<PAGE> 1
As filed with the Securities and Exchange Commission on January 31, 1997
REGISTRATION NO. 333-____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
under
The Securities Act of 1933
-----------------
ABINGTON BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS 04-3334217
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
538 BEDFORD STREET
ABINGTON, MASSACHUSETTS 02351
(617) 982-3200
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
-----------------
James P. McDonough
President and Chief Executive Officer
Abington Bancorp, Inc.
538 Bedford Street
Abington, Massachusetts 02351
(617) 982-3200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
-----------------
Copies to:
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [X]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
===================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $0.10 100,000 shares $20.375 $2,037,500 $617.43
===================================================================================================
<FN>
(1) Pursuant to Rule 416(a) promulgated under the Securities Act of 1933, the
number of securities covered by this registration statement shall be
adjusted to cover any additional securities resulting from a stock split,
stock dividend or similar capital adjustment of the registered securities
during the effective period of this registration statement.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(g) under the Securities Act of 1933
based upon the average of the high and low prices of the common
stock of Abington Savings Bank, predecessor to Registrant, on January 27, 1997 as reported by NASDAQ.
</TABLE>
<PAGE> 2
PROSPECTUS
[ABINGTON BANCORP LOGO]
ABINGTON BANCORP, INC.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
100,000 SHARES OF COMMON STOCK (PAR VALUE $.10)
This Prospectus sets forth the Dividend Reinvestment and Stock Purchase Plan
of Abington Bancorp, Inc. (the "Plan"). Abington Bancorp, Inc. ("Abington") is
offering this Plan to its shareholders as a convenient and cost-efficient way
for them to increase their ownership of Abington stock. Under the Plan, Abington
will pay all brokerage fees and commissions connected with a participating
shareholder's purchase of Abington stock with cash dividends. All other
transaction fees and commissions for purchases or sales of Abington stock will
be paid by the shareholder as detailed in this Prospectus.
Abington has appointed its transfer agent, Registrar and Transfer Company
("Registrar and Transfer"), as processing agent and administrator of the Plan.
The Plan is administered by Registrar and Transfer Company, not Abington.
Securities held in custody by Registrar and Transfer Company are not subject to
protection under the Securities Investor Protection Act. Participation in the
Plan is voluntary; you may join and withdraw from the Plan or modify your
participation whenever you wish.
This Prospectus sets forth, in question and answer form, the provisions of
the Plan. After you have read this Prospectus, if you still have any questions
about how the Plan operates, please call Registrar and Transfer Company toll
free at 1-800-368-5948, Monday through Friday from 9:00 a.m. to 5:00 p.m., local
time. Or write to: Registrar and Transfer Company, 10 Commerce Drive, Cranford,
N.J. 07016.
This Prospectus relates to 100,000 shares of Common Stock of Abington
registered for sale under the Plan. Participants should retain this Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 31, 1997.
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THE COMPANY
Abington was incorporated in Massachusetts in 1996 for the purpose of
becoming the holding company for Abington Savings Bank. Abington's executive
offices are located at 538 Bedford Street, Abington, Massachusetts 02351. Its
telephone number is (617) 982-3200.
AVAILABLE INFORMATION
Abington is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Abington can be inspected and be
copied, at the prescribed rates, at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60681. In addition the Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants, such as Abington, that file electronically
with the Commission. The address of such site is http://www.sec.gov. Abington's
Common Stock is traded on the Nasdaq Stock Market. Reports and other information
concerning Abington may be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W. Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by Abington with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). In accordance with
the rules and regulations of the Commission, this Prospectus omits certain of
the information contained in the Registration Statement and the exhibits and
schedules thereto. For further information concerning Abington and the Common
Stock offered hereby, reference is hereby made to the Registration Statement and
the exhibits and schedules filed therewith, which may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W. Washington,
D.C. 20549 and copies of which may be obtained from the Commission at prescribed
rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents of Abington which have been filed with the
Commission are hereby incorporated by reference in this Prospectus.
(a) Annual Report on Form F-2 of Abington Savings Bank, predecessor to
Abington, for the fiscal year ended December 31, 1995. This document was filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
(b) Quarterly Reports on Form F-4 of Abington Savings Bank for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996. These documents were
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
(c) The description of Abington's Common Stock contained in Abington's
Registration Statement on Form 8-A dated December 31, 1996.
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All documents filed by Abington pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing such documents. Any statement or
information contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed modified or superseded for the purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Abington will provide without charge to any person to whom a Prospectus is
delivered, on written or oral request of such person, a copy of any or all of
the documents incorporated herein by reference (other than exhibits and
schedules to such documents unless such exhibits are specifically incorporated
by reference into the documents incorporated herein). Requests should be
directed to: Treasurer, Abington Bancorp, Inc., 538 Bedford Street, Abington,
Massachusetts 02158, (617)982-3200.
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DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The following question and answer statements constitute the Dividend
Reinvestment and Stock Purchase Plan of Abington.
PURPOSE
1. WHAT IS THE PURPOSE OF THE PLAN?
The purpose of the Plan is to provide shareholders with a simple and
convenient method of investing cash dividends and optional cash payments in
shares of Abington stock directly through Registrar and Transfer Company without
opening a brokerage account and incurring the higher fees and expenses typically
connected with those accounts. All shares of Abington stock will be purchased by
Registrar and Transfer Company on the open market or in negotiated transactions.
See Question 12.
2. WHAT ARE THE ADVANTAGES OF THE PLAN?
Participants in the Plan may:
- Have cash dividends on shares of Abington stock automatically
reinvested in Abington stock without payment of any brokerage
commission or service charge.
- Invest in additional shares of Abington stock by making optional cash
payments of not less than $250 in the aggregate for each calendar
quarter. Transaction fees and commissions on cash purchases under the
Plan are lower than the commissions and fees normally charged by
stockbrokers. This advantage is available to a participant regardless
of whether the participant has elected to have his or her cash
dividends on Abington stock automatically invested.
- Elect to have their funds for investment drawn directly from their bank
account on a regular schedule.
- Send all certificated shares of Abington stock to Registrar and
Transfer Company to be held for safekeeping in book entry form.
- Sell any number of shares from their Plan account by writing Registrar
and Transfer Company. Transaction fees and commissions on sales under
the Plan are lower than the commissions and fees normally charged by
stockbrokers.
- Receive a quarterly statement detailing their holdings in certificated
as well as book entry form and the current value of those shares.
Shareholders can call Registrar and Transfer Company at any time to
request a current statement.
- Enjoy full investment of funds because fractions of shares, as well as
whole shares, will be credited to each participant's account.
ADMINISTRATION
3. WHO ADMINISTERS THE PLAN FOR PARTICIPANTS?
Registrar and Transfer Company administers the Plan for participants, keeps
records, sends statements of account to participants, places buy and sell orders
at the request of participants and performs other duties relating to the Plan.
Registrar and Transfer Company will hold for safekeeping (in book entry form)
the shares of stock purchased for each participant under the Plan unless and
until such participant requests that certificates for such shares be issued, as
more fully explained in Question 11.
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SHAREHOLDER PARTICIPATION
4. WHO IS ELIGIBLE TO ENROLL IN THE PLAN?
Any stockholder with common stock registered in his or her name on the
records of Abington's Agent, Registrar and Transfer Company (the "Agent"), may
enroll in the Plan. If a stockholder has common stock registered in the name of
someone else (for example, with a bank, broker or trustee), the holder may be
able to arrange for that entity to participate in the Plan. Stockholders should
consult directly with the entity holding their common stock to determine if they
can enroll in the Plan. If not, the stockholder should request his or her bank,
broker or trustee to have some or all of the common stock registered in the
stockholder's own name in order to participate directly.
Stockholders who are citizens or residents of a country other than the
United States, its territories and possessions should make certain that their
participation does not violate local laws governing taxes, currency and exchange
controls, stock registration, foreign investments and related matters.
5. IS PARTIAL PARTICIPATION POSSIBLE UNDER THE PLAN?
Yes. As an alternative to electing to have all his or her cash dividends on
Abington stock reinvested, a participant may elect to receive payment of cash
dividends on a portion of his or her shares while electing to have the cash
dividends payable on the remainder of his or her shares reinvested under the
Plan. For example, a participant with aggregate Abington stock holdings of 500
shares could elect to receive payment of the cash dividend on 300 shares and to
have the cash dividends on his or her remaining 200 shares reinvested.
A participant who elects to partially participate must be sure to designate
a whole number of shares with respect to which he or she desires to receive
payment of cash dividends (e.g. "725" or "150"). If a participant does otherwise
and elects to receive payment of cash dividends with respect to a fractional
number of shares, he or she will only receive payment with respect to the
nearest whole number of shares less than the number he or she elects. For
example, if a participant completes his Authorization Card by electing to
receive payment of cash dividends with respect to 225.6 shares, the participant
will be deemed to have elected to receive payment of cash dividends with respect
to 225 shares.
6. HOW DOES AN ELIGIBLE STOCKHOLDER PARTICIPATE?
To enroll in the Plan, an eligible stockholder must sign the Authorization
Card and mail it to the Agent. If the Common Shares are registered in more than
one name (such as joint tenants, trustees, etc.), all registered holders must
sign. You may obtain an Authorization Card at any time by contacting the Agent
at the following address:
Registrar and Transfer Company
Attention: Dividend Reinvestment Plan
10 Commerce Drive
Cranford, New Jersey 07016
An Authorization Card is enclosed with this Prospectus. Additional
Authorization Cards and information concerning the Plan may be obtained at any
time by calling or writing to Registrar and Transfer Company.
Additional copies of this Prospectus and the Authorization Card are also
available at Abington's corporate office: 538 Bedford Street, Abington,
Massachusetts.
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7. WHEN MAY A SHAREHOLDER JOIN THE PLAN?
A shareholder may join the Plan at any time. If an Authorization Card
specifying reinvestment of cash dividends is received by Registrar and Transfer
Company on or before the record date established for payment of a given cash
dividend, reinvestment will commence with the cash dividend. Each record date
normally precedes the related dividend payment date by approximately 14 days.
Dividend payment dates for Abington stock are normally on the fourth Thursday of
each of the months of January, April, July and October. (1) If the normal
dividend payment date is not a business day, then the dividend payment date will
be the first business day thereafter.
If an Authorization Card specifying reinvestment of cash dividends is
received by Registrar and Transfer Company after the record date established for
payment of a particular cash dividend, reinvestment will commence with the next
following cash dividend. See Questions 15 through 20 for information concerning
the investment of optional cash payments.
8. WHAT DOES THE AUTHORIZATION CARD PROVIDE?
The Authorization Card provides for the purchase of shares of Abington stock by
a shareholder through the following investment options:
"FULL DIVIDEND REINVESTMENT" directs Abington to pay to Registrar and
Transfer Company, for reinvestment in accordance with the terms of the
Plan, cash dividends on all shares of Abington stock then or subsequently
registered in the name of the participant.
"PARTIAL DIVIDEND REINVESTMENT" directs Abington to pay directly to the
participant cash dividends on the lesser of (a) the specified whole number
of shares of Abington stock or (b) the participant's aggregate holding of
whole shares of Abington stock. Abington is also instructed to pay to
Registrar and Transfer Company, for investment in accordance with the terms
of the Plan, cash dividends on all other shares of Abington stock
(including partial shares) then or subsequently registered in the name of
the participant.
"OPTIONAL CASH PAYMENTS" permits a participant to purchase Abington stock
under the Plan with optional cash payments. A participant may make optional
cash payments totaling no less than $250 per calendar quarter. In addition,
a participant's initial optional cash payment during a calendar quarter
must be at least $250. Cash dividends payable with respect to shares
purchased with optional cash payments will be reinvested in Abington stock
only to the extent specified pursuant to the participant's election of Full
Dividend Reinvestment or Partial Dividend Reinvestment.
"AUTOMATIC ACCOUNT WITHDRAWAL" permits a shareholder to elect to have funds
withdrawn from his bank account (at any bank) on a regular basis and paid
to Registrar and Transfer Company to effect the purchase of additional
shares of Abington stock.
A shareholder can elect either Full Dividend Reinvestment or Partial
Dividend Reinvestment, regardless of whether he or she elects to make optional
cash payments. In addition, a shareholder may elect to make optional cash
payments, regardless of whether he or she elects one of the alternative forms of
dividend reinvestment. At any time, a shareholder may change his or her election
by giving written notice to Registrar and Transfer Company at the address number
set forth in Question 6.
- - - -------------
(1) These dates reflect Abington's current policies and procedures. However,
Abington has no legal obligation to declare and pay dividends, as explained
in Question 37.
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9. MAY A PARTICIPANT DEPOSIT SHARES OF ABINGTON STOCK WITH REGISTRAR AND
TRANSFER COMPANY FOR SAFEKEEPING?
A participant may request, in writing, that his or her shares of Abington
stock be deposited with Registrar and Transfer Company for safekeeping in book
entry form. Registrar and Transfer Company will credit the number of shares
deposited to the participant's Plan account and will treat them in all respect
in the same manner as shares purchased for the participant's Plan account.
Certificates to be deposited should be sent by registered or certified mail to
Registrar and Transfer Company at the address set forth in Question 6.
Certificates need not be endorsed for deposit purposes.
10. HOW MANY SHARES OF STOCK WILL BE PURCHASED FOR PARTICIPANTS?
The number of shares to be purchased depends on the amount of cash
dividends and/or optional cash payments being invested by such participant under
the Plan and the purchase price of the shares of stock. Each participant's
account under the Plan will be credited with the number of shares, including
fractions computed to three decimal places, equal to the total amount being
invested by such participant, divided by the purchase price per share.
11. WILL CERTIFICATES BE ISSUED FOR SHARES PURCHASED UNDER THE PLAN?
Shares of Abington stock purchased under the Plan will be credited to the
account of the participant in book entry form, and unless requested,
certificates for purchases through the Plan (through reinvestment of dividends
or optional cash purchases ) will not be issued. This feature protects against
loss, theft or destruction of stock certificates.
Certificates for any number of whole shares credited to a participant's
account under the Plan will be issued upon the written request of such
participant. Any remaining whole and fractional shares will continue to be
credited to the participant's account. Certificates for fractional shares will
not be issued. See Questions 27 and 28 for further information on the issuance
of certificates.
12. HOW AND WHERE WILL SHARES OF STOCK BE PURCHASED UNDER THE PLAN?
Registrar and Transfer Company may purchase shares for participants'
accounts under the Plan on any securities exchange where such shares are traded,
in the over-the-counter market or in negotiated transactions. (2) Registrar and
Transfer Company's purchases may be on such terms with respect to price,
delivery or otherwise as Registrar and Transfer Company determines. Before
reinvesting cash dividends, Registrar and Transfer Company may commingle those
dividends with optional cash payments as it sees fit.
STOCK PURCHASES WITH REINVESTED CASH DIVIDENDS
13. WHEN WILL SHARES OF STOCK PURCHASED WITH REINVESTED CASH DIVIDENDS BE
PURCHASED?
Registrar and Transfer Company will purchase shares of stock with reinvested
cash dividends as soon as administratively feasible after Registrar and Transfer
Company receives payment of such dividends and in no event later than 30 days
after it receives such payment, except when necessary to comply with the Federal
securities laws.
- - - -------------
(2) Registrar and Transfer Company will not, however, engage in purchase or sale
transactions with the Bank or any of its "affiliates" (as defined in rule
405 of the General Rules and Regulations under the Securities Act of 1933).
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14. AT WHAT PRICE WILL SHARES PURCHASED WITH REINVESTED CASH DIVIDENDS BE
CREDITED TO PARTICIPANT'S ACCOUNTS UNDER THE PLAN?
The purchase price for shares purchased with the proceeds of a given cash
dividend will be deemed equal to the average price per share Registrar and
Transfer Company pays for all Abington stock it purchases under the Plan (a)
with the proceeds of such cash dividend and (b) with concurrently invested
optional cash payments.
STOCK PURCHASES WITH OPTIONAL CASH PAYMENTS
15. WHO IS ELIGIBLE TO MAKE OPTIONAL CASH PAYMENTS?
An Abington shareholder may make, or authorize the making of, an optional
cash payment at any time for the purchase of shares of Abington stock whether or
not such person has also elected to participate in the Plan by reinvesting cash
dividends. The minimum investment is $250 per calendar quarter.
16. HOW ARE OPTIONAL CASH PAYMENTS MADE?
An optional cash payment may be made by an Abington shareholder when
enrolling in the Plan by enclosing a check or money order with the Authorization
Card. Checks or money orders should be made payable to Registrar and Transfer
Company, and returned along with the Authorization Card to Registrar and
Transfer Company at the address set forth in Question 6. Thereafter, optional
cash payments may be made by sending them to Registrar and Transfer Company at
the same address. Please reference Abington Bancorp, Inc. on your check and,
when possible, use the tear-off investment form included with your regular Plan
statement. Payment may also be made by automatic account withdrawal. If you are
interested in this option, please complete the appropriate section on the
Authorization Card. A separate application form will then be mailed to you by
Registrar and Transfer Company. Termination of automatic withdrawal can be
accomplished by writing to Registrar and Transfer Company.
DELIVERY OF A CHECK OR MONEY ORDER AND AN AUTHORIZATION CARD TO ANY ADDRESS
OTHER THAN THE ONE REFERRED TO IN QUESTION 6 WILL NOT CONSTITUTE VALID DELIVERY.
17. WHEN WILL SHARES OF STOCK PURCHASED WITH OPTIONAL CASH PAYMENTS BE
PURCHASED?
Except as provided in the next paragraph, optional cash payments received
by Registrar and Transfer Company (whether by check, money order or automatic
account withdrawal) no later than 5 business days before a dividend payment date
will be applied to purchase shares as if the payments were cash dividends paid
on such dividend payment date. See Question 13. This procedure may be varied as
necessary to comply with applicable Federal and state securities laws and
practices.
An optional cash payment made by check will not be applied to the purchase
of shares of Abington stock unless, as of the dividend payment date, such check
has cleared. Registrar and Transfer Company may, in its discretion, waive this
rule or otherwise apply it in a manner which benefits participants. Also, an
optional cash payment will not be applied to the purchase of Abington stock if
the participant exercises his or her right to obtain a refund of his or her
optional cash payment; a participant may exercise this right in writing (to the
address specified in Question 6), received by Registrar and Transfer Company no
less than 2 business days prior to a dividend payment date. Finally, an optional
cash payment that is received either less than 5 business days before a dividend
payment date, or more than 30 days before a dividend payment date, will be
returned to the participant.
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NO INTEREST WILL BE PAID ON FUNDS HELD PENDING INVESTMENT. Therefore,
although optional cash payments may be made up to 30 days in advance,
participants may wish to transmit their optional cash payments on the latest
date which will assure that Registrar and Transfer Company has received
available funds on the applicable cut-off date described above.
18. AT WHAT PRICE WILL SHARES PURCHASED WITH OPTIONAL CASH PAYMENTS BE CREDITED
TO PARTICIPANTS' ACCOUNTS UNDER THE PLAN?
The purchase price for shares purchased with a given optional cash payment
will be deemed equal to the average price per share that Registrar and Transfer
Company pays for all Abington shares it purchases under the Plan with
concurrently invested optional cash payments and cash dividends. See Question
14.
19. WHAT HAPPENS TO CASH DIVIDENDS ON SHARES PURCHASED WITH OPTIONAL CASH
PAYMENTS?
Cash dividends on shares of Abington stock purchased for the account of a
participant with optional cash payments will be reinvested in additional shares
of Abington stock, in accordance with the participant's dividend reinvestment
election, if any. If a participant has not elected to reinvest cash dividends on
shares of his or her Abington stock, all cash dividends paid on shares purchased
with optional cash payments will be paid to the participant.
20. WHAT ARE THE LIMITATIONS ON MAKING OPTIONAL CASH PAYMENTS?
The opportunity to make optional cash payments is available each quarter.
The same amount of money need not be sent each quarter, and participants are
under no obligation to make an optional cash payment in any quarter. Each
calendar quarter, the optional cash payment(s) by a participant must be at least
$250.
COSTS
21. DO PARTICIPANTS INCUR ANY EXPENSES IN CONNECTION WITH STOCK PURCHASES UNDER
THE PLAN?
Participants will incur no brokerage commissions or service charges in
connection with dividend reinvestments made under the Plan. Participants will
incur a $1 transaction fee in connection with the purchase of shares under the
option. All participants will incur transaction fees in connection with the sale
of shares upon withdrawal from the Plan, as more fully explained in Question 29.
FEDERAL INCOME TAX CONSEQUENCES TO PARTICIPANTS
22. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN?
An Abington shareholder who reinvests his or her cash dividends under the
Plan will be treated as receiving a taxable dividend on the dividend payment
date in an amount equal to the amount of cash dividend otherwise payable to him
or her.(3) In addition, each participant will be deemed to have received taxable
income in the amount of the brokerage fees and other service fees paid by
Abington and attributable to the shares of Abington stock purchased on behalf of
the participant with reinvested dividends. No taxable income will be realized
upon the purchase of Abington stock with optional cash payments.
A participant's tax basis for shares of Abington stock purchased with
reinvested dividends will be equal to the amount of cash dividend the
participant would have received but for his or her reinvestment election. A
participant's tax basis for shares of Abington stock purchased with optional
cash payments will be equal
- - - -----------
(3) The dividends received deduction will be applicable to the entire amount
of any dividend deemed paid to a corporation.
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to the amount of such optional cash payments. In the case of shares purchased
with reinvested dividends, the participant's tax basis is increased by the
amount of brokerage fees and other service fees attributable to the shares
purchased. A participant's holding period for shares of Abington stock purchased
under the Plan with either reinvested dividends or optional cash payments will
commence on the day after purchase by Registrar and Transfer Company.
A participant will not realize taxable income on the receipt of a
certificate for whole shares credited to his or her Plan account, either upon
withdrawal of those shares from such account or upon the termination of the
Plan. Taxable gain or loss may be realized, however, when shares are sold or
otherwise disposed of, or when a cash payment is received for a fractional share
withdrawn from a participant's account. Generally, any such gain or loss will be
measured by the difference between the amount realized on the disposition and
the tax basis of the disposed shares, and will be capital gain or loss.
Registrar and Transfer Company will annually report to participants and the
Internal Revenue Service information sufficient to indicate both the amount that
would constitute dividend income and the amount the participant will be deemed
to have received on account of brokerage fees and any other services paid by
Abington.
Each participant is urged to consult his or her own tax advisers to
determine the particular Federal and state income tax consequences of his or her
participation in the Plan.
REPORTS TO PARTICIPANTS
23. WHAT KIND OF REPORTS WILL BE SENT TO PARTICIPANTS?
As soon as practicable after each purchase of Abington stock under the plan
for the account of a participant, such participant will receive an advice of
transaction, including information as to the effective purchase price, number of
shares purchased and brokerage fees paid by Abington or the participant, as the
case may be. Participants will also receive quarterly statements of account and
copies of Abington's annual and quarterly reports to shareholders and proxy
statements, and information for income tax reporting purposes. The quarterly
statements of account are a record of the cost of purchases under the Plan and
should be retained for tax purposes. If this information is lost, the
participant may send a letter requesting the desired information to Registrar
and Transfer Company at the address set forth in Question 6. In its discretion,
Registrar and Transfer may charge a fee for researching and complying with the
request. To request a current statement of their account, participants can call
Registrar and Transfer Company toll free at 1-800-368-5948, Monday through
Friday from 9:00 a.m. to 5:00 p.m. local time.
DIVIDENDS
24. WILL PARTICIPANTS BE CREDITED WITH DIVIDENDS ON THE SHARES HELD IN THEIR
ACCOUNTS UNDER THE PLAN?
Yes. Cash dividends on all shares of Abington stock, including fractional
shares, credited to the account of a participant under the Plan, whether such
shares were purchased with reinvested dividends or optional cash payments, will
be reinvested in additional shares of Abington stock in accordance with the
participant's dividend reinvestment election, if any. See Question 19.
11
<PAGE> 12
DISCONTINUING PARTICIPATION IN THE PLAN
25. WHEN CAN A PARTICIPANT STOP PARTICIPATING IN THE PLAN?
A participation may direct Registrar and Transfer Company in writing at any
time to discontinue the reinvestment of dividends on shares of Abington stock
held of record by such participant. This notice should be directed to Registrar
and Transfer Company at the address set forth in Question 6. As described in
Question 20, a participant is never obligated to make optional cash payments.
Optional cash payments may be made, however, even after a participant has
elected to discontinue reinvestment of cash dividends provided that a new
Authorization Card reflecting the change in participation has been forwarded to
Registrar and Transfer Company.
If the notice to discontinue reinvestment is received by Registrar and
Transfer Company on or after the record date for a particular cash dividend,
such cash dividend will be reinvested in the participant's account. After a
participant discontinues participation in the cash dividend reinvestment feature
of the Plan, all cash dividends on shares of Abington stock held of record by
such participant will be paid to such participant by check unless he or she
re-enrolls in the reinvestment feature of the Plan.
Any optional cash payment which has been received by Registrar and Transfer
Company prior to its receipt of a notice to discontinue reinvestment will be
invested in accordance with the Plan unless return of the payment is expressly
requested in the notice of discontinuance.
A participant who elects to discontinue the reinvestment of cash dividends
may either withdraw the shares of Abington stock credited to his or her Plan
account, as described in Question 27, or retain any or all such shares in such
account.
WITHDRAWAL OF SHARES FROM A PLAN ACCOUNT
27. HOW DOES A PARTICIPANT WITHDRAW SHARES PURCHASED UNDER THE PLAN?
A participant may withdraw all or a portion of the shares of Abington stock
credited to his or her Plan account by notifying Registrar and Transfer Company
in writing to that effect and specifying the number of shares to be withdrawn.
This notice should be directed to Registrar and Transfer Company at the address
set forth in Question 6. Certificates for whole shares of Abington stock so
withdrawn will be issued. If the notice of withdrawal is received by Registrar
and Transfer Company on or after the record date for a particular dividend, such
dividend will be reinvested for the participant's account. After a participant
withdraws shares of Abington stock from the Plan account, cash dividends on such
shares will continue to be reinvested in accordance with the dividend
reinvestment option, if any, selected on the participant's most recently
submitted Authorization Card, unless and until such participant sells such
shares or requests that reinvestment be discontinued as described in Question
26.
A participant may request a certificate for shares credited to his or her
Plan account in writing at Registrar and Transfer Company's address set forth in
Question 6. Certificates requested will be sent to the address of record only.
All requests to mail shares to an address other than the address of record must
be made in writing with an appropriate signature guarantee.
28. WHAT HAPPENS TO ANY FRACTION OF A SHARE WHEN A PARTICIPANT WITHDRAWS ALL
WHOLE SHARES FROM HIS OR HER PLAN ACCOUNT?
Registrar and Transfer Company will cash-out a participant's interest in
any fractional share remaining in the participant's Plan account at the time
when the participant withdraws all whole shares from the account.
12
<PAGE> 13
Registrar and Transfer Company will forward to the participant a cash payment
equal to the fair market value of the fractional share as of the date on which
the withdrawal request is effected. The proceeds for any fractional share,
together with the certificates for whole shares, will be mailed directly to the
participant.
29. HOW DOES A PARTICIPANT SELL SHARES IN HIS OR HER PLAN ACCOUNT?
If a participant desires to sell all or a portion of the whole shares of
Abington stock held in his or her Plan account, such participant may, at his or
her option, request that Registrar and Transfer Company withdraw and sell such
shares for his or her account. Such requests may be made in writing to Registrar
and Transfer Company at the address listed in Question 6. The request must
specify the number of whole shares to be sold, and not the dollar amount to be
realized. ANY REQUEST THAT DOES NOT CLEARLY INDICATE THE WHOLE NUMBER OF SHARES
TO BE SOLD WILL BE RETURNED TO THE PARTICIPANT WITH NO ACTION TAKEN. Where a
request is in proper form, certificates for withdrawn shares will not be issued
to the participant, and Registrar and Transfer Company will, within 5 business
days after receipt of the request, cause such shares to be sold on the open
market for the account of the participant through an independent entity chosen
by Registrar and Transfer Company.
ABINGTON STOCK PRICES MAY FALL DURING THE PERIOD BETWEEN A REQUEST FOR SALE, ITS
RECEIPT BY REGISTRAR AND TRANSFER COMPANY, AND THE ULTIMATE SALE IN THE OPEN
MARKET. THIS RISK SHOULD BE EVALUATED BY A PARTICIPANT CONSIDERING MAKING A
REQUEST THAT REGISTRAR AND TRANSFER COMPANY SELL HIS OR HER SHARES. THE RISK OF
A PRICE DECLINE IS BORNE SOLELY BY THE PARTICIPANT.
Registrar and Transfer Company will remit directly to the participant the
proceeds of any sale, less the participant's pro rata portion of the applicable
broker's commissions and a $5.00 service fee. Unlike expenses incurred for
purchases under the dividend reinvestment option of this Plan, which are paid by
Abington, expenses incurred for sales under the Plan are paid by the selling
participant. The proceeds of any sale will not be mailed to the participant
until the settlement of funds from the broker. Settlement occurs three business
days after the sale of shares.
30. WHAT IF A PARTICIPANT WISHES TO SELL SHARES HELD BY REGISTRAR AND TRANSFER
COMPANY THROUGH HIS OR HER OWN BROKER?
Participants are under no obligation to sell all or a portion of the
shares of Abington stock held in his or her Plan account, through Registrar and
Transfer Company. If a participant wishes to sell shares through his or her own
broker, the participant should write Registrar and Transfer Company (at the
address listed in Question 6) to request a stock certificate representing the
number of whole shares to be sold. See Questions 27 and 28 for further
information on withdrawal of shares from the Plan.
31. WHAT HAPPENS TO A PARTICIPANT'S PLAN ACCOUNT IF THE PARTICIPANT SELLS OR
TRANSFERS ALL THE SHARES OF ABINGTON STOCK HE OR SHE HELD OUTSIDE OF THE
PLAN ACCOUNT?
If a participant sells or transfers all shares of Abington stock the
participant holds outside of his or her Plan account (while continuing to have
shares credited to his or her Plan account), Registrar and Transfer Company will
continue to reinvest the dividends on the shares of Abington stock credited to
such participant's Plan account unless such shares are withdrawn from such
account as described in Questions 27 and 28. Please note, however, that a
participant who has ceased to be a holder of record of Abington stock may not
make optional cash payments under the Plan after he or she ceases to be a holder
of record.
13
<PAGE> 14
OTHER INFORMATION
32. WHAT PROVISION IS MADE FOR FOREIGN PARTICIPANTS SUBJECT TO FEDERAL INCOME
TAX WITHHOLDING OR OTHER PARTICIPANTS SUBJECT TO FEDERAL BACK-UP WITHHOLDING?
In the case of both foreign shareholders who elect to have their
dividends reinvested and whose dividends are subject to Federal income tax
withholding and other shareholders who elect to have their dividends reinvested
and who are subject to "back-up" withholding under Section 3406(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), Registrar and Transfer
Company will invest in shares of Abington stock an amount equal to the cash
dividends payable to such participants less the amount of tax required to be
withheld. The quarterly statements confirming purchases made on behalf of such
participants will indicate the net payment reinvested.
Under Code Section 3406(a)(1), Abington is currently required to withhold
for United States income tax purposes, 31%4 of all dividend payments to an
Abington shareholder if (a) such shareholder has failed to furnish to Abington
his or her taxpayer identification number ("TIN"), which for an individual is
his social security number, (b) the Internal Revenue Service (the "Service") has
notified Abington that the TIN furnished by the shareholder is incorrect, (c)
the Service notifies Abington that back-up withholding should be commenced
because the shareholder has failed to certify, under penalties of perjury, that
he or she is not subject to back-up withholding. If an exemption were available
for a shareholder, Abington has previously requested that the shareholder (or
his or her broker) submit all information and certifications required in order
to exempt the shareholder from back-up withholding.
