 17368 5.7 18,027 6.8 19,756 8.2
Commercial real estate 2478 8.1 17,622 6.6 26,961 11.1
Construction 5956 2.0 6,805 2.5 7,017 2.9
-------- ---- -------- ---- -------- -----
Total mortgage loans 284,677 93.5 242,822 91.5 212,341 87.8
-------- ---- -------- ---- -------- -----
Less:
Due to borrowers on incomplete loans (2,758) (2,499) (2,850)
Net deferred loan fees and unearned
discounts (986) (940) (1,005)
-------- -------- --------
Subtotal 280,933 239,383 208,486
Commercial loans:
Unsecured lines of credit 324 0.1 477 0.2 677 0.2
Secured and unsecured 4210 1.4 1,861 0.7 1,772 0.8
-------- ---- -------- ---- -------- -----
Subtotal 4,534 1.5 2,338 0.9 2,499 1
-------- ---- -------- ---- -------- -----
Consumer loans:
Indirect automobile 4,355 1.4 10,049 3.8 18,738 7.7
Personal 1,625 0.5 1,715 0.6 1,726 0.7
Education 509 0.2 728 0.3 746 0.3
Passbook and stock secured 8,416 2.8 6,980 2.6 5,320 2.2
Home improvement 485 0.1 675 0 .3 599 0.3
-------- ---- -------- ---- -------- -----
Total other loans 15,390 5.1 20,147 7.6 27,129 11.2
Net deferred loan costs (fee) (76) 150 ---- 395 ----
-------- ---- -------- --------
Subtotal 15,314 20,297 27,524
-------- -------- --------
Total loans 300,781 262,018 238,459
Losses
Less allowance for loan (1,811) (1,433) (2,845)
-------- -------- --------
Loans, net 298,970 260,585 233,614
-------- -------- --------
Add (recapitulation):
Due to borrowers on incomplete loans 2,758 2,499 2,850
Net deferred loan fees and unearned
discounts 1062 790 610
Allowance for loan loss 1,811 1,433 2,845
-------- -------- ----- -------- -----
Loans, gross $304,601 100.0% $265,307 100.0% $241,919 100.0%
======== ===== ======== ===== ======== =====
<CAPTION>
At December 31,
---------------------------------------------------
1993 1992
--------------------- ---------------------
Percent Percent
to Gross to Gross
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Conventional............... $130,063 63.0% $114,072 58.9%
FHA and VA ................ 855 0.4 1,144 0.6
Second mortgages and home equity 20,487 9.9 23,396 12.1
Commercial real estate 22,737 11.0 22,877 11.8
Construction 5,576 2.7 8,264 4.2
-------- ---- -------- ----
Total mortgage loans 179,718 87.0 169,753 87.6
-------- ---- -------- ----
Less:
Due to borrowers on incomplete loans (4,133) (4,629)
Net deferred loan fees and unearned
discounts (980) (908)
--------
Subtotal 174,605 164,216
Commercial loans:
Unsecured lines of credit 609 0.3 596 0.3
Secured and unsecured 1,790 0.9 1,528 0.8
-------- ---- -------- ----
Subtotal 2,399 1.2 2,124 1.1
-------- ---- -------- ----
Consumer loans:
Indirect automobile 16,795 8.1 14,607 7.5
Personal 4,881 2.4 5,144 2.7
Education 1,095 0.6 2,408 0.2
Passbook and stock secured 1,328 0.6 1,419 0.7
Home improvement 297 0.1 280 0.2
-------- ---- -------- ----
Total other loans 24,396 11.8 21,858 11.3
Net deferred loan costs (fee) 458 ---- 382 ----
-------- --------
Subtotal 24,854 22,240
-------- --------
Total loans 201,858 188,580
Losses
Less allowance for loan (2,051) (2,060)
-------- --------
Loans, net 199,807 186,520
-------- --------
Add (recapitulation):
Due to borrowers on incomplete loans 4,133 4,629
Net deferred loan fees and unearned
discounts 522 526
Allowance for loan loss 2,051 2,060
-------- ----- -------- -----
Loans, gross $206,511 100.0% $193,735 100.0%
======== ===== ======== =====
</TABLE>
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Origination and Underwriting. Residential and consumer loan originations
are developed by the Bank's officers and lending personnel from a number of
sources, including referrals from branches, realtors, builders, attorneys,
customers and Directors. The Bank employs three retail loan representatives who
are paid a base salary plus incentives for consumer and residential loans
originated for the Bank. Consumer loan services are also solicited by direct
mail to existing customers. Advertising media is also used to promote loans.
Commercial loan origination and underwriting: Loan originations are
developed by the Bank's officers and lending personnel from a number of sources,
including referrals from attorneys, CPAs, customers, realtors, direct
solicitation and Directors. The bank employs four loan officers who are paid a
salary and performance bonus. Loans originated by these officers are maintained
in the Commercial Loan portfolio.
Applications for all types of loans offered by the Bank are taken at all of
the Bank's offices and referred to the Bank's Abington loan center or commercial
loan division for processing. The Bank's loan underwriting process varies
somewhat with the type of the loan, but generally includes the use of credit
applications, property appraisals and verification of an applicant's credit
history, and analysis of financial statements, employment and banking
relationships to the extent management deems appropriate in the circumstances.
In general, all loans (or total borrower indebtedness) in excess of the
loan authorities of individual officers up to $750,000 requires the signature of
the Senior Vice President of business Banking. For loans up to $ 1 million in
addition to the prior signatures mentioned, the President of the Bank must also
approve the loan. Loans over $1 million require the approval of the Executive
Committee of the Bank's Board of Directors, up to a maximum of $3 million. Loans
or total indebtedness in excess of $3 million require the approval of the Board
of Directors.
Commercial Loans to bank insiders are subject to different approval
procedures. All loans to Directors must be approved by the full Board of
Directors. Commercial Loans are prohibited to Executive officers, officers or
employees of the Bank. Any loan request by a Director (or related interest of a
Director) where the director is defined as an officer or owns stock in that
entity, or is in a policy decision position or can exert control) regardless of
amount requires the approval of the full Board of Directors, after review by
management, with the Director in question absent from the meeting during the
discussion and voting on the proposal.
The Bank currently receives origination fees on most new first mortgage
loans which it originates. Fees to cover the costs of appraisals and credit
reports are also collected. In addition, the Bank collects late charges on real
estate loans.
It is the Bank's policy to require on-site inspections before releasing
funds on construction
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loans. Inspections on construction loans are generally performed by third-party
inspectors.
In most cases, the Bank requires the residential first mortgage loans it
originates to meet Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation standards in order to provide for the flexibility to sell
such loans in the secondary market.
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The following table shows the Bank's loans by maturity or repricing
interval at December 31, 1996.
Within 1 - 5 Over 5
1 Year Years Years Total
------- ----- ------ -----
(Dollars in Thousands)
Conventional mortgages.............. $57,869 $109,556 $68,224 $235,649
Commercial real estate loans........ 13,612 11,106 -- 24,718
Second mortgages and home equity.... 12,989 2,861 1,518 17,368
Construction, net .................. 3,198 -- -- 3,198
Commercial loans.................... 4,534 -- -- 4,534
Other loans......................... 6,867 8,447 -- 15,314
------- -------- ------- --------
Total $99,069 $131,970 $69,742 $300,781
======= ======== ======= ========
Percent of total 32.9% 43.9% 23.2% 100.0%
The following table shows the composition of fixed-rate and adjustable-rate
loans, excluding $15.3 million in other loans, as set forth above by maturity or
repricing interval at December 31, 1996.
Within 1 - 5 Over 5
1 Year Years Years Total
------- ----- ------ -----
(Dollars in Thousands)
Fixed-rate residential
mortgages ........................ $29,641 $ 80,462 $69,742 $179,845
Construction loans,
net - all fixed .................. 3,198 -- -- 3,198
Adjustable-rate residential
mortgages ........................ 41,217 31,955 -- 73,172
Commercial real estate
loans - all variable rate ........ 13,612 11,106 -- 24,718
Commercial loans - all
variable rate .................... 4,534 4,534
------- -------- ------- --------
Total fixed and
adjustable-rate loans............. $92,202 $123,523 $69,742 $285,467
======= ======== ======= ========
Non-performing Assets. The Bank attempts to manage its loan portfolio so as
to recognize problem loans at an early point in order to manage each situation
and thereby minimize losses. The Bank generally commences internal collection
efforts once a loan payment is more than 15 days past due. Interest on loans is
generally not accrued such interest is not paid for a three month period and/or
in the judgment of management, the collectibility of the principal or interest
becomes doubtful. When a loan is placed on a non-accrual status, all interest
previously accrued but not collected is reversed against interest income in
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the current period. Interest income is subsequently recognized only to the
extent that cash payments are received. Those loans that continue to accrue
interest after reaching a three month delinquency status generally include only
consumer loans, although, on occasion, some residential mortgage loans have
been included. Real estate acquired by foreclosure and other real estate owned
is stated at the lower of the carrying value of the underlying loan or the
estimated fair value less estimated selling costs. For further discussion of
non-performing assets, see "Item 7 - Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations..
During 1995, the Bank's management and Board of Directors evaluated the
feasibility of a sale, at a discount, of a group of approximately $9.2 million
of non-performing and high maintenance loans. The loans consisted of
approximately $5.7 million of loans which were on non-accrual and certain other
loans which, although performing, were expected to require a higher than average
level of attention and out of pocket costs in order to maintain performance
and/or to potentially foreclose upon or workout. The Bank entered into a
definitive agreement with a third party to sell the loans, and consummated the
transaction during the fourth quarter of 1995. Those loans were sold at
approximately 64% of par. The loss associated with this sale was reflected as a
charge-off to the allowance for possible loan losses which necessitated an
additional provision for possible loan losses of $1,654,000 in 1995.
At December 31, 1996, non-performing assets were .3% of total assets,
compared with .4% and 1.6% at December 31, 1995 and 1994, respectively.
The following table sets forth non-performing assets at the dates
indicated:
At December 31,
---------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a
non-accrual basis- impaired ....... $1,028 $ 485 $5,249 $4,957 $ 7,239
Accruing loans past
due 90 days or more
as to principal or interest ....... 144 243 153 322 195
------ ------ ------ ------ -------
Total non-performing
loans ............................. 1,172 728 5,402 5,279 7,434
Real estate acquired by
foreclosure and other
real estate owned ................. 500 1,070 1,272 2,561 3,394
------ ------ ------ ------ -------
Total non-performing
assets ............................ $1,672 $1,798 $6,674 $7,840 $10,828
====== ====== ====== ====== =======
Impaired loans totaling $314,000 and $114,000, at December 31, 1996 and
1995, respectively,
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required an allocation of $97,000 and $35,000 respectively of the allowance for
possible loan losses. The remaining impaired loans did not require any
allocation of the reserve for possible loan losses.
The average balance of impaired loans was approximately $721,000 and
3,733,000 in 1996 and 1995, respectively. The total amount of interest income
recognized on impaired loans during 1996 and 1995 was approximately $48,500 and
$284,000, which approximated the amount of cash received for interest during
that period. The Bank has no commitments to lend additional funds to borrowers
whose loans have been deemed to be impaired.
If non-performing loans had been paying in accordance with their original
terms, approximately $297,000 of additional interest income would have been
recorded in 1994. During the year ended December 31, 1994, $147,000 was actually
recognized in interest income on loans accounted for on a non-accrual basis,
respectively.
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Allowance for Possible Loan Losses. The following table summarizes changes in
the allowance for possible loan losses and other selected statistics for the
years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,433 $ 2,845 $ 2,051 $ 2,060 $ 1,964
Loans charged off:
Real estate - residential 48 1,090 245 30 344
Real estate - commercial -- 2,496 88 687 369
Real estate - construction -- -- -- -- --
Commercial -- 18 22 -- 54
Consumer 47 273 66 64 100
-------- -------- ----- ----- ------
295 3,877 421 781 867
-------- -------- ----- ----- ------
Loan recoveries:
Real estate - residential 17 32 -- 9 5
Real estate - commercial 120 145 1 14 3
Real estate - construction -- -- 6 -- --
Consumer 56 55 16 21 25
Commercial -- -- 5 8 --
-------- -------- ----- ----- ------
193 232 28 52 33
-------- -------- ----- ----- ------
Net charge-offs 102 3,645 393 729 834
-------- -------- ----- ----- ------
Reserves acquired from Hull -- -- 577 -- --
Provision charged to operations 480 2,233 610 720 930
-------- -------- ----- ----- ------
Balance, end of year $ 1,811 $ 1,433 $ 2,845 $ 2,051 $ 2,060
======== ======== ======== ======== ========
Average loans out standing, net $282,530 $243,949 $222,313 $191,502 $177,952
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans outstanding, net .04% 1.49% .18% .38% .47%
======== ======== ======== ======== ========
Ratio of allowance for possible loan
losses to gross loans at year end .60% .55% 1.18% .99% 1.06%
======== ======== ======== ======== ========
Ratio of allowance for possible loan
losses to non-performing loans 154.52% 196.84% 52.67% 38.85% 27.71%
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 14
The following table summarizes the allocation of the allowance for possible
loan losses for the years indicated:
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
----------------- ------------------ --------------- ----------------- -----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
to gross to gross to gross to gross to gross
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - residential $92 83.5% $245 82.4% $ 348 73.8% $ 257 73.3% $189 71.6%
Real estate - commercial 5 8.1 50 6.6 433 11.1 257 11.0 483 11.8
Real estate - construction - 1.9 - 2.5 - 2.9 - 2.7 - 4.2
Commercial - 1.5 - .9 - 1.0 - 1.2 - 1.1
Consumer 75 5.0 25 7.6 175 11.2 200 11.8 91 11.3
Unallocated 1,639 N/A 1,113 N/A 1,889 N/A 1,337 N /A 1,297 N/A
------ ---- ------ ----- ------ ----- ----- ---- ------- -----
Total $1,811 100.0% $1,433 100.0% $2,845 100.0% 2,051 100.0% $12,060 100.0%
====== ===== ====== ===== ====== ===== ===== ===== ======= =====
</TABLE>
The Bank establishes its allowance for loan losses primarily through
periodic credit reviews. The Bank assigns loans to risk categories based on the
type of loan and its classification under current regulatory guidelines.
Each category is assessed for risk of loss based on a variety of factors,
including, without limitation, historical experience and management's judgment
of the credits making up the category, the level of loans on non-accrual
status, strength or weakness of real estate markets and other delinquency
factors. The allowance for possible loan losses is allocated among certain risk
categories based upon specific loans as to which the Bank allocates reserves.
The unallocated reserves are comprised of general reserves assigned to various
risk categories based upon various factors including net charge-off history.
The unallocated reserve also includes a difference between the general and
allocated reserves and total reserve. The Bank considers commercial real estate
and commercial loans to have a higher risk of loss than residential mortgage
loans. Second mortgage and home equity loans also represent a higher risk than
first mortgage residential loans.
The Bank's provision for possible loan losses in 1996 was $480,000,
compared to $2,233,000 and $610,000 in 1995 and 1994, respectively. The
provision for 1996 decreased in comparison to 1995 due to the sale of certain
non-performing and high maintenance loans in 1995. The loss associated with that
sale was reflected as a charge-off to the allowance for possible loan losses
with an associated special provision for possible loan losses of $1,654,000. The
remaining $480,000 provision for possible loan losses was due to, among other
factors, growth in the Bank's loan portfolio, and management's and the Board of
Directors' assessment of the risk of the types of loans being originated in
1996, including commercial real estate. The Bank views the level of delinquent
14
<PAGE> 15
loans, which improved during 1995 and 1996, as one of the more important factors
in determining the allowance for loan losses. The New England real estate market
has shown some signs of recovery.
The Bank is continuing to stress commercial loans in 1997 in order to alter
the risk profile of it's asset base. As a result, a continuation of provisions
to its loan loss reserve during 1997 is warranted.
Uncertainties regarding future events, particularly in light of the current
New England economy and slowly recovering regional real estate market, could
result in additional future charge-offs, changes in the levels of the allowance
for loan losses and loans on non-accrual.
Investment Activities
The Bank's investment portfolio is currently managed by the Bank's
Executive Vice President with the assistance of an investment advisor in
accordance with an investment policy established by the Board of Directors. The
Bank's investments are subject to the laws of the Commonwealth of Massachusetts,
including regulations of the Commissioner, and certain provisions of the federal
law.
The following table sets forth certain information regarding the carrying
value of the Bank's investment portfolio, excluding mortgage-backed securities
and Federal Home Loan Bank stock:
At December 31,
----------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Short-term investments .................... $ 77 $ 73 $ 67
Federal funds sold ........................ 75 75 75
------- ------- -------
Total ..................................... $ 152 $ 148 $ 142
======= ======= =======
Percent of total assets ................... .03% .03% .03%
Investment securities:
U. S. Government and federal
agency obligations, not at
market in 1994 or 1993 .................. $18,498 $17,719 $13,387
Other bonds and obligations, not
at market in 1994 ....................... 1,138 5,221 7,261
------- ------- -------
Subtotal .................................. 19,636 22,940 20,648
Marketable equity securities, at market ... 4,411 3,004 281
------- ------- -------
Total investment securities ............... $24,047 $25,944 $20,929
======= ======= =======
Percent of total assets ................... 4.9 % 5.6 % 5.0%
A schedule of the maturity distribution of investment securities held by
the Bank, other than equity securities and FHLB stock, and the related weighted
average yield, at December 31, 1996 follows:
15
<PAGE> 16
<TABLE>
<CAPTION>
Within one After one but After five but After ten
year within five years within ten years years
------------------ --------------------- --------------------- --------------------
<S> <C> <C> <C>
Amor- Weighted Amor- Weighted Amor- Weighted Amor- Weighted
tized Average tized Average tized Average tized Average
Cost Yield Cost Yield Cost Yield Cost Yield
----- --------- ----- --------- ------- --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
U. S. Government and
federal agency
obligations................... $- -% $2,392 5.77% $11,914 8.07% $4,192 7.02%
Other bonds and obligations.... - - 1,138 9.47 - - - -
----- ----- ------ ---- ------- ---- ------ ----
Total $- -% $3,530 6.96% $11,914 8.07% $1,492 7.02%
===== ===== ====== ==== ======= ==== ====== ====
</TABLE>
At December 31, 1996, the Bank had two mortgage backed securities which had
a total amortized cost of $13,981,000, each of which individually had a book
value in excess of ten percent of stockholders' equity, and were not obligations
of the U. S. Government or federal agencies.
Sources of Funds
General. Deposits and borrowings are the Bank's primary sources of funds
for investment. The Bank also derives funds from operations, amortization and
prepayments of loans and sales of assets. Deposit flows vary significantly and
are influenced by prevailing interest rates, money market conditions, economic
conditions, location of Bank offices and competition.
Deposits. Most of the Bank's deposits are derived from customers who work
or reside in the Bank's primary service area. The Bank's deposits consist of
passbook savings accounts, special notice accounts, NOW accounts, money market
deposit accounts, club accounts, money market certificates, negotiated rate
certificates and term deposit certificates. The Bank also offers Individual
Retirement Accounts, which currently include a one-year variable rate account
with monthly interest rate adjustments, a 2.5 year fixed-rate account, or a 3-
or 4-year fixed-rate account. In addition, the Bank currently offers
non-interest NOW accounts for commercial customers and individuals. Although in
previous years the Bank has solicited brokered deposits, at December 31, 1996
there were no such deposits.
At December 31, 1996, the Bank's outstanding certificates of deposit with
balances in excess of $100,000 are scheduled to mature as follows:
(In thousands)
Three months or less $6,889
Over three to six months 4,036
Over six to twelve months 4,501
Over twelve months 7,879
-------
$23,305
=======
16
<PAGE> 17
For information regarding the average amounts of and rates paid on deposit
liabilities, see "Item 7 - Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Borrowings. For a discussion of borrowings, see "Item 8 - Notes 9 and 10 to
the Consolidated Financial Statements" and "Item 7 - Management's Discussion and
Analysis of Consolidated Financial Condition and Results of
Operations--Liquidity and Capital Resources".
Interest Rate Hedge Strategy. For a discussion of the Bank's interest rate
hedge strategy, see "Item 8 - Note 5 to the Consolidated Financial Statements"
and "Item 7 - Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations--Liquidity and Capital Resources".
Other Activities
Savings Bank Life Insurance. The Bank sells savings bank life insurance as
an agent but not as an issuer.
Other. At each of its banking locations, the Bank offers safe deposit box
services, an automated teller machine and drive-up banking services. The Bank
also provides its borrowers the opportunity to purchase life, accident and
disability insurance. The Bank offers investment services to its customers
through FISCO Equity, Inc., a broker-dealer, which is an affiliated company of
Financial Insurance Services, Inc., a Rhode Island-based company which does
business in Massachusetts as FIS Insurance Agency, Inc. Fees are paid to the
Bank based upon referrals of Bank customers to FISCO Equity, Inc. to purchase
alternative investments, regardless of whether or not a sale is made to the
customer.
Supervision and Regulation
As an FDIC-insured, state-chartered bank, the Bank is subject to
supervision and regulation by the Commissioner and the FDIC and is subject to
periodic examination. The Company is subject to regulation and supervision of
the Federal Reserve as a bank holding Company.
Competition
The Bank faces substantial competition both in attracting deposits and in
originating loans.
Competition in originating loans comes generally from other thrift
institutions, commercial banks, finance companies, insurance companies, other
institutional lenders and mortgage companies. The Bank competes for loans
principally on the basis of interest rates and loan fees, the types of loans
originated, service and geographic location.
17
<PAGE> 18
In attracting deposits, the Bank's primary competitors are other savings
banks, commercial banks and co-operative banks, credit unions, and money market
mutual funds. Other competition for deposits comes from government securities as
investments. The Bank's attraction and retention of deposits depends on its
ability to provide investment opportunities that satisfy the requirements of
investors with respect to rate of return, liquidity, risk and other factors. The
Bank attracts a significant amount of its deposits from the communities in which
its offices are located, and, accordingly, competition for these deposits comes
principally from other thrift institutions and commercial banks located in the
same geographic areas. The Bank competes for these deposits by attempting to
offer competitive rates, convenient branch locations, and convenient business
hours and by attempting to build an active, civic-spirited image in these
communities.
Financial institutions that are not now located within the Bank's market
area may find entry in the Bank's market area attractive. Such entry could have
an adverse effect on the Bank's growth or profitability. The Bank's potential
competitors may have substantially greater financial and other resources than
the Bank. In addition, increased competition for deposits has had an impact on
the rates which the Bank pays on certificates of deposit.
Employees
As of December 31, 1996, the Bank had 109 full-time employees, consisting
of 30 full-time officers and 79 full-time non-officers, as well as 79 part-time
employees. None of the Bank's employees is represented by a union or other labor
organization. The Bank provides its employees with a comprehensive range of
employee benefit programs. Management believes that its employee relations are
good.
18
<PAGE> 19
Item 2. Properties.
The following table sets forth certain information relating to real estate
owned or leased by the Bank at December 31, 1996.
Original Lease
Year Owned Lease Renewal
Opened or Leased Term Option
------ --------- ---- ------
Main Office:
533 Washington St.
Abington, MA 1929 Owned - -
Branches:
319 Monponsett Street
Halifax, MA 1975 Owned - -
584 Washington St.
Whitman, MA 1992 Owned - -
157 Summer Street
Kingston, MA 1995 Leased 20 years 10 years
175 Center Street
Pembroke, MA 1992 Owned - -
523 Nantasket Ave.
Hull, MA 1994 Leased 15 years -
778 S. Franklin St.
Holbrook MA 1995 Leased 10 years 2-5 years
Loan Center:
536 Washington St.
Abington, MA 1989 Owned - -
Corporate Office:
538 Bedford St.
Abington, MA 1995 Leased 2 Years 2 Years
Item 3. Legal Proceedings
19
<PAGE> 20
On or about April 10, 1996, a civil action entitled Merrill Lynch Mortgage
Capital, Inc. v. Abington Savings Bank, Spires Financial, L.P. and Geoffrey
Lawes, Docket No. MRS-L-1169-96, was filed in the Law Division of the Superior
Court of New Jersey, venued in Morris County. The Complaint named the Bank as a
defendant, along with the Bank's alleged financial broker, Spires Financial,
L.P. ("Spires") and an employee of Spires, Geoffrey Lawes ("Lawes").
The complaint alleged, among other things, that (1) Spires and/or Lawes, as
agent for the Bank, entered into a binding agreement with the plaintiff on
February 28, 1996 under which the bank agreed to purchase from the plaintiff a
pool of conventional adjustable rate mortgage loans having an unpaid principal
balance of approximately $34,000,000 as of March 4,1996 and (2) the bank
subsequently refused to close on the alleged contract. Plaintiff seeks damages
of no less than 530,000 against the Bank on the grounds that the Bank breached
its alleged contract.
The Bank has denied the existence of the alleged contract and agency
relationship, has asserted various affirmative defenses and has filed
indemnification claims against the defendants and several third-parties
associated with the defendants.
The Bank is a defendant in various other legal claims incident to its
business, none of which is believed by management, based on the advice of legal
counsel, to be material to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date of meeting and whether it was an annual or special meeting.
Prior to the consummation of the formation of the Company as the holding
company of the Bank on January 31, 1997, the Bank owned all of the issued and
outstanding shares of the Company. A Special Meeting of Stockholders of the Bank
(i.e., the predecessor to the Company) was held on December 11, 1996 (the
"Meeting").