Foreign shareholders who elect to make optional cash payments only will
continue to receive cash dividends on shares registered in their names in the
same manner as if they were not participating in the Plan. Optional cash
payments received from them must be in the United States dollars drawn on a bank
located in the United States and will be invested in the same way as payments
from other participants.
33. WHAT HAPPENS IF ABINGTON HAS A COMMON STOCK RIGHTS OFFERING, ISSUES A STOCK
DIVIDEND OR DECLARES A COMMON STOCK SPLIT?
If a participant is entitled to participate in a common stock rights
offering, that participant's entitlement will be based upon the participant's
total holdings, i.e., the shares registered in the participant's name as well as
the shares (including fractional shares) credited to the participant's Plan
account. Any shares of common stock split by Abington on shares credited to a
participant's Plan account will be added to the participant's Plan account.
34. HOW WILL A PARTICIPANT'S PLAN SHARES BE VOTED AT A MEETING OF SHAREHOLDERS?
All shares of Abington stock credited to a participant's Plan account will
be voted as directed by the participant.
A proxy card will be sent to each participant in connection with any annual
or special meeting of shareholders as in the case of shareholders not
participating in the Plan. This proxy will apply to all whole shares registered
in the participant's own name, if any, as well as to whole and fractional shares
credited to the participant's account number under the Plan.
35. WHAT IS THE RESPONSIBILITY OF REGISTRAR AND TRANSFER COMPANY UNDER THE PLAN?
Registrar and Transfer Company, in administering the Plan, will not be liable
for any act done in good faith or for any good faith omission to act, including,
without limitation, any claim or liability, arising out of
- - - -------------
4. This percentage is subject to changes in applicable federal tax law.
14
<PAGE> 15
failure to terminate a participant's Plan account upon such participant's death,
or with respect to the prices at which shares are purchased for the
participant's Plan account, the times when such purchases are made or any
fluctuation in market value of the common stock.
36. MAY THE PLAN BE CHANGED OR DISCONTINUED?
While Abington hopes to continue to offer the Plan to its shareholders
indefinitely, Abington reserves the right to suspend, terminate or modify the
Plan at any time. Participants will be notified of any such suspension,
termination or modification. Upon termination of the Plan, any uninvested
optional cash payments will be returned, certificates for whole shares credited
to a participant's account under the Plan will be issued and a cash payment will
be made for any fraction of a share credited to a participant's account.
In the event that Abington terminates the Plan and establishes another
dividend reinvestment plan, each participant in the Plan will be automatically
enrolled in such other dividend reinvestment plan and shares credited to his or
her account under the Plan will be automatically credited to such other plan,
unless notice is received to the contrary.
37. WILL CASH DIVIDENDS CONTINUE TO BE PAID WHILE THE PLAN IS IN EFFECT?
While Abington expects to continue to pay cash dividends for the
foreseeable future, it is not legally obligated to do so, either under the Plan
or otherwise. Participants in the Plan accordingly have the opportunity to
reinvest cash dividends only when, as and if such dividends are declared and
paid by Abington. Abington has the right to suspend, terminate or modify the
amount of its cash dividend at any time.
USE OF PROCEEDS
Shares of Common Stock will be purchased in market or negotiated
transactions for sale pursuant to the Plan. Abington will not receive any
proceeds from the sale of shares pursuant to the Plan.
EXPERTS
The financial statements incorporated by reference in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, to the
extent and for the periods as indicated in their report with respect thereto,
and are incorporated herein by reference in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Abington's By-laws provide that Directors and officers of Abington shall be
indemnified by Abington against liabilities and expenses arising out of service
for or on behalf of Abington. The By-laws of Abington provide that such
indemnification shall not be provided if it is determined that the action giving
rise to the liability was not taken in good faith in the reasonable belief that
the action was in the best interests of Abington. Abington also has a policy of
directors and officers liability insurance to indemnify its directors and
officers against certain liabilities incurred in their capacities as such.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to Directors, officers or persons
controlling Abington pursuant to the foregoing provisions, it is the position of
the Securities and Exchange Commission that such indemnification is against
public policy as expressed in such Act and is therefore unenforceable.
15
<PAGE> 16
===============================================================================
ABINGTON
----------------------
BANCORP, INC.
----------------------
DIVIDEND
----------------------
REINVESTMENT
----------------------
AND STOCK
----------------------
PURCHASE PLAN
----------------------
----------
PROSPECTUS
----------
THE EASY WAY TO BUILD YOUR
INVESTMENT ...
[ABINGTON BANCORP LOGO]
==============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ABINGTON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ABINGTON SINCE THE
DATE HEREOF.
- - - -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
The Company .............................................................. 2
Available Information .................................................... 2
Information Incorporated by Reference .................................... 2
Dividend Reinvestment and Stock Purchase Plan ............................ 5
Purpose ............................................................. 5
Administration ...................................................... 5
Shareholder Participation ........................................... 6
Stock Purchases with Reinvested Cash Dividends ...................... 8
Stock Purchases with Optional Cash Payments ......................... 9
Costs ............................................................... 10
Federal Income Tax Consequences to Participants ..................... 10
Reports to Participants ............................................. 11
Dividends ........................................................... 11
Discontinuing Participation in the Plan ............................. 12
Withdrawal of Shares from a Plan Account ............................ 12
Other Information ................................................... 14
Use of Proceeds .......................................................... 15
Experts .................................................................. 15
Indemnification of Directors and Officers ................................ 15
==============================================================================
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
The following are the estimated expenses to be incurred by Abington in
connection with the offering described in this Registration Statement:
<S> <C>
Registration Fee............................................. $ 617.43
Printing..................................................... $ 3,000.00
EDGAR Conversion............................................. $ 3,000.00
Legal Fees................................................... $ 8,000.00
Accounting Fees.............................................. $ 2,000.00
----------
Total....................................................... $16,617.43
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 6 of the By-Laws of Abington provides that directors and officers
of Abington shall be indemnified by Abington against all expenses incurred in
connection with any proceedings as a result of serving or having served as an
officer or employee of Abington, as a director, officer, or employee of any of
its wholly-owned subsidiaries, or serving or having served in any capacity with
respect to any other corporation, organization, partnership, joint venture,
trust, employee benefit plan or other entity at the request or direction of
Abington. The By-laws of Abington provide that such indemnification shall not be
provided if it is determined that the action giving rise to the liability was
not taken in good faith in the reasonable belief that the action was in the best
interests of Abington. Abington also has a policy of directors' and officers'
liability insurance to indemnify its directors and officers against certain
liabilities incurred in their capacities as such.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
3.1 Articles of Organization of Abington Bancorp, Inc. -- Incorporated
herein by reference to Exhibit 3 to the Registration Statement on Form
8-A of Abington Bancorp dated December 31, 1996.
3.2 By-laws of Abington Bancorp, Inc. -- Incorporated herein by reference
to Exhibit 4 to the Registration Statement on Form 8-A of Abington
Bancorp dated December 31, 1996.
4.1 Instruments defining the rights of security holders. See Exhibits 3.1
and 3.2.
* 5.1 Opinion of Foley, Hoag & Eliot LLP
* 23.1 Consent of Arthur Andersen LLP
* 23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
* 24.1 Power of Attorney (contained on the signature page)
* 27.1 Financial Data Schedule
* 99.1 Authorization Card
* 99.2 Annual Report on Form F-2 of Abington Savings Bank, predecessor to
Abington, for the fiscal year ended December 31, 1995, together with
the following documents, portions of which are incorporated by
reference in said Form F-2:
* 99.3 (a) Annual Report to Shareholders of Abington Savings Bank meeting
the requirements of Rule 14a-3 for the fiscal year ended
December 31, 1995.
* 99.4 (b) Proxy Statement relating to the 1996 Annual Meeting of
Stockholders of Abington Savings Bank.
* 99.5 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended March 31, 1996.
* 99.6 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended June 30, 1996.
* 99.7 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended September 30, 1996.
- - - --------------------
* Documents filed herewith
<PAGE> 18
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration, by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference to the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Abington, Massachusetts, on January 27, 1997.
ABINGTON BANCORP, INC.
By: /s/ James P. McDonough
--------------------------------------
James P. McDonough
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints James P. McDonough and Edward J. Merritt, and
each of them, his true and lawful attorneys-in-fact and agents 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 Registration Statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing he may
deem necessary or advisable to be done in connection with this Registration
Statement, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James P. McDonough President and January 27, 1997
-------------------------- Chief Executive Officer,
James P. McDonough Director
/s/ Edward J. Merritt Treasurer January 27, 1997
-------------------------- Chief Financial and
Edward J. Merritt Accounting Officer
Director January __, 1997
--------------------------
Robert J. Armstrong
Director January __, 1997
--------------------------
Bruce G. Atwood
/s/ William F. Borhek Director January 27, 1997
--------------------------
William F. Borhek
II-3
<PAGE> 20
SIGNATURE TITLE DATE
--------- ----- ----
Director January __, 1997
--------------------------
Ralph B. Carver, Jr
/s/ Joel S. Geller Director January 27, 1997
--------------------------
Joel S. Geller
/s/ Rodney D. Henrikson Director January 27, 1997
--------------------------
Rodney D. Henrikson
/s/ A. Stanley Littlefield Director January 27, 1997
--------------------------
A. Stanley Littlefield
/s/ Jay Timothy Noonan Director January 27, 1997
--------------------------
Jay Timothy Noonan
/s/ Gordon N. Sanderson Director January 27, 1997
--------------------------
Gordon N. Sanderson
/s/ James J. Slattery Director January 27, 1997
--------------------------
James J. Slattery
/s/ Wayne P. Smith Director January 27, 1997
--------------------------
Wayne P. Smith
II-4
<PAGE> 21
EXHIBIT INDEX
Exhibits Description
- - - -------- -----------
3.1 Articles of Organization of Abington Bancorp, Inc. -- Incorporated
herein by reference to Exhibit 3 to the Registration Statement on Form
8-A of Abington Bancorp dated December 31, 1996.
3.2 By-laws of Abington Bancorp, Inc. -- Incorporated herein by reference
to Exhibit 4 to the Registration Statement on Form 8-A of Abington
Bancorp dated December 31, 1996.
4.1 Instruments defining the rights of security holders. See Exhibits 3.1
and 3.2.
* 5.1 Opinion of Foley, Hoag & Eliot LLP
* 23.1 Consent of Arthur Andersen LLP
* 23.1 Consent of Foley, Hoag & Eliot LLP (included on Exhibit 5.1) *
* 24.1 Power of Attorney (contained on the signature page) *
* 27.1 Financial Data Schedule *
* 99.1 Authorization Card
* 99.2 Annual Report on Form F-2 of Abington Savings Bank, predecessor to
Abington, for the fiscal year ended December 31, 1995, together with
the following documents, portions of which are incorporated by
reference in said Form F-2:
* 99.3 (a) Annual Report to Shareholders of Abington Savings Bank meeting
the requirements of Rule 14a-3 for the fiscal year ended
December 31, 1995.
* 99.4 (b) Proxy Statement relating to the 1996 Annual Meeting of
Stockholders of Abington Savings Bank.
* 99.5 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended March 31, 1996.
* 99.6 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended June 30, 1996.
* 99.7 Quarterly Report on Form F-4 of Abington Savings Bank, predecessor to
Abington, for the quarter ended September 30, 1996.
- - - --------------------
* Documents filed herewith
<PAGE> 1
Exhibit 5.1
[FOLEY, HOAG & ELIOT LLP]
January 31, 1997
Abington Bancorp, Inc.
538 Bedford Street
P.O. Box 2006
Abington, Massachusetts 02351
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the "S-3
Registration Statement") filed today by Abington Bancorp, Inc., a Massachusetts
corporation (the "Company"), with the Securities and Exchange Commission under
the Securities Act of 1933, as amended. The S-3 Registration Statement relates
to the proposed offering by the Company of 100,000 shares (the "Shares") of its
Common Stock, $.10 par value per share ("Common Stock"), issuable pursuant to
the Company's Dividend Reinvestment and Stock Purchase Plan (the "DRP").
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) The Articles of Organization and By-Laws of the Company, each as
amended as of the date hereof;
(2) The records of meetings of the Board of Directors of the Company
provided to us by the Company; and
(3) The DRP.
In addition, we have examined and relied on the originals or copies certified
or otherwise identified to our satisfaction of all such corporate records of
the Company and such other instruments and other certificates of public
officials, officers and representatives of the Company and such other persons,
and we have made such investigations of law, as we have deemed appropriate as a
basis for the opinion expressed below.
Based upon the foregoing, it is our opinion that:
<PAGE> 2
Abington Bancorp, Inc.
January 31, 1997
Page 2
1. The Company has corporate power adequate for the issuance of
the Shares in accordance with the S-3 Registration Statement. The Company has
taken all necessary corporate action required to authorize the issuance and
sale of the Shares. When certificates for the Shares have been duly executed
and countersigned, and delivered against due receipt of the purchase price for
the Shares, the Shares will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
S-3 Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
/s/ Carol Hempfling Pratt
By:_______________________________
A Partner
<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 in this registration statement of our report dated January 19, 1996
included in Abington Savings Bank's 1995 Annual Report included as an exhibit to
this registration statement and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 28, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABINGTON
SAVINGS BANK'S ANNUAL REPORT ON FORM F-2 FOR THE YEAR ENDED DECEMBER 31, 1995
AND ON FORM F-4 FOR QUARTERS ENDED MARCH 31, 1996, JUNE 30, 1996 AND SEPTEMBER
30, 1996 RESPECTIVELY; AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 10,463 8,752 9,837 8,074
<INT-BEARING-DEPOSITS> 148 8,544 150 151
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 96,087 94,566 97,721 94,337
<INVESTMENTS-CARRYING> 68,794 70,364 67,828 65,281
<INVESTMENTS-MARKET> 68,697 68,904 65,702 63,497
<LOANS> 262,808 271,466 286,985 295,630
<ALLOWANCE> 1,433 1,570 1,725 1,745
<TOTAL-ASSETS> 460,492 478,457 483,549 484,071
<DEPOSITS> 280,070 287,544 293,897 300,039
<SHORT-TERM> 61,308 68,529 69,938 65,743
<LIABILITIES-OTHER> 4,252 4,487 3,558 5,091
<LONG-TERM> 84,301 86,775 84,720 80,799
232 232 232 232
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 30,329 30,890 31,204 32,167
<TOTAL-LIABILITIES-AND-EQUITY> 460,492 478,457 483,549 484,071
<INTEREST-LOAN> 20,788 5,514 11,149 16,948
<INTEREST-INVEST> 11,094 2,820 5,638 8,514
<INTEREST-OTHER> 67 10 28 36
<INTEREST-TOTAL> 31,949 8,344 16,815 25,498
<INTEREST-DEPOSIT> 9,681 2,624 5,236 7,966
<INTEREST-EXPENSE> 18,222 4,817 9,673 14,600
<INTEREST-INCOME-NET> 13,727 3,527 7,142 10,898
<LOAN-LOSSES> 2,233 120 240 360
<SECURITIES-GAINS> 181 121 265 362
<EXPENSE-OTHER> 11,955 3,128 6,340 9,568
<INCOME-PRETAX> 2,447 1,353 2,693 4,163
<INCOME-PRE-EXTRAORDINARY> 2,447 1,353 2,693 4,163
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,429 834 1,680 2,600
<EPS-PRIMARY> .73 .42 .85 1.32
<EPS-DILUTED> .73 .42 .85 1.32
<YIELD-ACTUAL> 3.30 3.17 3.20 3.22
<LOANS-NON> 485 637 760 563
<LOANS-PAST> 243 249 121 87
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 2,845 1,433 1,433 1,433
<CHARGE-OFFS> (3,877) (40) (97) (220)
<RECOVERIES> 232 57 149 172
<ALLOWANCE-CLOSE> 1,433 1,570 1,725 1,745
<ALLOWANCE-DOMESTIC> 320 100 100 70
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 1,113 1,470 1,625 1,675
</TABLE>
<PAGE> 1
Exhibit 99.1
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
SHAREHOLDER AUTHORIZATION FORM
- - - -------------------------------------------------------------------------
[LOGO] ABINGTON BANCORP, INC. Please sign the authorization
located on the reverse side of this
c/o Registrar and Transfer Company form and complete the information
10 Commerce Drive below only if it has changed.
Cranford, New Jersey 07016
1-800-368-5948 Name 1
----------------------------------
Name 2
----------------------------------
Street Address
----------------------------------
City/State/Zip Code
----------------------------------
Home Telephone Number
( )
----------------------------------
Business Telephone Number
( )
----------------------------------
<PAGE> 2
This is not a proxy. This card is only for authorization of dividend
reinvestment.
I hereby elect to participate in the Abington Bancorp, Inc. (the "Company")
Dividend Reinvestment and Stock Purchase Plan (the "Plan") and appoint
Registrar and Transfer Company ("R&T") as my agent, subject to the terms and
conditions of the Plan to the extent set forth below.
/ / Full Dividend Investment -- I want all cash dividends payable on
all shares of Common Stock of the Company currently registered in
my name to be applied towards the purchase of shares of Common
Stock of the Company and credited to my Account under the terms of
the Plan.
/ / Partial Dividend Investment -- I want cash dividends payable on
_______________ shares of Common Stock of the Company currently
registered in my name, which represents less than all shares
registered in my name, to be applied towards the purchase of shares
of Common Stock of the Company and credited to my Account under the
terms of the Plan.
/ / Optional Cash Purchase -- Please apply the amount enclosed
($___________) toward the purchase of shares of Common Stock of the
Company and credit such shares to my account under the terms of the
Plan ($250 minimum).
This authorization and appointment is given with the understanding that I may
terminate it at any time by notifying the Company or R&T in writing as set
forth in the Plan.
Stockholder Date
X
- - - ---------------------------------------------- -----------------------------
Stockholder Date
X
- - - ---------------------------------------------- -----------------------------
All persons must sign exactly as their names appear on the reverse side of this
authorization.
This Authorization Form, when fully signed, should be mailed to Registrar and
Transfer Company, Dividend Reinvestment Department, 10 Commerce Drive,
Cranford, NJ 07016. An addressed envelope is provided for your convenience.
<PAGE> 1
Exhibit 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
----------------------
FORM F-2
ANNUAL REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended FDIC Certificate Number
December 31, 1995 22051-5
- - - ------------------------- -----------------------
ABINGTON SAVINGS BANK
---------------------
(Exact name of Bank as specified in its charter)
Massachusetts 04-1012420
- - - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
533 Washington Street, Abington, Massachusetts 02351
- - - ---------------------------------------------- ----------
(Address of principal office) (Zip Code)
(617) 982-3200
----------------------------------------------
(Bank'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 if the Bank, as a "small business issuer" as defined
under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-2. [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of the Bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amendment of this Form F-2. [X]
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Bank based on the closing sales price for the Bank's Common Stock on February
29, 1996, as reported by the Nasdaq Stock Market, was $28,204,000.
The number of shares outstanding of each of the Bank's classes of Common Stock,
as of the latest practicable date is:
Class: Common Stock, par value $0.10 per share
Outstanding as of February 29, 1996: 1,883,738 shares
1
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Information required by Part II (Items 6, 7 and 8) of this Form is
incorporated by reference herein from the Bank's Annual Report to Stockholders
for the year ended December 31, 1995 (the "Annual Report").
Information required by Part III (Items 9 and 10) of this Form is
incorporated by reference herein from the Bank's definitive proxy statement (the
"Proxy Statement") relating to the 1996 Annual Meeting of Stockholders of the
Bank.
PART I
------
Item 1. Business.
- - - ------ --------
General
- - - -------
Abington Savings Bank (the "Bank") is a Massachusetts-chartered savings
bank which was founded in 1853. From February 1, 1988 until December 29, 1992,
the Bank operated in a holding company structure as the wholly-owned subsidiary
of Abington Bancorp, Inc., which was liquidated on that date.
The Bank is engaged principally in the business of attracting deposits from
the general public, borrowing funds and investing those deposits and funds. The
Bank makes various types of real estate loans, residential construction loans,
consumer loans and investments in securities. The Bank offers a variety of
deposit accounts to individuals and commercial customers.
The Bank presently has four wholly-owned subsidiaries: Holt Park Place
Development Corporation and Norroway Pond Development Corporation, which own
properties being marketed for sale; ABBK Corporation, which invests in real
estate development limited partnerships engaged in qualified housing projects;
and Abington Securities Corporation, which invest primarily in United States
Government obligations and obligations of related agencies. Two subsidiaries
were dissolved during 1995.
The Bank has grown from $229.9 million in assets and $152.8 million in
deposits at December 31, 1991 to $460.5 million in assets and $280.1 million in
deposits at December 31, 1995. 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.
2
<PAGE> 3
In June, 1992, the Bank acquired the deposits and certain assets of the
former Landmark Bank for Savings ("Landmark") from the FDIC, as receiver. In
addition, 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.
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 and parts of
Norfolk 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, Hanson, Braintree,
Cohasset, Hingham, Holbrook, Marshfield, Milton, Norwell, Quincy, Randolph and
Scituate.
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. A Loan Center is operated 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 fifteen years or
less, such as residential construction loans, 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 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 does anticipate a greater emphasis in 1996 and
beyond for this type of loan origination. The Bank has stressed the origination
of shorter-term 15-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, 1995, the
3
<PAGE> 4
Bank's loan portfolio included $146.2 million in fixed-rate mortgage loans of
which $3.0 million were held for sale.
The Bank's net loan portfolio, including loans held for sale, totaled
$260.6 million at December 31, 1995, representing approximately 56.6% 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, loans have been made outside of
Massachusetts and purchased mortgage loans at times are on properties outside of
Massachusetts. Loans purchased outside of Massachusetts are well seasoned to
ensure an adequate payment history has been taken into consideration. The Bank
originated $2.9 million in commercial loans, $1.6 million in commercial real
estate loans and $71.9 million in residential first mortgage loans during the
year ended December 31, 1995. Of the latter amount, loans aggregating $34.7
million were retained for the Bank's own portfolio of which approximately $3.0
million were held for sale at December 31, 1995, and loans aggregating $37.2
million were sold in the secondary market. As of December 31, 1995, loan
commitments to potential borrowers of $10.3 million were outstanding. In
addition, as of December 31, 1995, the Bank had committed to advance $2.5
million under existing construction loans and $11.4 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 usually sells
packages of loans it has originated to investors on a non-recourse basis while
retaining the servicing rights on such loans. 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, 1995, the Bank's loan servicing
portfolio amounted to $253.0 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, 1995, the outstanding balance of residential first
mortgage loans totaled $200.4 million or 75.6% of the gross loans in the Bank's
loan portfolio. Residential first mortgage loans are typically written in
amounts up to 80% of appraised value, although the Bank on occasion originates
loans of up to 95% of value if the property is owner-occupied. 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.
4
<PAGE> 5
The Bank offers several types of residential second mortgage loans as described
below:
SECOND MORTGAGE LOANS WITH TERMS UP TO 15 YEARS. Interest rates on
such loans generally are adjusted every 3 years. At December 31, 1995, the
Bank had in its portfolio approximately $1.4 million of second mortgage
loans secured by the equity in the borrower's residence.
HOME IMPROVEMENT LOANS IN AMOUNTS UP TO $15,000, AT FIXED INTEREST
RATES WITH TERMS UP TO 5 YEARS. These loans, which are written in amounts
of $5,000 or more, are generally secured by a second mortgage on the
borrower's property. At December 31, 1995, the Bank had approximately
$675,000 of home improvement loans.
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
monthly 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
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, 1995, the Bank had in
its portfolio approximately $16.6 million of outstanding home equity loans
and unused commitments amounting to $11.4 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, 1995, gross construction loans totaled $6.8
million, or 2.5% of the Bank's total loan portfolio.
Commercial real estate loans generally relate to residential property that
is not owner-occupied, although the Bank does make loans with respect to other
types of commercial property. Commercial real estate loans are generally written
for maximum terms of 20 years, and interest rates on these loans generally are
adjusted monthly or annually. Currently, commercial real estate loans are
written in amounts up to $2,000,000 and are generally not made outside the
Massachusetts counties of Plymouth, Norfolk, Bristol and Barnstable. At December
31, 1995, the Bank had a total of $17.6 million of commercial real estate loans,
or 6.6% of the Bank's total loan portfolio. The Bank plans on placing a greater
emphasis on commercial real estate lending into 1996 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
5
<PAGE> 6
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, 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, although in 1996, given management's belief that the
regional economy has begun to stabilize, a greater emphasis will be placed on
commercial 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, 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 $22.0 million at December 31, 1995,
representing 8.2% 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 as of December 31, 1995 was
approximately $10.0 million.
6
<PAGE> 7
<TABLE>
COMPOSITION OF LOAN PORTFOLIO. The following table shows the composition of the
Bank's loan portfolio by type of loan.
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ----------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
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>
Mortgage loans:
Conventional $199,919 75.4% $158,001 65.3% $130,063 63.0% $114,072 58.9% $ 78,574 48.6%
FHA and VA 449 .2 606 .3 855 .4 1,144 .6 645 .4
Second mortgages
and home equity 18,027 6.8 19,756 8.2 20,487 9.9 23,396 12.1 25,322 15.7
Commercial real estate 17,622 6.6 26,961 11.1 22,737 11.0 22,877 11.8 19,676 12.2
Construction 6,805 2.5 7,017 2.9 5,576 2.7 8,264 4.2 9,759 6.0
----- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage loans 242,822 91.5 212,341 87.8 179,718 87.0 69,753 87.6 133,976 82.9
----- ----- ----- ----- -----
Less:
Due to borrowers on
incomplete loans (2,499) (2,850) (4,133) (4,629) (2,208)
Net deferred loan fees
and unearned discounts (940) (1,005) (980) (908) (793)
-------- -------- -------- -------- --------
Subtotal 239,383 208,486 174,605 164,216 130,975
Commercial loans:
Unsecured lines of credit 477 .2 677 .2 609 .3 596 .3 783 .5
Secured and unsecured 1,861 .7 1,772 .8 1,790 .9 1,528 .8 2,085 1.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Subtotal 2,338 .9 2,449 1.0 2,399 1.2 2,124 1.1 2,868 1.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Consumer loans:
Indirect automobile 10,049 3.8 18,738 7.7 16,795 8.1 14,607 7.5 14,757 9.1
Personal 1,715 .6 1,726 .7 4,881 2.4 5,144 2.7 6,247 3.9
Education 728 .3 746 .3 1,095 .6 ,408 .2 2,016 1.2
Passbook and stock secured 6,980 2 .65,320 2.2 1,328 .6 1,419 .7 1,406 .9
Home improvement 675 .3 599 .3 297 .1 280 .2 291 .2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total other loans 20,147 7.6 27,129 11.2 24,396 11.8 21,858 11.3 24,717 15.3
----- ----- ----- ----- -----
Net deferred loan
costs (fees) 150 395 458 382 462
-------- -------- -------- -------- --------
Subtotal 20,297 27,524 24,854 22,240 25,179
-------- -------- -------- --------
Total loans 262,018 238,459 201,858 188,580 159,022
Less allowance for
loan losses (1,433) (2,845) (2,051) (2,060) (1,964)
-------- -------- -------- -------- --------
Loans, net $260,585 235,614 199,807 186,520 157,058
-------- -------- -------- -------- --------
Add (recapitulation):
Due to borrowers on
incomplete loans 2,499 2,850 4,133 4,629 2,208
Net deferred loan fees
and unearned discounts 790 610 522 526 331
Allowance for loan losses 1,433 2,845 2,051 2,060 1,964
-------- -------- -------- -------- --------
Loans, gross $265,307 100.0% $241,919 100.0% $206,511 100.0% $193,735 100.0% $161,561 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
7
<PAGE> 8
ORIGINATION AND UNDERWRITING. Loan originations are developed by the Bank's
officers and lending personnel from a number of sources, including referrals
from realtors, builders, attorneys, customers and Directors. The Bank employs
five loan officers who are paid a base salary plus performance bonuses for loans
originated for the Bank. The Bank pays commissions to certain unaffiliated third
party mortgage brokers for 1-4 family residential loan originations. Loans
originated by these mortgage brokers are loans which are originated and sold in
the secondary mortgage market. Consumer loan services are solicited by direct
mail to existing customers. Advertising media is also used to promote loans.
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 loan officers require the approval of the
Executive Committee of the Bank's Board of Directors, up to a maximum of $2
million. Loans or total indebtedness in excess of $2 million require the
approval of the Board of Directors. The management comprised Credit Committee
generally must approve all commercial loans greater than or equal to $250,000,
commercial loans secured by real estate up to $750,000 and residential loans of
$1 million or more. Loans to Bank insiders are subject to different approval
procedures. All loans to Directors or executive officers must be approved by the
full Board of Directors. Loans to insiders other than Directors or executive
officers or their interests in an amount less than $50,000 may be approved by
the Executive Committee. Any loan request by a Director (or any related interest
of a Director) 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 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.
8
<PAGE> 9
<TABLE>
The following table shows the Bank's loans by maturity or repricing
interval at December 31, 1995.
<CAPTION>
At December 31, 1995
---------------------------------------------
Within 1 - 5 Over 5
1 Year Years Years Total
------- ----- ------ -------
<S> <C> <C> <C> <C>
Conventional mortgages.................. $ 62,437 $103,197 $33,794 $199,428
Commercial real estate loans............ 14,983 2,639 -- 17,622
Second mortgages and home equity........ 15,400 1,843 784 18,027
Construction, net ...................... 4,306 -- -- 4,306
Commercial loans........................ 556 696 1,086 2,338
Other loans............................. 9,406 10,417 474 20,297
-------- -------- ------- --------
Total $107,088 $118,792 $36,138 $262,018
======== ======== ======= ========
Percent of total 40.9% 45.3% 13.8% 100.0%
</TABLE>
<TABLE>
The composition of fixed-rate and adjustable-rate loans, excluding other
loans, by maturity or repricing interval at December 31, 1995 was as follows:
<CAPTION>
At December 31, 1995
---------------------------------------------
Within 1 - 5 Over 5
1 Year Years Years Total
------- ----- ------ -------
(In thousands)
<S> <C> <C> <C> <C>
Fixed-rate residential mortgages ....... $ 30,857 $ 76,451 $34,578 $141,886
Construction loans, net - all fixed..... 4,306 -- -- 4,306
Adjustable-rate residential mortgages... 46,980 25,589 -- 75,569
Commercial real estate loans - all
variable rate........................ 14,983 2,639 -- 17,622
Commercial loans - all variable rate.... 556 696 1,086 2,338
-------- -------- ------- --------
Total fixed and adjustable-rate loans... $ 97,682 $108,375 $35,664 $241,721
======== ======== ======= ========
</TABLE>
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 when the interest on the loan 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 the current period. Those loans that continue to accrue
interest after reaching a three month delinquency status generally include only
consumer loans, although, on
9
<PAGE> 10
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. These 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 management 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, 1995, non-performing assets were .4% of total assets,
compared with 1.6% and 2.3% at December 31, 1994 and 1993, respectively.
<TABLE>
The following table sets forth non-performing assets at the dates indicated:
<CAPTION>
At December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis............ $ 485 $5,249 $4,957 $7,239 $4,354
Accruing loans past due 90 days or more
as to principal or interest ........................ 243 153 322 195 13
------ ------ ------ ------- ------
Total non-performing loans.......................... 728 5,402 5,279 7,434 4,367
Troubled debt restructurings, not included in
non-accrual loans................................... -- -- -- -- --
Real estate acquired by foreclosure and other real
estate owned ........................................ 1,070 1,272 2,561 3,394 4,936
------ ------ ------ ------- ------
Total non-performing assets........................... $1,798 $6,674 $7,840 $10,828 $9,303
====== ====== ====== ======= ======
</TABLE>
At December 31, 1995, impaired loans totaling $114,000 required an
allocation of $35,000 of the allowance for possible loan losses. The remaining
impaired loans did not require any allocation of the reserve for possible loan
losses.