(b) Election of Director. Not applicable.
(c) Other matters voted upon at the meeting and the number of affirmative votes
and the number of negative votes case with respect to each such matter.
At the Meeting, stockholders were asked to vote upon the appoval of the
Plan of Reorganization and Acquisition dated October 15, 1996 (the "Plan")
between the Bank and the Company. Pursuant to the Plan, on January 31, 1997,
the Bank became a wholly owned subsidiary of the Company and each issued and
outstanding share of common stock of the Bank, par value $0.10 per share (other
than shares held by stockholders, if any , exercising dissenters' rights), was
converted into and exchanged for one share of common stock of the Company, par
value $0.10 per share and the shares of the Company's common stock which were
outstanding and held by the Bank were cancelled. At the meeting, 1,399,832
shares were voted in favor of the Plan, 101,077 shares voted against and 15,755
shares abstained from voting.
20
<PAGE> 21
(d) Describe the terms of any settlement between the Bank and other participant.
Not applicable.
21
<PAGE> 22
PART II
Item. 5 Market for Registrant's Common Equity and Related Stock Holder Matters
The common stock of the Bank is currently listed on the Nasdaq Stock Market
National Market System (NMS) under the symbol "ABBK".
The table below sets forth the range of high and low sales prices for the
stock of the Bank for the quarters indicated. Market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
Transactions through January 31,1997 are for common stock of the Bank.
Transactions after that date are for common stock of the Company.
Price Dividends
High Low Declared
---- --- --------
1997
1st quarter 23 19 $-
(through March 4, 1997)
1996
4th quarter 21 3/4 16 7/8 $.10
3rd quarter 18 15 1/2 $.10
2nd quarter 16 1/4 14 1/2 $.10
1st quarter 17 3/4 15 7/16 $.10
1995
4th quarter 19 15 1/2 $.10
3rd quarter 17 13 1/2 $.10
2nd quarter 15 1/8 12 1/2 $.10
1st quarter 15 12 $.10
1994
4th quarter 15 1/2 11 3/4 $.10
3rd quarter 19 1/4 13 3/4 $.10
2nd quarter 16 1/4 11 1/4 $.10
1st quarter 12 1/2 10 1/4 $.10
As of March 4,1997, the Bank had approximately 841 stockholders of record
who held 1,893,238 outstanding shares of the Bank's Common Stock. The number of
stockholders indicated does not reflect the number of persons or entities who
hold their common stock in nominee or "street" name through various brokerage
firms. If all of such persons are included, the Company believes that there are
approximately
22
<PAGE> 23
1,916 beneficial owners of the Company's common stock.
Item 6. Selected Financial Data
Information required by Item 6 of this Form is incorporated by reference
herein from the section of the Company's Annual Report entitled "Financial
Highlights."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information required by Item 7 of this Form is incorporated by reference
herein from the section of the Company's Annual Report entitled "Management's
Discussion and Analysis". Certain Guide 3 information which is required by Item
7 is included in Item 1 of this Report.
Item 8. Financial Statements and Supplementary Data
Information required by Item 8 of this Form is incorporated by reference
from the sections of the Company's Annual Report entitled Report of Independent
Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure.
None.
23
<PAGE> 24
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by Item 10 of this Form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders of the Company.
Item 11. Executive Compensation
Information required by Item 11 of this Form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by item 12 of this form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders of the Company.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Contents
1) Financial Statements. See Part II Item 8 of this Report.
2) Financial Statement Schedules. The following consolidated financial
schedules of the Bank are included in response to Part II, Item 8 of this
Report:
Schedule I - See Note 4 to the Consolidated Financial Statements.
Schedule II - See Note 5 to the Consolidated Financial Statements.
Schedule III - See Note 5 to the Consolidated Financial Statements.
Schedule IV - See Note 6 to the Consolidated Financial Statements.
24
<PAGE> 25
Schedule VI - See Note 5 to the Consolidated Financial Statements.
3) 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 13, 1997.
*10.1 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and James P.
McDonough.
*10.2 Amended and restated Special Termination Agreement dated as of
January 31,1997 among the Company, the Bank and Edward J.
Merritt.
*10.3 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Donna L.
Thaxter.
*10.4 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Mario A.
Berlinghieri.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified Stock Option
Plan, as amended and restated to reflect holding company
formation.
*10.6 Executive Incentive Compensation Plan dated March 1993.
*10.7 Long Term Performance Incentive Plan dated November 18, 1993.
10.8 Lease for office space located at 538 Bedford Street,
Abington,
25
<PAGE> 26
Massachusetts, used for the Bank's principal and
administrative offices dated January 1, 1996. Northeast
Terminal Associates, Limited owns the property. Dennis E.
Barry and Joseph L. Barry, Jr., who beneficially own more than
5% of the Bank'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 from the Company's Registration statement
on Form S-3 effective January 31, 1997.
11.1 A statement regarding the computation of earnings per share is
included in Item 8 of this Report.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1996 which is furnished for the information of the Securities
and Exchange Commission only and is not deemed to be "filed"
as part of this Report except to the extent expressly
incorporated by reference herein.
21.1 Subsidiaries of the Bank.
23.1 Consent of Accountants.
24.1 A Power of Attorney is included on the signature page.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
Abington Savings Bank filed no reports on Form F-3 (the equivalent of Form
8-K) during the fourth quarter of 1996.
- ------------
* Management contract or compensatory plan or arrangement.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABINGTON BANCORP, INC.
Date: March 20, 1997
By: /s/ James P. McDonough
---------------------------------
James P. McDonough
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints James P. McDonough, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Form 10-K, and to file the same,
will all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
which he may deem necessary or advisable to be done in connection with this Form
10-K, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or any
substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ James P. McDonough President and March 20, 1997
- ---------------------- Chief Executive Officer;
James P. McDonough Director (Principal
Executive Officer)
27
<PAGE> 28
/s/ Edward J. Merritt Treasurer March 20, 1997
- -------------------------- (Principal Financial Officer)
Edward J. Merritt
/s/ Robert M. Lallo March 20, 1997
- -------------------------- (Principal Accounting
Robert M. Lallo Officer)
/s/ Robert J. Armstrong
- -------------------------- Director March 20, 1997
Robert J. Armstrong
/s/ Bruce G. Atwood
- -------------------------- Director March 20, 1997
Bruce G. Atwood
/s/ William F. Borhek
- -------------------------- Director March 20, 1997
William F. Borhek
/s/ Ralph B. Carver
- -------------------------- Director March 20, 1997
Ralph B. Carver, Jr.
/s/ Joel S. Geller
- -------------------------- Director March 20, 1997
Joel S. Geller
/s/ Rodney D. Henrikson
- -------------------------- Director March 20, 1997
Rodney D. Henrikson
/s/ A. Stanley Littlefield
- -------------------------- Director March 20, 1997
A. Stanley Littlefield
/s/ Jay Timothy Noonan
- -------------------------- Director March 20, 1997
Jay Timothy Noonan
- -------------------------- Director March 20, 1997
Gordon N. Sanderson
28
<PAGE> 29
/s/ James J. Slattery
- ----------------------- Director March 20, 1997
James J. Slattery
/s/ Wayne P. Smith
- ----------------------- Director March 20, 1997
Wayne P. Smith
29
<PAGE> 30
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 13, 1997.
*10.1 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and James P.
McDonough.
*10.2 Amended and restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Edward J.
Merritt.
*10.3 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Donna L.
Thaxter.
*10.4 Amended and Restated Special Termination Agreement dated as of
January 31, 1997 among the Company, the Bank and Mario A.
Berlinghieri.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified Stock Option
Plan, as amended and restated to reflect holding company
formation.
*10.6 Executive Incentive Compensation Plan dated March 1993.
*10.7 Long Term Performance Incentive Plan dated November 18, 1993.
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. Northeast
Terminal Associates, Limited owns the
31
<PAGE> 31
property. Dennis E. Barry and Joseph L. Barry, Jr., who
beneficially own more than 5% of the Bank'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 from the Company's Registration Statement
on Form S-3 effective January 31, 1997.
11.1 A statement regarding the computation of earnings per share is
included in Item 8 of this Report.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1996 which is furnished for the information of the Securities
and Exchange Commission only and is not deemed to be "filed"
as part of this Report except to the extent expressly
incorporated by reference herein.
21.1 Subsidiaries of the Bank.
23.1 Consent of Accountants.
24.1 A Power of Attorney is included on the signature page.
27.1 Financial Data Schedule.
- ------------
* Management contract or compensatory plan or arrangement.
32
<PAGE> 1
EXECUTION COPY
Exhibit 10.1
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT is amended and restated as of the 31st day of January, 1997
by and among Abington Bancorp, Inc., a Massachusetts corporation (the
"Company"), its subsidiary, Abington Savings Bank, a Massachusetts savings bank
with its main office in Abington, Massachusetts (the "Bank"; the Company and
Bank are sometimes collectively referred to herein as the "Employers"), and
James P. McDonough, an individual currently employed by the Company and the Bank
in the capacity of President and Chief Executive Officer (the "Executive"). This
Agreement replaces and supersedes in its entirety that certain Special
Termination Agreement between the Bank and the Executive dated as of November
19, 1993, which in turn replaced and superseded in its entirety that certain
Special Termination Agreement dated as of March 25, 1993.
1. Purpose. In order to allow the Executive to consider the prospect of a
Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers are
willing to provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a Terminating Event
(as defined in Section 3) occurring subsequent to a Change in Control.
2. Change in Control. A "Change in Control" shall be deemed to have
occurred in any of the following events:
(i) if there has occurred a change in control which the Company would be
required to report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such Form
is no longer in effect in its present form, any Form or regulation promulgated
by the Securities and Exchange Commission pursuant to the 1934 Act which is
intended to serve similar purposes; or
(ii) when any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company or the Bank representing twenty-five percent (25%) or
more of the total number of votes that may be cast for the election of directors
of the Company or the Bank; or
(iii) if during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who are Continuing
Directors (as herein defined) cease for any reason to constitute at least a
majority of the Board of Directors of the Company. For this purpose, a
"Continuing Director" shall mean (a) an individual who was a director of the
Company at the beginning of such period or (b) any new director (other than a
director
<PAGE> 2
designated by a person who has entered into any agreement with the Company to
effect a transaction described in clause (i) or (ii) of this Section 2 whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved; or
(iv) the stockholders of the Company approve a merger or consolidation of
the Company with any other bank or corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined voting power
of the Company's then outstanding securities; or
(v) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of its assets.
3. Terminating Event. A "Terminating Event" shall mean either of the
following:
(a) termination by either of the Employers of the employment of the
Executive as President and Chief Executive Officer of the Company or the Bank
for any reason other than (i) death, (ii) deliberate dishonesty of the Executive
with respect to the Company or the Bank or any subsidiary or affiliate thereof,
or (iii) conviction of the Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of the Company or the
Bank, while the Executive is not receiving payments or benefits from the Company
or the Bank by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties from the
responsibilities, authorities, powers, functions or duties exercised
by the Executive at the Company or the Bank immediately prior to the
Change in Control; or
(ii) a reasonable determination by the Executive that, as a result of a
Change in Control, he is unable to exercise the responsibilities,
authorities, powers, functions or duties exercised by the Executive
at the Company or the Bank immediately prior to such Change in
Control; or
(iii) a decrease in the total annual compensation payable by the Company
or the Bank to the Executive other than as a result of a salary
reduction similarly affecting the Executive and all other executive
officers of the Company or the
-2-
<PAGE> 3
Bank on the basis of the Company's or the Bank's financial
performance; or
(iv) the failure by the Company or the Bank to continue in effect any
material compensation, incentive, bonus or benefit plan in which the
Executive participates immediately prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or the
failure by the Company or the Bank to continue the Executive's
participation therein (or in such substitute or alternative plan) on
a basis not materially less favorable, both in terms of the amount
of benefits provided and the level of the Executive's participation
relative to other participants, than the basis when existed at the
time of the Change of Control; or
(v) the failure of the Company or the Bank to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement.
4. Severance Payment. In the event a Terminating Event occurs within three
(3) years after a Change in Control, the Employers shall pay to the Executive an
amount equal to (x) three times the "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"))
applicable to the Executive, less (y) One Dollar ($1.00), payable in one
lump-sum payment on the date of termination. Notwithstanding the foregoing, in
no event shall the amount payable to the Executive exceed seven hundred fifty
thousand dollars ($750,000.00).
5. Limitation on Benefits.
(a) It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be deducted by the
Employers. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Employers with interest thereon at the applicable
Federal Rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall be
non-deductible to the Employers by reason of the operation of said Section 280G.
To the extent that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the Executive shall
determine which method shall be followed, provided that if the Executive fails
to make such determination within forty-five days after the Employers have sent
him written notice of the need for such reduction, the Employers may determine
the method of such reduction in their sole discretion.
-3-
<PAGE> 4
(b) If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 5 or the method of calculating
such amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written notice to the other, may refer the dispute to a
partner in a Massachusetts office of a firm of independent certified public
accountants selected jointly by the Employers and the Executive. The
determination of such partner as to the amounts to be determined under Section
5(a) and the method of calculating such amounts shall be final and binding on
both the Employers and the Executive. The Employers shall bear the costs of any
such determination.
(c) The Executive confirms that he is aware of the fact that the Federal
Deposit Insurance Corporation has the power to preclude the Bank from making
payments to the Executive under this Agreement under certain circumstances. The
Executive agrees that the Bank shall not be deemed to be in breach of this
Agreement if it is precluded from making a payment otherwise payable hereunder
by reason of regulatory requirements binding on the Bank.
6. Employment Status. This Agreement is not an agreement for the
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. Term. This Agreement shall take effect on the date first written above,
and shall terminate upon the earlier of (a) the termination by the Employers of
the employment of the Executive because of death, deliberate dishonesty of the
Executive with respect to the Company or the Bank or any subsidiary or affiliate
thereof, or conviction of the Executive of a crime involving moral turpitude,
(b) the resignation or termination of employment with the Company or the Bank by
the Executive for any reason prior to a Change in Control, or (c) the
resignation from employment of the Executive after a Change in Control for any
reason other than the occurrence of any of the events enumerated in Section 3(b)
of this Agreement.
8. Withholding. All payments made by the Employers under this Agreement
shall be paid net of, and after deduction of, any tax or other amounts required
to be withheld by the Employers under applicable law.
9. Assignment. Neither the Employers nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be binding upon, the Employers and the
Executive, and their respective heirs, legal representatives, successors and
permitted assigns. In the event of the Executive's death prior to the completion
by the Employers of all payments due him under this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if he fails to
make such designation).
10. Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and
-4-
<PAGE> 5
each portion and provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
11. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers or, in the case of the Employers, at its main office, attention of the
Clerk or the Secretary.
13. Effect on Other Agreements. An election by the Executive to resign
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive and shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Employer's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under any
employment agreement he may then have with the Employers.
13. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Executive Committee of the Board of Directors of each of the Employers.
14. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts without regard for its principles of conflicts of laws.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Bank, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: ABINGTON BANCORP, INC.
/s/ Barbara M. Manning By: /s/ Edward J. Merritt
- -------------------------- ------------------------
Clerk Title: Treasurer
[Seal]
WITNESS:
ATTEST: ABINGTON SAVINGS BANK
/s/ Barbara M. Manning By: /s/ Edward J. Merritt
- -------------------------- ------------------------
Clerk Title: Executive Vice President and
Chief Financial Officer
[Seal]
WITNESS:
/s/ Lewis J. Paragana /s/ James P. McDonough
- -------------------------- -----------------------------
James P. McDonough
-6-
<PAGE> 1
EXECUTION COPY
Exhibit 10.2
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT is amended and restated as of the 31st day of January,
1997 by and among Abington Bancorp, Inc., a Massachusetts corporation (the
"Company"), its subsidiary, Abington Savings Bank, a Massachusetts savings bank
with its main office in Abington, Massachusetts (the "Bank"; the Company and
Bank are sometimes collectively referred to herein as the "Employers"), and
Edward J. Merritt, an individual currently employed by the Bank in the capacity
of Executive Vice President and Chief Financial Officer (the "Executive"). This
Agreement replaces and supersedes in its entirety that certain Special
Termination Agreement between the Bank and the Executive dated as of November
19, 1993, which in turn replaced and superseded in its entirety that certain
Special Termination Agreement dated as of March 25, 1993.
1. PURPOSE. In order to allow the Executive to consider the prospect of
a Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers are
willing to provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a Terminating Event
(as defined in Section 3) occurring subsequent to a Change in Control.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any of the following events:
(i) if there has occurred a change in control which the Company would
be required to report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such Form
is no longer in effect in its present form, any Form or regulation promulgated
by the Securities and Exchange Commission pursuant to the 1934 Act which is
intended to serve similar purposes; or
(ii) when any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company or the Bank representing twenty-five percent (25%) or
more of the total number of votes that may be cast for the election of directors
of the Company or the Bank; or
(iii) if during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who are Continuing
Directors (as herein defined) cease for any reason to constitute at least a
majority of the Board of Directors of the Company. For this purpose, a
"Continuing Director" shall mean (a) an individual who was a director of the
Company at the beginning of such period or (b) any new director (other than a
director
<PAGE> 2
designated by a person who has entered into any agreement with the Company to
effect a transaction described in clause (i) or (ii) of this Section 2 whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved; or
(iv) the stockholders of the Company approve a merger or consolidation
of the Company with any other bank or corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined voting power
of the Company's then outstanding securities; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean either of the
following:
(a) termination by either of the Employers of the employment of the
Executive as Executive Vice President and Chief Financial Officer of the Bank or
as the chief financial officer of the Company for any reason other than (i)
death, (ii) deliberate dishonesty of the Executive with respect to the Company
or the Bank or any subsidiary or affiliate thereof, or (iii) conviction of the
Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of the Company or the
Bank, while the Executive is not receiving payments or benefits from the Company
or the Bank by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or
duties exercised by the Executive at the Company or the Bank
immediately prior to the Change in Control; or
(ii) a reasonable determination by the Executive that, as a result
of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties
exercised by the Executive at the Company or the Bank
immediately prior to such Change in Control; or
(iii) a decrease in the total annual compensation payable by the
Company or the Bank to the Executive other than as a result of
a salary reduction similarly affecting the Executive and all
other executive officers of the Company or the
-2-
<PAGE> 3
Bank on the basis of the Company's or the Bank's financial
performance; or
(iv) the failure by the Company or the Bank to continue in effect
any material compensation, incentive, bonus or benefit plan in
which the Executive participates immediately prior to the
Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company or
the Bank to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's
participation relative to other participants, than the basis
when existed at the time of the Change of Control; or
(v) the failure of the Company or the Bank to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
three (3) years after a Change in Control, the Employers shall pay to the
Executive an amount equal to (x) three times the "base amount" (as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) applicable to the Executive, less (y) One Dollar ($1.00), payable in
one lump-sum payment on the date of termination. Notwithstanding the foregoing,
in no event shall the amount payable to the Executive exceed five hundred
thousand dollars ($500,000.00).
5. LIMITATION ON BENEFITS.
(a) It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be deducted by the
Employers. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Employers with interest thereon at the applicable
Federal Rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall be
non-deductible to the Employers by reason of the operation of said Section 280G.
To the extent that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the Executive shall
determine which method shall be followed, provided that if the Executive fails
to make such determination within forty-five days after the Employers have sent
him written notice of the need for such reduction, the Employers may determine
the method of such reduction in their sole discretion.
-3-
<PAGE> 4
(b) If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 5 or the method of calculating
such amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written notice to the other, may refer the dispute to a
partner in a Massachusetts office of a firm of independent certified public
accountants selected jointly by the Employers and the Executive. The
determination of such partner as to the amounts to be determined under Section
5(a) and the method of calculating such amounts shall be final and binding on
both the Employers and the Executive. The Employers shall bear the costs of any
such determination.
(c) The Executive confirms that he is aware of the fact that the
Federal Deposit Insurance Corporation has the power to preclude the Bank from
making payments to the Executive under this Agreement under certain
circumstances. The Executive agrees that the Bank shall not be deemed to be in
breach of this Agreement if it is precluded from making a payment otherwise
payable hereunder by reason of regulatory requirements binding on the Bank.
6. EMPLOYMENT STATUS. This Agreement is not an agreement for the
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. TERM. This Agreement shall take effect on the date first written
above, and shall terminate upon the earlier of (a) the termination by the
Employers of the employment of the Executive because of death, deliberate
dishonesty of the Executive with respect to the Company or the Bank or any
subsidiary or affiliate thereof, or conviction of the Executive of a crime
involving moral turpitude, (b) the resignation or termination of employment with
the Company or the Bank by the Executive for any reason prior to a Change in
Control, or (c) the resignation from employment of the Executive after a Change
in Control for any reason other than the occurrence of any of the events
enumerated in Section 3(b) of this Agreement.
8. WITHHOLDING. All payments made by the Employers under this Agreement
shall be paid net of, and after deduction of, any tax or other amounts required
to be withheld by the Employers under applicable law.
9. ASSIGNMENT. Neither the Employers nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be binding upon, the Employers and the
Executive, and their respective heirs, legal representatives, successors and
permitted assigns. In the event of the Executive's death prior to the completion
by the Employers of all payments due him under this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if he fails to
make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and
-4-
<PAGE> 5
each portion and provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers or, in the case of the Employers, at its main office, attention of the
Clerk or the Secretary.
13. EFFECT ON OTHER AGREEMENTS. An election by the Executive to resign
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive and shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Employer's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under any
employment agreement he may then have with the Employers.
13. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Executive Committee of the Board of Directors of each of
the Employers.
14. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts without regard for its principles of conflicts of laws.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Bank, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: ABINGTON BANCORP, INC.
/s/ Barbara M. Manning By: /s/ James P. McDonough
- -------------------------- -------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
ATTEST: ABINGTON SAVINGS BANK
/s/ Barbara M. Manning By: /s/ James P. McDonough
- -------------------------- -------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
/s/ Lewis J. Paragona /s/ Edward J. Merritt
- -------------------------- -------------------------------------
Edward J. Merritt
-6-
<PAGE> 1
EXECUTION COPY
Exhibit 10.3
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT is amended and restated as of the 31st day of January,
1997 by and among Abington Bancorp, Inc., a Massachusetts corporation (the
"Company"), its subsidiary, Abington Savings Bank, a Massachusetts savings bank
with its main office in Abington, Massachusetts (the "Bank"; the Company and
Bank are sometimes collectively referred to herein as the "Employers"), and
Donna L. Thaxter, an individual currently employed by the Bank in the capacity
of Senior Vice President (the "Executive"). This Agreement replaces and
supersedes in its entirety that certain Special Termination Agreement between
the Bank and the Executive dated as of March 23, 1995, which in turn replaced
and superseded in its entirety that certain Special Termination Agreement dated
as of March 25, 1993.
1. PURPOSE. In order to allow the Executive to consider the prospect of
a Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers are
willing to provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a Terminating Event
(as defined in Section 3) occurring subsequent to a Change in Control.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any of the following events:
(i) if there has occurred a change in control which the Company would
be required to report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such Form
is no longer in effect in its present form, any Form or regulation promulgated
by the Securities and Exchange Commission pursuant to the 1934 Act which is
intended to serve similar purposes; or
(ii) when any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company or the Bank representing twenty-five percent (25%) or
more of the total number of votes that may be cast for the election of directors
of the Company or the Bank; or
(iii) if during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who are Continuing
Directors (as herein defined) cease for any reason to constitute at least a
majority of the Board of Directors of the Company. For this purpose, a
"Continuing Director" shall mean (a) an individual who was a director of the
Company at the beginning of such period or (b) any new director (other than a
director
<PAGE> 2
designated by a person who has entered into any agreement with the Company to
effect a transaction described in clause (i) or (ii) of this Section 2 whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved; or
(iv) the stockholders of the Company approve a merger or consolidation
of the Company with any other bank or corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined voting power
of the Company's then outstanding securities; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean either of the
following:
(a) termination by either of the Employers of the employment of the
Executive as Senior Vice President of the Bank for any reason other than (i)
death, (ii) deliberate dishonesty of the Executive with respect to the Company
or the Bank or any subsidiary or affiliate thereof, or (iii) conviction of the
Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of the Company or the
Bank, while the Executive is not receiving payments or benefits from the Company
or the Bank by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or
duties exercised by the Executive at the Company or the Bank
immediately prior to the Change in Control; or
(ii) a reasonable determination by the Executive that, as a result
of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties
exercised by the Executive at the Company or the Bank
immediately prior to such Change in Control; or
(iii) a decrease in the total annual compensation payable by the
Company or the Bank to the Executive other than as a result of
a salary reduction similarly affecting the Executive and all
other executive officers of the Company or the Bank on the
basis of the Company's or the Bank's financial performance; or
-2-
<PAGE> 3
(iv) the failure by the Company or the Bank to continue in effect
any material compensation, incentive, bonus or benefit plan in
which the Executive participates immediately prior to the
Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company or
the Bank to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's
participation relative to other participants, than the basis
when existed at the time of the Change of Control; or
(v) the failure of the Company or the Bank to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
three (3) years after a Change in Control, the Employers shall pay to the
Executive an amount equal to (x) three times the "base amount" (as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) applicable to the Executive, less (y) One Dollar ($1.00), payable in
one lump-sum payment on the date of termination. Notwithstanding the foregoing,
in no event shall the amount payable to the Executive exceed five hundred
thousand dollars ($500,000.00).