During 1995, the average balance of impaired loans was approximately
$3,733,000. The total amount of interest income recognized on impaired loans
during 1995 was approximately $284,000, which approximated the amount of cash
received for interest during that period.
10
<PAGE> 11
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. The Bank has no commitments to lend additional funds to borrowers
whose loans have been deemed to be impaired.
<TABLE>
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:
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 2,845 $ 2,051 $ 2,060 $ 1,964 $ 3,472
Loans charged off:
Real estate - residential 1,090 245 30 344 301
Real estate - commercial 2,496 88 687 369 460
Real estate - construction -- -- -- -- 1,040
Commercial 18 22 -- 54 340
Consumer 273 66 64 100 95
-------- -------- -------- -------- --------
3,877 421 781 867 2,236
-------- -------- -------- -------- --------
Loan recoveries:
Real estate - residential 32 -- 9 5 --
Real estate - commercial 145 1 14 3 --
Real estate - construction -- 6 -- -- 105
Consumer 55 16 21 25 20
Commercial -- 5 8 -- 3
-------- -------- -------- -------- --------
232 28 52 33 128
-------- -------- -------- -------- --------
Net charge-offs 3,645 393 729 834 2,108
-------- -------- -------- -------- --------
Reserves acquired from Hull -- 577 -- -- --
Provision charged to operations 2,233 610 720 930 600
-------- -------- -------- -------- --------
Balance, end of year $ 1,433 $ 2,845 $ 2,051 $ 2,060 $ 1,964
======== ======== ======== ======== ========
Average loans out standing, net $243,949 $222,313 $191,502 $177,952 $151,237
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans outstanding, net 1.49% .18% .38% .47% 1.39%
======== ======== ======== ======== ========
Ratio of allowance for possible loan
losses to gross loans at year end .55% 1.18% .99% 1.06% 1.22%
======== ======== ======== ======== ========
Ratio of allowance for possible loan
losses to non-performing loans 196.84% 52.67% 38.85% 27.71% 44.97%
======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
<TABLE>
The following table summarizes the allocation of the allowance for possible loan
losses for the years indicated:
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- ---------------- ---------------- ---------------- -----------------
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 $ 245 82.4% $ 348 73.8% $ 257 73.3% $ 189 71.6% $ 323 64.7%
Real estate - commercial 50 6.6 433 11.1 257 11.0 483 11.8 282 12.2
Real estate - construction -- 2.5 -- 2.9 -- 2.7 -- 4.2 25 6.0
Commercial -- .9 -- 1.0 -- 1.2 -- 1.1 25 1.8
Consumer 25 7.6 175 11.2 200 11.8 91 11.3 92 15.3
Unallocated 1,113 1,889 N/A 1,337 N/A 1,297 N/A 1,217 N/A
----- ----- ------ ----- ------ ----- ------ ----- ------ -----
Total 1,433 100.0% $2,845 100.0% $2,051 100.0% $2,060 100.0% $1,964 100.0%
===== ===== ====== ===== ====== ===== ====== ===== ====== =====
</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 allocated among 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 1995 was $2,233,000,
compared to $610,000 and $720,000 in 1994 and 1993, respectively. The increased
provision in 1995 resulted from the sale of certain non-performing and high
maintenance loans. 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 in 1995. The remaining $579,000
provision for possible loan losses was due to, among other things, growth in the
Bank's loan portfolio, and management's and the Board of Directors' assessment
of the risk of loss due to market conditions, particularly in the commercial
real estate market. The Bank views the level of delinquent loans, which improved
during 1995, 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 mild
recovery. The Bank believes, however, that the market and economy still show
signs of weakness. Given this situation, a continuation of provisions to its
loan loss reserve during 1996 is warranted. There are uncertainties regarding
future events, particularly in light of the current New England economy and
slowly recovering regional real estate market. It is possible that future
12
<PAGE> 13
events could result in additional future charge-offs, and changes in the levels
of the allowance for loan losses and loans on non-accrual.
Investment Activities
- - - ---------------------
At December 31, 1995, the Bank's investment securities portfolio, including
marketable equity securities and Federal Home Loan Bank ("FHLB") stock, has a
carrying value of $33.3 million and included bond investments of $4,316,000
which contractually mature within one year. This portfolio generated $1,536,000
of interest income and $574,000 of dividend income which is comprised primarily
of dividends on FHLB stock. Investment net security gains of $141,000 were
recognized during the year ended December 31, 1995 compared to $60,000 in the
corresponding period of 1994.
The Bank owns mortgage-backed investments with a carrying value at December
31, 1995 of $138.9 million. This compares to balances as of December 31, 1994
and 1993 of $133.9 million and $113.1 million, respectively. The recent
increases in this portfolio reflect the slackened loan demand in Southeastern
Massachusetts over the last few years coupled with the Bank's assumption of
deposits from Bank of Boston's Holbrook branch in 1995 and overall growth
strategies employed during the same period. Mortgage-backed investments were
purchased at prices determined by the public securities market and have coupons
generally ranging from 4% to 10%. In the Bank's experience, these investments
have produced a high cash flow and have exhibited an average life substantially
shorter than their contractual maturity. These investments are primarily
financed with borrowings through the use of FHLB of Boston advances. The
weighted average yield earned on mortgage-backed investments was 6.56% for the
year ended December 31, 1995 compared to 6.07% for the corresponding period in
1994. This increase in yield reflects market conditions which resulted in higher
interest rates for most of 1995 and a slowdown of prepayments on the Bank's
mortgage-backed investments. The slowdown in prepayments, which have a positive
impact on the Bank's portfolio, became less pronounced in the second half of
1995 resulting in slightly lower yields on the portfolio as the year progressed.
Management anticipates this trend will continue into 1996 given the current
interest rate environment. The Bank's strategy with recent growth in its
mortgage-backed investment portfolio has been to invest in securities with a
shorter average life and adjustable rate mortgage-backed investments.
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 federal
law.
13
<PAGE> 14
At December 31, 1995 the Bank's marketable equity securities portfolio had
a carrying value of $3.0 million and was classified for as available for sale.
Investment securities are classified in one of three 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,
1995 and 1994.
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.
14
<PAGE> 15
<TABLE>
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:
<CAPTION>
At December 31,
---------------------------------
1995 1994 1993
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Short-term investments ........................... $ 73 $ 67 $ 65
Federal funds sold ............................... 75 75 75
------- ------- -------
Total ............................................ $ 148 $ 142 $ 140
======= ======= =======
Percent of total assets .......................... .03% .04% .04%
Investment securities:
U. S. Government and federal agency obligations,
not at market in 1994 or 1993 .................. $17,719 $13,387 $ 8,502
Other bonds and obligations, not at market in 1994
or 1993 ........................................ 5,221 7,261 2,070
------- ------- -------
Subtotal ..................................... 22,940 20,648 10,572
Marketable equity securities, at market .......... 3,004 281 --
------- ------- -------
Total investment securities ...................... $25,944 $20,929 $10,572
======= ======= =======
Percent of total assets .......................... 5.6% 5.0% 3.04%
</TABLE>
<TABLE>
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, 1995 follows:
<CAPTION>
Within one After one but After five but After ten
year within five years within ten years years
--------------- ----------------- ---------------- --------------
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> <C>
U. S. Government and federal
agency obligations............. $1,300 5.55% $3,891 4.90% $3,488 7.04% $ -- --%
Other bonds and obligations....... 3,016 7.34 2,137 5.96 737 7.39 8,390 6.75
------ ---- ------ ---- ------ ---- ------ ----
Total $4,316 6.80% $6,028 5.96% $4,225 7.10% $8,390 6.75%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
At December 31, 1995, the Bank has no concentration of securities with any one
issuer with a book value exceeding ten percent of stockholders' equity, except
for obligations of the U. S. Government and federal agencies.
15
<PAGE> 16
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, 1995
there were no brokered deposits.
<TABLE>
At December 31, 1995, the Bank's outstanding certificates of deposit with
balances in excess of $100,000 are scheduled to mature as follows:
<CAPTION>
(In thousands)
<S> <C>
Three months or less $ 2,752
Over three to six months 2,041
Over six to twelve months 2,653
Over twelve months 9,248
-------
$16,694
=======
</TABLE>
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".
16
<PAGE> 17
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.
SUBSIDIARY CORPORATIONS. For a discussion of subsidiary corporations, see
"Business--General."
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.
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.
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.
17
<PAGE> 18
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, 1995, the Bank had 96 full-time employees, consisting of
25 full-time officers and 71 full-time non-officers, as well as 86 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, 1995.
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
19
<PAGE> 20
Item 3. Legal Proceedings.
- - - ------ -----------------
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. Security Ownership of Certain Beneficial Owners and Management.
- - - ------ --------------------------------------------------------------
<TABLE>
The following table sets forth certain information as of February 29, 1996
regarding each person known by the Bank to own beneficially more than 5% of the
Bank's Common Stock, each Director and nominee for Director of the Bank, and all
Directors and principal officers of the Bank as a group.
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name Ownership(1) Class(2)
---- ----------- -------
<S> <C> <C> <C>
Dennis E. Barry and 182,000 (3) 9.7%
Joseph L. Barry, Jr.
c/o Hallamore Motor
Transportation, Inc.
795 Plymouth Street
Holbrook, MA 02343
Genesis Financial Partners, L.P. 120,000 (4) 6.4
3101 West Coast Highway, Suite 402
Newport Beach, CA 92663
Abington Savings Bank 95,918 (5) 5.1
Employee Stock Ownership
Trust (the "ESOP")
James P. McDonough, Trustee
Abington Savings Bank
533 Washington Street
Abington, MA 02351
James P. McDonough 73,690 (6) 3.9
Joel S. Geller 65,249 (7)(8) 3.5
James J. Slattery 37,336 (7)(9) 2.0
Wayne P. Smith 29,394 (7)(10) 1.6
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Edward J. Merritt 21,023 (11) 1.1
Robert J. Armstrong 14,100 (7)(12) .7
Bruce G. Atwood 13,542 (7)(12) .7
Gordon N. Sanderson 13,558 (7)(14) .7
William F. Borhek 11,215 (7)(15) .6
Rodney D. Henrikson 10,895 (7)(16) .6
Ralph B. Carver, Jr. 10,750 (17) .6
A. Stanley Littlefield 8,000 (7)(18) .4
Jay Timothy Noonan 8,000 (7) .4
All Directors and principal
officers as a group (16
persons) 328,684 (19) 17.5%
- - - -----------------
<FN>
(1) Except as otherwise noted, all persons and entities have sole voting and
investment power over their shares. All amounts shown in this column
include shares obtainable upon exercise of stock options exercisable within
60 days of the date of this table.
(2) Computed pursuant to 12 C.F.R. [section]335.403.
(3) The Bank has received a report on Schedule 13D, Amendment No. 3, dated
February 22, 1990, stating that (i) Dennis E. Barry owns 84,750 shares as
to which he has sole voting and dispositive power, (ii) Joseph L. Barry,
Jr. owns 84,750 shares as to which he has sole voting and dispositive
power, and (iii) Dennis E. Barry and Joseph L. Barry, Jr. jointly own
12,500 shares as to which they have shared voting and dipositive power. The
Schedule 13D indicated that Messrs. Barry were each describing a
relationship with other persons but were not affirming the existence of a
group. Nevertheless, the Bank believes that Dennis E. Barry and Joseph L.
Barry, Jr. may constitute a "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934 and that such group may be
deemed to be the beneficial owner of the shares set forth in this table.
(4) The Bank has received a report on Form F-11, dated November 22, 1995 filed
by Genesis Financial Partners, L.P. ("Genesis"), Gen. Fin, Inc. ("Gen Fin")
and Stephen H. Gordon ("Mr. Gordon"), as filed with the FDIC, stating that
Genesis owns 117,500 shares of the Bank's common stock (the "Genesis
Shares"), as to which Gen Fin, the General Partner of Genesis, exercises
exclusive voting control and dispositive powers. The Form F-11 indicates
that Mr. Gordon is the President and sole director and shareholder of Gen
Fin, in which capacity he exercises voting control and dispositive power
over the Genesis Shares. In an Amendment No. 1 to Form F-11, dated February
9, 1996, Genesis stated that on November 27, 1995, it acquired an
additional 2,500 shares of the Bank's common stock. Genesis has notified
the Bank that it intends to present a shareholder proposal at the Annual
Meeting.
</TABLE>
21
<PAGE> 22
(5) The Bank has received a report on Form F-11, dated March 10, 1994, from the
ESOP. The ESOP was established as an employee benefit program for
qualifying employees of the Bank. A committee of three Bank officers
administers the ESOP and State Street Bank and Trust Company is the current
trustee. Under the ESOP, the committee is required to solicit instructions
from the ESOP participants with respect to voting shares that have been
allocated to participants, and is required to follow those instructions in
directing the trustee to vote the allocated shares. In addition, the
trustee is required to vote unallocated shares in the same proportion as
the trustee is directed to vote those shares for which instructions are
given. Upon the direction of the committee, the trustee also exercises
numerous other powers, including the right to sell or otherwise dispose of
shares held by the ESOP.
(6) Includes 45,000 shares subject to currently exercisable options, 6,620
shares held in his self directed IRA, 14,384 shares owned jointly with his
wife, 1096 shares owned by his wife in a self directed IRA and 201 shares
held by his wife as custodian for each of his two children (402 shares
total). Mr. McDonough disclaims beneficial ownership of the shares owned
directly by his wife. Also includes 5,082 shares held by the ESOP as to
which Mr. McDonough has the power to direct voting. Does not include 5,000
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the option agreement) of the Common
Stock is at least $19.25 per share, and does not include 5,000 shares
subject to options which by their terms are not exercisable until the fair
market value (as defined in the option agreement) is at least $23.80 per
share.
(7) Includes 6,500 shares subject to currently exercisable options. Does not
include for each person 750 shares subject to options which by their terms
are not exercisable until the fair market value (as defined in the option
agreement) of the Common Stock is at least $19.25 per share or 750 shares
subject to options which by their terms are not exercisable until the fair
market value (as defined in the option agreement) is at least $ 23.80 per
share.
(8) Includes 1,000 shares owned jointly with his mother, 3,000 shares owned
jointly with his wife, 1,784 shares owned directly by his wife, 844 shares
owned by his son, 1,114 shares owned by his daughter, and 50,007 shares
owned by a partnership in which Mr. Geller is a partner. Mr. Geller
disclaims beneficial ownership of the 1,784 shares owned directly by his
wife and the shares owned by his son and daughter.
(9) Includes 2,854 shares held in his IRA, 2,000 shares held as custodian for
each of three children (6,000 shares total), 2,020 held as custodian for
his son, 100 shares owned by his wife, 812 shares held in his wife's IRA,
50 shares held by his wife as custodian for his son and 12,825 shares owned
by a corporation of which he is a principal owner. Mr. Slattery disclaims
beneficial ownership of the shares held on behalf of his children and the
shares owned by his wife.
(10) Includes 9,845 shares owned by his wife. Mr. Smith disclaims beneficial
ownership of the shares owned by his wife.
22
<PAGE> 23
(11) Includes 50 shares owned by his wife and 25 shares held as custodian for
each of two sons (50 shares total). Also includes 4,338 shares held by the
ESOP as to which Mr. Merritt has the power to direct voting. Does not
include 4000 shares subject to options which by their terms are not
exercisable until the fair market value (as defined in the option
agreement) of Common Stock is at least $19.25 per share or 4000 shares
subject to options which by their terms are not exercisable until the fair
market value (as defined in the option agreement) is at least $23.80 per
share.
(12) Includes 7,600 shares owned jointly with his wife.
(13) Includes 5,030 shares owned by his wife. Mr. Atwood disclaims beneficial
ownership of shares owned by his wife.
(14) Includes 7,058 shares owned through a realty trust.
(15) Includes 3,709 shares owned jointly with his wife and 1,006 shares owned by
his wife. Mr. Borhek disclaims beneficial ownership of the shares owned
directly by his wife.
(16) Includes 4,195 shares owned by a corporation in which Mr. Henrikson is an
officer, director and stockholder.
(17) Includes 10,000 shares owned jointly with his wife. Does not include 750
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the option agreement) of the Common
Stock is at least $19.25 per share or 750 shares subject to options which
by their terms are not exercisable until the fair market value (as defined
in the option agreement) is at least $ 23.80 per share.
(18) Includes 500 shares owned jointly with his wife.
(19) Includes 133,250 shares obtainable by exercise of currently exercisable
options held by all Directors and principal officers as a group. Also
includes 11,662 shares held by the ESOP as to which principal officers have
the power to direct voting. Does not include 20,250 shares subject to
options which by their terms are not exercisable until the fair market
value (as defined in the option agreement) of the Common Stock is at least
$19.25 per share and does not include 20,250 shares subject to options
which by their terms are not exercisable until the fair market value (as
defined in the option agreement) is at least $23.80 per share.
23
<PAGE> 24
PART II
Item 5. Market for Bank's Common Stock and Related Security Holder Matters.
- - - ---- -- ------ --- ------ ------ ----- --- ------- -------- ------ --------
The common stock of the Bank is currently listed on the Nasdaq Stock Market
National Market System (NMS) under the symbol "ABBK".
<TABLE>
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.
<CAPTION>
Price Dividends
High Low Declared
---- --- --------
<S> <C> <C> <C>
1996
1st quarter 17 3/4 16 3/4 $ -
(through February 29, 1996)
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 February 29, 1996, the Bank had approximately 921 stockholders of
record who held 1,883,738 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.
24
<PAGE> 25
Item 6. Selected Financial Data.
- - - ---- -- -------- --------- ----
Information required by Item 6 of this Form is incorporated by reference
herein from the section of the Bank'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 Bank'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 Bank'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
PART III
Item 9. Directors and Principal Officers of the Bank.
- - - ---- -- --------- --- --------- -------- -- --- ----
Information required by Item 9 of this Form is incorporated by reference
herein from the Bank's Proxy Statement.
25
<PAGE> 26
Item 10. Management Compensation and Transactions.
- - - ---- --- ---------- ------------ --- ------------
Information required by Item 10 of this Form is incorporated by reference
herein from the Bank's Proxy Statement.
PART IV
Item 11. Exhibits, Financial Statement Schedules and Reports on Form F-3.
- - - ---- --- --------- --------- --------- --------- --- ------- -- ---- ---
(a) Contents
(1) Financial Statements. See 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.
Schedule V - See Appendix A to this Report.
Schedule VI - See Note 5 to the Consolidated Financial Statements.
(3) Exhibits
(1)(a) Amended and Restated Charter of the Bank is incorporated by
reference herein from the Bank's Current Report on Form F-3
for the Month of December 1992.
(1)(b) By-laws of the Bank are incorporated by reference herein from
the Bank's Current Report on Form F-3 for the Month of
December 1992.
(1)(c) Agreement and Plan of Merger dated as of July 22, 1992 by and
among Abington Bancorp, Inc., the Bank and Abington
Securities Corporation is incorporated by reference herein
from the Bank's Current Report on Form F-3 for the Month of
December 1992.
26
<PAGE> 27
(2) Specimen stock certificate for the Bank's Common Stock is
incorporated by reference herein from the Bank's Current
Report on Form F-3 for the Month of December 1992.
(3)(a)* Amended and Restated Special Termination Agreements between
the Bank and each of James P. McDonough and Edward J. Merritt
dated as of November 19, 1993 are incorporated by reference
herein from the Bank's Annual Report on Form F-2 for the Year
Ended December 31, 1993.
(3)(b)* Amended and Restated Special Termination Agreement between
the Bank and Donna L. Thaxter dated as of March 23, 1995 is
incorporated by reference herein from the Bank's Annual
Report on Form F-2 for the year ended December 31, 1995.
(3)(c)* Special Termination Agreement between the Bank and Mario A.
Berlinghieri dated as of January 29, 1996.
(3)(d)* Incentive and Nonqualified Stock Option Plan, as amended, is
incorporated by reference herein from the Bank's Current
Report on Form F-3 for the Month of December 1992.
(3)(e)* Executive Incentive Compensation Plan dated March 1993 is
incorporated by reference herein from the Bank's Annual
Report on Form F-2 for the Year Ended December 31, 1992.
(3)(f)* Long Term Performance Incentive Plan is incorporated by
reference herein from the Bank's Annual Report on Form F-2
for the Year Ended December 31, 1993.
(3)(g) Agreement of Merger dated as of November 9, 1993 between the
Bank and Hull Co-Operative Bank is incorporated by reference
herein from the Bank's Current Report on Form F-3 for the
month of November 1993.
(3)(h) Agreement for Purchase and Sale of Assets and Assumption of
Liabilities dated as of February 22, 1995 between The First
National Bank of Boston and the Bank is incorporated by
reference herein from the Bank's Current Report on Form F-3
for the month of June 1995.
(3)(i) 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
27
<PAGE> 28
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.
(3)(j) Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein from the Bank's Quarterly
Report on Form F-4 for the Quarter Ended June 30, 1995.
(4) A statement regarding the computation of earnings per share
is included in Item 8 of this Report.
(5) Not applicable.
(6) Annual Report to Stockholders for the Year Ended December
31, 1995 which is furnished for the information of the
Federal Deposit Insurance Corporation only and is not deemed
to be "filed" as part of this Report except to the extent
expressly incorporated by reference herein.
(7) Not applicable.
(8) Not applicable.
(9) Subsidiaries of the Bank.
(b) Reports on Form F-3
None
[FN]
- - - ----------
* Management contract or compensatory plan or arrangement.
28
<PAGE> 29
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 SAVINGS BANK
Date: March 28, 1996
By: /s/ James P. McDonough
--------------------------------
James P. McDonough
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ James P. McDonough President and
- - - -------------------------- Chief Executive Officer; March 28, 1996
James P. McDonough Director (Principal
Executive Officer)
/s/ Edward J. Merritt Executive Vice President March 28, 1996
- - - -------------------------- and Chief Financial
Edward J. Merritt Officer (Principal
Financial Officer)
/s/ Robert M. Lallo Vice President-Treasurer March 28, 1996
- - - -------------------------- (Principal Accounting
Robert M. Lallo Officer)
/s/ Robert J. Armstrong Director March 28, 1996
- - - --------------------------
Robert J. Armstrong
29
<PAGE> 30
- - - -------------------------- Director March 28, 1996
Bruce G. Atwood
/s/ William F. Borhek Director March 28, 1996
- - - --------------------------
William F. Borhek
/s/ Ralph B. Carver, Jr. Director March 28, 1996
- - - --------------------------
Ralph B. Carver, Jr.
/s/ Joel S. Geller Director March 28, 1996
- - - --------------------------
Joel S. Geller
/s/ Rodney D. Henrikson Director March 28, 1996
- - - --------------------------
Rodney D. Henrikson
/s/ A. Stanley Littlefield Director March 28, 1996
- - - --------------------------
A. Stanley Littlefield
/s/ Jay Timothy Noonan Director March 28, 1996
- - - --------------------------
Jay Timothy Noonan
- - - -------------------------- Director March 28, 1996
Gordon N. Sanderson
/s/ James J. Slattery Director March 28, 1996
- - - --------------------------
James J. Slattery
/s/ Wayne P. Smith Director March 28, 1996
- - - --------------------------
Wayne P. Smith
30
<PAGE> 31
Appendix A
----------
INDEX TO APPENDICES
Item Page
- - - ---- ----
11(a)(2)(i) Report of Arthur Andersen LLP on
Consolidated Financial Statements at and for
the three-year period ended December 31, 1995.
11(a)(2)(ii) Report of Arthur Andersen LLP on Financial
Statement Schedules and Financial Statement
Schedule V.
31
<PAGE> 32
INDEX TO EXHIBITS
Item Page
- - - ---- ----
(1)(a) Amended and Restated Charter of the Bank is *
incorporated by reference herein from the Bank's
Current Report on Form F-3 for the Month of
December 1992.
(1)(b) By-laws of the Bank are incorporated by reference *
herein from the Bank's Current Report on Form F-3
for the Month of December 1992.
(1)(c) Agreement and Plan of Merger dated as of July 22, *
1992 by and among Abington Bancorp, Inc., the Bank
and Abington Securities Corporation is incorporated
by reference herein from the Bank's Current Report
on Form F-3 for the Month of December 1992.
(2) Specimen stock certificate for the Bank's Common *
Stock is incorporated by reference herein from the
Bank's Current Report on Form F-3 for the Month of
December 1992.
(3)(a) Amended and Restated Special Termination Agreements *
between the Bank and each of James P. McDonough and
Edward J. Merritt dated as of November 19, 1993 are
incorporated by reference herein from the Bank's
Annual Report on Form F-2 for the Year Ended
December 31, 1993.
(3)(b) Amended and Restated Special Termination Agreement *
between the Bank and Donna L. Thaxter dated as of
March 23, 1995 is incorporated by reference herein
from the Bank's Annual Report on Form F-2 for the
year ended December 31, 1995.
(3)(c) Special Termination Agreement between the Bank and
Mario A. Berlinghieri dated as of January 29, 1996.
32
<PAGE> 33
(3)(d) Incentive and Nonqualified Stock Option Plan, as *
amended, is incorporated by reference herein from
the Bank's Current Report on Form F-3 for the Month
of December 1992.
(3)(e) Incentive Compensation Program.
(3)(f) Long Term Performance Incentive Plan, as amended on
May 25, 1995.
(3)(g) Agreement of Merger dated as of November 9, 1993 *
between the Bank and Hull Co-Operative Bank is
incorporated by reference herein from the Bank's
Current Report on Form F-3 for the month of
November 1993.
(3)(h) Agreement for Purchase and Sale of Assets and Assumption *
of Liabilities dated as of February 22, 1995 between
The First National Bank of Boston and the Bank is
incorporated by reference herein from the Bank's
Current Report on Form F-3 for the month of June, 1995.
(3)(i) 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 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.
(3)(j) Dividend Reinvestment and Stock Purchase Plan is *
incorporated by reference herein from the Bank's
Quarterly Report on Form F-4 for the Quarter Ended
June 30, 1995.
(4) A statement regarding the computation of earnings *
per share is included in Item 8 of this Report.
(5) Not applicable. *
(6) Annual Report to Stockholders for the Year Ended
December 31, 1995 which is furnished for the
information of the Federal Deposit Insurance
33
<PAGE> 34
Corporation only and is not deemed to be "filed"
as part of this Report except to the extent
expressly incorporated by reference herein.
(7) Not applicable. *
(8) Not applicable. *
(9) Subsidiaries of the Bank.
* Previously filed
34
<PAGE> 1
Exhibit 99.3
Annual
[LOGO] ABINGTON SAVINGS BANK Report
1995
<PAGE> 2
TABLE OF CONTENTS
President's Message
2
Financial Highlights
6
Management's Discussion and Analysis
8
Report of Independent Public Accountants
21
Consolidated Balance Sheets
22
Consolidated Statements of Operations
23
Consolidated Statements of Changes in Stockholders' Equity
24
Consolidated Statements of Cash Flows
25
Notes to Consolidated Financial Statements
27
Stockholder Information
47
Directors and Officers
48
Corporate Information
Inside Back Cover
<PAGE> 3
PRESIDENT'S MESSAGE
Dear Shareholders:
In 1992 your Board of Directors embarked on an aggressive strategic
plan designed to enhance shareholder value. At that time our share price was
approximately $4 a share and the total assets of the Bank were approximately
$225 million. I am pleased to report that the goals of that three-year strategic
plan have been realized. Total assets have more than doubled in size to
approximately $465 million and the Bank has expanded from three banking offices
in 1992 to the current seven offices.
[BAR CHART OF YEAR END STOCK]
The expansion of the Bank's franchise throughout southeastern
Massachusetts has been an essential element in the Board's plan to continue to
enhance the value of our company. Our strategy going forward is to utilize this
expanded franchise to attract more customers and to broaden the services
utilized by existing customers.
In addition to continuing our acquisition strategy, 1995 was also a
year in which we streamlined our product offerings, made critical restructuring
decisions and committed the Bank to an aggressive deposit growth management
program.
Of all our efforts in 1995, we are particularly pleased with the
outstanding community response to the High Performance Checking Account program
we introduced in March. The dramatic increase in accounts exceeded our highest
expectations, growing from 12,686 accounts at the end of March to 19,843
accounts at the close of business on December 31, 1995. Designed to attract
customers interested in a primary relationship with the Bank, this new program
stands as a model for future products that offer high value and contribute to
strong deposits. As an added benefit to the Bank, these new deposits both reduce
the costs of our funds and provide increased fee income.
[BAR CHART OF NET OVERHEAD]
Reducing non-performing assets continued to be a priority for the Bank
in 1995. While we took a net loss on a sale of non-performing and
under-performing assets, the decision to sell is expected to result in
approximately $300,000 in reduced overhead costs, a significant contribution to
long-term profitability. Moving into 1996, our focus is on originating new,
high-quality commercial, residential and consumer loans rather than managing
problem assets.
Continuing our retail expansion throughout southeastern Massachusetts,
the Bank acquired the Bank of Boston branch in Holbrook in June. With this
location, we solidify our commitment to a strong regional presence. From the
start we were encouraged by strong consumer response to our high-value checking
accounts, which resulted in steady deposit growth in Holbrook that reached
approximately $17 million by year's end.
This was also a year of extreme competition and escalating costs. Close
attention to the realities of the changing marketplace prompted us to reevaluate
our plans to expand the Bank's residential mortgage lending operation into the
Metro West area. To ensure a solid foundation on which to build on our business,
we began significant restructuring, including reductions in department staff. An
annual cost savings of $250,000 is expected going forward based on these
decisions. Despite the challenges of restructuring, the Bank closed $71 million
in residential mortgage loans and achieved top 10 lender status in many
communities across Plymouth County and Cape Cod. The restructuring process,
which included
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
2
<PAGE> 4
PRESIDENT'S MESSAGE
setting aggressive, yet attainable goals for 1996, positions this element of our
business for improved profitability in the coming months.
Our participation in several programs designed for low and moderate
income first-time buyers continued in 1995. Along with government-sponsored
programs such as FHA, MHFA and the American Dream Program, the Bank offered its
own program for low and moderate income borrowers. Our proven commitment and
support for the Community Reinvestment Act was recognized with an "Outstanding"
rating from the Massachusetts Division of Banks.
[BAR CHART OF NON-PERFORMING ASSETS]
Refinancing activity increased in the fourth quarter after further
reduction in long-term interest rates occurred. We anticipate stronger housing
starts in 1996 due to increasing consumer confidence as well as continued
refinancing activity.
The Bank closed $10 million in consumer loans, due in part to a
successful home equity promotion in the third quarter. We no longer participate
in indirect automobile lending programs. This source of new business to the Bank
tended to produce one-product customers and runs counter to our strategy of
achieving profitable relationships by providing multiple services to our
customer base.
Recognizing the value of the small business to the communities we
serve, the Bank established the Small Business Lending Center in 1995,
significantly expanding our financing services in this area. Demand is strong
for the Small Business Administration programs we offer, and we expect
increasing activity in these and other financing programs.
While our interest rate spread remained relatively stable during the
year, it is an area we will continue to monitor closely in 1996. The year's
sharp decline in long-term interest rates, in contrast to a modest rise in
short-term interest rates, set the tone for the interest rate environment. As a
result, we faced a flattening of the yield curve. This situation, coupled with
the tremendous price competition on loan yields, compounds the pressure on
interest rate spreads. To address the need for enhanced interest rate spreads,
we will continue to develop programs that result in significant lower-cost
deposit growth. This growth is critical in alleviating the pressure which
results from loan price competition.
[BAR CHART OF TOTAL ASSETS]
As proud as we are of our status as a community Bank, we consider it
equally important to offer services typically expected only from much larger
institutions. To that end, we are particularly pleased with the success of the
Bank's effort to increase services for corporate customers. This was part of our
strategy to strengthen our credit and depository product offerings, as well as
broaden the services we provide to our growing business customer base. As one
example within our growing portfolio of non-credit services, the Bank's Cash
Management program allows us to customize a plan for the specific cash flow
needs of individual business customers.
The Bank's 1995 financial results reflected the growth strategy of the
Bank. Net income was $1,429,000 or $.73 per share for the year, compared with
$2,743,000 or $1.40 per share in 1994. Assets totaled $460,492,000 compared to
$421,833,000 in 1994. These results included a pre-tax loss of approximately
$1,650,000 attributable to the sale at discount of $9 million in non-performing
and under-performing loans.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
3
<PAGE> 5
PRESIDENT'S MESSAGE
[BAR CHART OF NET INTEREST INCOME]
We were pleased to note fourth quarter and year-end earnings reflect
increased in net interest income of 7.8% in 1995. The growth in the Bank's asset
base was a result of the acquisition of the Holbrook branch and growth in the
Bank's loan portfolio which amounted to $24.9 million or 10.6%. An 18.2%
year-end increase in non-interest income reflects the results of increased
customer service fees, directly attributable to the Bank's successful efforts to
increase retail and corporate checking accounts.
Even as we continue managing the Bank's growth, we want to retain our
ability to provide a personal approach. Involvement of the Bank's
decision-makers in day-to-day business and customer satisfaction is at the core
of our business values. By addressing customer needs better than our
competition, we succeed in increasing the service levels our customer expect and
deserve.
This was a year of legislative and regulatory successes which will have
a positive impact on earnings going forward. At the federal level, FDIC premiums
were reduced substantially. Long-awaited state tax reform will reduce the Bank's
income tax rate for the next several years.
[BAR CHART OF DEPOSITS]
In 1995, the Bank adopted a program which affords shareholders the
option to reinvest their dividends into purchasing additional shares of the
Bank's stock. Through reinvestment, shareholders have an opportunity to impact
directly the Bank's financial performance. We are encouraged by the response,
which we believe reflects shareholder confidence in the overall performance and
promise of the Bank.
Heartened by the achievement of our expansion goals during the past
three years, we now direct our energies toward significantly enhancing the
earnings level of the Bank. With updated business plans and financial
performance measurements in place, we continue to look for opportunities to
streamline operations and enhance profitability. Our success to date has proven
that managing the Bank for the long-term is the right strategy, but we remain
open to short-term initiatives that could benefit the investments of our
shareholders.
Our strategic positioning in 1995, combined with the achievements of
the past three years, represent dramatic growth for your Bank and are a credit
to the vision of the Board of Directors and the focused leadership of the Bank's
management team. As always, I am grateful for their unwavering dedication and
for the consistently high contribution of the Bank's employees.
[BAR CHART OF LOANS]
In closing, I would like to thank our growing list of customers and
shareholders. We are proud of our association with you, and eager to continue
our work in establishing a leadership presence and serving the diverse needs of
our growing customer base.
Respectfully Submitted,
/s/ James P. McDonough
James P. McDonough
President and Chief Executive Officer
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
4
<PAGE> 6
PROFILE OF ABINGTON SAVINGS BANK
[MAP OF BANKING OFFICES]
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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
5
<PAGE> 7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
At December 31,
- - - ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- - - ---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $460,492 $421,833 $347,354 $315,048 $229,916
Total loans, net 260,585 235,614 199,807 186,520 157,058
Investment securities (1) 33,343 28,328 15,915 8,015 7,852
Mortgage-backed investments 138,937 133,882 113,052 97,485 49,115
Deposits 280,070 246,843 209,911 202,105 152,844
Borrowed funds 145,609 134,155 106,921 84,539 52,065
Stockholders' equity 30,561 28,366 27,869 24,963 23,160
Book value per share 16.22 15.13 14.89 13.40 12.43
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
- - - -------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- - - -------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and dividend income $ 31,949 $ 27,082 $ 23,591 $ 21,432 $ 20,457
Interest expense 18,222 14,349 12,302 11,784 13,411
-------- -------- -------- -------- --------
Net interest income 13,727 12,733 11,289 9,648 7,046
Provision for possible loan losses 2,233 610 720 930 600
-------- -------- -------- -------- --------
Non-interest income (charges):
Loan servicing fees 713 646 617 452 416
Gain (loss) on sales of investment
securities and mortgage-backed
investments, net 181 322 459 (145) 1,054
Writedown of equity securities -- -- -- -- (151)
Gain on sales of loans, net 453 389 890 1,183 580
Writedown of limited partnerships . (110) -- -- -- (434)
Net loss on sales and writedown
of other real estate owned (92) (2) (478) (347) (212)
Other non-interest income 1,763 1,106 799 661 515
-------- -------- -------- -------- --------
Total non-interest income 2,908 2,461 2,287 1,804 1,768
-------- -------- -------- -------- --------
Non-interest expenses 11,955 10,255 8,771 7,577 6,256
-------- -------- -------- -------- --------
Income before income
taxes, cumulative effect of accounting
change and extraordinary item 2,447 4,329 4,085 2,945 1,958
Provision for income taxes 1,018 1,586 1,556 1,243 854
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change and extra
ordinary item $ 1,429 $ 2,743 $ 2,529 $ 1,702 $ 1,104
Extraordinary credit - capital loss
carryforward -- -- -- 24 180
Cumulative effect of accounting change -- -- 650 -- --
-------- -------- -------- -------- --------
Net income $ 1,429 $ 2,743 $ 3,179 $ 1,726 $ 1,284
======== ======== ======== ======== ========
Earnings per share before
extraordinary item and cumulative
effect of accounting change $ .73 $ 1.40 $ 1.31 $ .92 $ .59
Extraordinary item per share -- -- -- .01 .10
Cumulative effect of accounting
change $ -- $ -- $ .34 $ -- $ --
-------- -------- -------- -------- --------
Earnings per share $ .73 $ 1.40 $ 1.65 $ .93 $ .69
======== ======== ======== ======== ========
Dividends per share $ .40 $ .40 $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
6
<PAGE> 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
- - - --------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- - - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average total assets .33% .70% .95% .63% .57%
Interest-rate spread 3.14 3.32 3.37 3.50 2.95
Return on average equity 4.68 9.23 11.73 7.00 5.67
Dividend payout ratio 52.62 27.34 -- -- --
Average equity to average total assets 7.00 7.61 8.10 9.02 10.03
</TABLE>
(1) Includes Federal Home Loan Bank stock.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
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 year ended December 31, 1995, compared to 3.32% for the year ended
December 31, 1994.
The level of non-accrual loans and other real estate owned also has an impact on
net interest income. At December 31, 1995, the Bank had $485,000 in non-accrual
loans and $1,070,000 in other real estate owned compared to $5,249,000 in
non-accrual loans and $1,272,000 in other and real estate owned, respectively,
as of December 31, 1994. The majority of the reduction of these non-performing
loans ("impaired loans") from 1994 to 1995 resulted from a bulk sale of these
and other under performing loans which was completed in November 1995.
During 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 the year which
has caused interest paid on total deposits to increase during 1995.
The lagged effect of the rising interest rate environment in 1994, and the shift
in deposit types as discussed in the preceding paragraph, has had an adverse
effect on the Bank's overall cost of funds in 1995 as compared to 1994.
Management has implemented strategies during 1994 and 1995 to help reduce the
effect of further rate increases on the Bank's cost of funds should they
increase significantly in 1996.
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 SAVINGS BANK THE 1995 ANNUAL REPORT
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Years Ended December 31,
- - - ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Federal funds sold $ 621 $ 42 6.76% $ 161 $ 8 4.97% $ 733 $ 21 2.86%
Other short-term investments 434 25 5.76 66 2 3.03 475 16 3.37
Bonds and obligations (2) 23,774 1,536 6.46 16,161 927 5.74 8,868 513 5.78
Equity securities (1) 10,300 574 5.57 6,692 465 6.95 4,913 381 7.75
Mortgage-backed investments (2) 137,007 8,984 6.56 123,575 7,503 6.07 111,359 6,738 6.05
Loans (3) 243,949 20,788 8.52 222,313 18,177 8.18 191,502 15,922 8.31
--------- ------- -------- ------- -------- -------
Total earning assets 416,085 31,949 7.68 368,968 27,082 7.34 317,850 23,591 7.42
--------- ------- -------- ------- -------- -------
Cash and due from banks 7,028 7,783 5,013
Other assets 13,746 13,800 11,671
-------- -------- --------
Total assets $436,859 $390,551 $334,534
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 26,083 $ 402 1.54% $ 20,642 $ 333 1.61% $ 16,553 $ 351 2.12%
Savings deposits 94,328 2,301 2.44 97,670 2,318 2.37 89,390 2,434 2.72
Time deposits 121,126 6,978 5.76 94,874 4,862 5.12 87,426 4,834 5.53
--------- ------- -------- ------- -------- -------
Total deposits 241,537 9,681 4.01 213,186 7,513 3.53 193,369 7,619 3.94
Short-term borrowings 73,719 4,546 6.17 67,066 3,244 4.84 44,624 1,514 3.39
Long-term debt 66,614 3,995 6.00 62,317 3,592 5.76 53,279 3,169 3.94
--------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 381,870 18,222 4.77 342,569 14,349 4.19 291,272 12,302 4.22
------- ------- -------
Non-interest bearing deposits 19,584 14,502 12,595
Total deposits and borrowed funds 401,454 4.54 357,071 4.02 303,867 4.05
Other liabilities 4,847 3,773 3,555
-------- --------
Total liabilities 406,301 360,844 307,422
Stockholders' equity (6) 30,558 29,707 27,112
-------- -------- --------
Total liabilities and $436,859 $390,551 $334,534
stockholders' equity ======== ======== ========
Net interest income $13,727 $12,733 $11,289
======= ======= =======
Interest-rate spread (4) 3.14% 3.32% 3.37%
==== ==== ====
Net yield on earning assets (5) 3.30% 3.45% 3.55%
==== ==== ====
</TABLE>
(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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
RATE/VOLUME ANALYSIS
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.
<TABLE>
<CAPTION>
Years Ended December 31,
- - - ---------------------------------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
- - - ---------------------------------------------------------------------------------------------------------
(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 $ 1,821 790 $ 2,611 $ 2,523 (268) $ 2,255
Bonds and obligations 480 129 609 418 (4) 414
Equity securities 214 (105) 109 127 (43) 84
Mortgage-backed
investments 853 628 1,481 742 23 765
Federal funds sold 30 4 34 (23) 10 (13)
Interest-bearing deposits
in banks 20 3 23 (13) (1) (14)
------- ------- ------- ------- ----- -------
Total interest and
dividend income 3,418 1,449 4,867 3,774 (283) 3,491
------- ------- ------- ------- ----- -------
Interest expense:
NOW deposits 84 (15) 69 73 (91) (18)
Savings deposits (81) 64 (17) 213 (329) (116)
Time deposits 1,461 655 2,116 396 (368) 28
Short-term borrowings 345 957 1,302 937 793 1,730
Long-term debt 254 149 403 524 (101) 423
------- ------- ------- ------- ----- -------
Total interest expense 2,063 1,810 3,873 2,143 (96) 2,047
------- ------- ------- ------- ----- -------
Net interest income $ 1,355 $ (361) $ 994 $ 1,631 $(187) $ 1,444
======= ======= ======= ======= ===== =======
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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 effect 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 asset 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
impacting 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% 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 recent completion of the Holbrook acquisition are reflective of
managements'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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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 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 have been 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 at 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 writedowns 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 and a related writedown 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. Deposit assessment
rates for the first quarter of 1996 will reflect a further reduction in FDIC
assessments (the annual $2,000 minimum); however, there is continued uncertainty
regarding any additional costs to be borne by banks for the costs associated
with the previous thrift failures. The current draft of legislation in Congress
seems to indicate that this additional cost, which may be charged as an
additional premium, would not cause overall future premiums to be in excess of
$.04 per $100 of deposit. Management anticipates that this FDIC assessment rate
reduction will be maintained for the foreseeable future which will positively
impact other non-interest expenses.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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.
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 carryforwards.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1993
GENERAL. Net income for the year ended December 31, 1994 was $2,743,000 or $1.40
per share compared to net income, after the cumulative effect of accounting
change, of $3,179,000 or $1.65 per share in the corresponding period of 1993, a
net decrease of $436,000 or 13.7%. This decrease is due primarily to the
inclusion in the results for 1993 of a positive, cumulative adjustment of
$650,000 related to the Bank's adoption of FASB No. 109 - "Accounting for Income
Taxes". Net income for 1993, excluding the impact of this accounting change, was
$2,529,000 or $1.31 per share. This was $214,000 or 7.8% lower than net income
reported for 1994. The overall improvement in income, excluding the impact of
the accounting change, is primarily attributable to growth in the Bank's loan,
mortgage-backed investment and investment securities portfolios and the
acquisition of Hull. Net interest income was $12,733,000 in 1994 in comparison
to $11,289,000 in 1993, an increase of $1,444,000 or 12.8%. Other key factors
impacting earnings from operations include a decrease in losses and writedowns
on other real estate owned, an increase in gains on sales of mortgage-backed
investments, and increases in customer service fees, which were partially offset
by increases in non-interest expense and decreases in gains on sales of mortgage
loans.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $3,491,000
or 14.8% during 1994 as compared in 1993. This increase was influenced by
increases in overall earning assets despite lower yields in 1994 as compared to
the same period in 1993. The balance of average earning assets was $368,968,000
in 1994 as compared to $317,850,000 for 1993, an increase of $51,118,000 or
16.1%. The weighted average impact of the assets acquired from Hull (primarily
loans) included in 1994 was approximately $14,000,000. The average earning
assets for 1994, excluding the impact of Hull, had increased over the 1993
levels by approximately $37,188,000 or 11.7%. Overall interest rates earned on
assets during 1994 were slightly below yields earned on assets for the same
period in 1993. This primarily reflects heavy prepayments realized on the higher
yielding portions of the Bank's loan and mortgage-backed investment portfolios
throughout the fourth quarter of 1993 and into 1994. These yields were also
impacted by management's strategy to invest in shorter-term assets (generally
with anticipated durations of seven years or less) and those with variable rates
which initially tend to decrease yields but ultimately provide greater
liquidity. See "Liquidity and Capital Resources" for additional discussion
related to the Bank's balance sheet.
Average balances of loans increased to $222,313,000 in 1994 from $191,502,000 in
1993. Excluding the impact of Hull, the weighted average balances of loans
increased approximately $13,811,000 or 7.21%. The level of growth
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
in average loans, excluding the impact of Hull, reflects the impact of higher
prepayments, particularly on higher yielding loans throughout the fourth quarter
of 1993 and into the first quarter of 1994, which offset origination volumes
generated by the heavy refinancing market during that period. By mid-1994, the
increasing interest rate environment had impacted prepayment speeds, which
slowed considerably, and also created a shift in loan production to
substantially variable rate loans (one and three-year adjustable rate
mortgages). Also, the competitive residential loan origination market, which has
existed throughout most of 1994 as rates have begun to increase since February
of 1994, has also negatively impacted residential loan origination volume and
pricing for 1994. The yields on loans for 1994 was approximately 8.18% as
compared to 8.31% for the same period in 1993.
The average balance of mortgage-backed investment securities was $123,575,000 in
1994 which represented an increase of $12,216,000 or 11.0% over the
corresponding balance in 1993. The yield on mortgage-backed investments for the
year ended December 31, 1994 was approximately 6.07% as compared to 6.05% for
the same period last year. Management continues to utilize mortgage-backed
investments as an alternative investment source to compensate for lower loan
volume.
INTEREST EXPENSE. Interest expense in 1994 increased by approximately
$2,047,000, or 16.6%, as compared to 1993, due to increases in the weighted
average rates paid on borrowings and growth in deposit and borrowing balances
which were offset, in part, by decreases in interest paid on deposits. The
weighted average rate paid on interest-bearing liabilities was 4.19% in 1994
compared to 4.22% in 1993. The decrease in expense associated with the
maintenance of lower deposit rates since last year and due to the maturity of
some higher cost certificates of deposit early in 1994. The Bank has continued
its practice of not paying a premium rate of interest on deposits which has
aided the drop in the Bank's overall cost of funds. These declines in interest
paid on deposits were partially offset by increases in short-term borrowing
rates which coincided with increases in rates set by the Federal Reserve since
early 1994. The rates paid on short-term borrowings for the year ended December
31, 1994 increased 4.84% from 3.39% for the corresponding period in 1993. In
1994, the Bank extended the maturities of approximately $31,000,000 in
short-term borrowings by two to three years, and extended remaining short-term
borrowings from 30 days to various terms ranging from 60 to 120 days in order to
minimize the effect of frequent interest rate movements. The average balances of
deposits and borrowed funds were $227,688,000 and $129,383,000, respectively, in
1994 compared to $205,964,000 and $97,903,000, respectively, for the
corresponding period in 1993. The increases in these average balances reflect
general deposit growth, particularly in non-time deposits. Deposit balances
acquired as part of the Hull transaction had the effect of increasing the
weighted average deposits during 1994 by approximately $14,000,000 of 6.8%.
Excluding the effects of the Hull transaction, deposit growth of approximately
3.8% was achieved which is reflective of management's continued focus of
expanding the Bank's deposit base. Additional borrowings were used to fund
residential loan growth and the portfolios of mortgage-backed and investment
securities. See "Liquidity and Capital Resources" for a further discussion of
the Bank's borrowed funds.
NON-INTEREST INCOME. Total non-interest income increased $174,000 or 7.6% in
1994 in comparison to 1993. The most significant, positive contributor was the
reduction of net writedowns of other real estate owned by approximately $476,000
or 99.6% compared to 1993 levels. The results for the year ended December 31,
1994 reflect lower levels of losses related to other real estate owned due to
somewhat stable but continued soft market conditions. These losses were offset,
in part, by modest gains on sales of other real estate properties during 1994.
Customer service fees, which were $1,050,000 in 1994, increased $291,000 or
38.3% primarily due to growth in deposit accounts and certain fee increases.
Loan servicing fees increased $29,000 or 4.7% in 1994 over the same period in
1993 primarily due to increases in loan serviced for others which was
$229,010,000 at December 31, 1994 compared to $196,113,000 in 1993. Loan
servicing fees were negatively impacted by higher prepayments and overall market
conditions in 1994. Non-interest income was adversely affected by declines in
gains on mortgage loan sales which were $389,000 in 1994 as compared to $890,000
in 1993, a decrease of $501,000 or 56.3%. This was, in part, due to loan sales
in the secondary market declining to approximately $60,863,000 million in 1994
from $97,032,000 million in 1993. This reflects increased market competition for
residential loan originations in 1994 and also tighter spreads on sales to the
secondary market due to the rising interest rate environment. Non-interest
income in 1994 compared to 1993 was also negatively impacted by reduced gains on
the redemption and sales of investment securities and mortgage-backed
investments which were $322,000 in 1994 compared to $459,000 for the
corresponding period in 1993, a decrease of $137,000. The gains on sales of
mortgage-backed securities in 1994 included the redemption by the issuer of a
collateralized mortgage obligation (previously held in the Bank's held for
investment portfolio) which yielded a gain of approximately $215,000. The sales
of mortgage-backed investments in the first quarter of 1994 were part of a tax
strategy to utilize certain capital loss carryforwards. See "Liquidity and
Capital Resources" for further discussions of this strategy behind these sales
of mortgage-backed investment.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
NON-INTEREST EXPENSES. Non-interest expenses for 1994 increased by $1,484,000,
or 16.9%, compared to 1993. Salaries and employee benefits increased by 25.8% or
$1,036,000 in response to increased staffing levels in lending and other
operational areas in connection with certain business growth strategies and
increases in the cost of employee benefits, particularly health insurance. The
acquisition of Hull was also responsible for approximately $200,000 of this
increase. Occupancy and equipment expenses increased by $212,000 or 14.0% over
1993 levels primarily due to increased costs resulting from the addition of Hull
(approximately $135,000), and increased costs associated with the Bank's
additional investments in and maintenance contracts on its computer system and
other peripheral computer equipment. Other non-interest expense increased
$236,000 or 7.3% in 1994 in comparison to 1993, primarily due to expenses
associated with the acquisition of Hull which included the amortization of the
intangible assets created as part of the acquisition and increased advertising
expense.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$610,000 for the year ended December 31, 1994, compared to $720,000 in the
corresponding period of 1993. These provisions were based upon management's
evaluation of a variety of factors including potential risks in the loan
portfolio, the level of the Bank's commercial real estate and construction loan
portfolios, certain non-accrual loans and the Bank's continued uncertainty of
the regional economy and the commercial real estate market in particular.
Non-performing assets, including loans greater than 90 days past due and still
on accrual, were $6,674,000 at December 31, 1994 compared to $7,840,000 at
December 31, 1993. This overall decline, the improving economic conditions, and
the composition of the Bank's current non-performing loans (over 50% are secured
by residential real estate with individual values of $220,000 or less, which
tends to be more stable in value than commercial real estate), influenced
management's decisions with respect to loan loss provisions in 1994.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the year
ended December 31, 1994 was 36.6% compared to 38.1% for the year ended December
31, 1993. The decrease in the effective tax rate for both years in comparison to
statutory rates is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed at lower rates for state tax purposes. The 1994 tax
rates were also favorably impacted by the realization of certain capital loss
carryforwards in the first quarter.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 margin. 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 margin of the Bank without
subjecting financial results to high degrees of volatility due to future
interest rate movements. A dynamic income simulation model is the primary
mechanism used in assessing the impact on net interest income of anticipated
changes in interest rates. The model reflects management's assumptions with
respect to growth rates of specific interest earning assets and liabilities,
pricing strategies, consensus prepayment rate estimates and other
rate-influenced variables. The model also reflects the impact of any off-balance
sheet hedge strategies which may be in place at a given time. This model then
calculates various financial results of the Bank in light of various interest
rate projections as 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 best 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 one- and three- 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 approximately
$20,000,000 to $30,000,000 primarily in shorter-term fixed rate mortgage loans
(generally 10- to 15-year) to be held in portfolio, in order to provide a hedge
against the Bank's asset sensitivity. The Bank also emphasizes loans with terms
to maturity or repricing of three years or less, such as certain adjustable rate
residential mortgage loans, residential construction loans, second mortgages and
home equity loans.
In addition, to 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 six-month floating LIBOR rate which would reset
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
$14,275,000 at December 31, 1995. 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 is approximately
5.98%. 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 58.6% of the average interest earning assets in 1995. This ratio
has been negatively impacted by a 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 two key cycles
in the residential lending market, which has historically been the Bank's
primary source of loan growth. In 1992 and through the early portion of 1994,
interest rates on mortgages generally declined to levels which were the lowest
in recent history. While this market was very favorable for loan originations,
it also had a negative impact on the balances of loans outstanding primarily due
to high prepayment rates, a competitive marketplace for loan originations and
the types of loans being made. Large amounts of 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 amongst residential mortgage lenders and loan
origination volumes began to slow. In the future, management intends to be
competitive in the residential mortgage market but will also emphasize greater
diversification with a focus on consumer and commercial loans. The Bank also has
been and will remain
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
active in pursuing wholesale opportunities to purchase loans. During 1995 and
1994, the Bank purchased approximately $43,300,000 and $9,000,000 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 Holbrook
acquisitions and deposit growth during 1995, 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 aggressively been 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, the market area in which the Bank operates began to show some
signs of pricing competitiveness for deposits, particularly certificates of
deposits. At the same time, the banks in the Bank's market area have not been
aggressive in pricing of core deposits. This has resulted in many banks
experiencing a shift from core deposits to certificates of deposit reflecting
consumers' desire to increase their rate of return on their deposits. The Bank
experienced migration of approximately $10 million of core deposits to
certificates of deposit in 1995. Management anticipates that there will be
continued pressure to increase rates paid on deposits in 1996 and would expect
the cost of deposits to increase in future periods from current levels.
Borrowed funds totaled $145,609,000 at December 31, 1995 compared to
$134,155,000 at December 31, 1994. These borrowings are primarily comprised of
FHLB of Boston advances and have primarily funded residential loan originations
and the purchase of seasoned loans and mortgage-backed investments. Management
believes that the current amount of borrowings as a percentage of interest
bearing liabilities is not inconsistent with the Bank's ability to meet asset
liability objectives.
The table on the following page sets forth maturity and repricing information
relating to interest-sensitive assets and liabilities and the Bank's interest
rate swap at December 31, 1995. 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 along
with investment and mortgage-backed securities, regardless of held in portfolio
or available for sale classification, are shown in the table in the time periods
corresponding to projected principal amortization computed based on their
respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market. Adjustable-rate
loans and securities are allocated to the period in which the rates would be
next adjusted. The table 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 six months. This table does
not include non-interest bearing NOW accounts.
While this table presents a negative gap position in the six month to five 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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
REPRICING/MATURITY INTERVAL
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. Over 5 Yrs. Total
- - - ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ 148 $ -- $ -- $ -- $ -- $ -- $ 148
Bonds and obligations 12,928 3,000 2,887 2,035 2,109 -- 22,959
Mortgage-backed investments 27,947 18,946 13,663 10,164 19,519 49,019 139,258
Mortgage loans subject
to rate review 51,077 10,886 23,225 7,484 519 -- 93,191
Fixed-rate mortgage loans 18,711 16,452 27,153 20,919 28,379 34,578 146,192
Commercial and other loans -
contractual maturity 5,765 4,197 6,007 3,296 1,810 1,560 22,635
--------- --------- --------- -------- -------- ------- --------
Total 116,576 53,481 72,935 43,898 52,336 85,157 424,383
--------- --------- --------- -------- -------- ------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 21,432 -- -- -- -- -- 21,432
Savings deposits - term
certificates 52,570 22,075 25,032 10,476 19,687 -- 129,840
Other savings accounts 104,226 -- -- -- -- -- 104,226
Borrowed funds 57,612 51,000 21,997 15,000 -- -- 145,609
--------- --------- --------- -------- -------- ------- --------
Total 235,840 73,075 47,029 25,476 19,687 -- 401,107
--------- --------- --------- -------- -------- ------- --------
Impact of interest-rate swap (14,275) -- 14,275 -- $ -- -- --
--------- --------- --------- -------- -------- ------- --------
Excess (deficiency) of
rate-sensitive assets over
rate-sensitive liabilities $(133,539) $ (19,594) $ 40,181 $ 18,422 $ 32,649 $85,157 $ 23,276
--------- --------- --------- -------- -------- ------- --------
Cumulative excess (deficiency) of
rate-sensitive assets over
rate-sensitive liabilities $(133,539) $(153,133) $(112,952) $(94,530) $(61,881) $23,276
========= ========= ========= ======== ======== =======
Rate-sensitive assets as a percent
of rate-sensitive liabilities(1) 46.6% 52.6% 69.5% 76.1% 85.1% 105.8%
</TABLE>
(1) Cumulative as to the amounts previously repriced or matured. Assets
held for sale are reflected in the period in which sales are expected
to take place. Securities classified as available for sale are shown at
repricing/maturity intervals as if they are to be held to maturity as
there is no definitive plan of disposition. They are also shown at
amortized cost.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
18
<PAGE> 20
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, 1995, the Bank had
approximately $116,543,000 in unused borrowing capacity which is contingent upon
the purchase of additional FHLB of Boston stock. Use of this borrowing capacity
is also impacted by capital adequacy considerations.
Deposits and borrowed funds increased $44,681,000 or 11.7% from $380,998,000 at
December 31, 1994 to $425,679,000 at December 31, 1995. Deposit growth in 1995
was influenced by the acquisition of Holbrook and other growth in the Bank's
retail deposit base. Borrowed funds have increased as a result of growth in the
Bank's mortgage-backed investment and loan portfolios. Given the growth achieved
by the Bank in 1995, borrowings have served as a lower cost method of
accomplishing growth objectives. In 1996 and considering the current economic
environment, management intends to limit the use of borrowed funds to achieve
growth objectives and to rely more heavily on the expansion of the Bank's
deposit base when practicable.
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 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 Board of Directors, also works on the collection
of non-accrual loans and the disposition of real estate acquired by foreclosure.
Non-performing assets were $1,798,000 at December 31, 1995 compared to
$6,674,000 at December 31, 1994, a decrease of $4,876,000 or 73.1%, much of
which was related to the Bank's decision to sell certain non-performing and high
maintenance loans in the third quarter of 1995. The Bank's ratio of delinquent
loans to total loans was 1.45% at December 31, 1995 as compared to 3.70% at
December 31, 1994.
During 1995, the Bank maintained a general reserve for other real estate owned
in light of the level of foreclosures, softness of the local real estate market
(particularly commercial) and costs associated with selling properties.
Provisions of $185,300 were made for possible losses on other real estate owned
in 1995. The provisions are reflected in net writedowns of other real estate
owned on the accompanying Consolidated Statement of Operations. The balance of
the general other real estate owned reserve at December 31, 1995 was
approximately $104,000 compared to $32,000 at December 31, 1994.
There continues 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.
The Bank's total stockholders' equity was $30,561,000, or 6.6% of total assets
at December 31, 1995, compared with $28,366,000, or 6.7% of total assets at
December 31, 1994. The increase in total stockholders' equity, which was
primarily impacted by earnings of the Bank and offset in part, by dividends
paid, was approximately $2,195,000 or 7.74%. Additionally, favorable market
movements have reduced the Bank's net unrealized loss of securities classified
as available for sale since December 31, 1994 which has also contributed to the
increase in equity balances at December 31, 1995. 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 the 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, 1995 the Bank's Tier 1
leverage capital ratio was 5.77%, exceeding applicable regulatory capital
requirements.
In addition, the FDIC has adopted risk-based capital guidelines for banks which
define core, or "Tier 1", capital and supplementary or "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, 1995 was 11.86%, exceeding applicable risk-based capital
guidelines.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 SAVINGS BANK THE 1995 ANNUAL REPORT
20
<PAGE> 22
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF ABINGTON SAVINGS BANK:
We have audited the accompanying consolidated balance sheets of Abington Savings
Bank and subsidiaries ("the Bank") as of December 31, 1995 and 1994, 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, 1995. 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
misstatement. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Bank adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" as of January 1, 1993.