5. LIMITATION ON BENEFITS.
(a) It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be deducted by the
Employers. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Employers with interest thereon at the applicable
Federal Rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall be
non-deductible to the Employers by reason of the operation of said Section 280G.
To the extent that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the Executive shall
determine which method shall be followed, provided that if the Executive fails
to make such determination within forty-five days after the Employers have sent
him written notice of the need for such reduction, the Employers may determine
the method of such reduction in their sole discretion.
(b) If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 5 or the method of calculating
such amounts cannot be
-3-
<PAGE> 4
resolved by the Employers and the Executive, either party after giving three
days written notice to the other, may refer the dispute to a partner in a
Massachusetts office of a firm of independent certified public accountants
selected jointly by the Employers and the Executive. The determination of such
partner as to the amounts to be determined under Section 5(a) and the method of
calculating such amounts shall be final and binding on both the Employers and
the Executive. The Employers shall bear the costs of any such determination.
(c) The Executive confirms that he is aware of the fact that the
Federal Deposit Insurance Corporation has the power to preclude the Bank from
making payments to the Executive under this Agreement under certain
circumstances. The Executive agrees that the Bank shall not be deemed to be in
breach of this Agreement if it is precluded from making a payment otherwise
payable hereunder by reason of regulatory requirements binding on the Bank.
6. EMPLOYMENT STATUS. This Agreement is not an agreement for the
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. TERM. This Agreement shall take effect on the date first written
above, and shall terminate upon the earlier of (a) the termination by the
Employers of the employment of the Executive because of death, deliberate
dishonesty of the Executive with respect to the Company or the Bank or any
subsidiary or affiliate thereof, or conviction of the Executive of a crime
involving moral turpitude, (b) the resignation or termination of employment with
the Company or the Bank by the Executive for any reason prior to a Change in
Control, or (c) the resignation from employment of the Executive after a Change
in Control for any reason other than the occurrence of any of the events
enumerated in Section 3(b) of this Agreement.
8. WITHHOLDING. All payments made by the Employers under this Agreement
shall be paid net of, and after deduction of, any tax or other amounts required
to be withheld by the Employers under applicable law.
9. ASSIGNMENT. Neither the Employers nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be binding upon, the Employers and the
Executive, and their respective heirs, legal representatives, successors and
permitted assigns. In the event of the Executive's death prior to the completion
by the Employers of all payments due him under this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if he fails to
make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
-4-
<PAGE> 5
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers or, in the case of the Employers, at its main office, attention of the
Clerk or the Secretary.
13. EFFECT ON OTHER AGREEMENTS. An election by the Executive to resign
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive and shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Employer's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under any
employment agreement he may then have with the Employers.
13. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Executive Committee of the Board of Directors of each of
the Employers.
14. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts without regard for its principles of conflicts of laws.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Bank, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: ABINGTON BANCORP, INC.
By: /s/ Barbara M. Manning By: /s/ James P. McDonough
---------------------- ----------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
ATTEST: ABINGTON SAVINGS BANK
By: /s/ Barbara M. Manning By: /s/ James P. McDonough
---------------------- ----------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
/s/ Lewis J. Paragona /s/ Donna L. Thaxter
- -------------------------- ----------------------------------------
Donna L. Thaxter
-6-
<PAGE> 1
EXECUTION COPY
Exhibit 10.4
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT is amended and restated as of the 31st day of January,
1997 by and among Abington Bancorp, Inc., a Massachusetts corporation (the
"Company"), its subsidiary, Abington Savings Bank, a Massachusetts savings bank
with its main office in Abington, Massachusetts (the "Bank"; the Company and
Bank are sometimes collectively referred to herein as the "Employers"), and
Mario A. Berlinghieri, an individual currently employed by the Bank in the
capacity of Senior Vice President - Corporate Banking (the "Executive"). This
Agreement replaces and supersedes in its entirety that certain Special
Termination Agreement between the Bank and the Executive dated as of January 29,
1996.
1. PURPOSE. In order to allow the Executive to consider the prospect of
a Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers are
willing to provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a Terminating Event
(as defined in Section 3) occurring subsequent to a Change in Control.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any of the following events:
(i) if there has occurred a change in control which the Company would
be required to report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such Form
is no longer in effect in its present form, any Form or regulation promulgated
by the Securities and Exchange Commission pursuant to the 1934 Act which is
intended to serve similar purposes; or
(ii) when any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Company or the Bank representing twenty-five percent (25%) or
more of the total number of votes that may be cast for the election of directors
of the Company or the Bank; or
(iii) if during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who are Continuing
Directors (as herein defined) cease for any reason to constitute at least a
majority of the Board of Directors of the Company. For this purpose, a
"Continuing Director" shall mean (a) an individual who was a director of the
Company at the beginning of such period or (b) any new director (other than a
director designated by a person who has entered into any agreement with the
Company to effect a transaction described in clause (i) or (ii) of this Section
2 whose election by the Board or
<PAGE> 2
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved; or
(iv) the stockholders of the Company approve a merger or consolidation
of the Company with any other bank or corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined voting power
of the Company's then outstanding securities; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean either of the
following:
(a) termination by either of the Employers of the employment of the
Executive as Senior Vice President of the Bank for any reason other than (i)
death, (ii) deliberate dishonesty of the Executive with respect to the Company
or the Bank or any subsidiary or affiliate thereof, or (iii) conviction of the
Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of the Company or the
Bank, while the Executive is not receiving payments or benefits from the Company
or the Bank by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or
duties exercised by the Executive at the Company or the Bank
immediately prior to the Change in Control; or
(ii) a reasonable determination by the Executive that, as a result
of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties
exercised by the Executive at the Company or the Bank
immediately prior to such Change in Control; or
(iii) a decrease in the total annual compensation payable by the
Company or the Bank to the Executive other than as a result of
a salary reduction similarly affecting the Executive and all
other executive officers of the Company or the Bank on the
basis of the Company's or the Bank's financial performance; or
(iv) the failure by the Company or the Bank to continue in effect
any material
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<PAGE> 3
compensation, incentive, bonus or benefit plan in which the
Executive participates immediately prior to the Change in
Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company or the
Bank to continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation
relative to other participants, than the basis when existed at
the time of the Change of Control; or
(v) the failure of the Company or the Bank to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
three (3) years after a Change in Control, the Employers shall pay to the
Executive an amount equal to (x) two times the "base amount" (as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) applicable to the Executive, less (y) One Dollar ($1.00), payable in
one lump-sum payment on the date of termination. Notwithstanding the foregoing,
in no event shall the amount payable to the Executive exceed three hundred fifty
thousand dollars ($350,000.00).
5. LIMITATION ON BENEFITS.
(a) It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be deducted by the
Employers. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Employers with interest thereon at the applicable
Federal Rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall be
non-deductible to the Employers by reason of the operation of said Section 280G.
To the extent that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the Executive shall
determine which method shall be followed, provided that if the Executive fails
to make such determination within forty-five days after the Employers have sent
him written notice of the need for such reduction, the Employers may determine
the method of such reduction in their sole discretion.
(b) If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 5 or the method of calculating
such amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written
-3-
<PAGE> 4
notice to the other, may refer the dispute to a partner in a Massachusetts
office of a firm of independent certified public accountants selected jointly by
the Employers and the Executive. The determination of such partner as to the
amounts to be determined under Section 5(a) and the method of calculating such
amounts shall be final and binding on both the Employers and the Executive. The
Employers shall bear the costs of any such determination.
(c) The Executive confirms that he is aware of the fact that the
Federal Deposit Insurance Corporation has the power to preclude the Bank from
making payments to the Executive under this Agreement under certain
circumstances. The Executive agrees that the Bank shall not be deemed to be in
breach of this Agreement if it is precluded from making a payment otherwise
payable hereunder by reason of regulatory requirements binding on the Bank.
6. EMPLOYMENT STATUS. This Agreement is not an agreement for the
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. TERM. This Agreement shall take effect on the date first written
above, and shall terminate upon the earlier of (a) the termination by the
Employers of the employment of the Executive because of death, deliberate
dishonesty of the Executive with respect to the Company or the Bank or any
subsidiary or affiliate thereof, or conviction of the Executive of a crime
involving moral turpitude, (b) the resignation or termination of employment with
the Company or the Bank by the Executive for any reason prior to a Change in
Control, or (c) the resignation from employment of the Executive after a Change
in Control for any reason other than the occurrence of any of the events
enumerated in Section 3(b) of this Agreement.
8. WITHHOLDING. All payments made by the Employers under this Agreement
shall be paid net of, and after deduction of, any tax or other amounts required
to be withheld by the Employers under applicable law.
9. ASSIGNMENT. Neither the Employers nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be binding upon, the Employers and the
Executive, and their respective heirs, legal representatives, successors and
permitted assigns. In the event of the Executive's death prior to the completion
by the Employers of all payments due him under this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if he fails to
make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
-4-
<PAGE> 5
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers or, in the case of the Employers, at its main office, attention of the
Clerk or the Secretary.
13. EFFECT ON OTHER AGREEMENTS. An election by the Executive to resign
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive and shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Employer's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under any
employment agreement he may then have with the Employers.
13. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Executive Committee of the Board of Directors of each of
the Employers.
14. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts without regard for its principles of conflicts of laws.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Bank, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: ABINGTON BANCORP, INC.
/s/ Barbara M. Manning By: /s/ James P. McDonough
- ------------------------ ----------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
ATTEST: ABINGTON SAVINGS BANK
/s/ Barbara M. Manning By: /s/ James P. McDonough
- ------------------------ ----------------------------------------
Clerk Title: President and Chief Executive Officer
[Seal]
WITNESS:
/s/ Lewis J. Paragona /s/ Mario A. Berlinghieri
- ------------------------ ----------------------------------------
Mario A. Berlinghieri
-6-
<PAGE> 1
Exhibit 10.5
ABINGTON BANCORP, INC.
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
As amended and restated
Effective January 31, 1997
<PAGE> 2
ABINGTON BANCORP, INC.
Incentive and Nonqualified Stock Option Plan
SECTION 1. PURPOSE
This Incentive and Nonqualified Stock Option Plan (the "Plan") is
intended as a performance incentive for directors, officers and employees of
Abington Bancorp, Inc.(the "Company") or its Subsidiaries (as hereinafter
defined) and for certain other individuals providing services to the Company or
its Subsidiaries, to enable the persons to whom options are granted (the
"Optionees") to acquire or increase a proprietary interest in the success of the
Company. The Company intends that this purpose will be effected by the granting
of "incentive stock options" ("Incentive Options") as defined in Section 422 of
the Internal Revenue Code of 1954, as amended (the "Code") and nonqualified
stock options ("Nonqualified Options") under the Plan. The term "Subsidiaries"
includes any corporations in which stock possessing 50 percent or more of the
total combined voting power of all classes of stock is owned directly or
indirectly by the Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 Options granted under the Plan may be either Incentive Options or
Nonqualified Options.
2.2 The Plan shall be administered by a committee (the "Option
Committee") of not less than three directors appointed by the Board of Directors
of the Company. None of the members of the Option Committee shall be an officer
or other full-time employee of the Company. It is the intention of the Company
that the Plan shall be administered, in accordance with the provisions of
Section 4 hereof, by "disinterested administrators" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"). The Committee
so selected shall exercise all powers under the Plan and shall continue in
office until other action is taken by the Board of Directors. Action by the
Option Committee shall require the affirmative vote of a majority of all its
members.
2.3 Subject to the terms and conditions of the Plan, the Option
Committee shall have the power:
(a) To determine from time to time the options to be granted
to eligible persons under the Plan, to prescribe the terms and
provisions (which need not be identical) of each option granted under
the Plan to such persons, and to recommend to the Board of Directors
for its approval the grant of options;
(b) To construe and interpret the Plan and options granted
thereunder and to
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<PAGE> 3
establish, amend, and revoke rules and regulations for administration
of the Plan. In this connection, the Option Committee may correct any
defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option agreement, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective. All
decisions and determinations by the Option Committee in the exercise of
this power shall be final and binding upon the Company and Optionees;
and
(c) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best interests
of the Company with respect to the Plan.
SECTION 3. STOCK
3.1 The stock subject to the options granted under the Plan shall be
shares of the Company's authorized but unissued common stock, par value $.10 per
share (the "Common Stock"). The total number of shares that may be issued
pursuant to options granted under the Plan shall not exceed an aggregate of
230,000 shares of Common Stock. Such number shall be subject to adjustment as
provided in Section 7 hereof.
3.2 Whenever any outstanding option under the Plan expires, is
cancelled or is otherwise terminated (other than by exercise), the shares of
Common Stock allocable to the unexercised portion of such option may again be
the subject of options under the Plan.
SECTION 4. ELIGIBILITY
4.1 Incentive Options may be granted only to officers and other
employees of the Company or its Subsidiaries, including members of the Board of
Directors who are also employees of the Company or its Subsidiaries.
Nonqualified Options may be granted to officers or other employees of the
Company or its Subsidiaries, to members of the Board of Directors (regardless of
whether they are also employees) and to certain other individuals providing
services to the Company or its Subsidiaries.
4.2 No Incentive Option shall be granted to an individual who, at the
time the Incentive Option is granted, owns (including ownership attributed
pursuant to Section 425(d) of the Code) more than ten percent (l0%) of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company (a "greater-than-ten-percent stockholder"), unless
such Incentive Option provides that (i) the purchase price per share shall not
be less than one hundred ten percent (ll0%) of the fair market value of the
Common Stock at the time such Incentive Option is granted, and (ii) that such
Incentive Option shall not be exercisable to any extent after the expiration of
five (5) years from the date it is granted.
4.3 The aggregate fair market value (determined at the time the
Incentive Option is
-2-
<PAGE> 4
granted) of the stock with respect to which Incentive Options are exercisable
for the first time by any person during any calendar year under the Plan and
under any other option plan of the Company (or a parent or subsidiary as defined
in Section 425 of the Code) shall not exceed $100,000. Any option granted in
excess of the foregoing limitations shall be clearly and specifically designated
as not being an Incentive Option.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
Each option agreement shall contain such provisions as the Option
Committee shall from time to time deem appropriate. Option agreements need not
be identical, but each option agreement by appropriate language shall include
the substance of all of the following provisions:
5.1 Expiration. Notwithstanding any other provision of the Plan or of
any option agreement, each option shall expire on the date specified in the
option agreement, which date shall not be later than the tenth anniversary of
the date on which the option was granted (fifth anniversary in the case of a
greater-than-ten-percent stockholder).
5.2 Exercise.
5.2.1 Each option shall be exercisable in full or in
installments (which need not be equal) and at such times as designated by the
Option Committee. To the extent not exercised, installments shall accumulate and
be exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
5.2.2 In the event of a Change in Control of the Company (as
defined in Section 5.6 below), all options outstanding as of the date of such
Change in Control shall become immediately exercisable.
5.3 Purchase Price. The purchase price per share of the Common Stock
under each option shall be not less than the fair market value of the Common
Stock on the date the option is granted (110% of the fair market value in the
case of a greater-than-ten-percent stockholder). For the purpose of the Plan the
fair market value of the Common Stock shall be determined by the Option
Committee.
5.4 Transferability of Options. Options shall not be transferable by
the Optionee otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during his lifetime, only by him.
5.5 Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) the Company shall have issued and delivered the shares of the Optionee, and
(iii) the Optionee's name shall have been entered as a
-3-
<PAGE> 5
stockholder of record on the books of the Company. Thereupon, the Optionee shall
have full voting, dividend and other ownership rights with respect to such
shares of Common Stock.
5.6 Change in Control. For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred in either of the following events:
(i) if there has occurred a change in control which the Company would
be required to report in response to Item 1 of Form 8-K promulgated under the
1934 Act, or, if such regulation is no longer in effect, any regulations
promulgated by the Securities and Exchange Commission pursuant to the 1934 Act
which are intended to serve similar purposes, or (ii) when any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the
1934 Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the total number of votes that may be cast
for the election of directors of the Company, as the case may be, and in the
case of (i) or (ii) above, the Board of Directors of the Company has not
consented to such event by a two-thirds vote of all of the members of such Board
of Directors prior to such event. In addition, a Change in Control shall be
deemed to have occurred if, as the result of, or in connection with, any tender
or exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions, the
persons who were directors of the Company before such transaction will cease to
constitute a majority of the Board of Directors of the Company or of any
successor institution.
SECTION 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
6.1 Any option granted under the Plan may be exercised by the Optionee
by delivering to the Option Committee on any business day a written notice
specifying the number of shares of Common Stock the Optionee then desires to
purchase and specifying the address to which the certificates for such shares
are to be mailed (the "Notice"), accompanied by payment for such shares.
6.2 Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either in (i) cash equal to the option price
for the number of shares specified in the Notice (the "Total Option Price"), or
(ii) if authorized by the applicable option agreement, shares of Common Stock of
the Company having a fair market value, determined as provided in Section 5.4
hereof, equal to or less than the Total Option Price, plus cash in an amount
equal to the excess, if any, of the Total Option Price over the fair market
value of such shares of Common Stock, or (iii) with the consent of the Option
Committee, a combination of (i) and (ii). For the purpose of the preceding
sentence, the fair market value of the shares of Common Stock so delivered to
the Company shall be determined in accordance with procedures adopted by the
Board of Directors. As promptly as practicable after receipt of such written
notification and payment, the Company shall deliver to the Optionee certificates
for the number of shares with respect to which such Option has been so
exercised, issued in the
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<PAGE> 6
Optionee's name; provided, however, that such delivery shall be deemed effected
for all purposes when the Company or a stock transfer agent of the Company shall
have deposited such certificates in the United States mail, addressed to the
Optionee, at the address specified pursuant to Section 6.1.
SECTION 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 The existence of outstanding options shall not affect in any way
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
7.2 If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of shares of stock subject to outstanding
options hereunder shall be appropriately adjusted in such a manner as to entitle
an Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
option in full immediately prior to such event; and (ii) the number and class of
shares with respect to which options may be granted under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved for issuance under the Plan that number and class of shares of stock
that would have been received by the owner of an equal number of outstanding
shares of Common Stock as the result of the event requiring the adjustment.
7.3 Adjustments under this Section 7 shall be determined by the Option
Committee and such determinations shall be conclusive. The Option Committee
shall have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any option or
portion thereof shall become exercisable. No fractional shares of Common Stock
shall be issued under the Plan on account of any adjustment specified above.
7.4 Except as hereinbefore expressly provided, the issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
-5-
<PAGE> 7
subject to outstanding options.
SECTION 8. EFFECT OF CERTAIN TRANSACTIONS
8.1 After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an outstanding option
shall, at no additional cost, be entitled upon exercise of such option to
receive (subject to any required action by stockholders) in lieu of the number
of shares as to which such option shall then be so exercisable, the number and
class of shares of stock or other securities to which such holder would have
been entitled pursuant to the terms of the agreement of merger or consolidation
if, immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares as to which such option shall be so exercised.
8.2 If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company is liquidated, or sells or otherwise disposes of
substantially all its assets to another corporation while unexercised options
remain outstanding under the Plan, (i) subject to the provisions of clause (iii)
below, after the effective date of such merger, consolidation, liquidation, sale
or disposition, as the case may be, each holder of an outstanding option shall
be entitled, upon exercise of such option, to receive, in lieu of shares of
Common Stock, shares of such stock or other securities, cash or property as the
holders of shares of Common Stock received pursuant to the terms of the merger,
consolidation, liquidation, sale or disposition; (ii) the Board of Directors may
accelerate the time for exercise of all unexercised and unexpired options to and
after a date prior to the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, specified by the Board; or
(iii) all outstanding options may be cancelled by the Board of Directors as of
the effective date of any such merger, consolidation, liquidation, sale or
disposition provided that (x) notice of such cancellation shall be given to each
holder of an option and (y) each holder of an option shall have the right to
exercise such option to the extent that the same is then exercisable or, if the
Board of Directors shall have accelerated the time for exercise of all
unexercised and unexpired options, in full during the 30-day period preceding
the effective date of such merger, consolidation, liquidation, sale or
disposition.
SECTION 9. RELEASE OF FINANCIAL INFORMATION
A copy of the Company's annual report to stockholders shall be
delivered to each Optionee at the time such report is distributed to the
Company's stockholders. Upon request, the Company shall furnish to each Optionee
a copy of its most recent annual report and each quarterly report and current
report filed under the 1934 Act since the end of the Company's prior fiscal
year.
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<PAGE> 8
SECTION 10. AMENDMENT OF THE PLAN
The Board of Directors may amend the Plan at any time, and from time to
time, subject to any required regulatory approval and to the limitation that,
except as provided in Sections 7 and 8 hereof, no amendment shall be effective
unless approved by the stockholders of the Company in accordance with applicable
law and regulations at an annual or special meeting held within twelve months
before or after the date of adoption of such amendment, where such amendment
will:
(a) increase the number of shares of Common Stock as to which options
may be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option price; or
(d) increase the maximum term of options provided herein.
Except as provided in Sections 7 and 8 hereof, rights and obligations
under any option granted before any amendment of the Plan shall not be altered
or impaired by such amendment, except with the consent of the Optionee.
SECTION 11. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
SECTION 12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
12.1 The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Option Committee.
12.2 The Plan shall be governed by Massachusetts law, except to the
extent that such law is preempted by federal law.
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<PAGE> 9
12.3 The Plan is intended to comply with Rule 16b-3 under the 1934 Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
SECTION 13. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan shall become effective upon commencement of the public
offering in connection with the conversion of Abington Savings Bank (the "Bank")
to a stock form bank, or, if no public offering is held, immediately prior to
the consummation of the conversion, provided, however, that the Plan shall be
subject to (i) the approval of the Bank's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date and (ii) the approval of the Commissioner
of Banks of The Commonwealth of Massachusetts if required by applicable law or
regulation. No options granted under the Plan prior to such regulatory and
stockholder approvals may be exercised until such approvals have been obtained.
No option may be granted under the Plan after the tenth anniversary of the
effective date of the Plan.
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<PAGE> 1
================================================================================
ABINGTON SAVINGS BANK
Management Incentive
Compensation Program
================================================================================
<PAGE> 2
ABINGTON SAVINGS BANK
Management Incentive Compensation Program
Purpose
* Reward key managers for the attainment of Abington Savings Bank
strategic and operational objectives; serve as a basis for
communications and rewarding attainment of business objectives.
* Ensure an effective link between incentive compensation levels and
Bank performance by ensuring that incentive awards are only paid when
profitability objectives determined by the Board are met;
* Reinforce team performance; and
* Ensure Abington Savings Bank's management compensation program is
competitive with the marketplace and similar organizations.
Mechanics
Plan must be approved by Board of Directors and will be administered
by Compensation Committee.
Prior to the payment of any bonus, unless approved by the Board of
Directors, the Bank must achieve its goals as oulined in the year's
performance plans.
The bonus will be awarded based upon the achivement of the Bank's
budget or financial plan, its performance against its peers ** and the
individual participant's success in accomplishing the goals and
objectives as outlined in his/her strategic or operational plan. Unit
profitability goals will also be evaluated as part of the program.
Compensation Committee will:
* Review the annual business plan/budget to determine its'
appropriateness for purposes of the Part A calculation
* Approve participants
* Select peer group
* Review management recommendations for Part C awards
* Recommend final awards to Board of Directors
<PAGE> 3
The Committee may also need to recommend alterations to the plan as
necessary. For example, the acquisition of another institution may cause a
revision of the financial performance incentive plan or a complete change in a
manager's objectives. Some latitude for such positive changes must be maintained
so that the incentive does not become a disincentive.
The Committee will be authorized to recommend bonuses to staff members not
included in this plan and to approve additional participants to the plan.
The Auditor's Part C portion of her bonus will be recommended by the Audit
Committee.
The calculation of a participant's bonus will be as follows:
Group I - Participants
A. Financial performance of bank 46.7%
B. Bank performance vs. peer group 20.0%
C. Evaluation of achievement of strategic
and/or operational goals and unit 33.3%
profitablity -----
100.0%
Group II - Participants
A. Financial performance of bank 33.3%
B. Bank performance vs. peer group 16.7%
C. Evaluation of achievement of strategic
and/or operational goals and unit 50.0%
profitability -----
100.0%
Group III - Participants
A. Financial performance of bank 32.0%
B. Bank performance vs. peer group 16.0%
C. Evaluation of achievement of strategic
and/or operational goals and unit 52.0%
profitability -----
100.0%
2
<PAGE> 4
Group IV - Participants
A. Financial performance of bank 33.3%
B. Bank performance vs. peer group 16.7%
C. Evaluation of achievement of strategic
and/or operational goals and unit 50.0%
profitability -----
100.0%
A determination of a participant's success in achieving his/her
operational/strategic goals will be obtained by a recommendation of that
individual's manager and his division head.
The bank's performance against its budget will be used to calculate Part A (Bank
Financial Performance), while net income as a % of average net worth (ROE) will
be used to calculate Part B (Bank performance vs. peers).
** In the event that Abington Savings Bank or a bank in the peer group is
involved in an unusual situation, such as an operating loss carryforward, which
distorts financial performance, it may be necessary to compare Abington Savings
Bank with its peers on a pre-tax basis. Such exceptions must be approved by the
Compensation Commitee.
3
<PAGE> 1
================================================================================
ABINGTON SAVINGS BANK
================================================================================
LONG TERM
PERFORMANCE INCENTIVE
PLAN
<PAGE> 2
LONG TERM PERFORMANCE INCENTIVE PLAN
Purpose:
To incent Executive Management and members of the Board of Directors to build
long-term shareholder value. Specifically, to encourage focus on the price of
the company's stock.
Type:
The bank's Long Term Performance Incentive Plan which provides for the granting
of stock options of the bank's Common Stock to Executive Management and members
of the Board of Directors. The program would incorporate Incentive Stock Options
(ISO's) (1) as well as Non-Qualified Stock Options (NSO's) (2) for management
while using NSO's for non-employee directors. The options granted will be based
upon the achievement of the annual business plan.
(1) Incentive Stock Options: Options granted pursuant to the plan which
qualify under Section 422 of the Internal Revenue Code. The aggregate
fair market value (determined as of the date of grant) of stock
covered by incentive stock options which become exercisable for the
first time in any calendar year may not exceed $100,000. In general,
an optionee will not be deemed to receive taxable income upon grant to
exercise of an incentive stock option, and any gain realized at the
time of sale of shares acquired upon exercise of an incentive stock
option will be treated as capital gain, provided that such shares are
held by the optionee for at least one year after the date of exercise
and two years after the date of grant. ISO's are only available for
employees of the Bank.
(2) Non-Qualified Stock Options: Options in which an optionee will be
deemed to receive taxable income at ordinary income rates upon
exercise of a non-qualified stock option in an amount equal to the
difference between the exercise price and the fair market value of the
Common Stock on the date of exercise.
Participants:
Position Annual Grant (Shares) *
- -------- -----------------------
Board of Directors 8,250
CEO 5,000
Exec Vice President 4,000
Division Head (3,000 each) 6,000
-----
23,250
* In the unlikely event that the number of shares needed to meet the annual
grant are not available options will be granted on a pro-rata basis.
<PAGE> 3
Mechanics:
* Generally, bank performance will be determined and options will be
granted by the end of February following the plan year end.
* The holder shall have the right to exercise the option in whole or in
part at any time until the option expires ten years for the grant
date.
* The exercise price would be a minimum of the fair market value of the
day of the grant (February Board of Directors meeting)
* The options would become exercisable after a specific stock trading
price target is met.
* All options become exercisable in full upon a change in control of the
company even if the stock price target is not met.
* All options with delayed vesting would fully vest at the end of year
nine, even if none of the targets are met. This provision is required
to avoid unnecessary financial statement charges for compensation.
* The options is forfeited in accordance to the terms as outlined in the
particular Stock Option Agreement.
Exercise of Option:
* The options would become exercisable after the fair market value per
share of the company's common stock exceeds 120% of the grant price
for a period of thirty (30) consecutive business days (determined as
the average of the daily closing prices per share as reported on the
NASDAQ/National Market System for such period).
* The maximum amount of options which can become exercisable in one year
will be limited to $100,000., based on the grant price. In the event
of a change in control of the company all options in the plan become
fully vested and exercisable.
<PAGE> 4
Administration:
* Plan will be administered by the Vice President of Human Resources
under the direction of the Compensation Committee.
* Participants who join the organization prior to July first may be
eligible to participate in the program with the approval of the
Compensation Committee (on a pro-rata basis).
* An eligible participant must be an Officer or Board Member of the
company at the time the options are awarded in order to receive a
grant.
* Options granted shall be subject to the conditions as outlined in the
particular Stock Option Agreement.
Additional Grants:
Additional grants may be made for such events as acquisitions, asset purchase,
etc. as these goals are accomplished for incentive purposes.
<PAGE> 1
AGREEMENT OF LEASE
Exhibit 10.8
AGREEMENT AND LEASE made this date of November 1995, by and between
NORTHEAST TERMINAL ASSOCIATES, LIMITED, of 795 Plymouth Street, Holbrook, MA
02343, hereinafter called "Landlord", and ABINGTON SAVINGS BANK, of 533
Washington Street, Abington, MA 02351.
WHEREAS, the Landlord owns a parcel of land at 538 Bedford Street,
Abington, Massachusetts, and
WHEREAS, the Tenant is desirous of leasing said parcel of land to be
used for office space and the Landlord is willing to lease said property to
said Tenant,
NOW, THEREFORE, the parties agree as follows:
LEASED PREMISES
The Landlord hereby demises and leases unto the Tenant the
following described parcel of land located at 538 Bedford Street, Abington,
Plymouth County, Massachusetts consisting of 2.45 acres and the buildings
thereon.
I. USE FOR PREMISES
The demised premises are to be used by the Tenant for office space.
II. TERM OF LEASE
The term of this lease shall be for two (2) years commencing on January
1, 1996 and ending on December 31, 1997. The Tenant shall thereafter hold said
premises hereby leased during the full term of this lease and paying as rent the
sum of $96,000.00 for said term, payable in equal monthly installments of
$4,000.00 in advance during the term of this lease.
III. REAL ESTATE TAXES
The Tenant shall pay the proportionate share of the real estate taxes
levied by the town on the demised premises during the term hereof.
IV. UTILITY CHARGES
The Tenant shall pay for all water and sewer charges assessed by the
city/town on said property for the term of this lease, and shall pay for all
electricity and heat used on said premises.
V. TENANT'S OBLIGATION TO REPAIR AND MAINTAIN THE PREMISES
The Tenant shall have the express obligation to make repairs to the
interior of the demised premises, except repairs required because of reasonable
wear and tear and the Landlord's obligation
<PAGE> 2
with respect to damage by fire as hereinafter exempted, and the Tenant shall
hold the Landlord harmless from any loss, cost or damage in connection therewith
where said loss, cost or damage is occasioned by the Tenant, its agents,
servants or employees, or by persons coming on the demised premises at the
express or implied invitation of the Tenant. Tenant shall have the express
obligation to maintain the grounds at the premises in a manner which is
consistent with the present maintenance of said grounds, including, but not
limited to, landscaping, rubbish and snow removal. Landlord agrees to reimburse
Tenant up to $10,000.00 for renovations made by the Tenant at the premises in
preparation for occupancy.
VI. LANDLORD'S OBLIGATION TO REPAIR
The Landlord shall have the express obligation to make, promptly after
the necessity therefore arises or after written notice is received from the
Tenant, such repairs to the roof and structure, and plumbing, heating and
electrical systems, and the exterior of the building of which the demised
premises are a part, as may be necessary to keep the building in good repair and
condition.
VII. ASSIGNMENT
The Tenant shall not assign this lease, nor underlet the whole or any
part of the demised premises without first obtaining the written consent of the
Landlord. The Landlord covenants and agrees that he will not unreasonably
withhold such written consent for such assignment or underletting.
VIII. PAYMENT OF RENT
The Tenant agrees that it will, during said term and during such
further time as the said Tenant or any persons claiming under it shall hold said
premises or any part thereof, pay unto the Landlord and his or her assigns the
said yearly rent hereinbefore provided for upon the days hereinbefore appointed
for the payment of rent during said term.
IX. STOCK IN TRADE AND FIXTURES
The Tenant's stock in trade and fixtures in the demised premises shall
be at the sole risk of the Tenant, except if loss, cost, or damage in connection
therewith is occasioned by the active negligence of the Landlord, its agents,
servants or employees.
X. DAMAGE BY FIRE
The Landlord agrees that no claim shall be made and that no suit or
action, either at law or in equity, shall be brought by the Landlord or by any
person, firm, or corporation claiming by, through or under the Landlord,
against the Tenant, its successors and assigns, for any loss, cost or damage
caused by or resulting from fire, of whatsoever origin, to the building
constituting the demised premises or of which the demised promises are a part,
as the case may be.
<PAGE> 3
XI. ALTERATIONS, ADDITIONS AND SIGNS
The Tenant shall not make any alterations or additions to the leased
premises, without first obtaining the written consent of the Landlord which
shall not be withheld unreasonably. Landlord consents to the installation, at
Tenant's sole cost and expense, of exterior signs, subject to the restraints and
restrictions of local ordinances, by-laws, and laws.
XII. UNLAWFUL, IMPROPER OR OFFENSIVE USE
The Tenant shall not make nor allow to be made any unlawful, improper
or offensive use of the demised premises.
XIII. NUISANCE
The Tenant shall be responsible and shall pay all damages and charges
to the state or city government or any others for any nuisance made or suffered
during said term on the demised premises or the sidewalk or way bordering
thereon resulting from the activities of the Tenant.
XIV. DAMAGE TO PREMISES BY FIRE, CASUALTY OR BY TAKING FOR PUBLIC USE
Provided always, that in case the said premises or any part thereof
shall be taken for any street or other public use or shall be destroyed or
damaged by fire or other casualty, or by the action of the city or town or other
public authorities, after the execution hereof and before the expiration of said
term, then a just proportion of the rent hereinbefore reserved, according to the
nature and extent of the taking or injury sustained by the demised premises, or,
in the case of such taking, what may remain thereat, shall have been put in
proper condition for use and occupation with due diligence by Landlord at
Landlord's sole cost and expense, and in case of taking there shall be a
permanent abatement according to the nature and extent of the portion of the
premises taken; PROVIDED, however, that in case the said premises or any
substantial part thereof, shall be taken for any street or other public use, or
shall be destroyed or substantially damaged by fire or casualty, or condemned by
the action of the city or town or other public authorities after the execution
hereof and before the expiration of the said term, then this lease and the said
term shall terminate at the election of the Landlord or its representatives or
assigns or of the Tenant, and such election may be made in case of any such
taking or destruction notwithstanding the entire interest of the Landlord or its
representatives or assigns may have been divested by such taking, and if the
lease shall not be terminated as aforesaid, the Landlord shall proceed with all
expedition to restore the premises to their condition before said fire or
casualty, or in case of a taking to put what may remain of said premises in
proper and fit condition for use for said purposes. should any such taking
exceed five percent (5%) of the lot area, then this lease and the said term
shall terminate at the election of the Tenant.
<PAGE> 4
XV. INSURANCE
The Landlord shall insure, at his sole expense, the building an the
demised premises against the risk of fire. The Tenant shall provide, at its sole
expense, comprehensive public liability insurance, including property damage,
with one million/two million dollar limits, and name Landlord as additional
insured, and including death and personal injury with one million dollar/two
million dollar limits. Both parties shall deliver certificates of insurance
required by the terms of this lease to the other party on or before the
effective date of this lease, and thereafter within thirty (30) days prior to
the expiration of any such policies.
XVI. TENANT'S OBLIGATION AT THE END OF TERM
The Tenant shall at the expiration of said term peaceably yield up to
the said Landlord all and singular the premises in such repair as the same are
in at the commencement of said term or may be put in by the said Landlord or its
representatives during the continuance thereof, reasonable wear and use thereof
and such other damage, the obligation to repair which has hereinbefore been
specifically provided for in this lease, only excepted.
XVII. DEFAULT, INSOLVENCY ET CETERA OF TENANT
If the Tenant shall neglect or fail to perform and observe any of the
covenants in this instrument, which on Its part are to be performed, and such
default shall continue for a period of thirty (30) days after the mailing of a
written notice, postage prepaid, from the Landlord to the Tenant specifying such
default, or if the Tenant shall be declared bankrupt or insolvent according to
law, or if any assignment shall be made of any of Its property for the benefit
of creditors, then, and in any of the said cases, the Landlord or those having
their estate in said premises, lawfully may immediately or at any time
thereafter, and while such neglect or default continues and without further
notice or demand, enter into and upon the premises or any part thereof in the
name of the whole and repossess the same as of their former estate and expel the
said Tenant and those claiming under It, and remove their effects (forcibly if
necessary) without being taken or deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rent, or preceding breach of covenant and that upon entry as aforesaid the term
shall cease and be ended.
XVIII. REMOVAL OF FIXTURES AND STOCK IN TRADE AT END OF LEASE
So far as the same are not inconsistent with the term of the lease, as
hereinbefore provided, the Tenant at the expiration at this lease or within a
period at fifteen (15) days thereafter shall have the right to remove all
fixtures, trade or otherwise, which it has installed upon the demised promises
during the term of this lease, or by its assignor, during prior leases.
XIX. QUIET ENJOYMENT
The Landlord agrees that if the Tenant shall pay the rent as aforesaid
and perform the covenants and agreements herein contained on its part to be paid
and performed, the Tenant shall peaceably
<PAGE> 5
hold and enjoy the said rented promises without hindrance or interruption by
the Landlord or by any other person or persons.
XX. NOTICES
All notices, demands and requests to be given hereunder by either party
shall be in writing and must be sent by certified mail and shall be deemed
properly given if tendered at the address first above set forth of the party
intended to be notified or at such other address as either party shall designate
by written notice to the other. If there is more than one Landlord then any
notice, demand or requests sent or payment made to any one of them shall be
construed to be sent or made to all at them. All such notices, demands and
requests sent to Tenant shall be addressed to the attention of Its manager,
contract and lease administration.
XXI. CONTESTING STATUTES
Tenant agrees that the premises shall not be used in violation of any
federal or state statute, or municipal ordinance or law. If Tenant shall desire
to contest the validity of any statute, rule, order, ordinance, requirement or
regulation Tenant may, at Tenant's own cost and expense, carry on such contest
and such noncompliance by Tenant during such contest shall not be deemed a
breach of the covenants contained in this numbered Article, provided that Tenant
shall indemnify Landlord against all liability for costs, expenses, claims,
losses, damages, fines and penalties, including reasonable counsel fees,
resulting from or reasonably incurred in connection with such contest and
noncompliance.
In the event of the existence or enactment of any law or the making of
any ordinance, rule, ruling or regulation which materially impedes or limits the
use of said premises for any of the specific purposes set forth in Article I
hereof, at the election of Tenant, to be exercised by notice, thereof in
writing, this lease shall thereupon terminate and all liability hereunder shall
cease from and after the date such impediment or limitation becomes effective,
and all prepaid rent and additional rent, if any, shall be prorated on a daily
basis and the excess, if any, paid by Landlord to Tenant.
XXII. LANDLORD'S COOPERATION
if any provision of law, act, rule, code, regulation, ordinance or
other provision of any state, municipal or other governmental department, board,
bureau or agency having jurisdiction over the demised premises or any of the
appurtenances thereunto belonging shall require that the owner of the demised
premises join in, consent to or institute any action, proceeding or application
with respect to the exercise by Tenant of any right, not in violation of the
terms of the lease, for the enjoyment and use of the demised premises or of any
buildings or improvements now or hereafter thereon, or the appurtenances
thereunto belonging, Landlord agrees, to the extent that same is reasonable,
free of expense to Tenant to give Landlord's consent thereto and Tenant may, in
its name, in Landlord's name or in both names, institute such action or
proceedings and make such applications as shall be
<PAGE> 6
requisite for Tenant's enjoyment and use of the premises, and the appurtenances
thereunto belonging. In the event that Landlord shall fail or neglect to comply
with any of its obligations as set forth in this numbered Article, Tenant may,
in addition to any other remedies, as agent or attorney in fact or to do and to
execute, acknowledge and deliver all instruments required for Tenant to exercise
its rights pursuant to this lease for the lawful enjoyment and use of the
demised premises; and in any such case Landlord hereby irrevocably nominates,
constitutes and appoints Tenant as Landlord's proper and legal attorney in fact
for such action, proceeding or application; and Tenant will indemnify and hold
Landlord harmless from all such costs and expenses. All action and proceedings
shall be conducted, all applications shall be made, and all instructions and
documents required shall be prepared, by Tenant's attorney at Tenant's expense.
XXIII. CURING DEFAULTS
If either party is required to perform or comply with any agreement or
provision hereof and shall fail to do so within the time provided therefor (or
if no time is provided therefore, then within thirty (30) days after written
demand for compliance shall have been received by any party hereto from the
other, unless such default shall be of such nature that same cannot be
completely cured within such thirty (30) day period but the curing thereof has
been commenced within the said thirty (30) day period and shall thereafter be
continued with reasonable diligence) then, in such case, upon the expiration of
the time provided in this Article for the performance or compliance therewith or
for the curing of same, the party demanding compliance may perform and comply
therewith for the account and at the expense of the party failing to do so; and
the party failing to do so, immediately upon receipt of an itemized invoice of
the cost and expense thereof, agrees to promptly pay the reasonable cost and
expense incurred by the other party hereto, with interest at the rate of eight
(8%) percent per annum to the date payment is received. Should the Tenant be the
party failing to make such payment, the cost and expenses thereof shall be
charged to Tenant as additional rent, which shall be paid by the Tenant on the
next rent payment date following the date of receipt by Tenant such invoice, and
in the event such additional rent shall not be paid when due, it may be
collected in the same manner as is herein provided for the collection of rent.
Should the Landlord be the party failing to make such payment to the Tenant,
then the Tenant, without impairing or affecting any other of its rights, shall
have the right to withhold payment of all rent, and additional rent if any,
until Tenant has recouped all such costs and expenses, with interest as
aforesaid, to the date full payment is received. In any such case, if Landlord
is in default hereunder, Tenant, without impairing or affecting any other rights
it may have for damages or otherwise, shall have the right to cancel and
terminate this lease by giving written notice of Tenant's election to do so; and
upon giving such notice the life of this lease shall cease and come to an end as
of the date set forth in said notice, with the same force and effect as if the
date set forth were the date originally fixed for the termination of the
<PAGE> 7
term and of any extended term thereof. In computing the time within which either
party is required to comply with any covenant, agreement or provision of this
lease, there shall be excluded therefrom periods of reasonable delay on account
of war, "labor troubles", "Acts Of God" and other unavoidable delays.
XXIV. NO BROKER
Landlord and Tenant covenant that this lease was directly negotiated between
them and that no broker was involved in bringing about this agreement. No claim
of a broker's fee shall be made against either party.
XXV. OPTION FOR RENEWAL
The Tenant shall have the right to extend the term of this lease for a
period of one (1) two (2) year term beginning on January 1, 1998 and ending on
December 31, 1999 upon the same terms, covenants and conditions except that the
rent for said additional term or terms shall be $100,800.00, payable in actual
monthly installments of $4,200.00. The Tenant will not be deemed to have elected
such right to extend unless it has notified the Landlord, in writing, by
certified mail, postage prepaid, addressed to the Landlord at 795 Plymouth
Street, Holbrook, MA 02343, on or before ninety (90) days before the
commencement of the extension.
IN WITNESS WHEREOF the said Parties have hereunto act their hands and
seals the day and year first above written.
Northeast Terminal Associates,
Limited
/s/ Gregg T. Barry By:/s/ Dennis E. Barry
__________________________________ ___________________________________
Witness
Abington Savings Bank
/s/ Mary E. Boothby By: /s/ James P. McDonough
__________________________________ ___________________________________
Witness James P. McDonough, President
<PAGE> 1
Exhibit 13.1
A B I N G T O N B A N C O R P
[LOGO]Abington Bancorp
Photograph of the horizontal axis of a graph sloping upwards. The horizontal
axis is approximately one-quarter inch in width. Inside the horizontal axis are
depictions of U.S. currency and faces of different people.
1 9 9 6 A N N U A L R E P O R T
<PAGE> 2
Corporate Profile:
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.
The Bank operated as a Massachusetts chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From December 1992 to the present, the Bank has
operated as a stock-owned savings bank.
The Bank is engaged principally in the business of attracting deposits from
the general public, borrowing funds, and investing those deposits and funds. In
its investments, the Bank has emphasized various types of residential and com-
mercial real estate loans, residential construction loans, consumer loans, and
investments in securities. The Bank considers its principal market area to be
Plymouth County, Massachusetts, primarily Abington, Halifax, Holbrook, Kingston,
Whitman, Hull, and Pembroke where it has banking offices, and nearby Rockland,
Duxbury, Plympton, Brockton, Hanover, East Bridgewater, Plymouth, Carver,
Weymouth, Bridgewater, and Hanson.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to FDIC limits (generally $100,000 per depositor)
and by the Depositors Insurance Fund for deposits in excess of FDIC limits.
Our mission is to enhance long term shareholder value by developing and
delivering profitable products and services that benefit our customers.
We believe that this commitment will result in our being a dynamic retailer
of financial services to businesses and consumers in our region.
[PHOTO OF SMILING TELEPHONE OPERATOR]
<PAGE> 3
<TABLE>
<CAPTION>
BANK OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS BANK OFFICERS CORPORATE INFORMATION
James P. McDonough (1) James P McDonough (3) Corporate Office
President and CEO President and CEO Abington Bancorp, Inc.
Abington Bancorp, Inc. Edward J. Merritt (3) 538 Bedford Street
President and CEO Executive Vice President and CFO Abington, MA 02351
Abington Savings Bank Mario A. Berlinghieri (617) 982-3200
Senior Vice President - Business Banking
Robert J. Armstrong Donna L. Thaxter Independent Public Accountants
President and General Manager Senior Vice President - Consumer Banking Arthur Andersen LLP
Armstrong Construction Corp. David J. Ames 225 Franklin Street
Vice President - Business Banking Boston, MA 02110
Bruce G. Atwood (2) Michelle M. Audette (617) 330-4000
Vice President Operations Assistant Vice President - Marketing
Hyer Industries, Inc. Mary E. Boothby Legal Counsel
Credit Officer Foley, Hoag & Eliot LLP
William F. Borhek (1) Ruth E. Cook One Post Office Square
President Human Resources Officer Boston, MA 02109
William F. Borhek Associates Elaine Crossland (617) 832-1000
Branch Officer
Ralph B. Carver, Jr. Ann E. Daigle Transfer Agent and Registrar
President and Treasurer Assistant Vice President - Business Banking Registrar & Transfer Company
Den-Lea Rental, Inc. Stephanie Dunn 10 Commerce Drive
Vice President - Management Information Systems Cranford, NJ 07016-3572
Joel S. Geller (1) Ida C. Frazier (800) 368-2548 x7760
Owner-Manager and Director Vice President - Compliance
Abington Liquors Corp. Mary E. Hagan
Assistant Vice President - Branch Administration
Rodney Henrikson (2) Keith C. Humphreys
Treasurer and Director Vice Presidnet - Retail
Henrikson Realty Corp. Julie Jenkins
Vice President - Operations
A. Stanley Littlefield (1) Robert M. Lallo
Attorney Vice President - Treasurer
Private Practice Ellen J. Leonard
Vice President
Jay Timothy Noonan William D. Lewis
Manager Vice President - Business Banking
J. P. Noonan Trans., Inc. Stephen K. Lucitt
Vice President - Business Banking
Gordon N. Sanderson (2) Barbara M. Manning (3)
Retired Clerk
David J. McCarthy
Assistant Vice President
James J. Slattery (1) Deborah J. Minier
President Assistant Vice President
J. H. Slattery Insurance Agency, Inc. Lewis J. Paragona
Vice President - Human Resources
Wayne P. Smith Raymond J. Quigley
Treasurer and Director Assistant Vice President
Suburban Enterprises, Inc. Evelyne A. Rico
Branch Officer
1: Member of Executive Committee Dianne Rowan McBride
2: Member of Audit Committee Branch Officer
Carol M. Sharpless
Branch Officer
Susan St. Germain-Downing
Cash Management Officer
3: Officer of Bancorp.
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
President's Message......................................................1
Financial Highlights.....................................................9
Management's Discussion and Analysis....................................11
Report of Independent Public Accountants................................20
Consolidated Balance Sheets.............................................21
Consolidated Statements of Operations...................................22
Consolidated Statements of Changes in Stockholders' Equity..............23
Consolidated Statements of Cash Flows...................................24
Notes to Consolidated Financial Statements..............................26
Stockholder Information.................................................43
Bank Officers............................................Inside Back Cover
Corporate Information....................................Inside Back Cover
Bank Locations..................................................Back Cover
<PAGE> 5
A MESSAGE FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDERS:
I'm pleased to report that 1996 was a pivotal year for Abington Savings
Bank. Our most important strategic initiatives from the past four years came
together in a highly successful blend of corporate performance and community
partnership.
Through the past several years we have been pursuing a number of measures
designed to enhance the value that Abington Savings Bank offers our
shareholders, customers and employees. During this period we concentrated on
building our franchise, increasing our business lending capacity, investing in
new products and technology and restructuring our approach to residential
lending.
Today, the positive results are clear: new and satisfied customers in
record numbers, an improving financial outlook and a commitment to bringing
value to our community, both as a bank and as a corporate citizen.
[Photo of James P. McDonough]
[Caption:
James P. McDonough
President and Chief Executive Officer]
ABINGTON BANCORP, INC. 1 1996 ANNUAL REPORT
<PAGE> 6
EXCELLENT RESULTS MARK 1996 AS A HIGH PERFORMANCE YEAR.
Financially, 1996 was a strong year. The Bank's earning strength realized a
new level of efficiency as we recognized net income of $3,533,000 or $1.78 a
share, with a return on equity of 11%. The Bank's goals of increasing the loan
portfolio and funding that increase with deposit growth while maintaining a low
level of non-performing assets, have had a positive impact on the Bank's net
interest margin. As a result, our level of net interest income increased by
$1,088,000, or 8%, which, coupled with a significant decrease in our provision
for possible loan losses due to our superior asset quality, were important
factors in our strong operating results. Our assets grew from $461 million in
1995 to $487 million in 1996, reflecting growth in the Bank's loan portfolio,
highlighted by strong commercial loan growth in the latter part of 1996.
We also achieved a $1,269,000 increase in our non-interest income due
primarily to the success of the High Performance Checking Program. As we have
discussed several times in the past, increases in checking accounts will have a
positive impact on both non-interest and net interest income. In addition,
intense expense control has played a key role in our financial improvement.