/s/ Arthur Andersen, LLP
Boston, Massachusetts
January 19, 1996
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
21
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
-------- --------
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks (Note 18) $ 10,463 $ 8,644
Short-term investments 148 142
-------- --------
Total cash and cash equivalents 10,611 8,786
-------- --------
Loans held for sale (Note 6) 3,022 175
Securities (Notes 4, 9 and 10):
Held for investment - at cost
Investment securities - market value of $19,413
in 1994 - 20,648
Mortgage-backed investments - market value of
$68,697 in 1995 and $85,514 in 1994 68,794 92,877
-------- --------
Total securities held for investment 68,794 113,525
Available for sale - at market value 96,087 41,286
-------- --------
Total securities 164,881 154,811
-------- --------
Loans (Notes 6, 9 and 10) 259,786 238,894
Less: Allowance for possible loan losses (1,433) (2,845)
Unearned income (790) (610)
-------- --------
Loans, net 257,563 235,439
-------- --------
Federal Home Loan Bank stock 7,399 7,399
Banking premises and equipment, net (Note 7) 6,528 5,145
Other real estate owned, net (Note 6) 1,070 1,272
Intangible assets (Notes 1 and 2) 4,009 3,269
Other assets (Note 11) 5,409 5,537
-------- --------
$460,492 $421,833
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8) $280,070 $246,843
Short-term borrowings (Note 9) 61,308 58,052
Long-term debt (Note 10) 84,301 76,103
Accrued taxes and expenses (Notes 11 and 14) 2,408 2,297
Other liabilities 1,844 10,172
-------- --------
Total liabilities $429,931 $393,467
-------- --------
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; 2,321,000 shares issued in 1995 and
2,312,000 shares issued in 1994 232 231
Additional paid-in capital 20,811 20,721
Retained earnings 13,676 12,999
-------- --------
34,719 33,951
Treasury stock - 437,000 shares, at cost (3,703) (3,703)
Unearned compensation - ESOP (393) (475)
Net unrealized loss on available for sale
securities, net of taxes (62) (1,407)
-------- --------
Total stockholders' equity 30,561 28,366
-------- --------
$460,492 $421,833
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
22
<PAGE> 24
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
(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) $ 20,788 $ 18,177 $ 15,922
Interest on mortgage-backed investments 8,984 7,503 6,738
Interest on bonds and obligations 1,536 927 513
Dividend income 574 465 381
Interest on short-term investments 67 10 37
----------- ----------- -----------
Total interest and dividend income 31,949 27,082 23,591
----------- ----------- -----------
Interest expense:
Interest on deposits (Note 8) 9,681 7,513 7,619
Interest on short-term borrowings (Note 9) 4,546 3,244 1,514
Interest on long-term debt (Note 10) 3,995 3,592 3,169
----------- ----------- -----------
Total interest expense 18,222 14,349 12,302
----------- ----------- -----------
Net interest income 13,727 12,733 11,289
Provision for possible loan losses (Note 6) 2,233 610 720
----------- ----------- -----------
Net interest income, after provision for
possible loan losses 11,494 12,123 10,569
----------- ----------- -----------
Non-interest income (charges):
Loan servicing fees (Note 6) 713 646 617
Other customer service fees 1,644 1,050 759
Gain on sales of investment securities, net 141 60 --
Gain on sales of mortgage-backed investments, net 40 262 459
Gain on sales of mortgage loans, net 453 389 890
Writedown of investment in limited partnership (110) -- --
Net loss on sales and writedown of other real
estate owned (92) (2) (478)
Other 119 56 40
----------- ----------- -----------
Total non-interest income 2,908 2,461 2,287
----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits
(Notes 12, 14 and 17) 5,635 5,047 4,011
Occupancy and equipment expenses
(Notes 7 and 12) 2,010 1,721 1,509
Other non-interest expenses (Note 15) 4,310 3,487 3,251
----------- ----------- -----------
Total non-interest expense 11,955 10,255 8,771
----------- ----------- -----------
Income before income taxes and cumulative effect of
accounting change 2,447 4,329 4,085
Provision for income taxes (Note 11) 1,018 1,586 1,556
----------- ----------- -----------
Income before cumulative effect of accounting
change 1,429 2,743 2,529
Cumulative effect of change in accounting for income
taxes (Note 11) -- -- 650
----------- ----------- -----------
Net income $ 1,429 $ 2,743 $ 3,179
=========== =========== ===========
Earnings per share:
Income before cumulative effect of accounting
change $ .73 $ 1.40 $ 1.31
Cumulative effect of accounting change -- -- .34
----------- ----------- -----------
Net income $ .73 $ 17.40 $ 1.65
=========== =========== ===========
Weighted average shares outstanding 1,964,000 1,961,000 1,931,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
23
<PAGE> 25
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Gain (loss)
Additional on Available
Common Paid-in Retained Treasury for Sale
Stock Capital Earnings Stock Securities
- - - -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 230 $ 20,648 $ 7,827 $ (3,703) $ --
Net income -- -- 3,179 -- --
Exercise of stock options 1 51 -- -- --
Amortization of unearned compensation-
ESOP -- -- -- -- --
Recapitalization of ESOP -- -- -- -- --
Unrealized gain on available for sale
securities, net of taxes -- -- -- -- 193
-------- -------- -------- -------- --------
Balance at December 31, 1993 $ 231 $ 20,699 $ 11,006 $ (3,703) $ 193
Net income -- -- 2,743 -- --
Exercise of stock options -- 22 -- -- --
Amortization of unearned compensation-
ESOP -- -- -- -- --
Dividends declared ($.40 per share) -- -- (750) -- --
Change in unrealized gain on available
for sale securities, net of taxes -- -- -- -- (1,600)
-------- -------- -------- -------- --------
Balance at December 31, 1994 $ 231 $ 20,721 $ 12,999 $ (3,703) $ (1,407)
Net income -- -- 1,429 -- --
Exercise of stock options 1 90 -- -- --
Amortization of unearned compensation-
ESOP -- -- -- -- --
Dividends declared ($.40 per share) -- -- (752) -- --
Changes in unrealized loss on available
for sale securities as a result of
transfers from held for investment,
net of tax -- -- -- -- (169)
Change in unrealized loss on
available for sale securities, net
of taxes -- -- -- -- 1,514
-------- -------- -------- -------- --------
Balance at December 31, 1995 $ 232 $ 20,811 $ 13,676 $ (3,703) $ (62)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Unearned
Compensation-
ESOP Total
- - - -------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at December 31, 1992 $ (39) $ 24,963
Net income -- 3,179
Exercise of stock options -- 52
Amortization of unearned compensation-
ESOP 52 52
Recapitalization of ESOP (570) (570)
Unrealized gain on available for sale
securities, net of taxes -- 193
-------- --------
Balance at December 31, 1993 $ (557) $ 27,869
Net income -- 2,743
Exercise of stock options -- 22
Amortization of unearned compensation-
ESOP 82 82
Dividends declared ($.40 per share) -- (750)
Change in unrealized gain on available
for sale securities, net of taxes -- (1,600)
-------- --------
Balance at December 31, 1994 (475) $ 28,366
Net income -- 1,429
Exercise of stock options -- 91
Amortization of unearned compensation-
ESOP 82 82
Dividends declared ($.40 per share) -- (752)
Changes in unrealized loss on available
for sale securities as a result of
transfers from held for investment,
net of tax -- (169)
Change in unrealized loss on
available for sale securities, net
of taxes -- 1,514
-------- --------
Balance at December 31, 1995 $ (393) $ 30,561
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
24
<PAGE> 26
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,429 $ 2,743 $ 3,179
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 2,233 610 720
Net loss on sales and writedown of other real
estate owned and investments in limited
partnerships 202 2 478
Amortization, accretion and depreciation, net 1,478 1,259 2,039
Provision for deferred taxes 379 71 31
Cumulative affect of change in accounting -- -- (650)
Gain on redemption of mortgage-backed investment held
for investment -- (215) --
Gain on sales of investment securities and
mortgage-backed investments, net (181) (107) (459)
Gain on sales of mortgage loans, net (453) (389) (890)
Loans originated for sale in the secondary market (40,192) (58,151) (94,500)
Proceeds from sales of loans originated for sale 37,762 59,649 97,032
Other, net (9,782) 9,277 857
--------- --------- ---------
Net cash provided (used) by operating activities (7,125) 14,749 7,837
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturities of interest-bearing
deposits in banks -- -- 206
Net cash received in acquisitions 14,875 3,046 --
Maturities of investment securities - held
for investment 1,748 1,594 2,290
Purchase of investment securities - held for investment (10,164) (11,693) (9,098)
Proceeds from sales and principal payments received
and redemptions of mortgage-backed investments -
held for investment 9,469 12,676 54,348
Purchase of mortgage-backed investments -
held for investment (15,022) (34,977) (70,417)
Proceeds from sales of available for sale securities 11,891 27,644 --
Proceeds from principal payments on available for
sale securities 8,294 8,508 --
Purchase of available for sale securities (13,965) (36,155) --
Loans originated and purchased, net (38,699) (13,480) (17,246)
Proceeds from sales of loans held in portfolio 13,548 1,214 --
Proceeds from sales of FHLB stock -- -- 686
Purchases of FHLB stock -- (2,056) (1,804)
Purchase of banking premises and equipment and
improvements to other real estate owned (1,914) (957) (1,076)
Proceeds from sales of other real estate owned 1,000 1,901 2,433
Investments and advances made to low income housing
limited partnerships -- (34) (38)
--------- --------- ---------
Net cash used in investing activities (18,939) (42,769) (39,716)
--------- --------- ---------
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
25
<PAGE> 27
Consolidated Statements of Cash Flows (Condo)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 16,908 3,957 7,806
Net increase (decrease) in borrowings with
maturities of three months or less (6,244) (51,369) 54,421
Proceeds from issuance of short-term borrowings
with maturities in excess of three months 29,500 145,000 --
Principal payments on short-term borrowings with
maturities in excess of three months (20,000) (90,000) (36,000)
Proceeds from issuance of long-term debt 36,000 41,500 13,000
Principal payments on long-term debt (27,802) (17,897) (9,039)
Payment of cash dividends (564) (563) --
Proceeds from the exercise of stock options 91 22 52
Recapitalization of ESOP -- -- (570)
--------- --------- ---------
Net cash provided by financing activities 27,889 30,650 29,670
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,825 2,630 (2,209)
Cash and cash equivalents at beginning of year 8,786 6,156 8,365
--------- --------- ---------
Cash and cash equivalents at end of year $ 10,611 $ 8,786 $ 6,156
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on deposits $ 9,676 $ 7,519 $ 7,625
Interest paid on borrowed funds 8,219 6,522 4,653
Income taxes paid 1,098 1,724 2,384
Transfers of loans to other real
estate owned 848 403 1,859
Transfers of securities to available-for-sale
from held for investment 66,692 -- 42,329
Transfers 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 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 and Norroway Pond Development Corporation each owning
properties being marketed for sale, ABBK Corporation, which invests in real
estate development limited partnerships, and Abington Securities Corporation
which invest primarily in obligations of the United States government and its
agencies and equity securities. All significant intercompany balances and
transactions have been eliminated in consolidation.
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 1994 and 1993 consolidated financial statements have been
reclassified to conform to the 1995 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than three months and federal funds sold on a daily
basis.
SECURITIES
Investment securities are classified in one of three 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, 1995
and 1994.
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. 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 ninety days, and/or in the judgment of
management, when 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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
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 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 further 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.
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, 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.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." This Statement requires the recognition of a separate asset for the
rights to service mortgage loans for others however those servicing rights are
created. SFAS No. 122 will impact the Bank as fixed rate loan originations
having terms in excess of 15 years are generally sold in the secondary mortgage
market with the 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 right based on the relative fair values of such servicing
right and the loan. The value of such servicing rights are required to be
periodically assessed for impairment based on the fair value of those rights.
Upon adoption, SFAS No. 122 is to be applied on a prospective basis. This
Statement is required to be adopted no later than January 1, 1996. The impact
will be dependent primarily upon the level of fixed rate loan originations.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement
requires a review for impairment of long-lived assets and certain identifiable
intangibles to be held and used by an entity whether events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. An impairment loss would be recognized if the sum of the expected
future cash flows to result from the use and eventual disposition of the asset
is less than the carrying amount of the asset. The amount by which the carrying
amount of the asset exceeds the asset's fair value is the total impairment loss
to be recognized. The statement also requires that for certain long-lived assets
to be disposed of, the amount by which the carrying amount of the asset exceeds
the fair value less costs to sell, is an impairment loss to be recognized. This
statement does not apply to financial instruments, core deposit intangibles,
mortgage and other servicing rights, or deferred tax assets. This statement
would apply to fiscal years beginning after December 15, 1995. The effects on
the Bank's financial condition and results of operations are not expected to be
material.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure and acquired by deed in lieu of foreclosure
is 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.
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.
INVESTMENTS IN REAL ESTATE
LIMITED PARTNERSHIPS
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 writedowns 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
expected life of seven to ten years. Goodwill is being amortized on a
straight-line basis over 10 to 15 years. The carrying value of these assets is
periodically evaluated by management as to their expected future recoverability
and writedowns are recorded once impairment value is identified and quantified.
INCOME TAXES
The Bank and its subsidiaries file state and consolidated federal income tax
returns. Provisions for deferred income taxes are made as a result of temporary
differences between financial and income tax methods of accounting.
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes,"
which the Bank adopted as of January 1, 1993. SFAS No. 109 revised the
computation of deferred taxes so that the amount of deferred taxes on the
balance sheet is adjusted whenever tax rates or other provisions of the income
tax law are changed. The Bank's adoption of SFAS No. 109 as of January 1, 1993,
resulted in an increase to income through a cumulative adjustment of
approximately $650,000.
Investment and rehabilitation tax credits are accounted for under the flow
through method as a reduction of income tax expense in the period they are
realized.
EARNINGS PER SHARE
Earnings per share are calculated based on the weighted average shares
outstanding, including the effect of dilutive stock options.
BENEFIT PLAN
The Bank accounts for pension plan benefits on the net periodic pension cost
method for financial reporting purposes. This method recognizes the compensation
cost of an employee's pension benefit over the employee's approximate service
period.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
29
<PAGE> 31
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 Bank accounted for this
transaction under the purchase method. 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.
The following table summarizes the allocation of the purchase price to the
assets and liabilities acquired on June 3, 1994:
<TABLE>
<CAPTION>
(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>
Based on unaudited data, the following table presents selected financial
information for 1994 and 1993, on a pro forma basis, excluding the cumulative
effect of the change in accounting for income taxes in 1993, assuming the Bank
and Hull had been combined as of January 1, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
------- -------
(In thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income $28,055 $26,063
Interest expense 14,771 13,433
Net interest income 13,284 12,630
Provision for possible loan losses 670 772
Non-interest income 2,498 2,448
Non-interest expense 10,736 9,997
Income before taxes 4,376 4,309
Net income 2,737 2,559
Earnings per share 1.40 1.37
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
3. REGULATORY MATTERS
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 Bank is subject to various regulatory capital requirements administered by
the FDIC. Failure to meet minimum capital requirements can initiate certain
mandatory - and possible additional discretionary - actions by FDIC 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, 1995, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 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, the Bank must maintain
minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios set forth in
the table. There are not conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table
below (dollars in thousands).
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C>
Risk Based - Tier 1 Capital:
Actual $26,615 11.86%
Minimum required $ 8,976 4.00%
Total (Tier 1 and Tier 2) Capital:
Actual $28,048 12.50%
Minimum required $17,953 8.00%
Tier 1 Leverage Capital:
Actual $26,615 5.77%
Minimum required $18,450 4.00%
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
4. SECURITIES
The amortized cost and market value of securities classified as held for
investment at December 31, 1995 and 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities -
Federal Home Loan
Mortgage Corporation $ 20,084 $ 31 $ 214 $ 19,901 $ 30,067 $ 11 $ 2,384 $ 27,694
Federal National
Mortgage Association 31,387 299 229 31,457 60,543 -- 4,940 55,603
Other 17,323 46 30 17,339 2,267 -- 50 2,217
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed securities $ 68,794 $ 376 $ 473 $ 68,697 $ 92,877 $ 11 $ 7,374 $ 85,514
-------- -------- -------- -------- -------- -------- -------- --------
Investment securities -
U.S. Government obligations $ -- $ -- $ -- $ -- $ 499 $ 2 $ -- $ 501
Federal agency obligations -- -- -- -- 12,888 -- 868 12,020
Other bonds and obligations -- -- -- -- 7,261 -- 369 6,892
-------- -------- -------- -------- -------- -------- -------- --------
Total investment securities $ -- $ -- $ -- $ -- $ 20,648 $ 2 $ 1,237 $ 19,413
-------- -------- -------- -------- -------- -------- -------- --------
$ 68,794 $ 376 $ 473 $ 68,697 $113,525 $ 13 $ 8,611 $104,927
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The amortized cost and market value of securities classified as available for
sale at December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
------- ------ ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities -
U.S. Government obligations 9,428 7 38 9,397 $ -- $ -- $ -- $ --
Federal agency obligations 8,378 98 154 8,322 -- -- -- --
Other bonds and obligations 5,153 69 1 5,221 -- -- -- --
------- ------ ------- ------- ------- ------ ------- -------
Total investment securities $22,959 $ 174 $ 193 $22,940 $ -- $ -- $ -- $ --
------- ------ ------- ------- ------- ------ ------- -------
Marketable equity securities $ 2,768 $ 335 $ 99 $ 3,004 $ 315 $ -- $ 34 $ 281
Mortgage-backed securities -
Federal Home Loan
Mortgage Corporation $17,941 $ 65 $ 360 $17,646 $13,830 $ -- $ 963 $12,867
Federal National
Mortgage Association 48,044 292 356 47,980 24,555 -- 1,347 23,208
Government National
Mortgage Association 4,479 38 -- 4,517 4,930 -- -- 4,930
------- ------ ------- ------- ------- ------ ------- -------
$70,464 $ 395 $ 716 $70,143 $43,315 $ -- $ 2,310 $41,005
------- ------ ------- ------- ------- ------ ------- -------
$96,191 $ 904 $ 1,008 $96,087 $43,630 $ -- $ 2,344 $44,286
======= ====== ======= ======= ======= ====== ======= =======
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
4. SECURITIES (CONT.)
Included in securities at December 31, 1995 are gross premiums and discounts of
$2,062,000 and $1,625,000, respectively. The market value and amortized cost of
investments and mortgage-backed securities at December 31, 1995 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 (in
thousands).
<TABLE>
<CAPTION>
Investment Securities
---------------------
Amortized Cost Market Value
-------------- ------------
<S> <C> <C>
Within 1 year $ 4,316 $ 4,326
Over 1 year to 5 years 6,028 5,935
Over 5 years to 10 years 4,225 4,325
Over 10 years 8,390 8,354
------- -------
$22,959 $22,940
======= =======
</TABLE>
<TABLE>
<CAPTION>
Mortgage-Backed Securities
--------------------------
Held for Investment Available for Sale
------------------- ------------------
Amortized Cost Amortized Cost
<S> <C> <C>
Within 1 year $12,852 $34,041
Over 1 year to 5 years 23,453 19,893
Over 5 years 32,489 16,530
------- -------
$68,794 $70,464
======= =======
</TABLE>
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Debt and Equity Securities" (SFAS No. 115), the FASB
allowed a one-time reassessment of the SFAS No. 115 classifications of all
securities currently held. Any reclassifications would be accounted for at fair
value in accordance with SFAS No. 115 and any reclassifications from the held
for investment portfolio that resulted from this one-time reassessment would not
call into question the intent of the Bank to hold other debt securities to
maturity in the future. The Bank used the opportunity under this one-time
reassessment to reclassify $66,692,000 in securities from held for investment to
the available-for-sale portfolio. In connection with this reclassification,
gross unrealized gains of $457,000 and gross unrealized losses of $738,000 were
recorded in available-for-sale securities and in stockholders' equity (on a
net-of-tax basis).
Proceeds from the sale of marketable equity securities were $751,000 and
$960,000, in 1995 and 1994, respectively. No marketable equity securities were
purchased or sold in 1993.
Proceeds from sales of mortgage-backed investments classified as available for
sale during 1995, 1994 and 1993 were $6,109,000, $26,684,000 and $22,392,000,
respectively. Gross gains of $69,000, $277,000 and $459,000 in 1995, 1994 and
1993, respectively, were realized on those sales. Gross losses of $29,000,
$233,000 and $926,000 were realized in 1995, 1994 and 1993, respectively.
A U. S. Government obligation security with a carrying value of $302,000 was
pledged to collateralize treasury, tax and loan obligations. A federal agency
obligation with a carrying value of $1,388,000 was pledged in connection with an
interest rate swap agreement which is described further in Note 5.
All mortgage-backed securities potentially may serve as collateral for FHLB of
Boston borrowings as part of a blanket collateral agreement as further described
in Note 9 or to collateralize repurchase agreements. As of December 31, 1995,
securities with a market value of approximately $3,024,000 were pledged to
collateralize borrowings.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
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, 1995, the floating rate was set at 5.98%. 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 $14,275,000 at December 31, 1995.
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 5.98% in 1995. 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 expense recognized by the Bank during 1995
as a result of this agreement was $35,000.
The Bank is exposed to credit losses in the event of non-performance by the
counterparty to the interest rate swap agreement. Such loss would be limited to
the periodic interest settlement amount outstanding should the counterparty be
in a net payable position to the Bank. The counterparty had a net receivable due
from the Bank at December 31, 1995. The Bank has not obtained any collateral or
other security to mitigate any credit losses but it monitors the credit standing
of the counterparty.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
6. LOANS AND OTHER REAL ESTATE OWNED
A summary of the loan portfolio follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(In thousands)
<S> <C> <C>
Mortgage loans:
Residential $ 200,368 $ 158,607
Second mortgages and home equity 18,027 19,756
Construction 6,805 7,017
Commercial 17,622 26,961
--------- ---------
242,822 212,341
Less: Due to borrowers on incomplete loans (2,499) (2,850)
Net deferred loan fees (940) (1,005)
--------- ---------
Total mortgage loans 239,383 208,486
--------- ---------
Commercial loans:
Unsecured lines of credit 477 677
Secured and unsecured 1,861 1,772
--------- ---------
Total commercial loans 2,338 2,449
--------- ---------
Other loans:
Indirect automobile 10,049 18,738
Personal 1,715 1,568
Education 728 746
Passbook and stock secured 6,980 5,320
Time sharing loans -- 158
Home improvement 675 599
--------- ---------
20,147 27,129
Net deferred loan costs 150 395
--------- ---------
Total other loans 20,297 27,524
--------- ---------
Total loans 262,018 238,459
Less allowance for possible loan losses (1,433) (2,845)
--------- ---------
Loans and loans held for sale, net $ 260,585 $ 235,614
========= =========
</TABLE>
Included in residential mortgages at December 31, 1995 and 1994 are
approximately $2,883,000 and $175,000, respectively, of loans held for sale. In
addition, approximately $143,000 of commercial loans were held for sale at
December 31, 1995. At December 31, 1995 and 1994, the estimated market values of
loans held for sale was in excess of their carrying value. The Bank was
servicing mortgage loans sold under nonrecourse agreements amounting to
approximately $252,940,000 and $229,010,000 at December 31, 1995 and 1994,
respectively. The Bank receives annual loan servicing fees ranging from .25% to
.425% of the declining principal balance of loans, plus all late charges.
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 work out.
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 $2,371,000 at December 31,
1995, and $2,800,000 at December 31, 1994. During the year ended December 31,
1995, total principal additions were $679,000 and total principal reductions
were $1,108,000.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
6. LOANS AND OTHER REAL ESTATE OWNED (Cont.)
The following analysis summarizes the Bank's non-performing assets at December
31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C>
Impaired loans or loans accounted for on a non accrual basis $ 485 $5,249
Accruing loans past due 90 days or more
as to principal or interest 243 153
------ ------
Total non performing loans 728 5,402
Other real estate owned 1,070 1,272
------ ------
Total non performing assets $1,798 $6,674
====== ======
</TABLE>
At December 31, 1995, impaired loans totaling $114,000 required an allocation of
$35,000 of the allowance for possible loan losses. The remaining impaired loans
did not require any allocation of the reserve for possible loan losses.
During 1995, the average balance of impaired loans was approximately $3,733,000.
The total amount of interest income recognized on impaired loans during 1995 was
approximately $284,000, which approximated the amount of cash received for
interest during that period.
If non-accrual 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 recognized in
interest income on loans accounted for on a non-accrual basis, respectively. 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:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 2,845 $ 2,051
Provision 2,233 610
Recoveries 232 28
Reserves acquired from Hull -- 577
------- -------
5,310 3,266
Loans charged off (3,877) (421)
------- -------
Balance at end of year $ 1,433 $ 2,845
======= =======
</TABLE>
An analysis of the general allowance for possible losses on other real estate
owned is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
Balance at beginning of year $ 31,700 $182,500
Provision 185,300 134,800
Charge-offs (113,300) (285,600)
--------- --------
Balance at end of year $ 103,700 $ 31,700
========= ========
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
7. BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives is as follows:
<TABLE>
<CAPTION>
December 31, Estimated
1995 1994 Useful Lives
------------------- ------------
(In thousands)
<S> <C> <C> <C>
Banking premises:
Land $ 671 $ 671
Buildings and improvements 4,834 3,623 10-25 years
Leasehold improvements 523 284 10-15 years
Equipment 6,336 5,462 3-10 years
-------- ---------
12,364 10,040
Less accumulated depreciation (5,836) (4,895)
-------- ---------
$ 6,528 $ 5,145
======== =========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993
amounted to $941,000, $861,000 and $834,000, respectively.
8. DEPOSITS
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------
(In Thousands)
<S> <C> <C>
Non-interest NOW $ 24,572 $ 17,877
NOW 30,378 22,804
Other savings 73,848 73,074
Money market deposits 21,432 25,201
-------- --------
Total non-certificate accounts 150,230 138,956
Term certificate accounts 113,146 95,538
Certificates of deposit greater than $100 16,694 12,052
Brokered certificates of deposit -- 297
-------- --------
Total certificate accounts 129,840 107,887
-------- --------
Total deposits $280,070 $246,843
======== ========
</TABLE>
A summary of certificate accounts by maturity is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(Dollars in Thousands)
Weighted Weighted
Amount Average Rate Amount Average Rate
<S> <C> <C> <C> <C>
Within 1 year $ 74,645 5.70% $ 48,952 4.87%
Over 1 year to 3 years 35,508 5.93 43,474 5.67
Over 3 years to 5 years 19,687 6.80 15,461 5.82
-------- --------
$129,840 5.93% $107,887 5.33%
======== ========
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
9. SHORT-TERM BORROWINGS
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 and 75% of the carrying
value of residential mortgage loans.
Information relating to activity and rates paid under these borrowing agreements
is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings
outstanding during the year $108,683 $77,780 $55,380
Average month-end borrowings
outstanding during the year $ 73,728 $67,066 $44,624
Average interest rate during
the year 6.17% 4.84% 3.39%
Unused line of credit at Federal
Home Loan Bank of Boston $ 6,689 $ 3,728 $ 3,459
Amount outstanding at end of year $ 61,308 $58,052 $54,421
Weighted average interest rate
at end of year 5.75% 6.00% 4.03%
</TABLE>
10. LONG-TERM DEBT
A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than one year is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------
(Dollars in thousands)
Maturity Interest
Date Rate
---- ----
<S> <C> <C> <C>
January 30, 1995 5.91% $ -- $ 2,500
March 27, 1995 4.32 -- 4,000
April 17, 1995 6.19 -- 2,500
May 22, 1995 5.98 -- 3,000
October 10, 1995 6.95 -- 3,000
November 20, 1995 5.59 -- 5,000
May 6, 1996** 5.77 1,305 3,804
June 10, 1996 4.82 5,000 5,000
August 16, 1996 6.57 6,000 6,000
September 23, 1996 6.56 10,000 10,000
September 23, 1996 5.47 4,000 4,000
October 28, 1996 5.90 5,000 5,000
March 25, 1997 5.25 4,000 4,000
May 5, 1997** 6.12 5,232 8,460
July 15, 1997** 6.32 3,764 5,839
August 18, 1997 6.94 4,000 4,000
October 27, 1997 5.83 5,000 --
November 24, 1997* 5.82 16,000 --
November 9, 1998 5.80 15,000 --
------- -------
$84,301 $76,103
======= =======
</TABLE>
* Variable rate advance with quarterly resets; with prepayment option at reset
dates without penalty
** Amortizing advance
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 595 $1,299 $1,290
State 44 216 235
------ ------ ------
639 1,515 1,525
------ ------ ------
Deferred:
Federal 264 52 28
State 115 19 3
------ ------ ------
379 71 31
------ ------ ------
Total $1,018 $1,586 $1,556
====== ====== ======
</TABLE>
The reason for the differences between the effective tax rates and the statutory
tax rates are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.3 3.6 3.9
Amortization of non
deductible goodwill 3.1 .9 --
Decrease in valuation allowance -- (2.9) --
Other, net .2 1.0 .2
------ ------ ------
41.6% 36.6% 38.1%
====== ====== ======
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
11. INCOME TAXES (CON'T.)
The components of net deferred tax assets recorded as of December 31, 1995,
1994, and 1993 are as follows (assets/(liabilities)):
<TABLE>
<CAPTION>
December 31,
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Book loan loss reserves in excess of tax $ 884 $ 1,087 $ 956
Loan fee income recognized for tax not
for books 165 204 328
Dividends on deposits not yet deducted for
tax purposes 154 200 240
Pension expense deducted for book not
for tax 209 128 128
Tax capital loss carry forwards not yet
benefitted for tax purposes -- -- 63
Equity in partnership losses recognized
in different periods for tax purposes (1,185) (1,225) (1,224)
Core deposit intangible (278) (289) --
Other, net 131 29 121
------- ------- -------
80 134 612
Less: valuation allowance -- -- (124)
------- ------- -------
80 134 488
Deferred tax - assets (liabilities)
applicable to unrealized gains/losses on
available for sale securities 42 938 (129)
------- ------- -------
Net deferred tax assets included in other
assets $ 122 $ 1,072 $ 359
======= ======= =======
</TABLE>
A valuation reserve of $124,000 established by management at January 1, 1993 was
due to limitations on the Bank's ability to carryback tax losses for state
purposes and potential limitations on realizing all or a portion of the capital
loss carryforward before expiration. In 1994, the Bank realized the tax capital
loss carryforwards as the result of certain capital gain transactions.
For federal income tax purposes, the Bank is allowed the use of a bad debt
deduction method based on taxable income, subject to certain limitations. If
such accumulated amounts, or any portion thereof, are used for purposes other
than to absorb the losses for which the reserve was established, 150% of such
amount must be included as income in computing federal income taxes. At December
31, 1995, 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 that are not reflected in the consolidated financial statements.
LITIGATION
The Bank is a defendant in various 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 three-year period
following a "change in control," as defined in the agreements.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES (CON'T.)
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
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, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Contract amount of:
Commitments to grant loans $10,266,000 $12,615,000
Commitments to sell loans 2,062,000 1,378,000
Unadvanced funds on home equity
lines of credit 11,389,000 12,286,000
Unadvanced funds on other lines
of credit 984,000 1,790,000
Commitments to advance funds under
construction loan agreements 2,499,000 2,850,000
</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
$192,000 at December 31, 1995. 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 any of these projects 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
Pursuant to the terms of noncancellable lease agreements in effect, future
minimum rent commitments for the next five years and thereafter are as follows
at December 31, 1995 (in 000s):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 220
1997 221
1998 175
1999 180
2000 159
2001 and thereafter 1,372
------
$2,327
======
</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, 1995, 1994 and
1993 amounted to approximately $156,000, $81,000 and $44,000, respectively.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
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 $13,676,000 at December 31, 1995.
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 SAVINGS BANK THE 1995 ANNUAL REPORT
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
14. PENSION AND MANAGEMENT INCENTIVE PLANS
The Bank provides basic and supplemental 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 twelve-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 three years of
service or at age 62, if earlier.
Net periodic pension expense for the plan years ended October 31, 1995, 1994 and
1993, consisted of the following:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 184 $ 204 $ 161
Interest cost on projected
benefits 163 146 125
Actual return on plan assets (326) (106) (206)
Net amortization and deferral 176 (27) 106
----- ----- -----
$ 197 $ 217 $ 186
===== ===== =====
</TABLE>
According to SBERA's actuary, a reconciliation of the funded status of the plan
at October 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
October 31,
- - - --------------------------------------------------------------------------------
1995 1994
- - - --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Plan assets at fair value, primarily
bonds, common stock, and short-term
money market investments $ 2,294 $ 1,735
Projected benefit obligation (2,567) (2,041)
------- -------
Excess of projected benefit obligation
over plan assets (273) (306)
Unrecognized net surplus at
adoption (100) (106)
Unrecognized net gain (122) (109)
------- -------
Accrued pension liability included on
balance sheet $ (495) $ (521)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1995 and 1994 amounted to $1,679,000 and $1,461,000, respectively, which is less
than the plan assets at fair value.