YEAR END
STOCK PRICE
PER SHARE
Photo depicting street sign with the caption "WALL ST"
WALL ST
1992: $8.50
Photo depicting street sign with the caption "WALL ST"
WALL ST
1993: $11.50
Photo depicting street sign with the caption "WALL ST"
WALL ST
1994: $12.00
Photo depicting street sign with the caption "WALL ST"
WALL ST
1995: $17.25
Photo depicting street sign with the caption "WALL ST"
WALL ST
1996: $19.50
ABINGTON BANCORP, INC. 2 1996 ANNUAL REPORT
<PAGE> 7
NET
OVERHEAD
%
1992: 2.37%
%
1993: 2.31%
%
1994: 2.18%
%
1995: 2.05%
%
1996: 1.91%
(EXCLUDING OREO
EXPENSES DIVIDED
BY AVERAGE
EARNING ASSETS)
These positive elements in our improved financial and earnings positions
resulted in an increased stock price. From December 31, 1995 to December 31,
1996, the price of our stock rose from $17.25 to $19.50, an increase of 13.0%.
This continued our record of building shareholder value through strong stock
price performance during the last several years.
OUR BUSINESS BANKING HELPS COMPANIES GROW.
We're very pleased with the progress of our Business Banking Division,
where we have built an outstanding team of professionals headed by Mario
Berlinghieri. Joining ASB from Fleet Bank, Mario has assembled one of the most
seasoned and professional lending teams in our marketplace. That expertise
showed up on the bottom line, where our lending and cash management services
helped corner a growing share of the small business market.
Here in Southeastern Massachusetts, we believe our business banking effort
will continue to benefit from consolidation among the larger banks as well as
the reduction of community banks in our market. During the past year, we
continued to position ourselves as a major resource for the local business
community.
[PHOTO of two men in suits shaking hands]
[Caption:
...our lending and
cash management
services helped
corner a growing
share of the small
business market...]
ABINGTON BANCORP, INC. 3 1996 ANNUAL REPORT
<PAGE> 8
[PHOTO of a round sign with the caption "Totally Free Checking"]
[Caption:
...our High Performance
Checking program showed
phenomenal payback...]
To that end, we sponsored a business person's breakfast which was attended by
more than 200 local business people and we hosted several receptions to foster
new relationships between professional firms and our senior management team.
ACHIEVING THE SALES CULTURE CRITICAL FOR SUCCESS.
Once again this year, our investment in our High Performance Checking
program showed phenomenal payback, with deposit growth of $20.4 million or 7.3%.
The success of the High Performance Checking program has given our staff a
vehicle through which we have developed a true sales culture, a goal we believe
is critical to our sustained success. We use a state-of-the-art direct mail
strategy to bring potential customers to the bank, and then our well-trained
salespeople cross-sell services to new and existing customers.
In another key customer service and sales area, we saw tremendous
acceptance of our expanded 24-hour telebanking service. Where our Maximum
Service Department received approximately 6,000 calls per month in 1995, we now
serve close to 26,000 callers per month. And we are now opening deposit and
checking accounts by phone - an innovation that our customers clearly find
welcome.
NON-PERFORMING
ASSETS
(Dollars in thousands)
[Photo of currency]
1992: $10,828
[Photo of currency]
1993: $7,840
[Photo of currency]
1994: $6,674
[Photo of currency]
1995: $1,798
[Photo of currency]
1996: $1,672
ABINGTON BANCORP, INC. 4 1996 ANNUAL REPORT
<PAGE> 9
TOTAL ASSETS
(Dollars in thousands)
[Photo of circle which contains depiction of U.S. currency]
1992: $315,048
[Photo of circle which contains depiction of U.S. currency]
1993: $347,354
[Photo of circle which contains depiction of U.S. currency]
1994: $421,833
[Photo of circle which contains depiction of U.S. currency]
1995: $460,492
[Photo of circle which contains depiction of U.S. currency]
1996: $486,958
WITH CONSUMER LENDING, WE INVEST IN OUR CUSTOMERS' GOALS.
We made the decision to direct our consumer loan origination efforts
primarily through our seven branches, utilizing in a very cost-effective way our
existing customer base. We also began an aggressive telemarketing effort to
reach the customers who our research indicates are best suited for particular
product lines. Those efforts saw strong results in 1996 and we expect to expand
this distribution strategy in the future.
At the same time, we worked to ensure the lowest possible risk for the Bank
and its shareholders, including the completion of in-depth research regarding
the trends affecting consumer and residential loan delinquency. Our asset
quality today is as sound as ever, and we are pleased to see that quality
reflected in a delinquency ratio of .73%.
The Bank was also recognized with an "Outstanding" rating for our
compliance with the FDIC's Community Reinvestment Act during 1996. This
organizational commitment requires a major effort and is an achievement of which
we are very proud.
COMMUNITY PARTNERSHIPS THAT WORK FOR THE GREATER GOOD.
Once again this year we maintained our commitment to children with special
needs. In addition to supporting the Special Olympics, we're very proud of our
employees and our many business partners who worked together to send the
Cardinal Cushing School's Class of '96 on their first-ever class trip to Disney
World. The funds for this trip resulted
ABINGTON BANCORP, INC. 5 1996 ANNUAL REPORT
<PAGE> 10
[PHOTO of a female child holding a baseball bat]
[Caption:
Stephanie Gray puts on her game face
as she steps up to the plate.]
[Caption: ...an employee's
child takes the
plate at a fund-
raiser to benefit
the Cardinal
Cushing School...]
from our employees' payroll contributions and a St. Patrick's Day Dance
fundraiser organized by our employees. This opportunity to give back to those
with special needs in our community was a focal point for our staff throughout
the year. I am proud of their willingness to benefit these special children.
GOING FORWARD AND UPWARD; OUR GOALS FOR 1997.
Looking ahead, we continue to pursue those business lines that offer
maximum profitability. We will continue to take a disciplined approach to our
business, staying focused on what we do very well. We intend to continue
expanding our distribution network throughout the South Shore. We will add more
enhancements to our existing call center and telebanking system, and we look
forward to investigating the feasibility of in-home banking via personal
computer.
As always, we remain dedicated to the high-quality service our customers
expect from Abington Savings Bank. As we expand our distribution network, our
commitment is to maintain the personal service and access to decision makers
that has made us an integral part of the South Shore's financial community.
While we make new strides in business banking, explore branch expansion and
record new levels of profitability, our overall goal is to make Abington Savings
Bank the
NET-INTEREST
INCOME
(Dollars in thousands)
[Photo of the point of a pencil touching a piece of paper which contains a
column of numbers.]
1992: $9,648
[Photo of the point of a pencil touching a piece of paper which contains a
column of numbers.]
1993: $11,289
[Photo of the point of a pencil touching a piece of paper which contains a
column of numbers.]
1994: $12,733
[Photo of the point of a pencil touching a piece of paper which contains a
column of numbers.]
1995: $13,727
[Photo of the point of a pencil touching a piece of paper which contains a
column of numbers.]
1996: $14,815
ABINGTON BANCORP, INC. 6 1996 ANNUAL REPORT
<PAGE> 11
ultimate source of value for our customers and shareholders. From products like
Totally Free Checking to our current efforts to decrease the costs of ATM use
for consumers, we will continue to make quality, service and value the focal
point of our ideas, actions and philosophy.
Finally, I'd like to take this opportunity to thank the shareholders of
Abington Savings Bank for your continued support. Your enthusiasm and
overwhelming support at our 1995 Annual Meeting helped fuel many of our
successes throughout the year.
I thank all of our employees for their hard work and dedication, and I
offer my gratitude to our directors for their strong support and guidance
throughout the past year. Together, we intend to make 1997 an even greater
success.
Respectfully submitted,
/s/ James P. McDonough
- -------------------------------------
James P. McDonough
President and Chief Executive Officer
LOANS
(Dollars in thousands)
[Photo of an oval shape with a depiction of a house inside the oval.]
1992: $186,520
[Photo of an oval shape with a depiction of a house inside the oval.]
1993: $199,807
[Photo of an oval shape with a depiction of a house inside the oval.]
1994: $235,614
[Photo of an oval shape with a depiction of a house inside the oval.]
1995: $260,585
[Photo of an oval shape with a depiction of a house inside the oval.]
1996: $298,970
ABINGTON BANCORP, INC. 7 1996 ANNUAL REPORT
<PAGE> 12
[MAP of section of Massachusetts which includes the areas the Bank considers
its principal markets. The principal market areas are highlighted.]
The Bank considers
its principal market
area to be
Plymouth County,
Massachusetts,
primarily
Hull,
Holbrook,
Abington,
Whitman,
Pembroke,
Halifax,
and
Kingston
where it has
banking offices.
DEPOSITS
(Dollars in thousands)
[Photo of a circle with depiction of U.S. currency inside the circle.]
1992: $202,105
[Photo of a circle with depiction of U.S. currency inside the circle.]
1993: $209,911
[Photo of a circle with depiction of U.S. currency inside the circle.]
1994: $246,843
[Photo of a circle with depiction of U.S. currency inside the circle.]
1995: $280,070
[Photo of a circle with depiction of U.S. currency inside the circle.]
1996: $300,445
ABINGTON BANCORP, INC. 8 1996 ANNUAL REPORT
<PAGE> 13
BANK OFFICES
- --------------------------------------------------------------------------------
Abington
533 Washington Street
Abington, MA 02351
Halifax
319 Monponsett Street
Halifax, MA 02338
Holbrook
778 South Franklin Street
Holbrook, MA 02343
Hull
523 Nantasket Avenue
Hull, MA 02045
Kingston
157 Summer Street
Kingston, MA 02364
Pembroke
175 Center Street
Pembroke, MA 02359
Whitman
584 Washington Street
Whitman, MA 02382
Corporate Center
538 Bedford Street
Abington, MA 02351
(C) 1997 Abington Bancorp, Inc. Design by Red Leaf, Inc.
[LOGO]
<PAGE> 14
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
At December 31, 1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $486,958 $460,492 $421,833 $347,354 $315,048
Total loans, net 298,970 260,585 235,614 199,807 186,520
Investment securities (1) 31,950 33,343 28,328 15,915 8,015
Mortgage-backed investments 131,184 138,937 133,882 113,052 97,485
Deposits 300,445 280,070 246,843 209,911 202,105
Borrowed funds 147,524 145,609 134,155 106,921 84,539
Stockholders' equity 33,546 30,561 28,366 27,869 24,963
Book value per share 17.72 16.22 15.13 14.89 13.40
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and dividend income $ 34,332 $ 31,949 $ 27,082 $ 23,591 $ 21,432
Interest expense 19,517 18,222 14,349 12,302 11,784
-------- -------- -------- -------- --------
Net interest income 14,815 13,727 12,733 11,289 9,648
Provision for possible loan losses 480 2,233 610 720 930
-------- -------- -------- -------- --------
Non-interest income:
Loan servicing fees 646 713 646 617 452
Customer service fees 2,412 1,644 1,050 759 591
Gain (loss) on sales of securities 495 181 322 459 (145)
Gain on sales of loans, net 315 453 389 890 1,183
Write-down of limited partnership - (110) - - -
Net gain (loss) on sales and write-
down of other real estate owned 67 (92) (2) (478) (347)
Other 242 119 56 40 70
-------- -------- -------- -------- --------
Total non-interest income 4,177 2,908 2,461 2,287 1,804
-------- -------- -------- -------- --------
Non-interest expenses 12,840 11,955 10,255 8,771 7,577
-------- -------- -------- -------- --------
Income before income taxes, cumulative effect
of accounting change and extraordinary item 5,672 2,447 4,329 4,085 2,945
Provision for income taxes 2,139 1,018 1,586 1,556 1,243
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change and extraordinary item 3,533 1,429 2,743 2,529 1,702
Extraordinary credit - capital loss carry-forward - - - - 24
Cumulative effect of accounting change - - - 650 -
-------- -------- -------- -------- --------
Net income $ 3,533 $ 1,429 $ 2,743 $ 3,179 $ 1,726
======== ======== ======== ======== ========
Earnings per share before extraordinary item
and cumulative effect of accounting change $ 1.78 $ .73 $ 1.40 $ 1.31 $ .92
Extraordinary item - - - - .01
Cumulative effect of accounting change - - - .34 -
-------- -------- -------- -------- --------
Earnings per share $ 1.78 $ .73 $ 1.40 $ 1.65 $ .93
======== ======== ======== ======== ========
Dividends per share $ .40 $ .40 $ .40 $ - $ -
======== ======== ======== ======= =======
</TABLE>
ABINGTON BANCORP, INC. 9 1996 ANNUAL REPORT
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average total assets .74% .33% .70% .95% .63%
Interest rate spread 3.14 3.14 3.32 3.37 3.50
Return on average equity 11.00 4.68 9.23 11.73 7.00
Dividend payout ratio 21.40 52.62 27.34 - -
Average equity to average total assets 6.69 7.00 7.61 8.10 9.02
<FN>
(1) Includes Federal Home Loan Bank stock.
</TABLE>
ABINGTON BANCORP, INC. 10 1996 ANNUAL REPORT
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Abington Bancorp, Inc., became the one-bank holding company for the Bank on
January 31, 1997. The holding company did not conduct any business in fiscal
1996. Therefore, management's discussion and analysis reflect the business
and operating results of the Bank.
The Bank'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 Bank's net interest
income depends upon the net interest rate spread between the yield on the Bank'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 Bank's assets and liabilities, economic factors influencing
general interest rates, prepayment on loans and mortgage-backed investments,
loan demand and savings flows, as well as the effect of competition for deposits
and loans. The Bank'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 Bank's
internal operations and general market and economic conditions.
On June 3, 1994, the Bank acquired Hull Co-Operative Bank ("Hull") by merger. On
June 26, 1995, the Bank also acquired a branch in Holbrook ("Holbrook") from the
Bank of Boston. These recent acquisitions are consistent with the Bank's
strategy of controlled growth which will enable the Bank to have a greater
regional presence.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
and levels of prepayment primarily on loans and mortgage-backed investments, 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 Bank's net interest rate spread was
3.14% for the years ended December 31, 1996 and 1995.
The level of non-accrual loans and other real estate owned also has an impact on
net interest income. At December 31, 1996, the Bank had $1,028,000 in
non-accrual loans and $500,000 in other real estate owned compared to $485,000
in non-accrual loans and $1,070,000 in other and real estate owned, as of
December 31, 1995.
During 1996 and 1995, the Bank maintained the interest rates paid on NOW and
savings accounts at 1.50% and 2.25%, respectively. Many of the banks in the
Bank's market also followed a similar philosophy of not increasing rates paid on
core deposit accounts. Given the relatively low rates paid on core deposit
accounts, some customers began to seek alternate, higher yielding investment
sources, such as certificates of deposit. Management estimates that
approximately $10 million of its core deposits migrated to certificates of
deposit during 1995 which has caused interest paid on total deposits to increase
during the first half of 1995. There was no such material migration from core
accounts to certificates of deposit noted in 1996; however, management does
realize that this may reoccur in the future with the effect of increasing the
Bank's cost of funds.
The table on the following page presents average balances, interest income and
expense and yields earned or rates paid on the major categories of assets and
liabilities for the years indicated.
ABINGTON BANCORP, INC. 11 1996 ANNUAL REPORT
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Federal funds sold $ 614 $ 37 6.03% $ 621 $ 42 6.76% $ 161 $ 8 4.97%
Other short-term investments 75 4 5.33 434 25 5.76 66 2 3.03
Bonds and obligations (2) 23,489 1,512 6.44 23,774 1,536 6.46 16,161 927 5.74
Equity securities (1) 10,966 556 5.07 10,300 574 5.57 6,692 465 6.95
Mortgage-backed investments (2) 137,166 9,245 6.74 137,007 8,984 6.56 123,575 7,503 6.07
Loans (3) 282,530 22,978 8.13 243,949 20,788 8.52 222,313 18,177 8.18
-------- ------- -------- ------- -------- -------
Total earning assets 454,840 34,332 7.55 416,085 31,949 7.68 368,968 27,082 7.34
-------- ------- -------- ------- -------- -------
Cash and due from banks 8,348 7,028 7,783
Other assets 16,891 13,746 13,800
-------- -------- --------
Total assets $480,079 $436,859 $390,551
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 33,392 $ 516 1.55% $ 26,083 $ 402 1.54% $ 20,642 $ 333 1.61%
Savings deposits 95,661 2,287 2.39 94,328 2,301 2.44 97,670 2,318 2.37
Time deposits 136,541 7,939 5.81 121,126 6,978 5.76 94,874 4,862 5.12
-------- ------- -------- ------- -------- -------
Total deposits 265,594 10,742 4.04 241,537 9,681 4.01 213,186 7,513 3.53
Short-term borrowings 66,790 3,733 5.59 73,719 4,546 6.17 67,066 3,244 4.84
Long-term debt 84,977 5,042 5.93 66,614 3,995 6.00 62,317 3,592 5.76
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 417,361 19,517 4.68 381,870 18,222 4.77 342,569 14,349 4.19
------- ------- -------
Non-interest-bearing deposits 25,223 19,584 14,502
-------- -------- --------
Total deposits and
borrowed funds 442,584 4.41 401,454 4.54 357,071 4.02
Other liabilities 5,385 4,847 3,773
-------- -------- --------
Total liabilities 447,969 406,301 360,844
Stockholders' equity (6) 32,110 30,558 29,707
-------- -------- --------
Total liabilities and
stockholders' equity $480,079 $436,859 $390,551
======== ======== ========
Net interest income $14,815 $13,727 $12,733
======= ======= =======
Interest-rate spread (4) 3.14% 3.14% 3.32%
==== ==== ====
Net yield on earning assets (5) 3.26% 3.30% 3.45%
==== ==== ====
<FN>
(1) Includes Federal Home Loan Bank stock, investments held for sale and available for sale (at amortized cost).
(2) Includes securities available for sale (at amortized cost).
(3) Non-accrual loans net of reserve for possible loan losses and loans held for sale are included in average loan balances.
(4) Interest rate spread equals the yield on average earning assets minus the yield on average deposits and borrowed funds.
(5) Net yield on earning assets equals net interest income divided by total average earning assets.
(6) Excludes the impact of net unrealized gain (loss) on available for sale securities.
</TABLE>
ABINGTON BANCORP, INC. 12 1996 ANNUAL REPORT
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
RATE/VOLUME ANALYSIS
<TABLE>
The following table presents, for the periods indicated, the changes in interest
income and in interest expense attributable to the change in interest rates and
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.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 VS 1995 1995 VS 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Increase (decrease) Increase (decrease)
Due to Due to
Volume Rate Total Volume Rate Total
----------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $3,171 $(981) $2,190 $1,821 $ 790 $2,611
Bonds and obligations (18) (6) (24) 480 129 609
Equity securities 36 (54) (18) 214 (105) 109
Mortgage-backed
investments 10 251 261 853 628 1,481
Federal funds sold - (5) (5) 30 4 34
Interest-bearing deposits
in banks (19) (2) (21) 20 3 23
------ ----- ------ ------ ------ ------
Total interest and
dividend income 3,180 (797) 2,383 3,418 1,449 4,867
------ ----- ------ ------ ------ ------
Interest expense:
NOW deposits 113 1 114 84 (15) 69
Savings deposits 32 (46) (14) (81) 64 (17)
Time deposits 896 65 961 1,461 655 2,116
Short-term borrowings (407) (406) (813) 345 957 1,302
Long-term debt 1,090 (43) 1,047 254 149 403
------ ----- ------ ------ ------ ------
Total interest expense 1,724 (429) 1,295 2,063 1,810 3,873
------ ----- ------ ------ ------ ------
Net interest income $1,456 $(368) $1,088 $1,355 $ (361) $ 994
====== ===== ====== ====== ====== ======
</TABLE>
COMPARISON OF THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
GENERAL
Net income for the year ended December 31, 1996 was $3,533,000 or $1.78 per
share compared to $1,429,000 or $.73 per share in 1995, an increase of
$2,104,000 or 147.2%. The key factor impacting the level of earnings for 1995
was management's decision to aggressively dispose of a significant portion of
the Bank's non-accrual and certain "high maintenance" loans which resulted in a
special provision for loan losses of $1,654,000 and increases in other
non-interest expenses of $150,000 due to other related costs during 1995. The
overall improvement in net income from core operating activities in 1996 as
compared to 1995 was mainly attributable to increases in customer service fees
and net interest income.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $2,383,000 or 7.5% during 1996 as
compared to 1995. This increase was attributable to increases in earning assets
that were partially offset by general decreases in the rates earned on those
assets. The balance of average earning assets was $454,840,000 in 1996 as
compared to $416,085,000 in 1995, an increase of $38,755,000 or 9.3%. The
increase in average earning assets was primarily due to increases in the Bank's
loan portfolio which grew from an average balance of $243,949,000 in 1995 to
$282,530,000 in 1996, an increase of $38,581,000 or 15.8%. This increase was
primarily due to the acquisition of various residential loan pools made
throughout the year. See "Liquidity and Capital Resources" and "Asset-Liability
Management" for a further discussion of the Bank's investment strategies. The
average yield on interest earning assets declined in 1996 to 7.55% as compared
to 7.68% in 1995 due to overall declines in the yields on loans originated and
purchased. The yield on loans for 1996 was 8.13% as compared to 8.52% in 1995.
These declines were generally caused by continued declines in interest rates
from 1995 through the first four months of 1996, which impacted new
purchases/originations as well as generating higher prepayments on higher
yielding loans held in the Bank's portfolio over the same period. Yields on
mortgage-backed securities increased from 6.56% in 1995 to 6.74% in 1996 due to
a combination of favorable yield adjustments on adjustable rate mortgage-backed
securities as well as the result of higher yields obtained due to certain
investment purchases which took place in the third quarter of 1996 which
replaced lower yielding securities which were sold in the same period.
ABINGTON BANCORP, INC. 13 1996 ANNUAL REPORT
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTEREST EXPENSE
Interest expense in 1996 increased $1,295,000 or 7.1% as compared to 1995
generally due to increases in the average balances of time deposits and
borrowings and overall growth in the Bank's core deposit portfolio. The average
balances of deposits and borrowed funds were $290,817,000 and $151,767,000,
respectively, in 1996 as compared to $261,121,000 and $140,333,000,
respectively, in 1995. The increases in average deposit balances is primarily
due to the acquisition of the Holbrook branch in June 1995 (represents
approximately $8 million of the increase in average balances) and other general
deposit growth which reflects management's continued focus on expanding the
Bank's core deposit base. The average balances of interest bearing NOW and
non-interest bearing deposits accounts increased $12,948,000 or 28.4% in 1996
(of which approximately $2 million related to Holbrook). This is generally
reflective of the Bank's success in its focused promotion activities to attract
checking accounts over the past year. Also, the average balances of time
deposits increased 12.7% or $15,415,000 in 1996 as compared to 1995 which was
generally reflective of customers' desire to attain higher yields than currently
being offered by banks' core deposit rates in the Bank's market area. Also, the
weighted average of borrowings increased $11,434,000 in 1996 as compared to 1995
generally due to the timing of various loan purchases in 1995 and 1996. Overall
balances of borrowings outstanding at December 31, 1996 were $147,524,000 which
was relatively consistent with the $145,609,000 outstanding at December 31,
1995.
The weighted average rate paid on interest-bearing liabilities was 4.68% in 1996
as compared to 4.77% in 1995. The weighted average rate paid on interest-bearing
deposits was 4.04% in 1996 as compared to 4.01% in 1995. This increase was
generally attributable to increases in the weighted average rate paid on time
deposits in 1996 as compared to 1995, and the fact that the 1996 average rate
reflects the full year impact of the shift of approximately $10 million of core
deposits to certificates of deposit during the first half of 1995. This shift
was representative of customers' desire, given the market's unwillingness to
increase the rates paid on core deposits, to find higher yields for their
deposits. While rates paid on certificates of deposit have declined somewhat
since early 1995, the potential impact of such rate changes has not been fully
reflected in the Bank's cost of funds given that the rates paid on certificates
of deposit are generally fixed for the duration of the contract.
As of December 31, 1996, the weighted average rate paid on certificates of
deposit with a remaining term of 1 year or less (totaling approximately
$89,073,000) was approximately 5.49%. If those certificates were to roll over
for similar remaining terms at the current rates offered as of December 31,
1996, the weighted average paid on such deposits would decline to approximately
4.86%. See "Asset-Liability Management" for further discussion of the
competitive market for deposits.
The weighted average rate paid on borrowings decreased to 5.78% in 1996 from
6.09% in 1995. This decrease generally coincided with decreases in rates
established by the Federal Reserve in early 1996. See "Liquidity and Capital
Resources" for further discussion of the Bank's borrowed funds.
NON-INTEREST INCOME
Total non-interest income increased $1,269,000 or 43.6% in 1996 as compared to
1995. Customer service fees, which were $2,412,000 in 1996 as compared to
$1,644,000 in 1995, increased $768,000 or 46.7%. This increase was primarily
attributable to growth in core deposit accounts, particularly NOW and checking
account portfolios in 1996. The Bank also realized net gains on sales of other
real estate owned of $67,000 in 1996 as compared to net losses of $92,000 in
1995. This was reflective of improved market conditions for properties held in
other real estate owned in 1996 as compared to 1995 and the overall reduced risk
on the valuation of properties that the Bank held in other real estate owned in
1996 as compared to 1995. Additionally, the Bank wrote-off a real estate limited
partnership investment, in full, in 1995 for which there was no corresponding
write-down in 1996.
The growth in non-interest income was also affected by increases in gains on
sales of securities which were $495,000 in 1996 as compared to $181,000 in 1995.
These gains were generally reflective of the strong equity market in 1996 and
are also net of losses taken on sales of lower yielding mortgage-backed
securities which was done as part of an effort to increase future yields on that
portfolio. Non-interest income was adversely impacted by decreases in gains on
sales of mortgages from $453,000 in 1995 to $315,000 in 1996. The results for
1995 were favorably impacted by a gain of approximately $175,000 on the sale of
approximately $7,200,000 of seasoned 20 and 30-year fixed rate mortgages.
Excluding the impact of this sale, the gains on sales of mortgages were actually
$37,000 less in 1995 than those levels in 1996. This was in part due to the
Bank's prospective adoption of FASB No. 122 - "Accounting for Mortgage Servicing
Rights" ("SFAS No. 122") as of January 1, 1996. See Note 1 to the Consolidated
Financial Statements for further discussion. Loan servicing fees also declined
$67,000 or 9.4% in 1996 as compared to 1995 due to general declines in the
balances of loans serviced for others which were $252,940,000 at December 31,
1995 as compared to $235,949,000 at December 31, 1996. This trend is expected to
continue as management has decided to emphasize sales of mortgage loans on a
servicing released basis for the foreseeable future in order to mitigate the
potential earnings volatility which management believes could occur should the
Bank continue to sell significant volumes of loans servicing retained under
accounting required by SFAS No. 122.
NON-INTEREST EXPENSE
Non-interest expense increased by $885,000 or 7.4% in 1996 as compared to 1995.
Salaries and employee benefits increased 7.8% or $440,000 primarily due to the
acquisition of Holbrook in June 1995 and other cost of living or inflationary
increases for salaries of employees and other related costs. Occupancy expense
increased $364,000 or 18.1% primarily due to costs associated with additional
investments in and higher maintenance costs associated with the Bank's computer
system and the acquisition of the Holbrook branch. Other non-interest expenses
also increased $81,000 or 1.88%, generally due to increased marketing efforts
associated with Holbrook and other checking account promotions which were
partially offset by decreases of approximately $150,000 in other costs which
were incurred in 1995 related to the Bank's sale of certain non-accrual and
"high maintenance" loans. The Bank also benefited from declines in the FDIC
assessment rate in 1996 as compared to 1995. In 1996, the Bank paid FDIC
assessments at the minimum rate available of $2,000 per year. In 1995, the Bank
also paid the lowest available rate; however, the rate of assessment was $.23
per $100 of deposits for the first 6 months of 1995 and $.04 per $100 of
deposits per annum for the second half of 1995. The FDIC premium for the Bank,
including the impact of the BIF/SAIF/FICO Plan, is expected to be approximately
$.0129 per $100 of deposits for 1997. The BIF/SAIF/FICO plan, adopted in 1996 by
the United States Congress, increased the deposit insurance premiums for
BIF-insured banks (such as the Bank) in connection with the recapitalization of
the the Savings Association Insurance Fund ("SAIF").
ABINGTON BANCORP, INC. 14 1996 ANNUAL REPORT
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $480,000 for 1996 as compared to
$2,233,000 for 1995. The decrease of $1,753,000 primarily reflects provisions
taken in connection with the Bank's sale of certain non-performing and "high
maintenance" loans at a discounted price in the third quarter of 1995 for which
there was no corresponding provision in 1996.
PROVISION FOR INCOME TAX
The Bank's effective tax rate for 1996 was 37.7% as compared to 41.6% in 1995.
The decrease in the effective tax rate from 1995 was due to certain statutory
tax limitations associated with the state tax benefits related to the loss on
sales of loans and the effect of estimated tax recapture associated with
management's write-off of a real estate limited partnership investment during
1995. The decrease in the effective tax rate for 1996 in comparison to statutory
rates is generally reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed for state tax purposes at lower rates.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
GENERAL
Net income for the year ended December 31, 1995 was $1,429,000 or $.73 per share
compared to $2,743,000 or $1.40 per share in 1994, a decrease of $1,314,000 or
47.9%. The key factor in the overall reduction in net income in 1995 was the
losses which resulted from management's decision to aggressively dispose of a
significant portion of the Bank's non-accrual and certain "high maintenance"
loans during the third quarter which resulted in a special provision for loan
losses of approximately $1,654,000 and increases in other non-interest expenses
of $150,000 due to other related costs. Net income for 1995 was also adversely
affected by management's decision to write-off in full a limited partnership
investment in a low income housing development of $110,000; there was no
corresponding write-off in 1994. Net losses incurred on other real estate owned
in 1995 were $92,000 as compared to net losses of $2,000 in 1994. These factors
and other increases in non-interest expenses were partially offset by increases
in customer service fee income and net interest income.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $4,867,000 or 18.0% during 1995 as
compared to 1994. This increase was attributable to both increases in earning
assets and increases in rates earned on those assets. The balance of average
earning assets in 1995 was approximately $416,085,000 as compared to
$368,968,000 in 1994, an overall increase of $47,117,000 or 12.8%. The Hull and
Holbrook acquisitions, and related increases in the Bank's loan, investment
security and mortgage-backed portfolios, accounted for the majority of the
increase in earning assets. The increases in yields earned on earning assets is
generally attributable to the increases in general interest rates which occurred
throughout most of 1994 and into May 1995. This increase in yield was attained
in spite of steady declines in longer term interest rates (particularly for
maturities beyond 5 years), which occurred for most of 1995, and negatively
impacted loan yields obtained on originations and loans or securities purchased
on a wholesale basis. The actual increase in yields for 1995 as compared to 1994
is more reflective of the steadily increasing interest rate environment which
existed in 1994, resulting in generally higher yields in 1995 compared to most
of 1994.
The yield on loans was 8.52% in 1995 as compared to 8.18% in 1994. Overall
average loans increased $21,636,000 or 9.7%, to $243,949,000 for 1995 from
$222,313,000 for 1994. See "Liquidity and Capital Resources" and
"Asset-Liability Management" for further discussion of the Bank's investment
strategies and overall balance sheet management.
The average balance of mortgage-backed investment securities was $137,007,000 in
1995 as compared to $123,575,000 in 1994, which represents an increase of
$13,432,000 or 10.9%. The yield on mortgage-backed investments in 1995 was 6.56%
as compared to 6.07% in 1994. Management continues to utilize mortgage-backed
investments as an alternative investment source to compensate for lower loan
origination volume. See "Liquidity and Capital Resources" and "Asset-Liability
Management" for further discussion of the Bank's investment strategies.
INTEREST EXPENSE
Interest expense in 1995 increased $3,873,000 or 27.0%, compared to 1994,
generally due to increases in the average rates paid on borrowings and time
deposits and overall growth in the deposit and borrowing portfolios. The
weighted average rate paid on interest-bearing liabilities was 4.77% in 1995 as
compared to 4.19% in 1994. The weighted average rates paid on interest bearing
deposits increased to 4.01% for the year ended December 31, 1995 from 3.53% for
the same period in 1994. This was generally attributable to increases in rates
paid on time deposits as well as the shifting of approximately $10 million of
savings and money market deposits to certificates of deposit since the beginning
of 1995. This shift is representative of customer preference, given the market's
unwillingness to increase the rates paid on core deposits, for higher yields on
their deposits. See "Asset-Liability Management" for further discussion of the
competitive market for deposits. The weighted average rates paid on short-term
borrowings increased to 6.17% in 1995 from 4.84% in 1994. This increase
generally coincided with increases in rates set by the Federal Reserve since
early 1994 which continued into May 1995. Despite some declines in these rates
in the latter half of 1995, the overall rates paid on borrowings during 1995
were generally higher than those paid for the majority of 1994.
The average balances of deposits and borrowed funds were $261,121,000 and
$140,333,000, respectively, in 1995 as compared to $227,688,000 and
$129,383,000, respectively, in 1994. The increase in deposit balances is
attributable to the acquisition of Hull and Holbrook and other general deposit
growth. This level of growth and the completion of the Holbrook acquisition are
reflective of management's continued focus on expanding the Bank's deposit
base. Additional borrowings were generally used to fund a portion of residential
loan, mortgage-backed investment, and investment securities portfolio growth.
See "Liquidity and Capital Resources" for further discussion of the Bank's
borrowed funds.
NON-INTEREST INCOME
Total non-interest income increased $447,000 or 18.2% in 1995 in comparison to
1994. Customer service fees were $1,644,000 in 1995 as compared to $1,050,000 in
1994, an increase of $594,000 or 56.6%. This increase is generally attributable
to growth in deposit accounts, primarily the NOW and checking account
portfolios, and certain fee increases. These fee increases were consistent with
the Bank's modification of certain products and services offered and overall
growth in transaction accounts. Gains on sales of mortgages increased from
$389,000 in 1994 to $453,000 for the same period in 1995, an additional $64,000
or 16.5%. A primary contributor to this increase was the Bank's sale of
approximately $7,200,000 of seasoned 20 and 30-year fixed rate mortgages in June
1995 at a gain of approximately $175,000. This sale was part of an
asset-liability strategy
ABINGTON BANCORP, INC. 15 1996 ANNUAL REPORT
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
to shorten the maturities of assets. Management decided to sell these
longer-term loans and replace them with more variable rate types of assets.
Overall gains on sales of mortgages on the secondary market from current period
originations were approximately $278,000 in 1995 as compared to $389,000 in
1994, a decrease of $111,000 or 28.5%. This decline can be attributed to lower
origination volumes in 1995 as compared to 1994 and tighter spreads on the
secondary market sales. Loan originations for sale in the secondary market
dropped to $40.2 million in 1995 from $58.2 million in 1994. These results also
reflect increased market competition for residential loan originations in 1995.
Loan servicing fees increased $67,000 or 10.4% to $713,000 in 1995 from $646,000
in 1994. This was generally due to increases in the balance of loans serviced
for others from $229,010,000 at December 31, 1994 to $252,939,000 at December
31, 1995. These increases were achieved in spite of the fact that loan servicing
fees were negatively impacted by tighter servicing spreads and overall market
conditions on new residential loan production throughout 1995. Non-interest
income was adversely affected by overall declines in gains on sales/redemptions
of mortgage-backed investment and equity securities, which went from $322,000 in
1994 to $181,000 in 1995, a decrease of $141,000 or 43.8%. This decline was
generally attributable to a gain of approximately $215,000 on redemption of a
collateralized mortgage obligation during 1994 for which there was no comparable
transaction in 1995.
Non-interest income was also adversely impacted in 1995 by management's decision
to fully write-off an investment in real estate limited partnership which had a
recorded value of $110,000. This write-off was based upon management's
evaluation of a variety of factors, including the continuing inability of the
project to satisfy its debt obligations on current terms or to obtain
refinancing on financially feasible terms. The tax provision for the third
quarter of 1995 included additional expense of $57,000 for the estimated net tax
credit recapture that the Bank would be subject to should the limited
partnership actually become insolvent. Non-interest income was also adversely
effected by increases in losses on sales and write-downs of other real estate
owned which were $92,000 in 1995 compared to $2,000 in 1994. This was primarily
due to the Bank's sale of two commercial condominiums at a loss during the third
quarter of 1995 and a related write-down of a third unit (part of the same
complex as the two sold units) due to the Bank's reassessment of that unit's
value.
NON-INTEREST EXPENSE
Non-interest expense in 1995 increased by $1,700,000 or 16.6% compared to 1994.
Salaries and employee benefits increased 11.7% or $588,000 in response to
increased staffing levels in lending and other operational areas in connection
with certain business growth strategies and the acquisition of Hull and
Holbrook. Occupancy and equipment expenses increased $289,000 or 16.8% over 1994
levels primarily due to costs associated with the Bank's additional investments
in, and maintenance contracts on, its computer system. Other non-interest
expense increased $823,000 or 23.6% in 1995 in comparison to 1994 generally due
to increases in marketing costs, increased intangible asset amortization related
to acquisitions, increased item processing expenses related to checking account
growth and estimated broker costs and other associated expenses incurred as a
result of the sale of non-performing and "high maintenance" loans. These
increases were partially offset by a reduction in the FDIC assessment rates from
approximately $.24 per $100 of deposits per annum to $.04 per $100 of deposits
per annum effective June 1, 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $2,233,000 in 1995, as compared to
$610,000 in 1994, an increase of $1,623,000 or 266.1%. This increase includes a
special provision of $1,654,000, recorded in the third quarter of 1995 which was
primarily related to management's decision to sell certain non-performing and
"high maintenance" loans at a discounted price during the third quarter of 1995.
During October 1995, the Bank's management and Board of Directors evaluated the
feasibility of a sale, at a discount, of a group of approximately $9.2 million
of loans. This pool consisted of approximately $5.7 million of loans which were
on non-accrual at September 30, 1995 and certain other loans which, although
performing, were expected to require a higher than average level of management
attention and out of pocket costs to maintain performance and/or to potentially
foreclose upon or workout.
The transaction was reflected in the third quarter results for 1995. These loans
were sold at approximately 64% of par. The loss associated with this sale was
reflected as a charge-off to the allowance for possible loan losses.
PROVISION FOR INCOME TAXES
The Bank's effective income tax rate in 1995 was 41.6%, compared to 36.6% in
1994. The 1995 effective tax rate was adversely impacted by the effect of
providing for potential tax credit recapture related to a real estate limited
partnership investment. Additionally, the effective tax rate for the year ended
December 31, 1994 was positively impacted by the Bank's realization of certain
tax capital loss carry-forwards.
ASSET/LIABILITY MANAGEMENT
Management uses a variety of investment and loan alternatives and funding
sources in managing the overall levels of the Bank'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 mech
anism 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 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
ABINGTON BANCORP, INC. 16 1996 ANNUAL REPORT
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 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
$12,964,000 at December 31, 1996. 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
6.20%. This agreement terminates, regardless of the balance remaining on the
referenced collateral, on August 25, 1997. The Bank has 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 62.1% of the average interest earning assets in 1996. 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 assumptions 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 2
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. Large 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 1996 and 1995, the Bank acquired approximately $36,200,000 and
$45,300,000, 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 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 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 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 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 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, 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 which they 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 $147,524,000 at December
31, 1996 compared to $145,609,000 at December 31, 1995. 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
December 31, 1996. 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
ABINGTON BANCORP, INC. 17 1996 ANNUAL REPORT
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
below 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.
<TABLE>
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Bank considers its earning assets 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.
<CAPTION>
Repricing/Maturity Interval
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 0-6 MOS. 6-12 MOS. 1-2 YRS. 2-3 YRS. 3-5 YRS. OVER 5 TOTAL TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ 152 $ - $ - $ - $ - $ - $ 152
Bonds and obligations 5,679 1,000 1,035 1,000 1,081 10,000 19,795
Mortgage-backed investments 34,358 23,000 17,063 16,333 30,814 9,911 131,479
Mortgage loans subject to rate
review 36,739 18,090 15,982 18,332 8,747 - 97,890
Fixed rate mortgage loans 20,226 12,613 23,351 21,051 36,060 69,742 183,043
Commercial and other loans
contractual maturity 7,743 3,658 4,274 2,445 1,728 - 19,848
--------- --------- --------- --------- -------- -------- --------
Total 104,897 58,361 61,705 59,161 78,430 89,653 452,207
--------- --------- --------- --------- -------- -------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 16,527 - - - - - 16,527
Savings deposits - term
certificates 70,957 23,938 16,705 11,230 17,894 - 140,724
Other savings accounts 115,282 - - - - - 115,282
Borrowed funds 91,524 9,000 37,000 10,000 - - 147,524
--------- --------- --------- --------- -------- -------- --------
Total 294,290 32,938 53,705 21,230 17,894 - 420,057
--------- --------- --------- --------- -------- -------- --------
Impact of interest-rate swap (12,964) 12,964 - - - - -
--------- --------- --------- --------- -------- -------- --------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities (202,357) 38,387 8,000 37,931 60,536 89,653 32,150
--------- --------- --------- --------- -------- -------- --------
Cumulative excess (deficiency) of
rate sensitive assets over rate
sensitive liabilities (1) $(202,357) $(163,970) $(155,970) $(118,039) $(57,503) $32,150
========= ========= ========= ========= ======== =======
Rate sensitive assets as a percent
of rate sensitive liabilities 34.1% 50.0% 59.1% 70.7% 86.3% 107.7%
<FN>
(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.
</TABLE>
ABINGTON BANCORP, INC. 18 1996 ANNUAL REPORT
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 December 31, 1996, the Bank had
approximately $123,100,000 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 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 expectation s 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 $1,672,000 at December 31,
1996, compared to $1,798,000 at December 31, 1995, a decrease of $126,000 or
7.0%, although non-accrual loans increased to $1,028,000 at December 31, 1996
from $485,000 at December 31, 1995. The Bank's ratio of delinquent loans to
total loans was .72% at December 31, 1996, as compared to 1.45% at December 31,
1995. Management believes that overall trends in delinquencies and
non-performing assets continue to be favorable in 1996 and show signs of
portfolio stability currently.
During 1996, 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 prop erties.
Provisions of approximately $74,900 were made for possible losses on other real
estate owned in 1996. The provisions are reflected in net write-downs of other
real estate owned on the accompanying Consolidated Statement of Operations. The
balance of the general other real estate owned reserves at December 31, 1996,
was approximately $159,400 compared to $103,700 at December 31, 1995.
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 December 31, 1996, the Bank had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $2,516,000 and
$3,176,000, respectively. The Bank also has outstanding commitments to grant
advances under existing home equity lines of credit amounts to $10,679,000.
Commercial and construction loans totaling $8,546,000 have been committed to and
remain outstanding as of December 31, 1996. The Bank believes it has adequate
sources of liquidity to fund these commitments.
The Bank's total stockholders' equity was $33,546,000 or 6.9% of total assets at
December 31, 1996, compared with $30,561,000, or 6.6% of total assets at
December 31, 1995. The increase in total stockholders' equity, which was
primarily impacted by earnings of the Bank and offset, in part, by dividends
paid, was approximately $2,985,000 or 9.8%. In accordance with current
guidelines, the net unrealized loss on available for sale securities has not
been included in regulatory capital calculations. Massachusetts-chartered
savings banks insured by FDIC are required to maintain a minimum 3% Tier 1
leverage capital ratio for the most highly-rated banks, with all other banks
required to meet a minimum leverage ratio that is at least 1% to 2% above the 3%
minimum. At December 31, 1996, the Bank's Tier 1 capital ratio was 6.14%
exceeding regulatory capital requirements.
In addition, the FDIC has adopted risk-based capital guidelines for banks that
define core, or "Tier 1," capital and supplementary of "Tier 2," capital. These
guidelines provide that banks must maintain a minimum ratio of total capital to
risk-weighted assets of 8.0%, of which half must be Tier 1 capital. The
guidelines provide a general framework for assigning assets and off-balance
sheet items to broad risk categories and provide procedures for the calculation
of a risk-based capital ratio. The Bank's Tier 1 risk-based capital ratio at
December 31, 1996 was 12.88%, exceeding applicable risk-based capital
guidelines.
IMPACT OF INFLATION
The Consolidated Financial Statements of the Bank 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 Bank 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.
ABINGTON BANCORP, INC. 19 1996 ANNUAL REPORT
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTSNTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ABINGTON BANCORP, INC.:
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Abington Savings
Bank and subsidiaries ("the Bank") as of December 31, 1996 and 1995, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mis-statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Abington Savings Bank and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 17, 1997 (except with respect to the first paragraph of
Note 1, as to which the date is January 31, 1997)
ABINGTON BANCORP, INC. 20 1996 ANNUAL REPORT
<PAGE> 26
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1996 1995
- -------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 18) $ 9,556 $ 10,463
Short-term investments 152 148
-------- --------
Total cash and cash equivalents 9,708 10,611
-------- --------
Loans held for sale (Note 6) 3,176 3,022
Securities (Notes 4, 9 and 10):
Held for investment - at cost (market value
of $62,456 in 1996 and $68,697 in 1995) 63,670 68,794
Available for sale - at market value 91,561 96,087
-------- --------
Total securities 155,231 164,881
-------- --------
Loans (Notes 6, 9 and 10) 298,667 259,786
Less: Allowance for possible loan losses (1,811) (1,433)
Unearned income (1,062) (790)
-------- --------
Loans, net 295,794 257,563
-------- --------
Federal Home Loan Bank stock 7,903 7,399
Banking premises and equipment, net (Note 7) 6,346 6,528
Other real estate owned, net (Note 6) 500 1,070
Intangible assets (Notes 1 and 2) 3,685 4,009
Other assets (Note 11) 4,615 5,409
-------- --------
$486,958 $460,492
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8) $300,445 $280,070
Short-term borrowings (Note 9) 63,171 61,308
Long-term debt (Note 10) 84,353 84,301
Accrued taxes and expenses (Notes 11 and 14) 3,447 2,408
Other liabilities 1,996 1,844
-------- --------
Total liabilities 453,412 429,931
-------- --------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 3, 4, 13, 16 and 17):
Serial preferred stock, $.10 par value, 3,000,000
shares authorized; none issued - -
Common stock, $.10 par value, 7,000,000 shares
authorized; 2,330,000 shares issued in 1996 and
2,321,000 shares issued in 1995 233 232
Additional paid-in capital 20,923 20,811
Retained earnings 16,455 13,676
-------- --------
37,611 34,719
Treasury stock 437,000 shares, at cost (3,703) (3,703)
Unearned compensation - ESOP (312) (393)
Net unrealized loss on available for sale
securities, net of taxes (50) (62)
-------- --------
Total stockholders' equity 33,546 30,561
-------- --------
$486,958 $460,492
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
ABINGTON BANCORP, INC. 21 1996 ANNUAL REPORT
<PAGE> 27
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans (Notes 1, 5 and 6) $22,978 $20,788 $18,177
Interest on mortgage-backed investments 9,245 8,984 7,503
Interest on bonds and obligations 1,512 1,536 927
Dividend income 556 574 465
Interest on short-term investments 41 67 10
------- ------- -------
Total interest and dividend income 34,332 31,949 27,082
------- ------- -------
Interest expense:
Interest on deposits (Note 8) 10,742 9,681 7,513
Interest on short-term borrowings (Note 9) 3,733 4,546 3,244
Interest on long-term debt (Note 10) 5,042 3,995 3,592
------- ------- -------
Total interest expense 19,517 18,222 14,349
------- ------- -------
Net interest income 14,815 13,727 12,733
Provision for possible loan losses (Note 6) 480 2,233 610
------- ------- -------
Net interest income, after provision for
possible loan losses 14,335 11,494 12,123
------- ------- -------
Non-interest income (charges):
Loan servicing fees (Note 6) 646 713 646
Other customer service fees 2,412 1,644 1,050
Gain on sales of securities, net 495 181 322
Gain on sales of mortgage loans, net 315 453 389
Write-down of investment in limited partnership - (110) -
Net gain or (loss) on sales and write-down of other
real estate owned 67 (92) (2)
Other 242 119 56
------- ------- -------
Total non-interest income 4,177 2,908 2,461
------- ------- -------
Non-interest expense:
Salaries and employee benefits (Notes 12, 14 and 17) 6,075 5,635 5,047
Occupancy and equipment expenses (Notes 7 and 12) 2,374 2,010 1,721
Other non-interest expenses (Note 15) 4,391 4,310 3,487
------- ------- -------
Total non-interest expense 12,840 11,955 10,255
------- ------- -------
Income before income taxes 5,672 2,447 4,329
Provision for income taxes (Note 11) 2,139 1,018 1,586
------- ------- -------
Net income $ 3,533 $ 1,429 $ 2,743
======= ======= =======
Net income per share $ 1.78 $ .73 $ 1.40
======= ======= =======
Weighted average shares outstanding 1,982,000 1,964,000 1,961,000
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
ABINGTON BANCORP, INC. 22 1996 ANNUAL REPORT
<PAGE> 28
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional on Available Unearned
Common Paid-in Retained Treasury for Sale Compensation
(Dollars in thousands) Stock Capital Earnings Stock Securities ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $231 $20,699 $11,006 $(3,703) $ 193 $(557) $27,869
- -----------------------------------------------------------------------------------------------------------------------------------
Net income - - 2,743 - - - 2,743
Exercise of stock options - 22 - - - - 22
Amortization of unearned compensation -
ESOP - - - - - 82 82
Dividends declared ($.40 per share) - - (750) - - - (750)
Unrealized loss on available for sale
securities, net of taxes - - - - (1,600) - (1,600)
---- ------- ------- ------- ------- ----- -------
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 231 20,721 12,999 (3,703) (1,407) (475) 28,366
- -----------------------------------------------------------------------------------------------------------------------------------
Net income - - 1,429 - - - 1,429
Exercise of stock options 1 90 - - - - 91
Amortization of unearned compensation -
ESOP - - - - - 82 82
Dividends declared ($.40 per share) - - (752) - - - (752)
Changes in unrealized loss on available
for sale securities as a result of
transfers from held for investment,
net of tax effects - - - - (169) - (169)
Change in unrealized loss on available
for sale securities, net of taxes - - - - 1,514 - 1,514
---- ------- ------- ------- ------- ----- -------
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 232 20,811 13,676 (3,703) (62) (393) 30,561
- -----------------------------------------------------------------------------------------------------------------------------------
Net income - - 3,533 - - - 3,533
Exercise of stock options 1 112 - - - - 113
Amortization of unearned compensation -
ESOP - - - - - 81 81
Dividends declared ($.40 per share) - - (754) - - - (754)
Change in unrealized loss on
available for sale securities, net of taxes - - - - 12 - 12
---- ------- ------- ------- ------- ----- -------
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $233 $20,923 $16,455 $(3,703) $ (50) $(312) $33,546
- -----------------------------------------------------------------------------------------------------------------------------------
==== ======= ======= ======= ======= ===== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
ABINGTON BANCORP, INC. 23 1996 ANNUAL REPORT
<PAGE> 29
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- -----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,533 $ 1,429 $ 2,743
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 480 2,233 610
Net (gain) loss on sales and write-down of other real
estate owned and investment in limited partnership (67) 202 2
Amortization, accretion and depreciation, net 1,784 1,478 1,259
Provision for deferred taxes 131 379 71
Gain on redemption of mortgage-backed investment
held for investment - - (215)
Gain on sales of securities, net (495) (181) (107)
Gain on sales of mortgage loans, net (315) (453) (389)
Loans originated for sale in the secondary market (18,344) (40,192) (58,151)
Proceeds from sales of loans 18,440 37,762 59,649
Other, net 1,922 (9,593) 9,277
-------- -------- --------
Net cash provided by (used in) operating activities 7,069 (6,936) 14,749
-------- -------- --------
Cash flows from investing activities:
Net cash received in acquisitions - 14,875 3,046
Maturities of held for investment securities - 1,748 1,594
Purchase of held for investment securities (3,633) (25,186) (46,670)
Proceeds from principal payments received
and redemptions of held for investment securities 8,734 9,469 12,676
Proceeds from sales of available for sale securities 36,665 11,891 27,644
Proceeds from principal payments on and maturities
of available for sale securities 15,517 8,294 8,508
Purchase of available for sale securities (47,244) (13,965) (36,155)
Loans originated/purchased, net of amortization and payoffs (41,746) (38,699) (13,480)
Proceeds from sales of loans held in portfolio 3,038 13,548 1,214
Purchases of FHLB stock (504) - (2,056)
Purchase of banking premises and equipment and
improvements to other real estate owned (972) (1,914) (957)
Proceeds from sales of other real estate owned 564 1,000 1,901
Investments and advances made to low income housing
limited partnerships (40) - (34)
-------- -------- --------
Net cash used in investing activities (29,621) (18,939) (42,769)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 20,375 16,908 3,957
Net increase (decrease) in borrowings with
maturities of three months or less 11,363 (6,244) (51,369)
Proceeds from issuance of short-term borrowings
with maturities in excess of three months 37,000 29,500 145,000
Principal payments on short-term borrowings with
maturities in excess of three months (46,500) (20,000) (90,000)
Proceeds from issuance of long-term debt 37,000 36,000 41,500
Principal payments on long-term debt (36,948) (27,802) (17,897)
Payment of cash dividends (754) (753) (563)
Proceeds from the exercise of stock options 113 91 22
-------- -------- --------
Net cash provided by financing activities 21,649 27,700 30,650
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (903) 1,825 2,630
Cash and cash equivalents at beginning of year 10,611 8,786 6,156
-------- -------- --------
Cash and cash equivalents at end of year $ 9,708 $ 10,611 $ 8,786
======== ======== ========
</TABLE>
ABINGTON BANCORP, INC. 24 1996 ANNUAL REPORT
<PAGE> 30
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- ---------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid on deposits $10,741 $ 9,676 $ 7,519
Interest paid on borrowed funds 8,891 8,219 6,522
Income taxes paid 379 1,098 1,724
Transfers of loans to other real estate owned 62 848 403
Transfers of securities to available for sale
from held for investment - 66,692 -
Transfer of securities from available for sale to
held for investment - 8,485 -
Acquisitions: (Note 2)
Liabilities assumed $ - $16,534 $33,253
Less: Assets purchased - 472 27,548
Premium paid - 1,187 2,659
------- ------- -------
Net cash received $ - $14,875 $ 3,046
======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
ABINGTON BANCORP, INC. 25 1996 ANNUAL REPORT
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
AND CONSOLIDATION
The consolidated financial statements include the accounts of Abington Savings
Bank (the "Bank"), and the Bank's wholly owned subsidiaries, Holt Park Place
Development Corporation, Hull/Monument Realty Trust and Norroway Pond
Development Corporation each owning properties being marketed for sale, ABBK
Corporation, which invests in real estate development limited partnerships and
was dissolved in January 1997, and Abington Securities Corporation and Abington
Bancorp, Inc. which invest primarily in obligations of the United States
government and its agencies and equity securities. 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 Abington Bancorp, Inc., and the Bank became a wholly-owned
subsidiary of Abington Bancorp, Inc. This reorganization had no impact on the
consolidated financial statements. All significant inter-company balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES IN
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting periods.