For the plan years ended October 31, 1995, 1994 and 1993, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.00%, 8.00% and
7.00% respectively, and an expected long-term rate of return on plan assets of
8.00%, 7.00% 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 1995, 1994 and 1993 was approximately $150,000, $192,000, and
$147,000, respectively.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
15. OTHER NON-INTEREST EXPENSES
Other non-interest expense consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Professional services $1,124 $1,067 $1,082
Advertising 598 303 229
Deposit insurance 324 528 506
Real estate in foreclosure and
other real estate owned 491 312 275
Amortization of intangible
assets 355 182 107
Other 1,418 1,095 1,052
------ ------ ------
$4,310 $3,487 $3,251
====== ====== ======
</TABLE>
16. STOCK OPTION PLAN
The Bank has a stock option plan whereby options to purchase a total of 230,000
shares have been reserved of which 203,850 shares have been granted to officers,
certain other employees and directors. The per share exercise prices of the
options granted range from $3.00 to $16.06 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, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- - - --------------------------------------------------------------------------------
1995 1994 1993
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 159,462 134,850 141,200
Granted 35,250 29,000 3,000
Exercised (8,800) (3,388) (8,550)
Canceled (2,000) (1,000) (800)
-------- -------- --------
Outstanding at end of year 183,912 159,462 134,850
======== ======== ========
Exercisable at end of year 163,662 159,462 134,850
======== ======== ========
Option price per share $3.00-$16.06 $3.00-$16.06 $3.00-$11.25
</TABLE>
In October 1993, in conjunction with its existing 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 is a three-year program which provides a mechanism for granting options
under the Bank's stock option plan. Options to purchase a maximum of 23,250
shares of common stock for each of the 1993, 1994, and 1995 fiscal years may be
granted to members of the Board of Directors and certain principal officers. All
options as 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 is at least equal to the fair market
value of the Common Stock on the date of grant, which is the date of the
February regular meeting of the Board of Directors 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 exceed 140% of the exercise
price for a period of five consecutive business days.
All options granted become fully vested at the end of the ninth year. The
maximum amount of options which can become exercisable in any one 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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
17. EMPLOYEE'S 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 seven
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, 1995, 1994 and 1993
amounted to $82,000, $82,000 and $52,000, respectively.
The balance of the Unearned Compensation-ESOP shown in stockholders' equity is
equal to the present value of unearned compensation to be contributed on behalf
of the employees for future services.
In the event that the stock price of the Bank 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 Consolidated
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 1995, 1994 and 1993.
18. RESTRICTIONS ON CASH AND DUE FROM BANKS
At December 31, 1995 and 1994, cash and due from banks included $1,379,000 and
$1,115,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.
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.
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CON'T.)
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
- - - ----------------------------------------------------------------------------------------
1995 1994
- - - ----------------------------------------------------------------------------------------
(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 $ 10,611 $ 10,611 $ 8,786 $ 8,786
Securities 164,881 164,784 154,811 146,213
Loans, including held for sale,
net 260,585 263,024 235,614 235,127
Financial instrument liabilities:
Deposits $280,070 $280,897 $246,843 $244,237
Short-term borrowings 61,308 60,918 58,052 58,033
Long-term debt 84,301 84,819 76,103 73,992
Off balance sheet financial instruments:
Commitments to grant loans $ 10,266 $ 10,266 $ 12,615 $ 12,615
Commitments to sell loans 2,062 2,062 1,378 1,378
Unadvanced funds on home equity
lines of credit 11,389 11,389 12,286 12,286
Commitments to advance funds under
construction loan agreements . 2,499 2,499 2,850 2,850
Unadvanced funds on other lines of
credit 984 984 1,790 1,790
Interest rate swap agreement 14,275 14,364 14,616 13,942
</TABLE>
20. QUARTERLY DATA (UNAUDITED)
Operating results on a quarterly basis for the years ended December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- - - -----------------------------------------------------------------------------------------------------------------------------
1995 1994
- - - -----------------------------------------------------------------------------------------------------------------------------
(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 $ 8,493 $ 8,037 $ 7,748 $ 7,671 $ 7,623 $ 7,213 $ 6,414 $ 5,832
Interest expense 4,935 4,615 4,457 4,215 4,195 3,846 3,322 2,986
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 3,558 3,422 3,291 3,456 3,428 3,367 3,092 2,846
Provision for possible loan losses 129 1,804 150 150 150 150 150 160
------- ------- ------- ------- ------- ------- ------- -------
Net interest income, after provision
for possible loan losses 3,429 1,618 3,141 3,306 3,278 3,217 2,942 2,686
Non-interest income 910 567 835 596 657 542 671 591
Non-interest expenses 3,065 3,111 2,949 2,830 2,707 2,619 2,526 2,403
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes 1,274 (926) 1,027 1,072 1,228 1,140 1,087 874
Provision (benefit) for income taxes 485 (258) 385 406 491 456 407 232
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 789 $ (668) $ 642 $ 666 $ 737 $ 684 $ 680 $ 642
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share $ .40 $ (.36) $ .33 $ .34 $ .37 $ .35 $ .35 $ .33
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding 1,980 1,876 1,958 1,954 1,971 1,981 1,952 1,940
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
46
<PAGE> 48
STOCK MARKET DATA
- - - --------------------------------------------------------------------------------
STOCK MARKET DATA
The common stock of the Bank 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.
<TABLE>
<CAPTION>
Price Dividends
High Low Declared
---- --- --------
<S> <C> <C> <C>
1996 17 3/4 16 3/4 --
1st quarter
(through February 29, 1996)
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
1993
4th quarter 12 3/8 9 3/4 --
3rd quarter 10 3/4 9 1/4 --
2nd quarter 10 1/2 8 1/8 --
1st quarter 11 3/4 8 1/4 --
</TABLE>
As of February 29, 1996, the Bank had approximately 921 stockholders of record
who held 1,883,738 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.
ANNUAL REPORT ON FORM F-2
A copy of the Bank's Annual Report on Form F-2 for the year ended December 31,
1995 as filed with the Federal Deposit Insurance Corporation, is available to
stockholders (after March 30, 1996) without charge upon written request to:
Investor Relations,
Abington Savings Bank,
538 Bedford Street,
P.O. Box 2006,
Abington, MA 02351.
INQUIRIES
Edward J. Merritt
Executive Vice President and Chief Financial Officer
Abington Savings Bank
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
47
<PAGE> 49
DIRECTORS AND OFFICERS
- - - --------------------------------------------------------------------------------
DIRECTORS
James P. McDonough (1) President and Chief Executive
Officer, Abington Savings Bank
Robert J. Armstrong President and General Manager,
Armstrong Construction Corp.
Bruce G. Atwood (2) Vice President Operations,
Hyer Industries, Inc.
William F. Borhek (1) President,
William F. Borhek Associates
Ralph B. Carver, Jr. (1) President and Treasurer,
Den-LeaRental, Inc.
Joel S. Geller (1) Owner-Manager and Director of
Abington Liquors Corp.
Rodney Henrikson (2) Treasurer and Director,
Henrikson Realty Corp.
A. Stanley Littlefield (1) Attorney, private practice
Jay Timothy Noonan Manager, J. P. Noonan Trans., Inc.
Gordon N. Sanderson (2) Retired
James J. Slattery President, J. H. Slattery Insurance
Agency, Inc.
Wayne P. Smith Treasurer and Director,
Suburban Enterprises, Inc.
(1) Member of Executive Committee
(2) Member of Audit Committee
OFFICERS
James P. McDonough, President
& Chief Executive Officer
Edward J. Merritt, Executive Vice President
& Chief Financial Officer
Mario A. Berlinghieri, Senior Vice President -
Corporate Banking
Donna L. Thaxter, Senior Vice President -
Consumer Lending
Ruth E. Cook, Human Resources Officer
Elaine Crossland, Branch Officer
Ann E. Daigle, Assistant Vice President -
Small Business
Deborah C. Dillon, Loan Review Officer
Susan L. Driscoll, Assistant Vice President
Ida C. Frazier, Vice President -
Branch Operations
Mary E. Hagen, Assistant Vice President -
Controller
Mary S. Janney, Vice President -
Residential Lending
Julie Jenkins, Vice President - Operations
Robert M. Lallo, Vice President - Treasurer
Barbara M. Manning, Clerk
David J. McCarthy, Assistant Vice President
Marguerite J. Means, Assistant Vice President -
Collections
Cynthia A. Mulligan, Vice President - Retail Banking
Robert H. Mulligan, Assistant Vice President
Lewis J. Paragona, Vice President -
Human Resources
Evelyne A. Rico, Assistant Branch Officer
Dianne Rowan McBride, Branch Officer
Susan St. Germain-Downing, Cash Management Officer
Carol M. Sharpless, Branch Officer
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
48
<PAGE> 50
CORPORATE INFORMATION
- - - --------------------------------------------------------------------------------
Corporate Office Independent Certified
Public Accountants
Abington Savings Bank Arthur Andersen LLP
538 Bedford Street One International Place
Abington, MA 02351 Fort Hill Square
Boston, MA 02110
(617) 982-3200 (617) 330-4000
Legal Counsel Transfer Agent and
Foley, Hoag & Eliot Registrar
One Post Office Square State Street Bank & Trust
Boston, MA 02109 Boston EquiServe L.P.
P.O Box 8200
(617) 832-1000 Boston, MA 02266-8200
(800) 426-5523
BANKING OFFICES
Main Office Halifax Office
533 Washington Street 319 Monponsett Street
Abington, MA 02351 Halifax, MA 02338
Kingston Office Loan Center
157 Summer Street, Route 53 536 Washington Street
Kingston, MA 02364 Abington, MA 02351
Whitman Office Pembroke Office
584 Washington Street 175 Center Street
Whitman, MA 02382 Pembroke, MA 02358
Hull Office Abington High School
523 Nantasket Avenue Lincoln Boulevard Ext.
Hull, MA 02045 Abington, MA 02351
ABINGTON SAVINGS BANK THE 1995 ANNUAL REPORT
49
<PAGE> 1
Exhibit 99.4
[LOGO]
ABINGTON SAVINGS BANK
March 27, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting in Lieu of the Annual
Meeting of Stockholders (the "Annual Meeting") of Abington Savings Bank to be
held on Wednesday, April 24, 1996, at 9:30 a.m., local time, at the Sheraton
Tara Hotel, 37 Forbes Road, Braintree, Massachusetts.
At the Annual Meeting, you will be asked to consider and vote upon the
election of four Directors and the Clerk of the Bank. The Board of Directors has
fixed the close of business on Monday, February 26, 1996 as the record date for
determining stockholders entitled to notice of and to vote at the Annual
Meeting.
The officers and Directors look forward to greeting you personally at the
Annual Meeting. However, whether or not you plan to attend personally and
regardless of the number of shares you own, it is important that your shares be
represented.
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
Sincerely,
/s/ James P. McDonough
JAMES P. MCDONOUGH
President and
Chief Executive Officer
<PAGE> 2
ABINGTON SAVINGS BANK
533 WASHINGTON STREET
ABINGTON, MASSACHUSETTS 02351
NOTICE OF SPECIAL MEETING IN LIEU OF
THE ANNUAL MEETING OF STOCKHOLDERS
APRIL 24, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting in Lieu of the Annual Meeting
of Stockholders (the "Annual Meeting") of Abington Savings Bank, a Massachusetts
bank (the "Bank"), will be held at the Sheraton Tara Hotel, 37 Forbes Road,
Braintree, Massachusetts, on Wednesday, April 24, 1996, beginning at 9:30 a.m.,
local time, for the following purposes:
1. To elect four Directors of the Bank, to serve for a three-year term;
2. To elect a Clerk of the Bank, to serve for a one-year term; and
3. To transact such further business as may properly come before the
Annual Meeting, or any adjournment or adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED IN THE ACCOMPANYING PROXY STATEMENT AND FOR BARBARA M. MANNING
AS CLERK.
The Board of Directors has fixed the close of business on February 26, 1996
as the record date for determining the stockholders of the Bank entitled to
notice of and to vote at the Annual Meeting and any adjournments thereof.
Accordingly, only stockholders of record on such date are entitled to notice of
and to vote at the Annual Meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ Barbara M. Manning
Barbara M. Manning, Clerk
Abington, Massachusetts
March 27, 1996
IMPORTANT
EVEN THOUGH YOU MAY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN
PERSON, YOU MAY DO SO.
<PAGE> 3
ABINGTON SAVINGS BANK
PROXY STATEMENT
SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 24, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Abington Savings Bank (the "Bank") for use
at a Special Meeting in Lieu of the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Sheraton Tara Hotel, 37 Forbes Road, Braintree,
Massachusetts on Wednesday, April 24, 1996, beginning at 9:30 a.m., local time,
and at any adjournments thereof.
This Proxy Statement and the accompanying Notice and Proxy are first being
mailed to stockholders of the Bank on or about March 27, 1996 in connection with
the solicitation of proxies for the Annual Meeting. The Board of Directors has
fixed the close of business on Monday, February 26, 1996 as the record date for
the Annual Meeting (the "Record Date"). Only stockholders of record as of the
close of business on the Record Date will be entitled to notice of and to vote
at the Annual Meeting and any adjournments thereof. On the Record Date, there
were 1,883,738 shares of the Bank's common stock, $.10 par value per share (the
"Common Stock"), issued, outstanding and entitled to vote at the Annual Meeting
and approximately 921 holders of record of Common Stock. The holders of the
Common Stock on the Record Date will be entitled to one vote for each share held
of record upon each matter properly submitted to the Annual Meeting or any
adjournments thereof.
The presence, in person or by proxy, of at least a majority in interest of
all Common Stock issued, outstanding and entitled to vote is necessary to
constitute a quorum for transaction of business at the Annual Meeting. The
affirmative vote of the holders of a plurality of the Common Stock present and
voting, in person or by proxy, is required to elect each of the nominees for
Director and to elect Ms. Manning as Clerk. Any abstentions or broker nonvotes
will count toward formation of a quorum for transaction of business at the
Annual Meeting, but broker nonvotes are counted as not voting.
Stockholders of the Bank are requested to complete, date, sign and promptly
return the accompanying form of proxy in the enclosed envelope. Properly
executed proxies received by the Bank and not revoked will be voted at the
Annual Meeting in accordance with the instructions contained therein. If
instructions are not given in such proxies, they will be voted FOR the election
of the four nominees for Director listed in this Proxy Statement and FOR the
election of Barbara M. Manning as Clerk.
Any properly completed proxy may be revoked at any time before the
commencement of voting on any matter at the Annual Meeting or any adjournment
thereof by giving written notice of revocation to the Clerk of the Bank (533
Washington Street, Abington, Massachusetts 02351), or by signing and duly
delivering a proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy.
ANNUAL REPORT TO STOCKHOLDERS; OTHER INFORMATION
The Bank's Annual Report to Stockholders for the fiscal year ended December
31, 1995 accompanies this Proxy Statement, but is not incorporated herein and is
not to be deemed a part hereof.
COPIES OF THE BANK'S ANNUAL REPORT ON FORM F-2 FOR THE YEAR ENDED DECEMBER
31, 1995, WHICH ALSO SERVES AS ITS ANNUAL DISCLOSURE STATEMENT REQUIRED BY
REGULATIONS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"), ARE
AVAILABLE AFTER MARCH 30, 1996 WITHOUT CHARGE UPON REQUEST. SUCH REQUESTS SHOULD
BE DIRECTED TO EDWARD J. MERRITT, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, ABINGTON SAVINGS BANK, 538 BEDFORD STREET, ABINGTON, MASSACHUSETTS
02351, (617) 982-3200.
1
<PAGE> 4
PROPOSAL 1 - ELECTION OF DIRECTORS
The Bank is governed by a Board of Directors which, under Massachusetts law
and the Bank's Amended and Restated Charter and By-laws, may have no fewer than
seven and no more than 25 members. Under the Bank's Charter and By-laws, the
Board is divided into three classes, as nearly equal in number as possible, with
the Directors in each class generally serving a term of three years and until
their successors are elected and qualified. As the term of one class expires, a
successor class is elected by the stockholder s at the annual meeting for that
year. In addition, up to two Directors may be elected by vote of a majority of
the Directors then in office. Pursuant to the Bank's By-laws, the Board of
Directors may from time to time fix the number of Directors and their respective
classifications. At present, the number of Directors constituting the entire
Board of Directors is 12.
Pursuant to the Bank's By-laws, the Board of Directors acted as a
nominating committee for selecting nominees for election as Directors. The Board
has nominated James P. McDonough, Gordon N. Sanderson, James J. Slattery and
Wayne P. Smith to serve as Directors for a three-year term. Each of the nominees
is currently serving as a Director of the Bank.
Unless authority is withheld, proxies in the accompanying form will be
voted FOR the election of the four nominees, to hold office until the 1999
annual meeting of stockholders or special meeting in lieu thereof and until
their respective successors are elected and qualified. If the proxy withholds
authority to vote for one or more nominees for Director, the stockholder's
instructions will be followed.
The Bank has no reason to believe that any of the nominees will not be able
to serve. In the event that any nominee is unable to serve at the time of the
election, the shares represented by the proxy will be voted for the other
nominees and may be voted for a substitute for that nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
FOUR NOMINEES FOR DIRECTOR LISTED IN THIS PROXY STATEMENT.
INFORMATION REGARDING NOMINEES AND DIRECTORS
<TABLE>
The following table sets forth certain information (as of March 27, 1996)
regarding the current Directors and the nominees for Director of the Bank:
<CAPTION>
TERM AS
DIRECTOR DIRECTOR
POSITION(S) OR TRUSTEE WILL
NAME AGE WITH THE BANK SINCE** EXPIRE
- - - ---- --- ------------- ------- ------
<S> <C> <C> <C> <C>
Robert J. Armstrong 73 Director 1971 1997
Bruce G. Atwood 58 Director 1978 1998
William F. Borhek 57 Director 1980 1997
Ralph B. Carver, Jr. 68 Director 1980 1998
Joel S. Geller 55 Director 1982 1998
Rodney D. Henrikson 60 Director 1973 1997
A. Stanley Littlefield 70 Director 1985 1997
*James P. McDonough 45 President, CEO 1990 1996
and Director
Jay Timothy Noonan 53 Director 1975 1998
*Gordon N. Sanderson 62 Director 1985 1996
*James J. Slattery 59 Director 1973 1996
*Wayne P. Smith 57 Director 1973 1996
<FN>
- - - --------------------
* Nominees for Director.
** Includes service as a trustee of the Bank prior to its conversion from
mutual to stock form in 1986.
</TABLE>
The principal occupation and business experience during at least the last
five years of each Director and nominee is as follows:
ROBERT J. ARMSTRONG has been President and General Manager of Armstrong
Construction Corporation, a home building firm, since 1952.
2
<PAGE> 5
BRUCE G. ATWOOD has been Vice President-Operations and Treasurer of Hyer
Industries, Inc., a manufacturer of industrial scales, since 1978.
WILLIAM F. BORHEK has been President of Wm. F. Borhek Insurance Agency,
Inc., a general insurance agency, since 1964.
RALPH B. CARVER, JR. has been President, Treasurer and a director of
Den-Lea Rental, Inc., a truck leasing company, since 1979.
JOEL S. GELLER is the owner-manager and a director of Abington Liquors
Corp., a retail liquor store.
RODNEY D. HENRIKSON has been Treasurer of Henrikson Realty Corp., a real
estate company, since 1986. He was Treasurer of Henrikson's Dairy, Inc., a food
processing and distribution company, from 1982 through 1984 and President from
1984 through 1986.
A. STANLEY LITTLEFIELD is an attorney in private practice in Rockland,
Massachusetts. He was formerly District Attorney of Plymouth County.
JAMES P. MCDONOUGH has been President and Chief Executive Officer of the
Bank since August 1991. Previously, he served as President and Chief Operating
Officer from November 1990 to August 1991 and Senior Vice President-Lending of
the Bank from December 1987 to November 1990. Mr. McDonough was also Vice
President-Regional Manager of GEM Mortgage Corporation of North America from
1983 to 1987. Mr. McDonough is a graduate of Massasoit Community College and
Boston State College.
JAY TIMOTHY NOONAN has been with J. P. Noonan Trans., Inc., an interstate
hauler, in a management capacity since 1968 and is currently Chief Financial
Officer. Mr. Noonan was also President of Rourke Coal and Oil Co. from 1960 to
1989.
GORDON N. SANDERSON has been retired since 1991. From 1970 to 1991, he was
Vice President-Sales of B & W Press, Inc., a specialty printing company.
JAMES J. SLATTERY has been President of J. H. Slattery Insurance Agency,
Inc., Abington, Massachusetts, an independent insurance agency, since 1958.
WAYNE P. SMITH is Treasurer and a director of Suburban Enterprises Inc.,
Abington, Massachusetts, a sales and marketing firm.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held 12 meetings during 1995. Each incumbent
Director attended at least 75% of all meetings of the Board and any committees
of the Board of which he was a member, except Ralph B. Carver, Jr., who attended
66% of all meetings of the Board and any committees of the Board of which he was
a member. The Board has an Executive Committee (as required by law), an Audit
Committee and a Compensation Committee, but does not have a nominating committee
or another committee performing a similar function.
The Executive Committee, of which Messrs. Borhek, Carver, McDonough,
Littlefield and Geller are members, is the primary operating committee of the
Board of Directors and is vested with the authority of the Board in most
matters, except those powers which by law may not be delegated. The Executive
Committee met 18 times during 1995.
The Audit Committee, which is comprised of Messrs. Atwood, Henrikson and
Sanderson, is responsible for recommending the selection of the Bank's
independent certified public accountants, reviewing the scope of the annual
examination of the Bank's financial statements, reviewing the report of the
independent certified public accountants, reviewing the independent certified
public accountants' recommendations to management concerning auditing,
accounting and tax issues, aiding the Board in discharging its respo nsibility
in financial reporting and related matters and reviewing the services and fees
of the independent certified public accountants. The Audit Committee met five
times during 1995.
The Compensation Committee, of which Messrs. Borhek, Littlefield and
Slattery are current members, reviews and establishes salaries and other
compensation of certain officers and employees of the Bank, and administers the
Bank's stock option plan and recommends to the Board of Directors the granting
of stock options. The Compensation Committee met seven times during 1995.
The Board of Directors nominates candidates for election as Directors. In
accordance with the Bank's By-laws, the Board will consider nominees recommended
by a stockholder of the Bank, provided that the stockholder notifies the
3
<PAGE> 6
Clerk of the Bank of the proposed nominee in writing, setting forth certain
required information regarding the nominee. Such notification must be made in a
timely manner, as set forth in the By-laws. To be timely, such notice must be
received by the Bank not less than 60 nor more than 150 days prior to the
scheduled date of the annual meeting of stockholders, or, if less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made,
within 10 days of public disclosure of the date of the annual meeting. The Board
may reject any stockholder nomination that is not timely made or does not
otherwise satisfy the requirements of the Bank's By-laws.
The Bank has a Community Reinvestment Act ("CRA") Committee, of which
Messrs. Armstrong, Noonan, Sanderson, Littlefield and Smith are current members.
William G. Bowers, Jr., Director of Community Relations and CRA Officer, chaired
the committee during 1995. Donna L. Thaxter, Senior Vice President - Consumer
Banking Division, currently chairs the committee. Other Bank employees also
serve on this committee. The CRA Committee reviews the Bank's policy with
respect to the Community Reinvestment Act and establishes the Bank's goals and
guidelines in this area. The CRA Committee met three times during 1995.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1995, Directors of the Bank received
$450 for each Board meeting they attended. Members of the Bank's Executive
Committee received an annual fee of $6,000. Members of the Audit Committee
received $350 for each meeting, and members of all other committees received
$275 for each committee meeting which they attended throughout the year.
Officers who are also members of the Board and its committees do not receive
these fees.
Pursuant to the Bank's Long Term Performance Incentive Plan, each
non-employee Director was eligible to receive an annual grant (for each of the
1993, 1994 and 1995 fiscal years) of a non-statutory option to purchase 750
shares of Common Stock. The aggregate number of shares that were issuable
pursuant to these option grants was 8,250 per year, for a total of 24,750. These
options have an exercise price per share equal to the fair market value of the
Common Stock on the date of grant, which was the regular February Board of
Directors meeting following the end of the relevant fiscal year. The options
become exercisable upon the earliest to occur of (a) after the market price of
the Common Stock exceeds 140% of the exercise price, in the case of the 1993 and
1994 fiscal years, for a period of five consecutive business days and, in the
case of the 1995 fiscal year, for a period of 180 consecutive business days
(determined as the average of the daily closing prices per share as reported by
the Nasdaq Stock Market National Market System for such period), (b) upon the
ninth anniversary of the date of grant or (c) upon a change in control of the
Bank (as defined in the option agreement). In February 1996, in accordance with
the plan described above for the 1995 fiscal year, the Bank granted stock
options for a total of 8,250 shares at an exercise price of $17.00 per share to
11 non-employee Directors. These options will become exercisable when the stock
price exceeds $23.80 per share for a period of 180 consecutive business days or
earlier as described above.
PROPOSAL 2 - ELECTION OF CLERK
Under Massachusetts law, the Clerk of the Bank is to be elected by the
stockholders at the annual meeting of stockholders or at a special meeting duly
called for that purpose. The Clerk records the minutes of meetings of the Bank's
stockholders and Board of Directors. The Directors may fill any vacancy in the
office until the next meeting of stockholders.
At the Annual Meeting, a Clerk of the Bank will be elected to serve until
the 1997 annual meeting of stockholders or special meeting in lieu thereof and
until her successor is elected and qualified. Barbara M. Manning is the nominee
for Clerk. She has served as the Bank's Clerk since May 1991. Ms. Manning, who
joined the Bank in 1977, has served as an Executive Secretary of the Bank since
March 1988.
Unless authority to do so has been limited in a proxy, it is the intention
of the persons named as proxies to vote the shares represented by the proxy FOR
the election of Barbara M. Manning as Clerk of the Bank. The Board of Directors
believes that Ms. Manning will stand for election and will serve if elected as
Clerk. However, if she fails to stand for election or is unable to accept
election, the shares represented by proxy will be voted for the election of such
other person as the Board may recommend.
4
<PAGE> 7
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF BARBARA
M. MANNING AS CLERK.
MANAGEMENT
EXECUTIVE OFFICERS
<TABLE>
The following table sets forth certain information (as of March 27, 1996)
regarding the current executive officers of the Bank:
<CAPTION>
POSITION(S) EXECUTIVE OFFICER
NAME WITH THE BANK AGE SINCE
------------------ ------------- --- -----
<S> <C> <C> <C>
James P. McDonough President and 45 1987
Chief Executive Officer
Edward J. Merritt Executive Vice President 36 1986
and
Chief Financial Officer
Mario A. Berlinghieri Senior Vice President - 46 1996
Corporate Banking Division
Donna L. Thaxter Senior Vice President - 35 1992
Consumer Banking Division
Robert M. Lallo Vice President and Treasurer 31 1993
</TABLE>
All executive officers hold office until the first meeting of the Board of
Directors following the annual meeting of stockholders or special meeting in
lieu thereof and until their successors are chosen and qualified, unless a
shorter term is specified in the vote appointing them. Officers may generally be
removed from office by vote of two-thirds of the Board of Directors.
The business experience during at least the last five years of each of the
executive officers of the Bank is as follows:
For biographical information concerning Mr. McDonough, see "Election of
Directors - Information Regarding Directors and Nominees" above.
EDWARD J. MERRITT has been Executive Vice President and Chief Financial
Officer of the Bank since September 1993. Prior to that date, he was Senior Vice
President and Chief Financial Officer since June 1991 and Treasurer and Chief
Financial Officer of the Bank since July 1986. Previously, he held various
positions, including Senior Accountant and Supervisor, at Wolf & Company of
Massachusetts, P.C., from 1983 to 1986. Mr. Merritt is a graduate of Salem State
College and is a Certified Public Accountant.
MARIO M. BERLINGHIERI has been Senior Vice President - Corporate Banking
Division since January 29, 1996. Prior to that date, he served as Program
Manager of the Executive Office of Communities & Development for The
Commonwealth of Massachusetts in 1995; Vice President and Senior Risk Manager of
Fleet Bank of Massachusetts in charge of commercial portfolio approval from 1992
to 1994; and Regional Manager - Boston Small Business Lending for Bank of New
England from 1991 to 1992. Mr. Berlinghieri is a graduate of Suffolk University
with a B.S.B.A. degree in Banking/Finance and an M.B.A. in Business
Administration.
DONNA L. THAXTER has been Senior Vice President - Consumer Banking Division
of the Bank since December 1993. Prior to that date, she was Vice President -
Retail Banking since August 1992. Ms. Thaxter joined the Bank in January 1988
and has held various positions including Production Manager, Commercial Loan
Officer and Compliance Officer. Previously, she worked as Underwriting Manager
for GEM Mortgage Corporation of North America from 1984 to 1988. Ms. Thaxter is
a graduate of Framingham State College.
ROBERT M. LALLO has been Vice President - Treasurer since he joined the
Bank in October 1993. Previously, he held various positions, including Audit
Manager, with Arthur Andersen & Co., currently known as Arthur Andersen LLP,
from July 1986 to October 1993. Mr. Lallo is a graduate of Boston College with
degrees in both Accounting and Finance and is a Certified Public Accountant.
5
<PAGE> 8
EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Bank
with respect to the Chief Executive Officer and the Bank's most highly
compensated officers other than the Chief Executive Officer who served as
officers in fiscal 1995 and whose annual compensation exceeded $100,000 for
fiscal 1995: <CAPTION>
SUMMARY COMPENSATION TABLE
Long Term All Other
Annual Compensation Compensation Compensation (1)
-------------------------------- ------------------------------
Name and Fiscal Option
Principal Position Year Salary (2) Bonus(3) Other Grants
- - - ------------------ ---- ---------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
James P. McDonough 1995 $195,000 $ --(4) 5,000 $10,727
President and Chief 1994 $180,000 $28,800 5,000 $ 8,949
Executive Officer 1993 $145,000 $27,550 -- $ 6,049
Edward J. Merritt 1995 $112,500 $ --(4) 4,000 $ 9,101
Executive Vice 1994 $112,500 $19,125 4,500 $ 7,511
President and Chief 1993 $ 97,500 $18,525 -- $ 4,253
Financial Officer
<FN>
- - - ---------------
(1) Includes payments of life insurance premiums and ESOP contributions. The
Bank allocates contributions to employees annually, in unrestricted shares
of the Bank's Common Stock. The dollar value of ESOP contributions in
fiscal 1993, 1994 and 1995, respectively, were, for Mr. McDonough, 5,861,
8,511 and 10,156, and for Mr. Merritt, 3,915, 7,288 and 8,840.
(2) Includes employee's voluntary 401(k) contribution; Bank does not provide
matching 401(k) contributions.
(3) Bonuses reported for fiscal 1994 were earned in fiscal 1994 but paid in
fiscal 1995. Bonuses reported for fiscal 1993 were earned in fiscal 1993
but paid in fiscal 1994. Mr. McDonough's fiscal 1994 bonus and Mr.
Merritt's fiscal 1993 and 1994 bonuses were paid half in cash, half in
shares of the Bank's Common Stock.
(4) Bonus awards for services rendered in fiscal 1995 have not yet been
determined.
</TABLE>
<TABLE>
Option Grants Table. The following Option Grants Table sets forth certain
information regarding stock options granted during the fiscal year ended
December 31, 1995 by the Bank to the executive officers named in the Summary
Compensation Table:
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value
Individual Grants at Assumed
------------------------------------------ Annual Rates of
Percent of Stock Price
Total Options Exercise Appreciation for
Granted to Price per Option Term (2)
Options Employees in Share Expiration -------------------
Name Granted Fiscal Year ($/Sh)(1) Date 5% 10%
- - - ------------------ ------- ----------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
James P. McDonough 5,000 18.5 $13.75 2/16/05 $43,236 $109,567
Edward J. Merritt 4,000 14.8 $13.75 2/16/05 $34,589 $ 87,654
<FN>
(1) Stock options were granted under the Bank's 1986 Stock Option Plan at an
exercise price equal to the fair market value of the Bank's Common Stock on
the date of the grant. The stock options expire ten years from the date of
grant. Options may not be exercised until fair market value (as defined in
option agreements) is at least 140% of exercise price per share for five
consecutive business days.
</TABLE>
6
<PAGE> 9
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation of the Bank's
Common Stock over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission and do
not reflect the Bank's estimates of future stock price growth. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the timing of such exercise and sale of the shares and the
future performance of the Bank's Common Stock. There can be no assurances
that the rates of appreciation assumed in this table can be achieved or
that the amounts shown will be received by the individuals.