Operating results in the future could vary from the amounts derived from
management's estimates and assumptions.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have been
reclassified to conform to the 1996 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than 3 months and federal funds sold on a daily
basis.
SECURITIES
Investment securities are classified in one of 3 categories and are accounted
for as follows:
* Debt securities that the Bank has the positive intent and ability to hold
to maturity are classified as "held for investment" securities and reported
at amortized cost.
* Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings.
* Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at market value
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity, net of applicable income tax
effects.
The Bank had no securities classified as trading securities at December 31, 1996
and 1995.
Mortgage-backed investments, held for investment, are stated at amortized cost
reduced by principal payments with discounts and premiums being recognized in
income by the interest method over the estimated duration of the investments.
Gains and losses on the disposition of securities are computed using the
specific identification method. Unrealized losses which are deemed to be other
than temporary declines in value are charged to operations.
LOANS AND ALLOWANCE
FOR POSSIBLE LOAN LOSSES
The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio consists of mortgage loans in the
southeastern Massachusetts area. The ability of the Bank's debtors to honor
their contracts is dependent upon the stability of real estate and the general
economic conditions in the Bank's market area.
Loan origination and commitment fees and certain direct loan origination costs,
as defined, are deferred, and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the
investments. Unearned discounts are amortized under the interest method over the
term of the related loans. All other interest on loans is recognized on a simple
interest basis.
Interest on loans is generally not accrued when the principal or interest on the
loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for possible loan losses is based on management's evaluation of
the level of the allowance required in relation to the estimated loss exposure
in the loan portfolio. Procedures employed in considering the allowance
requirements include, among other factors, management's ongoing review of
individual loans, an evaluation of results of examinations by regulatory
authorities and analyses of historical trends in charge-off and delinquencies.
Loans are charged off to the allowance for loan losses when, in the opinion of
management, such loans are deemed to be uncollectible. The allowance is an
estimate, and ultimate losses may vary from current estimates. As adjustments
become necessary, they are reported in earnings during the periods in which they
become known.
The allowance for possible loan losses as of December 31, 1996 is based on
management's estimate of the amount required to absorb future losses in the loan
portfolio based on known current circumstances and real estate market
conditions. However, some degree of uncertainty exists as to future trends in
the local economy and real estate market which, if there is significant
deterioration, could result in the Bank experiencing increases in non-performing
loans, additional provisions for loan losses and increased lost interest income
on non-accrual loans.
Funds for lending are partially derived from selling participating and whole
interests in mortgage loans. Loans designated as held for sale are accounted for
at the lower of their aggregate cost or market value. Gains or losses on sales
of loans are recognized at the time of the sale and are adjusted when the
average interest rate on the loans sold, after normal servicing fees, differs
from the agreed yield to the buyer.
ABINGTON BANCORP, INC. 26 1996 ANNUAL REPORT
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 114 ("SFAS No. 114"), "Accounting by Creditors for
Impairment of a Loan," which the Bank adopted on January 1, 1995. SFAS No. 114
requires, among other things, that creditors measure impaired loans at the
present value of expected future cash flows, discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the underlying collateral if the loan is collateral
dependent.
The Bank has determined, after a review of its policies and procedures related
to credit quality and an analysis of the loans outstanding at January 1 and
December 31, 1995 and December 31, 1996, that loans recognized by the Bank as
non-accrual are equivalent to "impaired loans" as defined in SFAS No. 114. The
Bank has also determined that the reserve for possible loan losses at January 1,
1995 did not require an additional loan loss provision as a result of the
adoption of this standard.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement, which was superseded in June 1996 upon the
issuance of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities," requires the recognition of a
separate asset for the rights to service mortgage loans for others regardless of
how those servicing rights were created. SFAS No. 125 may impact the Bank as
fixed rate loan originations having terms in excess of 15 years are generally
sold in the secondary mortgage market with servicing of the related loan
retained by the Bank. In such cases, the Bank is required to allocate a portion
of the cost of the loan to the mortgage servicing rights based on the relative
fair values of such servicing rights and the loan. The value of such servicing
rights are to be periodically assessed for impairment based on the fair value of
those rights. During 1996, the Bank capitalized approximately $103,000 of
mortgage servicing rights which resulted in a corresponding increase in gains on
sales of mortgages.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure and acquired by deed in lieu of foreclosure
are classified as other real estate owned and initially recorded at the lower of
cost or fair value less estimated selling costs. In the event of subsequent
declines in value, other real estate owned is adjusted to fair market value
through a charge to non-interest income.
The fair value for these assets is based on periodic analysis of the real estate
by management. Factors considered include, but are not limited to, general
economic and market conditions, geographic location, the composition of the real
estate holdings and property conditions.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
On January 1, 1996, the Bank adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The statement also requires that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of the carrying amount or fair value less cost to sell. The implementation of
this statement did not have any impact on the results of operations or financial
condition of the Bank.
BANKING PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements and equipment are
carried at cost, less accumulated depreciation computed on the straight-line
method over the estimated useful lives of the assets, or the terms of the
leases, if shorter. The cost of maintenance and repairs are expensed as
incurred; major expenditures for betterments are capitalized and depreciated.
INVESTMENT IN REAL ESTATE
LIMITED PARTNERSHIP
The Bank has an investment in a real estate limited partnership which is
accounted for on the cost recovery method and is included in other assets. The
carrying value of this investment is periodically evaluated by management as to
its expected future recoverability and write-downs are recorded once impairment
in value is identified and quantified.
INTANGIBLE ASSETS
Core deposit intangibles are being amortized on a straight-line basis over their
estimated lives of 7 to 10 years. Goodwill is being amortized on a straight-line
basis over 10 to 15 years. Organization costs are amortized on a straight line
basis over 5 years. The carrying value of these assets is periodically evaluated
by management as to their expected future recoverability and write-downs are
recorded once an impairment in value is identified and quantified.
INCOME TAXES
Tax assets and liabilities are reflected at currently enacted income tax rates.
As changes in tax laws and rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
EARNINGS PER SHARE
Earnings per share are calculated based on the weighted average shares
outstanding, including the effect of stock options.
STOCK BASED COMPENSATION
The Bank applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its stock-based compensation plans (Note 16). Accordingly, no accounting
recognition is given to options granted at fair market value until they are
exercised. Upon exercise, net proceeds, including tax benefits realized, if any,
are credited to equity.
Effective in 1995, the Bank adopted the disclosure option of SFAS No. 123
"Accounting for Stock Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
their employee stock compensation plans. This statement requires that entities
which do not choose to account for stock-based compensation as prescribed by
this statement shall continue to account for these plans under APB 25 and
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted.
ABINGTON BANCORP, INC. 27 1996 ANNUAL REPORT
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
- --------------------------------------------------------------------------------
On June 26, 1995, the Bank acquired certain assets and assumed certain
liabilities of a branch of the First National Bank of Boston located in
Holbrook, Massachusetts ("Holbrook"). In connection with the assumption of
approximately $16,319,000 of deposit liabilities, the Bank received $14,875,000
in cash and $472,000 in property and other assets. The resultant core deposit
premium and other intangible assets of $1,187,000 are being amortized over their
estimated life of 10 years.
On June 3, 1994, the Bank acquired Hull Co-Operative Bank ("Hull").
Under the terms of the agreement, holders of Hull common stock received $22 in
cash for each of the 280,000 outstanding shares of Hull common stock. This
transaction has been accounted for using the purchase method and, accordingly,
the results of Hull's operations have been included in the accompanying
Consolidated Statement of Operations since that date.
<TABLE>
The following table summarizes the allocation of the purchase price to the
assets and liabilities acquired on June 3, 1994:
<CAPTION>
(Dollars in thousands)
<S> <C>
Cash and federal funds sold $ 3,046
Investment securities 1,250
Loans 26,240
Less - loan loss reserve (577)
-------
Loans, net 25,663
Fixed assets 296
Core deposit intangible 725
Excess purchase price - goodwill 1,934
Other assets 339
-------
$33,253
=======
Deposits $32,975
Accrued expenses and taxes 237
Other liabilities 41
-------
$33,253
=======
</TABLE>
<TABLE>
The total amount paid by the Bank to the Hull stockholders was $6,160,000 which
was funded by the liquidation of various investment securities and other
short-term investments formerly held by Hull. Based on unaudited data, the
following table presents selected financial information for 1994, on a pro forma
basis, assuming the Bank and Hull had been combined as of January 1, 1994.
<CAPTION>
- -----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
- -----------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C>
Interest and dividend income $28,055
Interest expense 14,771
Net interest income 13,284
Provision for possible loan losses 670
Non-interest income 2,498
Non-interest expense 10,736
Income before taxes 4,376
Net income 2,737
Earnings per share 1.40
</TABLE>
ABINGTON BANCORP, INC. 28 1996 ANNUAL REPORT
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Bank is subject to various regulatory requirements administered by the
federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
met all capital adequacy requirements to which they are subject.
As of December 31, 1996 and 1995, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, an insured
depository institution must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
<TABLE>
The Bank's actual capital amounts and ratios are presented in the following
table.
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to risk-weighted assets ) $31,824 13.65% $18,648 8.00% $23,314 10.00%
Tier 1 capital (to risk-weighted assets) $30,013 12.88% $9,324 4.00% $13,981 6.00%
Tier 1 capital (to average assets) $30,013 6.14% $19,565 4.00% $24,456 5.00%
As of December 31, 1995:
Total Capital (to risk-weighted assets ) $28,048 12.50% $17,953 8.00% $22,440 10.00%
Tier 1 capital (to risk-weighted assets) $26,615 11.86% $8,976 4.00% $13,463 6.00%
Tier 1 capital (to average assets) $26,615 5.77% $18,450 4.00% $23,063 5.00%
</TABLE>
ABINGTON BANCORP, INC. 29 1996 ANNUAL REPORT
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
The amortized cost and market value of securities classified as held for
investment at December 31, 1996 and 1995, are as follows:
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation $19,173 $ 40 $ 549 $18,664 $20,084 $ 31 $ 214 $19,901
Federal National
Mortgage Association 29,152 115 785 28,482 31,387 299 229 31,457
Other 15,345 17 52 15,310 17,323 46 30 17,339
------- ---- ------ ------- ------- ---- ------ -------
Total mortgage-backed securities $63,670 $172 $1,386 $62,456 $68,794 $376 $ 473 $68,697
======= ==== ====== ======= ======= ==== ====== =======
</TABLE>
<TABLE>
The amortized cost and estimated market value of securities classified as
available for sale at December 31, 1996 and 1995 are as follows:
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations $ 713 $ 7 $ - $ 720 $ 9,428 $ 7 $ 38 $ 9,397
Federal agency obligations 17,966 90 278 17,778 8,378 98 154 8,322
Other bonds and obligations 1,116 22 - 1,138 5,153 69 1 5,221
------- ---- ------ ------- ------- ---- ------ -------
Total investment securities 19,795 119 278 19,636 22,959 174 193 22,940
------- ---- ------ ------- ------- ---- ------ -------
Marketable equity securities 4,044 445 78 4,411 2,768 335 99 3,004
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation 23,058 84 352 22,790 17,941 65 360 17,646
Federal National
Mortgage Association 44,751 338 365 44,724 48,044 292 356 47,980
Government National
Mortgage Association - - - - 4,479 38 - 4,517
------- ---- ------ ------- ------- ---- ------ -------
Total mortgage-backed securities 67,809 422 717 67,514 70,464 395 716 70,143
------- ---- ------ ------- ------- ---- ------ -------
$91,648 $986 $1,073 $91,561 $96,191 $904 $1,008 $96,087
======= ==== ====== ======= ======= ==== ====== =======
</TABLE>
The market value and amortized cost of investments and the amortized cost of
mortgage-backed securities, at December 31, 1996 by contractual maturity
follows. Expected maturities may differ from contractual maturities because the
issuer may have the right to call or repay obligations with or without call or
prepayment penalties. Projected prepayments for mortgage-backed securities have
been considered for purposes of this presentation.
ABINGTON BANCORP, INC. 30 1996 ANNUAL REPORT
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
INVESTMENT SECURITIES
<CAPTION>
- -------------------------------------------------------------------------------
AMORTIZED COST % TO TOTAL MARKET VALUE
- -------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Within 1 year $ - -% $ -
Over 1 year to 5 years 3,617 18.3 3,530
Over 5 years to 10 years 11,969 60.5 11,914
Over 10 years 4,209 21.2 4,192
------- ----- -------
$19,795 100.0% $19,636
======= ===== =======
</TABLE>
<TABLE>
MORTGAGE-BACKED SECURITIES
<CAPTION>
- -------------------------------------------------------------------------------
HELD FOR INVESTMENT AVAILABLE FOR SALE
- -------------------------------------------------------------------------------
(Dollars in thousands)
Amortized Amortized
Cost Cost
--------- ---------
<S> <C> <C>
Within 1 year $23,517 $33,841
Over 1 year to 5 years 30,821 33,389
Over 5 years 9,332 579
------- -------
$63,670 $67,809
======= =======
</TABLE>
Gross gains on sales of marketable equity securities were $407,000, $68,000 and
$60,000 in 1996, 1995 and 1994, respectively. There were no losses on sales of
marketable equity securities in 1996, 1995 and 1994.
Gross gains on sales of investment securities were $30,000 and $77,000 in 1996
and 1995, respectively. Gross losses on sales of investment securities were
$54,000 and $4,000 for 1996 and 1995, respectively. There were no gross gains
or losses on sales of investment securities for 1994. Gross gains on sales of
mortgage-backed securities were $130,000, $69,000 and $280,000 in 1996, 1995 and
1994, respectively. Gross losses of $18,000, $29,000 and $234,000 were realized
in 1996, 1995 and 1994, respectively. Also, in 1994, the Bank realized a gain
of $216,000 on the redemption of a collateralized mortgage obligation, which was
held to maturity which was included in gains on sales of securities in the
accompanying consolidated statement of operations.
A U.S. Government obligation security with a carrying value of $998,000 was
pledged to collateralize treasury, tax and loan obligations. A federal agency
obligation with a carrying value of $1,503,000 was pledged in connection with
an interest rate swap agreement which is described further in Note 5.
All mortgage-backed securities also serve as collateral for FHLB borrowings
as part of a blanket collateral agreement as further described in Note 9.
5. INTEREST RATE SWAP AGREEMENT
- --------------------------------------------------------------------------------
To help manage interest rate sensitivity on the Bank's adjustable rate mortgage
loan portfolio, the Bank entered into an interest rate swap agreement in July
1994 for a period of 36 months with an international investment banking firm.
Under this agreement, the Bank receives a fixed rate of interest of 5.35% on the
notional amount and pays interest based on the 6-month floating LIBOR rate on
the notional amount which resets semi-annually (February and August). At
December 31, 1996, the floating rate was set at 5.69%. The notional amount of
this swap was initially $15,000,000. This amount amortizes at a rate consistent
with the amortization and prepayment of a reference pool of residential
mortgages as specified in the agreement. The notional amount of this swap was
approximately $12,964,000 at December 31, 1996. In addition to the fixed rate of
interest, the Bank also received $300,000 in cash upon execution of this
agreement. This amount is being accreted to income over the life of the
agreement at a rate consistent with the aforementioned reference pool of
mortgages. The resulting yield received by the Bank, including the impact of the
accretion, was approximately 6.20% in 1996. This agreement terminates,
regardless of the balance remaining in the reference pool, on August 15, 1997.
Net interest income (expense) associated with this swap is recognized based on
the accrual method. The net interest income (expense) recognized by the Bank
during 1996, 1995 and 1994 as a result of this agreement was $77,000, $(26,000),
and $49,000, respectively.
The Bank is exposed to credit losses in the event of non-performance by the
counter-party to the interest rate swap agreement. Such loss would be limited to
the periodic interest settlement amount outstanding should the counter-party be
in a net payable position to the Bank. The counter-party had a net receivable
due from the Bank at December 31, 1996. The Bank has not obtained any collateral
or other security to mitigate any credit losses but it monitors the credit
standing of the counter-party.
ABINGTON BANCORP, INC. 31 1996 ANNUAL REPORT
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS AND OTHER REAL ESTATE OWNED
- --------------------------------------------------------------------------------
<TABLE>
A summary of the loan portfolio follows:
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Mortgage loans:
Residential $236,635 $200,368
Second mortgages and home equity 17,368 18,027
Construction 5,956 6,805
Commercial 24,718 17,622
-------- --------
284,677 242,822
Less: Due to borrowers on incomplete loans (2,758) (2,499)
Net deferred loan fees (986) (940)
-------- --------
Total mortgage loans 280,933 239,383
Commercial loans:
Unsecured lines of credit 324 477
Secured and unsecured 4,210 1,861
-------- --------
Total commercial loans 4,534 2,338
Other loans:
Indirect automobile 4,355 10,049
Personal 1,625 1,715
Education 509 728
Passbook and other secured 8,416 6,980
Home improvement 485 675
-------- --------
15,390 20,147
Net deferred loan costs (fees) (76) 150
-------- --------
Total other loans 15,314 20,297
-------- --------
Total loans 300,781 262,018
Less allowance for possible loan losses (1,811) (1,433)
-------- --------
Loans and loans held for sale, net $298,970 $260,585
======== ========
</TABLE>
Included in residential real estate mortgages at December 31, 1996 and 1995,
respectively, are approximately $3,176,000 and $2,883,000 of loans held for
sale. In addition, approximately $143,000 of commercial loans were held for sale
at December 31, 1995. At December 31, 1996 and 1995, the estimated market values
of loans held for sale was in excess of their carrying value. The Bank was
servicing mortgage loans sold under non-recourse agreements amounting to
approximately $235,949,000 and $252,940,000 at December 31, 1996 and 1995,
respectively.
During October 1995, the Bank's management and Board of Directors evaluated the
feasibility of a sale, at a discount, of a group of approximately $9.2 million
of loans. This pool consisted of approximately $5.7 million of loans which were
on non-accrual at September 30, 1995 and certain other loans which, although
performing, were expected to require a higher than average level of management
attention and out-of-pocket costs to maintain performance or to potentially
foreclose upon or workout.
The transaction was reflected in the third quarter results for 1995. These loans
were sold at approximately 64% of par. The loss associated with this sale was
reflected as a charge-off to the allowance for possible loan losses.
In the ordinary course of business, the Bank has granted loans to certain of its
officers and directors and their affiliates. All transactions are on
substantially the same terms as those prevailing at the same time for
individuals not affiliated with the Bank and do not involve more than the normal
risk of collectibility. The total amount of such loans which exceeded $60,000 in
aggregate amount to any related party, amounted to $2,569,000 at December 31,
1996, and $2,371,000 at December 31, 1995. During the year ended December 31,
1996, total principal additions were $250,000 and total principal reductions
were $52,000.
The following analysis summarizes the Bank's non-performing assets at December
31, 1996 and 1995.
ABINGTON BANCORP, INC. 32 1996 ANNUAL REPORT
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Impaired loans or loans accounted for
on a non-accrual basis $1,028 $ 485
Accruing loans past due 90 days or more
as to principal or interest 144 243
------ ------
Total non-performing loans 1,172 728
Other real estate owned, net 500 1,070
------ ------
Total non-performing assets $1,672 $1,798
====== ======
</TABLE>
<TABLE>
Impaired loans totaling $314,000 and $114,000, at December 31, 1996 and 1995,
respectively, required an allocation of $97,000 and $35,000, respectively, of
the allowance for possible loan losses. The remaining impaired loans did not
require any allocation of the reserve for possible loan losses. The average
balance of impaired loans was approximately $721,000 and $3,733,000 in 1996 and
1995, respectively. The total amount of interest income recognized on impaired
loans during 1996 and 1995 was approximately $48,500 and $284,000, respectively,
which approximated the amount of cash received for interest during those
periods. The Bank has no commitments to lend additional funds to borrowers whose
loans have been deemed to be impaired. An analysis of the allowance for possible
loan losses follows:
<CAPTION>
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $1,433 $2,845
Provision 480 2,233
Recoveries 193 232
------ ------
2,106 5,310
Loans charged off (295) (3,877)
------ ------
Balance at end of year $1,811 $1,433
====== ======
</TABLE>
<TABLE>
An analysis of the general allowance for possible losses on other real estate
owned follows:
<CAPTION>
- ------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $103,700 $ 31,700
Provision 74,900 185,300
Charge-offs (19,200) (113,300)
-------- ---------
$159,400 $ 103,700
======== =========
</TABLE>
7. BANKING PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
<TABLE>
A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives is as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 ESTIMATED USEFUL LIVES
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Banking premises:
Land $ 671 $ 671
Buildings and improvements 4,911 4,834 10-25 years
Leasehold improvements 514 523 10-15 years
Equipment 7,240 6,336 3-10 years
------- -------
13,336 12,364
Less accumulated depreciation (6,990) (5,836)
------- -------
$ 6,346 $ 6,528
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
amounted to $1,154,000, $941,000 and $861,000, respectively.