<TABLE>
Fiscal Year-End Option Table. The following Fiscal Year-End Option Table
sets forth certain information regarding stock options exercised during the
fiscal year ended December 31, 1995 and stock options held as of December 31,
1995 by the executive officers named in the Summary Compensation Table:
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired Options at Fiscal Year-End at Fiscal Year-End(1)
on Value ------------------------------ ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James P. McDonough 0 0 45,000 5,000 $523,625 0
Edward J. Merritt 0 0 15,000 4,000 $128,994 0
<FN>
- - - ------------------------
(1) Value is based on the last sales price of Common Stock ($17.25) on December
31, 1995, the last day prior to the end of fiscal 1995 for which a trade in
the Common Stock was reported by the Nasdaq Stock Market National Market
System, less the applicable option exercise price. These values have not
been and may never be realized. Actual gains, if any, on exercise will
depend on the value of the Common Stock on the date of the sale of the
shares.
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board is composed of three Directors,
Messrs. Borhek, Littlefield and Slattery. The Compensation Committee also
administers the Bank's stock option plan. This Committee is charged with the
responsibility of reviewing and approving executive officers' compensation and
recommending all discretionary grants of stock options under the Bank's stock
option plan. The following describes the compensation programs in effect during
fiscal 1995.
Compensation Policy
The Bank's compensation policies are designed to pay executives an annual
salary that is industry competitive and an annual bonus that is based both on
the performance of the Bank (as compared to its annual business plan as well as
a selected peer group) and on individual goals established for each of the
executives for the fiscal year. The Bank also has longer term incentives based
on stock options. All three components of compensation are reviewed by the
Committee to ensure salaries remain competitive, bonuses reward performance and
stock options provide continued incentives.
Salaries for the executive officers are based on the duties and
responsibilities of the position held by the executive compared with executive
officers of other banks in the industry. Salaries are reviewed and established
annually. Various industry salary surveys are reviewed in establishing the new
compensation. The Chief Executive Officer prepares a performance review,
including an assesment of prior-year performance, for each executive officer,
then communicates this information to the Compensation Committee. Based on this
information and its performance review of the Chief Executive Officer, which is
based on its assessment of the degree to which the Chief Executive Officer
accomplished pre-established strategic and financial goals, the Compensation
Committee makes recommendations to the Board of Directors, which establishes
annual executive salaries for the next year.
Executive officers and key management employees participate in the Bank's
Management Incentive Compensation Plan (the "Bonus Plan"). Payments under the
Bonus Plan are contingent on the Bank meeting its strategic and operational
objectives for the fiscal year. Bonuses may be awarded for the achievement of
the Bank's financial performance goals and an individual participant's
objectives. Bonus awards will be determined by a defined formula; factors
considered in this formula include financial performance of the Bank, evaluation
of achievement of strategic and/or operational
7
<PAGE> 10
goals and unit profitability, and Bank performance compared to a peer group on
both a return-on-assets and a return-on-equity basis. Based on the extent to
which the Bank achieves those objectives, participants, depending on the Bonus
Plan group, may receive from 15% to 30% of base salary. The Committee reviews
both the individual and Bank goals annually. However, the Board of Directors has
final authority with respect to all bonus awards. Approximately 13.6% of the
Bank's compensation to executives in fiscal 1995 was in the form of bonuses.
Such bonuses were earned in fiscal 1994 but paid in fiscal 1995.
The Bank periodically grants stock options to some or all of its executives
and key employees as a means of creating a long-term incentive and benefit. In
October 1993, in conjunction with the Bank's existing stock option plan, the
Bank adopted a Long Term Performance Incentive Plan ("LTIP") to incent executive
management and members of the Board of Directors to build long-term shareholder
value. The LTIP is a three-year program (for each of the 1993, 1994 and 1995
fiscal years) which provides a mechanism for granting options under the Bank's
stock option plan. In each year of the LTIP, options to purchase a maximum of
23,250 shares of Common Stock were granted to members of the Board of Directors,
the Chief Executive Officer, the Chief Financial Officer, and eligible Division
Heads. In fiscal 1995, the Bank granted options to purchase a total of 20,250
shares of Common Stock pursuant to the LTIP. The options were granted based on
achievement of the Bank's business plan for the fiscal year in question.
Additional grants could be made for the achievement of strategic goals such as
acquisitions and asset purchases. All stock options granted in fiscal 1995 were
at the fair market value of shares of Common Stock on the date of grant. Thus,
no benefit will accrue to the executive or key employee from the stock option
grant until the Common Stock appreciates.
Chief Executive Officer Compensation
James P. McDonough first joined the Bank in 1976, left in 1983, rejoined in
1987 and has served as the Chief Executive Officer of the Bank for almost five
years. Mr. McDonough's salary was increased from $145,000 during fiscal 1993 to
$180,000 during fiscal 1994 and to $195,000 during fiscal 1995. Mr. McDonough
has received grants of stock options from time to time, with per share exercise
prices equal to the current market value of the Bank's Common Stock at the time
of grant. Mr. McDonough also participates in the executive bonus plan under
which he received bonuses of $27,550 and $28,800 for services rendered in fiscal
1993 and fiscal 1994, respectively. The amount of Mr. McDonough's bonus for
services rendered in fiscal 1995 had not been determined as of February 26,
1996.
COMPENSATION COMMITTEE
William F. Borhek
A. Stanley Littlefield
James J. Slattery
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William F. Borhek, A. Stanley Littlefield and James J. Slattery served on
the Compensation Committee during fiscal 1995. Except as described below,
persons serving on the Compensation Committee had no relationships with the Bank
other than their relationship to the Bank as Directors entitled to the receipt
of standard compensation as Directors and members of certain committees of the
Board and their relationship to the Bank as stockholders. No person serving on
the Compensation Committee or on the Board of Directors is an executive officer
of another entity for which an executive officer of the Bank serves on the board
of directors or on that entity's compensation committee.
The Bank purchases some of its insurance through J. H. Slattery Insurance
Agency, Inc. of which James J. Slattery, a Director of the Bank, is President.
The Bank paid $22,259 to the insurance agency in 1995 for insurance premiums.
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Bank's
cumulative stockholder return with that of a broad market index (the S&P 500
Index) and a published industry index (the Keefe, Bruyette & Woods New England
Bank Index) for each of the most recent five fiscal years. The cumulative
stockholder return for shares of Common Stock and each of the indices is
calculated assuming that $100 was invested on January 1, 1991. The performance
of the indices is shown on a total return (dividends reinveste d) basis. The
graph lines merely connect year-end dates and do not reflect fluctuations
between those dates.
8
<PAGE> 11
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
[LINE CHART: ABINGTON SAVINGS BANK (ABBK) VS. THE FIVE YEAR TOTAL RETURN FOR
THE KBW NEW ENGLAND BANK INDEX AND S&P 500 INDEX(1)]
(1) Assumes $100 invested on January 1, 1991, in ABBK common stock, S&P 500
Index and KBW New England Bank Index.
(2) Total return assumes reinvestment of dividends.
401(k) PLAN
The Bank has a defined contribution plan pursuant to Section 401(k) of the
Internal Revenue Code for the benefit of its employees, including officers.
Subject to certain eligibility requirements, the 401(k) plan permits each
participant to defer up to 15% of such participant's annual salary up to a
maximum annual amount ($9,240 in calendar year 1995). The Bank does not make
matching contributions to the plan. Federal income taxes on amounts allocated to
a participating employee are deferred until such amounts are distributed to the
participant.
RETIREMENT PLAN
In addition to the foregoing, the Bank also provides a retirement plan for
eligible employees through the Savings Banks Employees Retirement Association
("SBERA"), an unincorporated association of savings banks operating within
Massachusetts and other organizations providing services to or for savings
banks. SBERA's purpose is to enable the participating banks to provide pension
and other benefits for their employees.
Each employee age 21 or older who has completed at least 1,000 hours of
service in one consecutive twelve-month period beginning with such employee's
date of employment automatically becomes a participant in the retirement plan.
All participants become fully vested after three years of service or at age 62
if earlier.
The retirement plan is a qualified defined benefit plan which does not
require the employee to make any contribution to become a participant or to earn
benefits under the plan. The benefits provided at age 65 to any participant are
based on the average of the highest three consecutive years of compensation
(including bonuses) for such participant (the "Average Compensation"). The
benefits provided at age 65 are equal to 1.35% of the Average Compensation for
each
9
<PAGE> 12
year of service with the Bank up to a maximum of 30 years, plus .6% of the
excess of Average Compensation over Covered Compensation (as defined below) for
the participant's age for each year of service with the Bank up to 30 years.
Covered Compensation is the average of 35 years of social security taxable wages
up to and including the year in which a participant reaches social security
retirement age. Due to certain requirements of the Tax Reform Act of 1986, the
Bank's retirement plan was modified, effective November 1, 1989. The prior plan
calculated benefits using a different formula than the current plan.
Participants who were employed by the Bank on November 1, 1989 and were
participants in the plan prior to that date will receive the greater of the
retirement benefit earned as of October 31, 1989 under the prior plan or the
benefit earned by application of the new formula under the current plan.
<TABLE>
The following table is derived from information provided by SBERA and
illustrates annual pension benefits for retirement at age 65 under the most
advantageous plan provisions available for various levels of compensation and
years of service. The figures in this table are based upon the assumption that
the plan continues in its present form and certain other assumptions regarding
social security benefits and compensation trends. <CAPTION>
Projected Annual Pension Benefit
Based on Years of Service(1)
------------------------------------------------------------
Average 10 15 20 25 30
Compensation Years Years Years Years Years and After
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 20,000 $ 2,700 $ 4,050 $ 5,400 $ 6,750 $ 8,100
40,000 6,245 9,367 12,490 15,612 18,734
60,000 10,145 15,217 20,290 25,362 30,434
80,000 14,045 21,067 28,090 35,112 42,134
100,000 17,945 26,917 35,890 44,862 53,834
120,000 21,845 32,767 43,690 54,612 65,534
140,000 25,745 38,617 51,490 64,362 77,234
150,000(2) 27,695 41,542 55,390 69,237 83,084
</TABLE>
(1) The annual pension benefit is computed on the basis of a straight-line
annuity and assumes retirement at age 65 between November 1, 1995 and
October 31, 1996.
(2) Federal law does not permit defined benefit pension plans to recognize
compensation in excess of $150,000 for plan years beginning in 1994.
<TABLE>
Normal retirement age under the plan is 65; a reduced early retirement
benefit is payable from age 50 to 65 under certain conditions. The following
table is derived from information provided by SBERA and sets forth estimated
retirement benefits under the plan at normal retirement dates for the executive
officers of the Bank named in the Cash Compensation Table, computed on the basis
of their present salary levels. <CAPTION>
Years of Credited Estimated Annual Pension
Name Service at Age 65 Benefit at Age 65
------------------ ----------------- -----------------
<S> <C> <C>
James P. McDonough 28 $72,545
Edward J. Merritt 39 54,848
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Bank entered into a Special Termination Agreement with James P.
McDonough, its President and Chief Executive Officer, in 1992. The Agreement was
amended and restated in 1993. The Bank has also entered into Special Termination
Agreements, similar to the one with Mr. McDonough, and Edward J. Merritt,
Executive Vice President and Chief Financial Officer, Donna J. Thaxter, Senior
Vice President, and Mario A. Berlinghieri, Senior Vice President. Mr. Merritt's
agreement was entered into in 1988 and amended and restated in 1993. The
Agreement with Ms. Thaxter was entered into in 1993 and amended and restated as
of March 23, 1995. The Agreement with Mr. Berlinghieri was entered into as of
January 29, 1996.
The Special Termination Agreement between the Bank and Mr. McDonough
provides for severance payments if Mr. McDonough's employment with the Bank is
terminated within three years following a change in control of the Bank (as
defined in the agreement) under certain circumstances, including either (1)
termination by the Bank for any reason other than death, deliberate dishonesty
with respect to the Bank or any subsidiary or affiliate thereof or conviction of
a crime involving moral turpitude, or (2) resignation by Mr. McDonough
subsequent to the occurrence of any of the following events: (a) a reduction in
compensation, (b) a significant change in Mr. McDonough's authority or
responsibility, (c) a reasonable determination by Mr. McDonough that he is
unable to exercise his prior authority or responsibility as a result of such
change in control or (d) the failure by the Bank to continue any material
compensation, incentive,
10
<PAGE> 13
bonus or benefit plan (or provide an appropriate substitute plan) or the failure
by the Bank to continue Mr. McDonough's participation therein on a basis not
materially less favorable as existed at the time of the change of control. In
such event, Mr. McDonough would receive a lump sum payment equal to
approximately three times his average annual compensation (including bonuses)
over the five years prior to the change in control, subject to a cap of
$750,000.
The Special Termination Agreements between the Bank and Mr. Merritt and Ms.
Thaxter are identical to the agreement with Mr. McDonough, except that their
agreements contain a $500,000 cap on severance payments. The Special Termination
Agreement between the Bank and Mr. Berlinghieri is substantially the same as the
agreement with Mr. McDonough, except that he would receive a lump sum payment
equal to approximately two times his average annual compensation (including
bonuses) over the five years prior to the change in control, subject to a cap of
$350,000. In March 1995, special termination agreements with three officers were
terminated in consideration for the grant of options to purchase an aggregate of
15,000 shares of Common Stock.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank established an Employee Stock Ownership Plan (the "ESOP"),
effective as of November 1, 1985, for employees age 21 or older who have
completed at least 1,000 hours of service with the Bank in a twelve-month period
beginning with the employee's date of employment or any anniversary thereof.
The ESOP is funded by contributions made in cash or stock. Cash
contributions will generally be invested in Common Stock and stock contributions
will be made in Common Stock. Benefits may be paid in shares of Common Stock or
in cash, subject to the participant's right to require payment in shares.
In 1986, the ESOP purchased 60,000 shares with the proceeds of a loan from
an unrelated third party lender. The repayment of such loan was guaranteed by
the Bank and secured by the shares purchased with the proceeds and certain cash
collateral. The original ESOP loan was repaid in June 1993.
In November 1993, the ESOP entered into a loan agreement with the Bank
pursuant to which the ESOP has borrowed up to $570,000 to purchase additional
shares of Common Stock. The loan is to be repaid over seven years, with
principal and interest (at a fixed rate of 8.5% per annum) payable quarterly.
Shares purchased with loan proceeds are held in a suspense account for
allocation among participants as the loan is paid. The loan is secured by the
unallocated shares acquired by the ESOP and will be repaid with funds from
contributions to the ESOP. The ESOP's purchases of additional shares of the
Bank's Common Stock (including reinvestment of cash dividends) have been and
will be made through periodic purchases on the open market effected through a
broker-dealer, subject to market conditions. The timing and price of the
purchases are in the discretion of the ESOP Trustee. As of December 31, 1995,
47,128 additional shares were purchased by the ESOP with the proceeds from the
loan. During plan year ended October 31, 1995, the ESOP purchased and
distributed to participants 2,269 additional shares with dividends received from
the stock held by the ESOP.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of compensation (including bonuses).
Benefits become 20% vested after three years of eligible service with an
additional 20% becoming vested each year thereafter. Non-vested benefits which
are forfeited are reallocated among remaining participants in the same manner as
contributions. Benefits are payable upon retirement, death, disability, or
separation from service with the Bank. Divi dends paid by the Bank on allocated
shares of Common Stock held in the ESOP may be paid directly to the participants
in cash. The Bank's contributions to the ESOP are not fixed (although required
to be in amounts at least sufficient to pay the principal and interest of the
loan) so future benefits payable under the ESOP cannot be estimated.
A Committee consisting of Lewis J. Paragona, Ida C. Frazier and Donna L.
Thaxter administers the ESOP. The trustee of the ESOP is currently James P.
McDonough. Under the ESOP, the Committee is required to solicit instructions
from the participants with respect to voting shares that have been allocated to
such participants, and is required to follow such instructions in directing the
trustee to vote such allocated shares. In addition, the trustee is required to
vote shares which are held in the suspense account in the same proportion as
the trustee is directed to vote those shares for which instructions are given.
Upon the direction of the Committee, the trustee also exercises numerous other
powers including the right to sell or otherwise dispose of Common Stock held by
the ESOP.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Certain of the Directors and officers of the Bank are at present, as in the
past, customers of the Bank and have loans with the Bank in the ordinary course
of business. Certain of the Directors of the Bank are also at present, as in the
past, directors, officers or stockholders of corporations, trustees of trusts or
members of partnerships which are customers of the Bank and which have loans
with the Bank in the ordinary course of business. Such loan transactions with
Directors and officers of the Bank and with such corporations, trusts and
partnerships were on terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than
11
<PAGE> 14
normal risk of collectibility or present other features unfavorable to the Bank.
The Bank is a party to a lease for office space located at 538 Bedford
Street, Abington, Massachusetts, used for the Bank's principal and
administrative offices. Northeast Terminal Associates, Limited, of which 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, owns the property. All
lease negotiations were conducted on an arms-length basis. Messrs. Barry did not
participate in the Bank's decision to enter into the lease and received no fees
in connection therewith. The term of this lease is two years, commencing January
1, 1996, with annual rent of $48,000.
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information as of February 29, 1996
regarding each person known by the Bank to own beneficially more than 5% of the
Bank's Common Stock, each Director and nominee for Director of the Bank, each
executive officer named in the Summary Compensation Table and all Directors and
executive officers of the Bank as a group. <CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership (1) of Class (2)
------------------- ------------------------ ------------
<S> <C> <C>
Dennis E. Barry and 182,000 (3) 9.7%
Joseph L. Barry, Jr.
c/o Hallamore Motor
Transportation, Inc.
795 Plymouth Street
Holbrook, MA 02343
Genesis Financial Partners L.P. 120,000 (4) 6.4
3101 West Coast Highway
Suite 402
Newport Beach, CA 92663
Abington Savings Bank 95,918 (5) 5.1
Employee Stock Ownership Trust
James P. McDonough, Trustee
Abington Savings Bank
538 Bedford Street
Abington, MA 02351
*James P. McDonough 73,690 (6) 3.9
Joel S. Geller 65,249 (7) (8) 3.5
*James J. Slattery 37,336 (7) (9) 2.0
*Wayne P. Smith 29,394 (7) (10) 1.6
Edward J. Merritt 21,023 (11) 1.1
Robert J. Armstrong 14,100 (7) (12) 0.7
Bruce G. Atwood 13,542 (7) (13) 0.7
*Gordon N. Sanderson 13,558 (7) (14) 0.7
William F. Borhek 11,215 (7) (15) 0.6
Rodney D. Henrikson 10,895 (7) (16) 0.6
Ralph B. Carver, Jr. 10,750 (17) 0.6
A. Stanley Littlefield 8,000 (7) (18) 0.4
Jay Timothy Noonan 8,000 (7) 0.4
All Directors and
executive officers as a
group (16 persons) 328,684 (19) 17.5%
<FN>
- - - --------------------
* Nominee for Director
(1) Except as otherwise noted, all persons and entities have sole voting and
investment power over their shares. All amounts shown in this column
include shares obtainable upon exercise of stock options exercisable within
60 days of the date of this table.
</TABLE>
12
<PAGE> 15
(2) Computed pursuant to 12 C.F.R. [Section]335.403.
(3) The Bank has received a report on Schedule 13D, Amendment No. 3, dated
February 22, 1990, as filed with the FDIC, stating that (i) Dennis E. Barry
owns 84,750 shares as to which he has sole voting and dispositive power,
(ii) Joseph L. Barry, Jr. owns 84,750 shares as to which he has sole voting
and dispositive power, and (iii) Dennis E. Barry and Joseph L. Barry, Jr.
jointly own 12,500 shares as to which they have shared voting and
dispositive power. The Schedule 13D indicated that Messrs. Barry were each
describing a relationship with other persons but were not affirming the
existence of a group. Nevertheless, the Bank believes that Dennis E. Barry
and Joseph L. Barry, Jr. may constitute a "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934 and that such group
may be deemed to be the beneficial owner of the shares set forth in this
table.
(4) The Bank has received a report on Form F-11, dated November 22, 1995, filed
by Genesis Financial Partners, L.P. ("Genesis"), Gen. Fin, Inc. ("Gen Fin")
and Stephen H. Gordon ("Mr. Gordon"), as filed with the FDIC, stating that
Genesis owns 117,500 shares of the Bank's common stock (the "Genesis
Shares"), as to which Gen Fin, the General Partner of Genesis, exercises
exclusive voting control and dispositive powers. The Form F-11 indicates
that Mr. Gordon is the President and sole director and shareholder of Gen
Fin, in which capacity he exercises voting control and dispositive power
over the Genesis Shares. In an Amendment No. 1 to Form F-11, dated February
9, 1996, Genesis stated that on November 27, 1995, it acquired an
additional 2,500 shares of the Bank's Common Stock. Genesis has notified
the Bank that it intends to present a shareholder proposal at the Annual
Meeting. See "Miscellaneous."
(5) The Bank has received a report on Form F-11, dated March 10, 1994, from the
ESOP. For a discussion of the voting and dispositive power of the trustee
of the Abington Savings Bank Employee Stock Ownership Plan, see "Management
- Employee Stock Ownership Plan" above.
(6) Includes 45,000 shares subject to currently exercisable options, 6,620
shares held in his self-directed IRA, 14,384 shares owned jointly with his
wife, 1,096 shares owned by his wife in a self-directed IRA and 201 shares
held by his wife as custodian for each of his two children (402 shares
total). Mr. McDonough disclaims beneficial ownership of the shares owned
directly by his wife. Also includes 5,081 shares held by the ESOP as to
which Mr. McDonough has the power to direct the voting. Does not include
5,000 shares subject to options which by their terms are not exercisable
until the fair market value (as defined in the option agreement) of the
Common Stock is at least $19.25 per share, and does not include 5,000
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the option agreement) is at least
$23.80 per share.
(7) Includes 6,500 shares subject to currently exercisable options. Does not
include for each person 750 shares subject to options which by their terms
are not exercisable until the fair market value (as defined in the option
agreement) of the Common Stock is at least $19.25 per share, or 750 shares
which by their terms are not exercisable until the fair market value (as
defined in the option agreement) is at least $23.80 per share.
(8) Includes 1,000 shares owned jointly with his mother, 3,000 shares owned
jointly with his wife, 1,784 shares owned directly by his wife, 844 shares
owned by his son, 1,114 shares owned by his daughter, and 50,007 shares
owned by a partnership in which Mr. Geller is a partner. Mr. Geller
disclaims beneficial ownership of the 1,784 shares owned directly by his
wife and the shares owned by his son and daughter.
(9) Includes 2,854 shares held in his IRA, 2,000 shares held as custodian for
each of three daughters (6,000 shares total), 2,020 held as custodian for
his son, 100 shares owned by his wife, 812 shares held in his wife's IRA,
50 shares held by his wife as custodian for his son and 12,825 shares owned
by a corporation of which he is a principal owner. Mr. Slattery disclaims
beneficial ownership of the shares held on behalf of his children and the
shares owned by his wife.
(10) Includes 9,845 shares owned by his wife. Mr. Smith disclaims beneficial
ownership of the shares owned by his wife.
(11) Includes 15,000 shares subject to currently exercisable options, 50 shares
owned by his wife and 25 shares held as custodian for each of two sons (50
shares total). Also includes 4,338 shares held by the ESOP as to which Mr.
Merritt has the power to direct voting. Does not include 4,000 shares
subject to options which by their terms are not exercisable until the fair
market value (as defined in the option agreement) of Common Stock is at
least $19.25 per share or 4,000 shares subject to options which by their
terms are not exercisable until the fair market value (as defined in the
option agreement) is at least $23.80 per share.
(12) Includes 7,600 shares owned jointly with his wife.
(13) Includes 5,030 shares owned by his wife. Mr. Atwood disclaims beneficial
ownership of the shares owned by his wife.
(14) Includes 7,058 shares owned through a realty trust.
(15) Includes 3,709 shares owned jointly with his wife and 1,006 shares owned by
his wife. Mr. Borhek disclaims beneficial ownership of the shares owned
directly by his wife.
(16) Includes 4,195 shares owned by a corporation in which Mr. Henrikson is an
officer, director and stockholder.
(17) Includes 10,000 shares owned jointly with his wife. Does not include 750
shares subject to options which by their terms are
13
<PAGE> 16
not exercisable until the fair market value (as defined in the option
agreement) of the Common Stock is at least $19.25 per share for each
person, or 750 shares which by their terms are not exercisable until the
fair market value (as defined in the option agreement) is at least $23.80
per share.
(18) Includes 500 shares owned jointly with his wife.
(19) Includes 133,250 shares obtainable by exercise of currently exercisable
options held by all Directors and executive officers as a group. Also
includes 11,662 shares held by the ESOP as to which executive officers of
the Bank have the power to direct the voting. Does not include 20,250
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the rel evant option agreements) of
the Common Stock is at least $19.25 per share, and does not include 20,250
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the option agreement) is at least
$23.80 per share.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Bank's officers and Directors, and persons who own
more than 10% of a registered class of the Bank's equity securities, to file
reports of ownership and changes in ownership with the Federal Deposit Insurance
Corporation. Officers, Directors, and greater-than-10% shareholders are required
by FDIC regulations to furnish the Bank with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of Forms F-7, F-8 and F-8A furnished
to the Bank during and with respect to the 1995 fiscal year, or written
representations that no Forms F-8A were required, the Bank believes that all
Section 16(a) filing requirements applicable to its officers, Directors, and
greater-than-10% beneficial owners were complied with during 1995.
INFORMATION CONCERNING AUDITORS
The Board of Directors has selected Arthur Andersen LLP to audit the Bank's
financial statements for the current fiscal year. That firm also served as the
auditors for the Bank during the past fiscal year. A representative of Arthur
Andersen LLP is expected to be present at the Annual Meeting, will have the
opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
SOLICITATION
Brokers, banks and other nominees will be reimbursed for out-of-pocket
expenses and other reasonable clerical expenses incurred in obtaining
instructions from beneficial owners of Common Stock. In addition to the
solicitation by mail, solicitations of proxies may be made personally or by
telephone by Directors, officers and certain employees of the Bank. All expenses
incurred in connection with this solicitation will be borne by the Bank.
SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1997 ANNUAL MEETING
In order to be included in proxy materials for the 1997 annual meeting of
stockholders or special meeting in lieu thereof, qualifying stockholder
proposals (in compliance with Section 2.3 of the Bank's By-laws) must be
delivered to the Bank at its principal executive offices on or before December
28, 1996. Any such proposal should be mailed to: Clerk, Abington Savings Bank,
533 Washington Street, Abington, Massachusetts 02351. If the date of the next
annual meeting is subsequently changed by more than 30 calendar days from the
date of this year's Annual Meeting, the Bank will, in a timely manner, inform
its stockholders of such change and the date by which proposals of stockholders
must be received.
In addition, the Bank's By-laws set forth certain procedural requirements,
including a notice requirement, that apply to stockholders wishing to nominate a
Director or propose an item of business for consideration at the scheduled
annual meeting or special meeting in lieu thereof.
MISCELLANEOUS
Genesis Financial Partners, L.P., a shareholder of the Bank, has notified
the Bank that it intends to present a shareholder proposal at the Annual
Meeting. Proxies in the enclosed proxy card will not be voted on such proposal
if it is offered. If any additional business is properly presented at the Annual
Meeting, the persons present will have discretionary authority to vote the
shares they own or represent by proxy in accordance with their judgment.
14
<PAGE> 1
Exhibit 99.5
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
----------------------------------------
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended March 31, 1996
----------------------------------------
FDIC Certificate Number 22051-5
-------
ABINGTON SAVINGS BANK
------------------------------------------------
(Exact name of bank as specified in its charter)
Massachusetts 04-1012420
- - - --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or organization)
538 Bedford Street, Abington, Massachusetts 02351
- - - ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code (617) 982-3200
--------------
533 Washington Street, Abington, Massachusetts 02351
- - - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date:
1,883,738 shares as of April 28, 1996.