ABINGTON BANCORP, INC. 33 1996 ANNUAL REPORT
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS
- --------------------------------------------------------------------------------
<TABLE>
A summary of deposit balances, by type, is as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-interest NOW $ 27,912 $ 24,572
NOW 35,812 30,378
Other savings 79,470 73,848
Money market deposits 16,527 21,432
-------- --------
Total non-certificate accounts 159,721 150,230
Term certificate accounts 117,419 113,146
Certificates of deposit greater than $100 23,305 16,694
-------- --------
Total certificate accounts 140,724 129,840
-------- --------
Total deposits $300,445 $280,070
======== ========
</TABLE>
<TABLE>
A summary of certificate accounts by maturity is as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Weighted Weighted
Amount Average Rate Amount Average Rate
------------------------ -------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 89,073 5.49% $ 74,645 5.70%
Over 1 year to 3 years 33,757 6.13 35,508 5.93
Over 3 years to 5 years 17,894 6.65 19,687 6.80
-------- --------
$140,724 5.79% $129,840 5.93%
======== ========
</TABLE>
9. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
<TABLE>
Short-term borrowings consist primarily of Federal Home Loan Bank advances with
original maturities of one year or less. All borrowings from the Federal Home
Loan Bank of Boston are secured under a blanket lien by certain qualified
collateral defined principally as 90% of the carrying value of U.S. Government
and agency obligations, including mortgage-backed securities, and 75% of the
carrying value of residential mortgage loans. Information relating to activity
and rates paid under these borrowing agreements is presented below:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding during the year $78,300 $108,700 $77,800
Average month-end borrowings outstanding during the year $66,790 $ 73,719 $67,066
Average interest rate during the year 5.59% 6.17% 4.84%
Unused line of credit at Federal Home Loan Bank of Boston $8,767 $ 6,689 $ 3,728
Amount outstanding at end of year $63,171 $ 61,308 $58,052
Weighted average interest rate at end of year 5.68% 5.75% 6.00%
</TABLE>
ABINGTON BANCORP, INC. 34 1996 ANNUAL REPORT
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT
- --------------------------------------------------------------------------------
<TABLE>
A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than one year is as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MATURITY DATE INTEREST RATE DECEMBER 31, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
May 6, 1996** 5.77% $ - $ 1,305
June 10, 1996 4.82 - 5,000
August 16, 1996 6.57 - 6,000
September 23, 1996 6.56 - 10,000
September 23, 1996 5.47 - 4,000
October 28, 1996 5.90 - 5,000
March 25, 1997 5.25 4,000 4,000
May 5, 1997** 6.12 1,799 5,232
July 15, 1997** 6.32 1,554 3,764
August 18, 1997 6.94 4,000 4,000
October 27, 1997 5.83 5,000 5,000
November 24, 1997* 5.82 16,000 16,000
December 19, 1997 5.81 7,500 -
February 4, 1998 5.30 4,500 -
September 30, 1998 6.22 5,000 -
November 9, 1998 5.80 15,000 15,000
November 13, 1998 5.90 5,000 -
May 4, 1999*** 5.38 5,000 -
September 16, 1999 6.66 5,000 -
November 1, 1999 6.23 5,000 -
------- -------
$84,353 $84,301
======= =======
<FN>
* Variable rate advance with quarterly resets; with prepayment option at reset dates without penalty
** Amortizing advance
*** Libor floating advance with a monthly reset
</TABLE>
11. INCOME TAXES
- --------------------------------------------------------------------------------
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Current: Federal $1,704 $ 595 $1,299
State 304 44 216
------ ------ ------
2,008 639 1,515
Deferred: Federal 110 264 52
State 21 115 19
------ ------ ------
131 379 71
------ ------ ------
Total $2,139 $1,018 $1,586
====== ====== ======
</TABLE>
<TABLE>
The reason for the differences between the effective tax rates and the statutory
tax rates are summarized as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.8 4.3 3.6
Effect of amortization of non-deductible goodwill .7 3.1 .9
Decrease in valuation allowance - - (2.9)
Other, net (.8) .2 1.0
---- ---- ----
37.7% 41.6% 36.6%
==== ==== ====
</TABLE>
ABINGTON BANCORP, INC. 35 1996 ANNUAL REPORT
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The components of net deferred taxes as recorded as of December 31, 1996 and
1995 are as follows (assets/(liabilities)):
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Loan loss reserves $ 582 $ 884
Loan fee income 79 165
Dividends on deposits not yet deducted for tax purposes 114 154
Pension expense 200 209
Equity in partnership losses (1,273) (1,185)
Core deposit intangible (227) (278)
Other, net (41) 131
------- -------
(566) 80
Less: valuation allowance - -
Deferred tax assets applicable to unrealized losses on securities 34 42
------- -------
Net deferred tax assets (liabilities) included
in other assets (other liabilities) $ (532) $ 122
====== =======
</TABLE>
In August of 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions for
income tax purposes. Thrift institutions now will be viewed as commercial banks
for income tax purposes. The repeal is effective for tax years beginning after
December 31, 1995.
One effect of this legislative change is to suspend the Bank's bad debt reserve
for income tax purposes as of its base year (October 31, 1988). Any bad debt
reserve in excess of the base year amount is subject to recapture over a 6-year
time period. The suspended (i.e., base year) amount is subject to recapture upon
the occurrence of certain events, such as complete or partial redemption of the
Bank's stock or if the Bank ceases to qualify as a bank for income tax purposes.
At December 31, 1996, the Bank's surplus includes approximately $1,960,000 of
bad debt deductions for which income taxes have not been provided. As the Bank
does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.
12. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements.
LITIGATION
On or about April 10, 1996, a civil action entitled Merrill Lynch Mortgage
Capital, Inc. v. Abington Savings Bank, Spires Financial, L.P. and Geoffrey
Lawes, Docket No. MRS-L-1169-96, was filed in the Law Division of the
Superior Court of New Jersey, venued in Morris County. The complaint named
the Bank as a defendant, along with the Bank's alleged financial broker,
Spires Financial, L.P. ("Spires") and an employee of Spires, Geoffrey Lawes
("Lawes").
The complaint alleged, among other things, that (1) Spires and/or Lawes, as
agent for the Bank, entered into a binding agreement with the plaintiff on
February 28, 1996 under which the bank agreed to purchase from the plaintiff a
pool of conventional adjustable rate mortgage loans having an unpaid principal
balance of approximately $34,000,000 as of March 1, 1996 and (2) the Bank
subsequently refused to close on the alleged contract. Plaintiff seeks damages
of no less than $530,000 against the Bank on the grounds that the Bank breached
its alleged contract.
The Bank has denied the existence of the alleged contract and agency
relationship, has asserted various affirmative defenses and has filed
indemnification claims against the defendants and several third-parties
associated with the defendants.
The Bank is a defendant in various other legal claims incident to its business,
none of which is believed by management, based on the advice of legal counsel,
to be material to the consolidated financial statements.
SPECIAL TERMINATION AGREEMENTS
The Bank has entered into Special Termination Agreements with four officers
which provide for a lump-sum severance payment within a 3 year period following
a "change in control," as defined in the agreements.
LOAN AND GENERAL COMMITMENTS
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments principally include commitments to extend credit and
advance funds on outstanding lines of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
ABINGTON BANCORP, INC. 36 1996 ANNUAL REPORT
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amount recognized in the balance sheet. The contract amounts or unpaid principal
balance of those instruments reflect the extent of involvement the Bank has in
these particular classes of financial instruments. The Bank's exposure to credit
loss is represented by the contractual amount or unpaid principal balance of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for financial instruments reflected on
the balance sheet. Financial instruments which represent credit risk at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Contract amount of:
Commitments to grant loans $ 6,355 $10,266
Commitments to sell loans 2,516 2,062
Unadvanced funds on home equity lines of credit 10,679 11,389
Unadvanced funds on other lines of credit 1,949 984
Commitments to advance funds under
construction loan agreements 2,758 2,499
</TABLE>
Commitments to grant loans are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire without
being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The Bank has an investment in a limited
partnership with a book value of $113,000 at December 31, 1996. This partnership
was established for the rehabilitation and management of low income housing
projects. Credit risk, which is limited to funds previously advanced and tax
credits subject to recapture, arises from the possible financial insolvency of
the project and the ultimate ability of the partnership to survive as a going
concern. In this case, the Bank's investment in these projects would not be
fully recoverable in the normal course of business, and previously earned tax
credits may be recaptured.
LEASE COMMITMENTS
<TABLE>
Pursuant to the terms of non-cancelable lease agreements in effect, future
minimum rent commitments for the next 5 years and thereafter are as follows at
December 31, 1996:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR AMOUNT
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
1997 $ 226
1998 179
1999 184
2000 162
2001 107
2002 and thereafter 1,197
------
$2,055
======
</TABLE>
Certain leases also contain renewal options (up to 10 years) and real estate tax
escalation clauses. Rent expense for the years ended December 31, 1996, 1995 and
1994 amounted to approximately $235,000, $156,000, and $81,000, respectively.
13. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit. Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible account holder will be entitled to receive a
distribution in an amount equal to their current adjusted liquidation account
balances to the extent that funds are available.
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank. The total amount of dividends which
may be paid at any date is generally limited to the undivided profits of the
Bank. Undivided profits at the Bank totaled $16,455,000 at December 31, 1996.
Additionally, future dividends, if any, will depend on the earnings of the Bank
and its subsidiaries, their need for funds, their financial condition, and other
factors, including applicable government regulations. (See Note 3).
ABINGTON BANCORP, INC. 37 1996 ANNUAL REPORT
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EMPLOYEE BENEFIT PLAN
- --------------------------------------------------------------------------------
<TABLE>
The Bank provides basic pension benefits for eligible employees through the
Savings Banks Employees Retirement Association's ("SBERA") Pension Plan. Each
employee reaching the age of 21 and having completed at least 1,000 hours of
service in a consecutive 12 month period beginning with such employee's date of
employment automatically becomes a participant in the pension plan. All
participants are fully vested after being credited with 3 years of service or at
age 62, if earlier. Net periodic pension expense for the plan years ended
October 31, 1996, 1995 and 1994, consisted of the following:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost benefits earned during the year $ 247 $ 184 $ 204
Interest cost on projected benefits 180 163 146
Actual return on plan assets (347) (326) (106)
Net amortization and deferral 151 176 (27)
----- ----- -----
$ 231 $ 197 $ 217
===== ===== =====
</TABLE>
<TABLE>
According to SBERA's actuary, a reconciliation of the funded status of the plan
at October 31, 1996 and 1995 is as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AT OCTOBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Plan assets at fair value, primarily bonds, common stock,
and short-term money market investments $ 2,709 $ 2,294
Projected benefit obligation (2,527) (2,567)
------- -------
(Excess) deficit of projected benefit obligation over plan assets 182 (273)
Unrecognized net surplus at adoption (93) (100)
Unrecognized net gain (563) (122)
------- -------
Accrued pension liability included on balance sheet $ (474) $ (495)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1996 and 1995 amounted to $1,805,000 and $1,679,000, respectively, which is less
than the plan assets at fair value.
For the plan years ended October 31, 1996, 1995 and 1994, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.50%, 7.00%, and
8.00%, respectively, and an expected long-term rate of return on plan assets of
8.00%, 8.00%, and 7.00%, respectively. An annual salary increase of 6% was
utilized for all years.
The Bank has adopted a management incentive plan (the "Plan") whereby all
Officers and Supervisors are eligible to receive a bonus, proportionate to their
respective salary, if the Bank meets or exceeds certain base standards of
profitability and net worth levels for its fiscal year. The structure of the
Plan is reviewed on an annual basis by the Board of Directors. The incentive
bonus expense in 1996, 1995 and 1994 was approximately $175,000, $150,000 and
$192,000, respectively.
ABINGTON BANCORP, INC. 38 1996 ANNUAL REPORT
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. OTHER NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other non-interest expense consisted of the following:
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Professional services $1,623 $1,124 $1,067
Advertising 647 598 303
Deposit insurance 16 324 528
Real estate in foreclosure and other real estate owned 169 491 312
Amortization of intangible assets 423 355 182
Other 1,513 1,418 1,095
------ ------ ------
$4,391 $4,310 $3,487
====== ====== ======
</TABLE>
16. STOCK OPTION PLAN
- --------------------------------------------------------------------------------
<TABLE>
The Bank has had a stock option plan whereby options to purchase a total of
230,000 shares had been reserved to be granted to officers, certain other
employees and directors. As of July 1996, options could no longer be issued
under this plan. The per share exercise prices of the options granted range from
$3.00 to $17.00 and equaled the fair market value of the shares on the date the
options were granted. Stock option activity for the years ended December 31,
1996, 1995 and 1994 is as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Number of Weighted Avg. Number of Weighted Avg. Number of Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 183,912 $ 7.84 159,462 $ 6.80 134,850 $ 5.72
Granted 25,250 17.00 35,250 13.62 29,000 12.09
Exercised (9,500) 11.86 (8,800) 10.33 (3,388) 6.51
Cancelled (250) 16.06 (2,000) 16.06 (1,000) 16.06
------- ------ ------- ------ ------- ------
Outstanding at end of year 199,412 $ 8.80 183,912 $ 7.84 159,462 $ 6.80
======= ====== ======= ====== ======= ======
Exercisable at end of year 179,162 $ 8.24 163,662 $ 7.11 159,462 $ 6.80
======= ====== ======= ====== ======= ======
Option price per share $3.00-$17.00 $3.00-$16.06 $3.00-$16.06
Weighted average fair value of
options granted during the year $6.69 $6.00 N/A
</TABLE>
In October 1993, in conjunction with the Bank's aforementioned stock option
plan, the Bank adopted a Long Term Performance Incentive Plan to encourage
executive management and members of the Board of Directors to build long-term
shareholder value. The plan was a 3 year program which provided a mechanism for
granting options under the Bank's stock option plan. Options to purchase 23,250
shares of common stock for each of the 1993, 1994, and 1995 fiscal years were
granted to members of the Board of Directors and certain principal officers.
All options granted under this plan are included in the preceding table. The
options are granted based on achievement of strategic goals such as
acquisitions and asset purchases. The exercise price equaled the fair market
value of the common stock on the date of grant, which was the second Friday of
February following the end of 1993, 1994 and 1995. The options become
exercisable upon a change of control of the Bank or after the market price of
the common stock exceeds 140% of the exercise price for a period of 5
consecutive business days for the fiscal 1993 and 1994 issues. The fiscal 1995
issues became exercisable upon the same terms as the 1993 and 1994 issues
except that the market price of the stock must exceed 140% of the exercise
price for a period of 180 consecutive days.
All options granted become fully exercisable no later than at the end of the
ninth year after issuance. The maximum amount of options which can become
exercisable in any 1 year is limited to $100,000 based on grant prices except
in the event of a change of control, in which case all options become
exercisable.
As discussed in Note 1, the Bank applies APB 25 in accounting for its
stock-based compensation plans under which no compensation cost has been
recognized. Had compensation cost for awards in 1996 and 1995 under the Bank's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Bank's net income and earnings per share would have been as follows:
ABINGTON BANCORP, INC. 39 1996 ANNUAL REPORT
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands, except in share amounts)
<S> <C> <C>
Net income:
As reported $3,533 $1,429
Pro forma 3,428 1,309
Earnings per share:
As reported 1.78 .73
Pro forma 1.73 .66
</TABLE>
The initial impact of applying SFAS No. 123 on pro forma net income may not be
indicative of future amounts when the method prescribed by SFAS No. 123 will
apply to all outstanding awards, because compensation expense for options
granted prior to January 1, 1995 is not reflected in the pro forma amounts
above.
<TABLE>
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:
1996 1995
- --------------------------------------------
<S> <C> <C>
Expected volatility 34.05% 34.05%
Risk-free interest rate 5.71% 7.57%
Term of options 9.2 yrs. 9.4 yrs.
Expected dividend yield 2.35% 2.93%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Bank's employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
17. EMPLOYEES' STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
The Bank has established an Employees' Stock Ownership Plan ("ESOP") which is
being funded by the Bank's contributions made in cash (which generally will be
invested in common stock) or common stock. Benefits may be paid in shares of
common stock or in cash, subject to the employees' right to demand shares.
In November, 1993, the Bank loaned the ESOP $570,000 to acquire additional
shares for participants on the open market. The loan is to be repaid over 7
years with principal and interest (at a rate equal to 85% of the prevailing
prime rate) payable quarterly. The loan is secured by the unallocated shares
acquired by the ESOP.
The Bank's ESOP expense for the years ended December 31, 1996, 1995 and 1994
amounted to $81,000, $82,000 and $82,000, respectively.
In the event that the stock price of the Company fluctuates materially at the
point that shares vest with participants from the cost of shares acquired by the
ESOP (at prices which range from $11.25 - $12.25 per share) the Bank's statement
of operations could be adversely (if increasing stock price) or favorably
(decreasing stock price) affected. However, in all instances there will be no
negative impact on the Bank's capital. There was no material impact related to
changes in the market price in 1996, 1995 and 1994.
18. RESTRICTION ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
At December 31, 1996 and 1995, cash and due from banks included $2,203,000 and
$1,379,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.
ABINGTON BANCORP, INC. 40 1996 ANNUAL REPORT
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value. Fair value estimates which were derived from discounted cash flows or
broker quotes cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the instrument.
CASH, FEDERAL FUNDS SOLD AND SHORT-TERM
INVESTMENTS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES, ASSETS HELD FOR SALE
AND MORTGAGE-BACKED INVESTMENTS
For investment securities, assets held for sale (typically loans) and mortgage
backed derivative investments, fair values are based on quoted market prices or
dealer quotes.
LOANS
For certain homogeneous categories of loans, such as
residential mortgages, home equity and indirect automobile loans, fair value is
estimated using the quoted market prices for securities backed by similar loans
adjusted for differences in loan characteristics or dealer quotes. The fair
value of other types of loans was estimated by discounting anticipated future
cash flows using current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of non-certificate deposit accounts is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the anticipated future cash payments using
the rates currently offered for deposits of similar remaining maturities.
SHORT-TERM AND LONG-TERM BORROWINGS
The fair value of borrowings was determined by discounting the anticipated
future cash payments by using the rates currently available to the Bank for debt
with similar terms and remaining maturities.
COMMITMENTS TO
EXTEND CREDIT/SELL LOANS
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of customers. For fixed rate loan
commitments and obligations to deliver fixed rate loans, fair value also
considers the difference between committed rates and current levels of interest
rates.
VALUES NOT DETERMINED
SFAS No. 107 excludes certain financial instruments from its disclosure
requirements including, among others, real estate included in banking premises
and equipment, the intangible value of the Bank's portfolio of loans serviced
(both for itself and for others) and related servicing network and the
intangible value inherent in the Bank's deposit relationships (i.e., core
deposits). Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Bank.
<TABLE>
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1996 and 1995 are as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
----------------------------- -------------------------
<S> <C> <C> <C> <C>
Financial instrument assets:
Cash and cash equivalents $ 9,708 $ 9,708 $ 10,611 $ 10,611
Securities 155,231 154,017 164,881 164,784
Loans, including held for sale net 298,970 304,669 260,585 263,024
Mortgage servicing rights 56 56 - -
Financial instrument liabilities:
Deposits $300,445 $302,149 $280,070 $280,897
Short-term borrowings 63,171 63,194 61,308 60,918
Long-term debt 84,353 83,155 84,301 84,819
Off balance sheet financial instruments:
Commitments to grant loans $ 6,355 $ 6,355 $ 10,266 $ 10,266
Commitments to sell loans 2,516 2,516 2,062 2,062
Unadvanced funds on home equity
lines of credit 10,679 10,679 11,389 11,389
Commitments to advance funds under
construction loan agreements 2,758 2,758 2,499 2,499
Unadvanced funds on other lines of
credit 1,949 1,949 984 984
Interest rate swap agreement 12,964 12,984 14,275 14,364
</TABLE>
ABINGTON BANCORP, INC. 41 1996 ANNUAL REPORT
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
Operating results on a quarterly basis for the years ended December 31, 1996 and
1995 are as follows:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars and outstanding shares in thousands, except per share data)
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income $8,833 $8,684 $8,471 $8,344 $8,493 $8,037 $7,748 $7,671
Interest expense 4,916 4,928 4,856 4,817 4,935 4,615 4,457 4,215
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 3,917 3,756 3,615 3,527 3,558 3,422 3,291 3,456
Provision for possible loan losses 120 120 120 120 129 1,804 150 150
------ ------ ------ ------ ------ ------ ------ ------
Net interest income, after provision
for possible loan losses 3,797 3,636 3,495 3,407 3,429 1,618 3,141 3,306
Non-interest income 984 1,062 1,057 1,074 910 567 835 596
Non-interest expenses 3,272 3,228 3,212 3,128 3,065 3,111 2,949 2,830
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes 1,509 1,470 1,340 1,353 1,274 (926) 1,027 1,072
Provision (benefit) for income taxes 576 550 494 519 485 (258) 385 406
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 933 $ 920 $ 846 $ 834 $ 789 $ (668) $ 642 $ 666
====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) per share $ .47 $ .47 $ .43 $ .42 $ .40 $ (.36) $ .33 $ .34
====== ====== ====== ====== ====== ====== ====== ======
Weighted average shares
outstanding 1,998 1,979 1,973 1,977 1,980 1,876 1,958 1,954
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
ABINGTON BANCORP, INC. 42 1996 ANNUAL REPORT
<PAGE> 48
STOCKHOLDER INFORMATION
STOCK MARKET DATA
<TABLE>
The common stock of the Company is currently listed on the NASDAQ National
Market System (NMS) under the symbol "ABBK". The table below sets forth the
range of high and low sales prices for the stock of the Bank for the quarters
indicated. Market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. Transactions through January 31, 1997 are for the common stock of
the Bank. Transactions on and after that date are for the common stock of the
Company.
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE HIGH LOW DIVIDENDS DECLARED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
1st quarter (through March 4, 1997) 23 19 $ -
1996
4th quarter 21 3/4 16 7/8 $.10
3rd quarter 18 15 1/2 $.10
2nd quarter 16 1/4 14 1/2 $.10
1st quarter 17 3/4 15 7/16 $.10
1995
4th quarter 19 15 1/2 $.10
3rd quarter 17 13 1/2 $.10
2nd quarter 15 1/8 12 1/2 $.10
1st quarter 15 12 $.10
1994
4th quarter 15 1/2 11 3/4 $.10
3rd quarter 19 1/4 13 3/4 $.10
2nd quarter 16 1/4 11 1/4 $.10
1st quarter 12 1/2 10 1/4 $.10
</TABLE>
As of March 4, 1997 the Company had approximately 841 stockholders of record who
held 1,893,238 outstanding shares of the Company's common stock. The number of
stockholders indicated does not reflect the number of persons or entities who
hold their common stock in nominee or "street" name through various brokerage
firms. If all such persons are included, the Company believes there are
approximately 1,916 beneficial owners of common stock.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1996 as filed with the Securities Exchange Commission, is available to
stockholders without charge upon written request to:
Investor Relations
Abington Bancorp, Inc.
538 Bedford Street
Abington, MA 02351
INQUIRIES
Edward J. Merritt
Executive Vice President and CFO
Abington Bancorp, Inc.
ABINGTON BANCORP, INC. 43 1996 ANNUAL REPORT
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Abington Bancorp, Inc.
Abington Bancorp, Inc. has one wholly-owned subsidiary, Abington Savings
Bank, which is a Massachusetts-chartered Savings Bank. The Bank has three
wholly-owned subsidiaries, Holt Park Place Development Corporation and Norroway
Pond Development Corporation which are both Massachusetts corporations, and
Abington Securities Corporation, which is a Delaware corporation. ABBK
Corporation, which was a wholly owned subsidiary of Abington Savings Bank,
incorporated in Massachusetts was dissolved in January of 1997.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Abington Bancorp, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 17, 1997 (and, with respect to other
information, January 31, 1997) included in this Form 10-K, into Abington
Bancorp, Inc.'s previously filed Registration Statement on Form S-3, File No.
333-20915, and Registration Statement on Form S-8, File No. 333-20961.
/s/ ARTHUR ANDERSON LLP
------------------------
ARTHUR ANDERSON LLP
Boston, Massachusetts
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K OF ABINGTON BANCORP, INC. FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,556
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,561
<INVESTMENTS-CARRYING> 63,670
<INVESTMENTS-MARKET> 62,456
<LOANS> 301,843
<ALLOWANCE> 1,811
<TOTAL-ASSETS> 486,958
<DEPOSITS> 300,445
<SHORT-TERM> 63,171
<LIABILITIES-OTHER> 5,443
<LONG-TERM> 84,353
0
0
<COMMON> 233
<OTHER-SE> 33,313
<TOTAL-LIABILITIES-AND-EQUITY> 486,958
<INTEREST-LOAN> 22,978
<INTEREST-INVEST> 11,313
<INTEREST-OTHER> 41
<INTEREST-TOTAL> 34,332
<INTEREST-DEPOSIT> 10,742
<INTEREST-EXPENSE> 19,517
<INTEREST-INCOME-NET> 14,815
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 495
<EXPENSE-OTHER> 12,840
<INCOME-PRETAX> 5,672
<INCOME-PRE-EXTRAORDINARY> 5,672
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,533
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 3.26
<LOANS-NON> 1,028
<LOANS-PAST> 144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> (295)
<RECOVERIES> 193
<ALLOWANCE-CLOSE> 1,811
<ALLOWANCE-DOMESTIC> 172
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,639
</TABLE>