1
<PAGE> 2
ABINGTON SAVINGS BANK
FORM F-4
--------
INDEX
-----
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 ............................. 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1996 and
1995 .......................................................... 4
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
March 31, 1996 and 1995 ....................................... 5
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1996 and
1995 .......................................................... 6
Notes to (Unaudited) Consolidated Financial
Statements .................................................... 8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ................. 10
Signature Page ................................................ 27
2
<PAGE> 3
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED BALANCE SHEETS
- - - --------------------------------------------------------------------------------
<CAPTION>
Unaudited
March 31, December 31,
1996 1995
--------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks .......................... $ 8,752 $ 10,463
Short-term investments ........................... 8,544 148
-------- --------
Total cash and cash equivalents ............... 17,296 10,611
-------- --------
Loans held for sale .............................. 1,741 3,022
Securities:
Mortgage-backed investments - held for
investment - market value of $68,904
in 1996 and $68,697 in 1995 ................. 70,364 68,794
Securities available for sale - at
market value ................................ 94,566 96,087
Loans ............................................ 269,725 259,786
Less:
Allowance for possible loan losses ....... (1,570) (1,433)
Unearned income .......................... (866) (790)
-------- --------
Loans, net ............................ 267,289 257,563
-------- --------
Federal Home Loan Bank stock ..................... 7,683 7,399
Banking premises and equipment, net .............. 6,467 6,528
Other real estate owned, net ..................... 892 1,070
Intangible assets ................................ 3,960 4,009
Other assets ..................................... 8,199 5,409
-------- --------
$478,457 $460,492
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ......................................... $287,544 $280,070
Short-term borrowings ............................ 68,529 61,308
Long-term debt ................................... 86,775 84,301
Accrued taxes and expenses ....................... 2,482 2,408
Other liabilities ................................ 2,005 1,844
-------- --------
Total liabilities ............................. 447,335 429,931
-------- --------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued ...... - -
Common stock, $.10 par value 7,000,000
shares authorized; 2,320,738 and
shares issued in 1996 and 1995 ................ 232 232
Additional paid-in capital ..................... 20,811 20,811
Retained earnings .............................. 14,322 13,676
-------- --------
35,365 34,719
Treasury stock - 437,000 shares, at cost ....... (3,703) (3,703)
Unearned compensation - ESOP ................... (372) (393)
Net unrealized loss on available for
sale securities, net of taxes ................ (168) (62)
-------- --------
Total stockholders' equity ..................... 31,122 30,561
-------- --------
$478,457 $460,492
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
---------- ----------
(In thousands, except
per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans ....................... $ 5,514 $ 4,997
Interest on mortgage-backed investments .......... 2,335 2,176
Interest on bonds and obligations ................ 347 330
Dividend income .................................. 138 156
Interest on short-term investments ............... 10 12
---------- ----------
Total interest and dividend income ............. 8,344 7,671
---------- ----------
Interest expense:
Interest on deposits ............................. 2,624 2,118
Interest on short-term borrowings ................ 925 1,027
Interest on long-term debt ....................... 1,268 1,070
---------- ----------
Total interest expense .......................... 4,817 4,215
---------- ----------
Net interest income .............................. 3,527 3,456
Provision for possible loan losses ............... 120 150
---------- ----------
Net interest income, after provision for
possible loan losses .......................... 3,407 3,306
---------- ----------
Non-interest income:
Loan servicing fees ............................ 177 170
Other customer service fees .................... 559 335
Gain of sale/redemption of mortgage-backed
investments/investment securities, net ....... 46 -
Gain on sale of equity securities, net ......... 75 -
Gains on sales of mortgage loans, net .......... 133 60
Net gain (loss) on sales and writedown of
other real estate owned ..................... - -
Other .......................................... 84 31
---------- ----------
Total non-interest income ...................... 1,074 596
---------- ----------
Non-interest expense:
Salaries and employee benefits ................. 1,433 1,391
Occupancy and equipment expenses ............... 625 473
Other non-interest expense ..................... 1,070 966
---------- ----------
Total non-interest expense ..................... 3,128 2,830
---------- ----------
Income before provision for income
taxes ........................................ 1,353 1,072
Provision for income taxes ....................... 519 406
---------- ----------
Net income ..................................... $ 834 $ 666
========== ==========
Dividends per share .............................. $ .10 $ .10
========== ==========
Earnings per share ............................... $ .42 $ .34
========== ==========
Weighted average common and common share
equivalents .................................... 1,977,000 1,954,000
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - - -----------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Additional Available Unearned
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion-ESOP Total
- - - -----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... $232 $20,811 $13,676 $(3,703) $ (62) $(393) $30,561
Net income........................ - - 834 - - - 834
Decrease in unearned compen-
sation - ESOP................... - - - - - 21 21
Increase in unrealized loss on
available for sale securities,
net of taxes.................... - - - - (106) - (106)
Dividend declared ($.10 per share) - - (188) - - - (188)
---- ------- ------- ------- ------- ----- -------
Balance at March 31, 1996......... $232 $20,811 $14,322 $(3,703) $ (168) $(372) $31,122
==== ======= ======= ======= ======= ===== =======
Balance at December 31, 1994..... $231 $20,721 $12,999 $(3,703) $(1,407) $(475) $28,366
Net income....................... - - 666 - - - 666
Decrease in unearned compen-
sation - ESOP.................. - - - - - 20 20
Decrease in unrealized loss on
available for sale securities,
net of taxes................... - - - - 693 - 693
Dividend declared ($.10 per share) - - (188) - - - (188)
---- ------- ------- ------- ------- ----- -------
Balance at March 31, 1995........ $231 $20,721 $13,477 $(3,703) $ (714) $(455) $29,557
==== ======= ======= ======= ======= ===== =======
</TABLE>
5
<PAGE> 6
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 834 $ 666
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for loan losses ......................... 120 150
Net loss on sales and writedown of other
real estate owned ................................ - -
Amortization, accretion and depreciation,
net .............................................. 410 285
Gain on sales of available for sale
securities ....................................... (121) -
Loans originated for sale in the
secondary market ................................. (7,007) (8,682)
Proceeds from sales of loans ....................... 8,149 8,151
Gain on sales of mortgage loans, net ............... (133) (60)
Other, net ......................................... (2,430) (8,392)
------- -------
Net cash provided (used) by operating
activities ........................................ $ (178) $(7,882)
------- -------
Cash flows from investing activities:
Maturities of investment securities ................ 548 -
Purchase of investment securities .................. (4,898) -
Proceeds from principal payments received
and redemptions of held for investment
mortgage-backed investments ...................... 2,050 1,689
Proceeds from sales of available for sale
securities ....................................... 6,264 -
Proceeds from principal payments on
available for sale securities .................... 4,455 793
Purchase of held for investment - mortgage-
backed investments ............................... (3,633) -
Purchase of available for sale - mortgage-
backed investments ............................... (4,955) -
Loans (originated/purchased) paid off,
net .............................................. (9,639) 2,307
Purchases of FHLB stock ............................ (284) -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
-------- -------
(In thousands)
<S> <C> <C>
Purchase of banking premises and equipment
and improvements to other real estate
owned .......................................... $ (204) $ (502)
Proceeds from sales of other real estate
owned .......................................... 178 164
-------- -------
Net cash provided (used) by investing
activities ..................................... (10,118) 4,451
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits .............. 7,474 (2,155)
Net increase (decrease) in borrowings with
original maturities of three months or
less ........................................... 15,721 13,003
Proceeds from short-term borrowings with
maturities in excess of three months ........... - -
Principal payments on short-term borrow-
ings with maturities in excess of
three months ................................... (8,500) -
Proceeds from issuance of long-term debt ......... 4,500 -
Principal payments on long term debt ............. (2,026) (8,409)
Cash paid for dividends .......................... (188) (187)
-------- -------
Net cash provided from financing
activities ................................... 16,981 2,252
-------- -------
Net increase (decrease)in cash and cash
equivalents ...................................... 6,685 (1,179)
Cash and cash equivalents at beginning of
period ........................................... $ 10,611 $ 8,786
-------- -------
Cash and cash equivalents at end of period ......... $ 17,296 $ 7,607
======== =======
Supplemental cash flow information:
Interest paid on deposits ........................ $ 2,610 $ 2,117
Interest paid on borrowed funds .................. 2,179 1,917
Income taxes paid ................................ 17 103
Transfers to other real estate owned,
net ........................................... - 225
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements as of March 31, 1996
and for the three month periods ended March 31, 1996 and 1995 have been
prepared by Abington Savings Bank (the "Bank") without audit, and
reflect all adjustments (consisting of normal recurring adjustments)
which, in the opinion of management, are necessary to reflect a fair
statement of the results of the interim periods presented. Certain
information and footnote disclosures normally included in the annual
consolidated financial statements which are prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. Accordingly, the Bank believes that although the disclosures
are adequate to make the information presented not misleading, the
consolidated financial statements should be read in conjunction with
the footnotes contained in the Bank's consolidated financial statements
as of and for the year ended December 31, 1995, which are included in
the Bank's Annual Report to Stockholders. Interim results are not
necessarily indicative of results to be expected for the entire year.
The consolidated financial statements include the accounts of the Bank
and its wholly-owned subsidiaries, Holt Park Place Development
Corporation, and Norroway Pond Development Corporation, each owning
properties being marketed for sale, ABBK Corporation, which invests in
real estate limited partnerships, and Abington Securities Corporation,
which invests primarily in obligations of the United States Government
and its agencies and equity securities. All significant intercompany
balances and transactions have been eliminated in consolidation.
B) DIVIDEND DECLARATION
The Bank's Board of Directors voted to pay a cash dividend to holders
of its common stock. A dividend of $.10 per share was declared in March
1996. The dividend was payable on May 2, 1996 to stockholders of record
as of the close of business on April 18, 1996.
8
<PAGE> 9
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
March 31, 1996
C) SFAS No. 122
On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." This Statement 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. 122
will 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 right based on the relative fair values of such
servicing right and the loan. The value of such servicing rights are to
be periodically assessed for impairment based on the fair value of
those rights. In the first quarter of 1996 the Bank capitalized
approximately $57,000 of mortgage servicing rights which the offset of
was realized as gains on sales of mortgages.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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, 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.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates, and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Bank's net interest rate spread was
3.36% for the quarter ended March 31, 1995 and 3.11% for the quarter ended March
31, 1996.
The level of impaired (non-accrual) loans and other real estate owned also has
an impact on net interest income. At March 31, 1996, the Bank had $637,000 in
impaired (non-accrual) loans, and $892,000 in other real estate owned compared
to $485,000 in non-accrual loans and $1,070,000 in other real estate owned,
respectively, as of December 31, 1995.
10
<PAGE> 11
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
<TABLE>
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans .......................... $5,514 $4,997
Interest on mortgage-backed investments ............. 2,335 2,176
Interest on bonds and obligations ................... 347 330
Dividend income ..................................... 138 156
Interest on short-term investments .................. 10 12
------ ------
Total interest and dividend income ................. 8,344 7,671
------ ------
Interest expense:
Interest on deposits ................................ 2,624 2,118
Interest on short-term borrowings ................... 925 1,027
Interest on long-term debt .......................... 1,268 1,070
------ ------
Total interest expense ............................ $4,817 $4,215
------ ------
Net interest income .................................. $3,527 $3,456
====== ======
</TABLE>
<TABLE>
A breakdown of the components of the Bank's net interest-rate spread is as
follows:
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Weighted average yield earned on:
Loans................................... 8.22% 8.47%
Mortgage-backed investments............. 6.58 6.71
Bonds and obligations................... 6.00 6.39
Marketable and other equity securities.. 5.22 8.09
Short-term investments.................. 3.92 5.64
Weighted average yield earned on
interest-earning assets.............. 7.50 7.77
Weighted average rate paid on:
NOW and non-interest NOW deposits....... .83 .89
Savings deposits........................ 2.41 2.30
Time deposits............................ 5.87 5.37
Total deposits........................ 3.74 3.48
Short-term borrowings.................... 5.83 6.17
Long-term debt........................... 5.91 5.87
Weighted average rate paid on
interest-bearing liabilities...... 4.48 4.41
Net interest-rate spread................ 3.02% 3.36%
</TABLE>
11
<PAGE> 12
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
<TABLE>
RATE/VOLUME ANALYSIS
The following table presents, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 vs 1995
Increase (decrease)
------------------------------
Due to
------------------------------
Volume Rate Total
------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ................................. $1,398 $ (881) $ 517
Mortgage-backed investments ........... 416 (257) 159
Bonds and obligations ................. 118 (101) 17
Equity securities ..................... 218 (236) (18)
Short-term investments ................ 11 (13) (2)
------ ------- -----
Total interest and dividend
income ........................... 2,161 (1,488) 673
------ ------- -----
Interest expense:
NOW deposits .......................... 62 (30) 32
Savings deposits ...................... (59) 72 13
Time deposits ......................... 314 147 461
Short-term borrowings ................. (47) (55) (102)
Long-term debt ........................ 189 9 198
------ ------- -----
Total interest expense ............ 459 143 602
------ ------- -----
Net interest income ..................... $1,702 $(1,631) $ 71
====== ======= =====
</TABLE>
12
<PAGE> 13
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
GENERAL. Net income for the quarter ended March 31, 1996 was $834,000 or $.42
per share compared to net income of $666,000 or $.34 per share in the
corresponding period of 1995, a net increase of $168,000 or 20.1%. The overall
improvement in net income was mainly attributable to increases in customer
service fees and gains realized on sales of mortgage-backed investments and
equity securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $673,000 or
8.8% during the three month period ended March 31, 1996 as compared to the same
period in 1995. The increase was attributable to increases in earning assets
which were partially offset by general decreases in rates earned on those
assets. The balance of average earning assets for the three month period ended
March 31, 1996 was approximately $445,111,000 as compared to $394,951,000 for
the same period in 1995, an overall increase of $50,160,000 or 12.7%. The
increase in earning assets was generally due to increases in average loan and
mortgage-backed investment balances which were $268,335,000 and $142,047,000 for
the three-months ended March 31, 1996, respectively, as compared to $235,981,000
and $129,763,000, respectively, for the same period in 1995, increases of 13.7%
and 9.5%, respectively. These increases were caused by a more favorable
residential mortgage origination market thus far in 1996 as compared to the
first quarter of 1995, and the acquisition of various residential loan pools and
mortgage-backed investment securities. See "Liquidity and Capital Resources" and
"Asset-Liability Management" for a further discussion of the Bank's investment
strategies. The average yield earned on interest earning assets declined for the
first quarter of 1996 as compared to 1995 primarily due to overall declines in
the yields on loans originated and purchased, which averaged 8.22% in the first
quarter of 1996 as compared to 8.47% in the same period in 1995. These declines
were generally caused by continued declines in long-term rates, since the
beginning of 1995 and into 1996, which impacted new purchases and/or
originations over the past year as well as generated higher prepayments within
the Bank's residential loan portfolio over the same period. Yields on
mortgage-backed securities also declined to 6.58% from 6.71% generally due to
the same conditions impacting residential loan yields noted above.
13
<PAGE> 14
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1996
increased $602,000 or 14.3% compared to the same period in 1995 generally due to
increases in the average rates paid on time deposits and overall growth in the
deposit and borrowings portfolios. The weighted average rate paid on
interest-bearing liabilities was 4.48% for the three months ended March 31, 1996
as compared to 4.41% for the same period in 1995. The increase in the weighted
average rates paid on deposits was 3.74% for the quarter ended March 31, 1996 as
compared to 3.48% for the same period in 1995 was generally attributable to
increases in rates paid on time deposits and the shift of approximately $10
million of core deposits to certificates of deposit in the beginning of 1995.
This shift was representative of customers desire, given the markets'
unwillingness to increase the rates paid on core deposits, to find higher yields
on their deposits. While rates paid on certificates of deposit have declined
somewhat since early 1995, the impact of these rate changes has not been fully
reflected given that the rates paid on such accounts are fixed for the duration
of each contract. The current weighted average rate paid on certificates of
deposit with a remaining term of one year or less is approximately 5.45%. If
those certificates were to refinance for similar terms at the current rates
offered, the Bank would expect the overall weighted average rate paid to decline
to approximately 4.80% on certificates of deposit totaling approximately
$77,465,000. See "Asset-Liability Management" for further discussion of the
competitive market for deposits. The weighted average rates paid on borrowings
decreased to 5.88% for the three-months ended March 31, 1996 from 6.01% for the
same period in 1995. This decrease in the weighted average rate paid on
borrowings generally coincided with decreases in rates established by the
Federal Reserve since November 1995.
The average balances of deposits and borrowed funds were $280,768,000 and
$149,256,000, respectively, in the quarter ended March 31, 1996 as compared to
$243,149,000 and $139,539,000, respectively, in the corresponding period in
1995. The increases in deposit balances is primarily attributable to the
acquisition of Holbrook and other general deposit growth which reflect
management's continued focus on expanding the Bank's deposit base. Borrowings
are generally used to fund a portion of residential loan, mortgage-back
investment, and investment securities portfolio growth. See "Liquidity and
Capital Resources" for further discussion of the Bank's borrowed funds.
14
<PAGE> 15
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
NON-INTEREST INCOME. Total non-interest income increased $478,000 or 80.2% in
the first quarter of 1996 in comparison to the first quarter of 1995. Customer
service fees, which were $559,000 for the quarter ended March 31, 1996 as
compared to $335,000 for the quarter ended March 31, 1995, for an increase of
$224,000 or 66.9%, rose primarily due to growth in deposit accounts, primarily
NOW and checking account portfolios. The growth in non-interest income was also
affected by increases in gains on sales of mortgage-backed and equity securities
which were $121,000 in the first quarter of 1996 as compared to none for the
same period 1995. Non-interest income was also favorably impacted by increases
on gains on sales of residential mortgages, which were $133,000 for the quarter
ended March 31, 1996 as compared to $60,000 for the corresponding period in
1995. This increase in gains on sales of mortgages was generally due to more
favorable market conditions, which impacted the spreads obtained in loan sales,
and also the favorable impact of the Bank's adoption of FASB No. 122,
"Accounting for Mortgage Servicing Rights". See Note C to Unaudited Consolidated
Financial Statements.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended March 31,
1996 increased by $298,000 or 10.5% compared to the same period in 1995.
Salaries and employee benefits increased 3.0% or $42,000 primarily due to the
acquisition of Holbrook. Occupancy expenses increased $152,000 or 32.1%
primarily due to costs associated with additional investments in and higher
maintenance costs associated with the Bank's computer system and the acquisition
of Holbrook. Other non-interest expenses also increased $104,000 or 10.8% for
the quarter ended March 31, 1996 in comparison to the same period in 1995
generally due to increases in marketing related to Holbrook and other bankwide
promotions primarily to generate core deposit growth, increased intangible asset
amortization related to Holbrook and increased item processing costs related to
checking account growth. 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. Deposit
assessment rates for the first quarter of 1996 will reflect a further reduction
in FDIC assessments to the annual $2,000 minimum. However, there is continued
uncertainty regarding any additional costs to be borne by banks for the costs
associated with previous thrift
15
<PAGE> 16
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
failures. The current draft of legislation in Congress seems to indicate that
this additional cost, which may be charged as an additional premium, would not
cause overall future premiums to be in excess of $.04 per $100 of deposit.
Management anticipates that this FDIC assessment rate reduction will be
maintained for the foreseeable future which will positively impact other
non-interest expenses.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$120,000 for the quarter ended March 31, 1996 as compared to $150,000 for the
same period in 1995. This decrease of $30,000 primarily reflects teh sale of
certain non-performing and high maintenance loans at a discounted price during
the third quarter of 1995.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the quarter
ended March 31, 1996 was 38.4% compared to 37.9% for the quarter ended March 31,
1995. The decrease in the effective tax rate for both periods in comparison to
statutory rates is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
16
<PAGE> 17
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
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 margin. 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
which are developed for the goal of maximizing the overall net interest margin
of the Bank without subjecting financial results to high degrees of volatility
based on future potential interest rate movements. A dynamic income simulation
model is the primary mechanism used in assessing the impact on net interest
income of anticipated changes in interest rates. The model reflects management's
assumptions with respect to growth rates of specific interest earning assets and
liabilities, pricing strategies, consensus prepayment rate estimates and other
rate-influenced variables. The model also reflects the impact of any off-balance
sheet hedge strategies which may be in place at a given time. This model then
projects various financial results of the Bank in light of various interest rate
assumptions as 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 best 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 one and three-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 approximately
$20,000,000 to $30,000,000 primarily in short-term fixed rate mortgage loans
(generally 10- to 15-year) to be held in portfolio, in order to
17
<PAGE> 18
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
provide a hedge against the Bank's asset sensitivity. The Bank also emphasizes
loans with terms to maturity or repricing of three years or less, such as
certain adjustable rate residential mortgage loans, residential construction
loans, second mortgages and home equity loans.
In addition, to manage interest rate sensitivity, in July 1994, the Bank entered
into an interest swap agreement with an international investment firm whereby
the Bank receives a fixed rate of interest of 5.35% and pays interest based on
the six-month floating LIBOR rate which would reset 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 $14,186,000 at March 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 is approximately 5.98%. 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 the Bank's interest earning asset base in future
periods primarily through growth in the Bank's loan portfolio. Loans comprised
approximately 60.5% of the average interest earning assets in the first quarter
of 1996. Over the past few years, this
18
<PAGE> 19
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
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 deposits acquired of approximately $91,153,000.
Also during this period, the Bank has experienced two key cycles in the
residential lending market, which has historically been the Bank's primary
source of loan growth. In 1992 and through the early portion of 1994, interest
rates on mortgages generally declined to levels which were the lowest in recent
history. While this market was very favorable for loan originations, it also had
a negative impact on the balances of loans outstanding primarily due to high
prepayment rates, a competitive marketplace for loan originations and the types
of loans being made. 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 resulting in slower prepayments on the Bank's loan
portfolios. However, due to the overall decreased refinancing demand, the
competition increased amongst residential mortgage lenders and loan origination
volumes began to slow. As long term rates eased in late 1995 and through the
early part of 1996, the market has become more favorable for residential loan
originations. In the future management intends to be competitive in the
residential mortgage market but will also emphasize greater diversification with
a focus toward consumer and commercial loans. The Bank also has and will remain
active in pursuing wholesale opportunities to purchase loans. During the first
quarter of 1996 and through 1995, the Bank acquired approximately $14,000,000
and $43,300,000 of residential first mortgages, respectively.
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.
19
<PAGE> 20
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The level of the Bank's liquid assets and the mix of its investments may vary,
depending upon management's judgement as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has aggressively been 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 deposits. 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 1995. Similar migrations of core deposits to
certificates of deposits 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 $155,304,000 at March
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.
Management believes that the current amount of borrowings as a percentage of
interest bearing liabilities is not inconsistent with the Bank's ability to meet
asset-liability objectives.
20
<PAGE> 21
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The table on the following page sets forth maturity and repricing information
relating to interest-sensitive assets and liabilities and the Bank's interest
rate swap at March 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
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
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 six months. This table does not include non-interest
bearing NOW accounts.
While this table presents a negative gap position in the six month to five 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 deposits 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.
21
<PAGE> 22
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------------------------------------------------------
Repricing/Maturity Internal
------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
Over
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. 5 Yrs. Total
------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Federal funds sold............ $ 8,470 $ - $ - $ - $ - $ - $ 8,470
Short-term investments........ 74 - - - - - 74
Bonds and obligations......... 13,070 - 2,887 35 2,100 5,010 23,102
Mortgage-backed investments... 40,565 31,776 18,322 15,481 23,919 9,060 139,123
Mortgage loans subject to
rate review ................. 43,928 12,672 24,743 4,904 628 - 86,875
Fixed-rate mortgage loans..... 15,952 12,495 22,501 19,520 31,555 60,792 162,815
Commercial and other loans
contractual maturity......... 4,778 3,791 5,453 2,744 1,822 2,322 20,910
--------- --------- --------- -------- -------- ------- --------
Total..................... 126,837 60,734 73,906 42,684 60,024 77,184 441,369
--------- --------- --------- -------- -------- ------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts. 18,576 - - - - - 18,576
Savings deposits - term
certificates................. 51,900 32,049 21,273 10,056 19,867 - 135,145
Other savings accounts........ 109,167 - - - - - 109,167
Borrowed funds................ 103,186 16,000 21,188 15,000 - - 155,374
--------- --------- --------- -------- -------- ------- --------
Total........................... 282,829 48,049 42,461 25,056 19,867 - 418,262
--------- --------- --------- -------- -------- ------- --------
Impact of interest rate swap.... (14,186) - 14,186 - - - -
--------- --------- --------- -------- -------- ------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities.......... $(170,178) $ 12,685 $ 45,631 $ 17,628 $ 40,157 $77,184 $ 23,107
--------- --------- --------- -------- -------- ------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities..... $(170,178) $(157,493) $(111,862) $(94,234) $(54,077) $23,107
========= ========= ========= ======== ======== =======
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1)................ 42.7% 54.4% 70.0% 76.4% 87.1% 105.5%
<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>
22
<PAGE> 23
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Payments on the Bank's loan and mortgage-backed investment portfolios,
prepayments on loans, sales of fixed-rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Bank's primary sources of liquidity. The Bank is also a voluntary member of the
FHLB of Boston and as such, is entitled to borrow an amount up to the value of
its qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At March 31, 1996 the Bank had approximately
$115,000,000 in unused borrowing capacity which 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 Board of Directors, also works on the collection
of non-accrual loans and the disposition of real estate acquired by foreclosure.
The allowance for possible loan losses is determined by the Management Credit
Committee after consideration of several key factors including: potential risk
in the current portfolio, levels and types of non-performing assets
23
<PAGE> 24
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
and delinquency and the expectations for the future state of the regional
economy and the potential impact that it may have on loan collateral and future
delinquencies. Workout approach and financial condition of borrowers are also
key considerations to the evaluation of non-performing loans. Non-performing
assets were $1,778,000 at March 31, 1996 compared to $1,798,000 at December 31,
1995 a decrease of $20,000 or 1.1%. The Bank's ratio of delinquent loans to
total loans was 1.29% at March 31, 1996 as compared to 1.45% at December 31,
1995.
During 1996, the Bank established a general reserve for other real estate owned
in light of the level of foreclosures, softness of the local real estate market
(particularly commercial) and costs associated with selling properties.
Provisions of approximately $21,000 were made for possible losses on other real
estate owned in the first quarter of 1996. The provisions are reflected in net
writedowns of other real estate owned on the accompanying Consolidated Statement
of Operations. The balance of the general other real estate owned reserve at
March 31, 1996 was approximately $125,000 compared to $104,000 at December 31,
1995.
There continues to be uncertainties regarding future events, particularly in
both the New England real estate market and the general economy. These events
could result in additional charge-offs, write-offs, changes in the level of the
allowance for loan or OREO losses and/or in the level of loans on non-accrual or
in foreclosure.
At March 31, 1996, the Bank had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $5,600,000 and
$1,272,000, respectively. The Bank also has outstanding commitments to grant
advances under existing home equity lines of credit amounts to $10,296,000.
Commercial and construction loans totalling $6,454,000 have been committed to
and remain outstanding as of March 31, 1996. The Bank believes it has adequate
sources of liquidity to fund these commitments.
24
<PAGE> 25
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The Bank's total stockholders' equity was $31,122,000, or 6.5% of total assets
at March 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, and an increase in net unrealized loss on available for sale securities,
was approximately $561,000 or 1.8%. 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 the 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 March 31, 1996 the Bank's Tier 1 capital
ratio was 5.71%, exceeding regulatory capital requirements.
In addition, the FDIC has adopted risk-based capital guidelines for banks which
define core, or "Tier 1", capital and supplementary or "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 riskbased capital ratio. The Bank's Tier 1 risk-based capital ratio at
March 31, 1996 was 11.96%, exceeding applicable risk-based capital guidelines.
25
<PAGE> 26
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
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.
26
<PAGE> 27
SIGNATURES
Under the requirements 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 SAVINGS BANK
---------------------
(Bank)
Date: May 10, 1996 By /s/ James P. McDonough
-----------------------------
James P. McDonough
President and Chief
Executive Officer
Date: May 10, 1996 By /s/ Edward J. Merritt
-----------------------------
Edward J. Merritt
Executive Vice President
and Chief Financial
Officer
Date: May 10, 1996 By /s/ Robert M. Lallo
-----------------------------
Robert M. Lallo
Vice President and Treasurer
27
<PAGE> 1
Exhibit 99.6
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
----------------------------------------
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended June 30, 1996
----------------------------------------
FDIC Certificate Number 22051-5
-------
ABINGTON SAVINGS BANK
------------------------------------------------
(Exact name of bank as specified in its charter)
Massachusetts 04-1012420
- - - --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or organization)
538 Bedford Street, Abington, Massachusetts 02351
- - - ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code (617) 982-3200
--------------
533 Washington Street, Abington, Massachusetts 02351
- - - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date:
1,883,738 shares as of July 31, 1996.
1
<PAGE> 2
ABINGTON SAVINGS BANK
FORM F-4
--------
INDEX
-----
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
(Unaudited) and December 31, 1995 ............................. 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended June 30, 1996 and
1995 .......................................................... 4
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Three Months Ended
June 30, 1996 and 1995 ........................................ 5
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended June 30, 1996 and
1995 .......................................................... 6
Notes to (Unaudited) Consolidated Financial
Statements .................................................... 8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ................. 11
Signature Page ................................................ 33
2
<PAGE> 3
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED BALANCE SHEETS
- - - --------------------------------------------------------------------------------
<CAPTION>
Unaudited
June 30, December 31,
1996 1995
-------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks ............................ $ 9,837 $ 10,463
Short-term investments ............................. 150 148
-------- --------
Total cash and cash equivalents .................. 9,987 10,611
-------- --------
Loans held for sale ................................ 4,531 3,022
Securities:
Mortgage-backed investments - held for
investment - market value of $65,702
in 1996 and $68,697 in 1995 ................... 67,828 68,794
Securities available for sale - at
market value .................................. 97,721 96,087
Loans .............................................. 282,454 259,786
Less:
Allowance for possible loan losses ......... (1,725) (1,433)
Unearned income ............................ (1,032) (790)
-------- --------
Loans, net ................................. 279,697 257,563
-------- --------
Federal Home Loan Bank stock ....................... 7,871 7,399
Banking premises and equipment, net ................ 6,412 6,528
Other real estate owned, net ....................... 760 1,070
Intangible assets .................................. 3,743 4,009
Other assets ....................................... 4,999 5,409
-------- --------
$483,549 $460,492
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ........................................... $293,897 $280,070
Short-term borrowings .............................. 69,938 61,308
Long-term debt ..................................... 84,720 84,301
Accrued taxes and expenses ......................... 2,233 2,408
Other liabilities .................................. 1,325 1,844
-------- --------
Total liabilities ............................... 452,113 429,931
-------- --------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued ........ - -
Common stock, $.10 par value 7,000,000
shares authorized; 2,323,738 and 2,320,738
shares issued in 1996 and 1995, respectively .... 232 232
Additional paid-in capital ....................... 20,829 20,811
Retained earnings ................................ 14,980 13,676
-------- --------
36,041 34,719
Treasury stock - 437,000 shares, at cost ......... (3,703) (3,703)
Unearned compensation - ESOP ..................... (353) (393)
Net unrealized loss on available for
sale securities, net of taxes .................. (549) (62)
-------- --------
Total stockholders' equity .................... 31,436 30,561
-------- --------
$483,549 $460,492
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
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ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- - - -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ...................... $ 5,635 $ 4,992 $ 11,149 $ 9,989
Interest on mortgage-backed investments ......... 2,305 2,289 4,640 4,465
Interest on bonds and obligations ............... 380 321 727 651
Dividend income ................................. 133 133 271 289
Interest on short-term investments .............. 18 13 28 25
---------- ---------- ---------- ----------
Total interest and dividend income ............ 8,471 7,748 16,815 15,419
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits ............................ 2,612 2,350 5,236 4,468
Interest on short-term borrowings ............... 954 1,177 1,879 2,204
Interest on long-term debt ...................... 1,290 930 2,558 2,000
---------- ---------- ---------- ----------
Total interest expense ........................ 4,856 4,457 9,673 8,672
---------- ---------- ---------- ----------
Net interest income .............................. 3,615 3,291 7,142 6,747
Provision for possible loan losses ............... 120 150 240 300
---------- ---------- ---------- ----------
Net interest income, after provision for
possible loan losses ............................ 3,495 3,141 6,902 6,447
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing fees ............................. 169 170 346 340
Other customer service fees ..................... 630 355 1,189 690
Gain on sale of securities, net ................. 144 9 265 9
Gains on sales of mortgage loans, net ........... 64 244 197 304
Net gain on sales and writedown of
other real estate owned ........................ - 24 - 24
Other ............................................ 50 33 134 64
---------- ---------- ---------- ----------
Total non-interest income ..................... 1,057 835 2,131 1,431
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits .................. 1,505 1,381 2,938 2,772
Occupancy and equipment expenses ................ 571 459 1,196 932
Other non-interest expense ...................... 1,136 1,109 2,206 2,075
---------- ---------- ---------- ----------
Total non-interest expense .................... 3,212 2,949 6,340 5,779
---------- ---------- ---------- ----------
Income before provision for income
taxes ........................................... 1,340 1,027 2,693 2,099
Provision for income taxes ....................... 494 385 1,013 791
---------- ---------- ---------- ----------
Net income .................................... $ 846 $ 642 $ 1,680 $ 1,308
========== ========== ========== ==========
Dividends per share .............................. $ .10 $ .10 $ .20 $ .20
========== ========== ========== ==========
Earnings per share ............................... $ .43 $ .33 $ .85 $ .67
========== ========== ========== ==========
Weighted average common and common share
equivalents ..................................... 1,973,000 1,958,000 1,975,000 1,956,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
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ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - - ----------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Additional Available Unearned
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion-ESOP Total
- - - ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... $232 $20,811 $13,676 $(3,703) $ (62) $(393) $30,561
Net income........................ - - 1,680 - - - 1,680
Exercise of stock options
(3,000 options)................. - 18 - - - - 18
Decrease in unearned compen-
sation - ESOP................... - - - - - 40 40
Increase in unrealized loss on
available for sale securities,
net of taxes.................... - - - - (487) - (487)
Dividend declared ($.20 per share) - - (376) - - - (376)
---- ------- ------- ------- ------- ----- -------
Balance at June 30, 1996.......... $232 $20,829 $14,980 $(3,703) $ (549) $(353) $31,436
==== ======= ======= ======= ======= ===== =======
Balance at December 31, 1994..... $231 $20,721 $12,999 $(3,703) $(1,407) $(475) $28,366
Net income....................... - - 1,308 - - - 1,308
Decrease in unearned compen-
sation - ESOP.................. - - - - - 41 41
Decrease in unrealized loss on
available for sale securities,
net of taxes................... - - - - 1,220 - 1,220
Dividend declared ($.20 per share) - - (376) - - - (376)
---- ------- ------- ------- ------- ----- -------
Balance at June 30, 1995......... $231 $20,721 $13,931 $(3,703) $ (187) $(434) $30,567
==== ======= ======= ======= ======= ===== =======
</TABLE>
5
<PAGE> 6
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 1,680 $ 1,308
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for loan losses .......................... 240 300
Net (gain)loss on sales and writedown of
other real estate owned ........................... - (24)
Amortization, accretion and depreciation,
net ............................................... 822 680
Gain on sales of available for sale
securities ........................................ (265) (9)
Loans originated for sale in the
secondary market .................................. (9,883) (11,396)
Proceeds from sales of loans ....................... 8,427 16,539
Gain on sales of mortgage loans, net ............... (197) (304)
Other, net ......................................... 165 (610)
-------- --------
Net cash provided (used) by operating
activities .......................................... $ 989 $ (1,016)
-------- --------
Cash flows from investing activities:
Maturities of held for investment -
securities .......................................... - 203
Purchase of held for investment -
securities .......................................... - (752)
Proceeds from principal payments received
on hold for investment
mortgage-backed investments ......................... 4,550 3,252
Proceeds from sales of available for sale
securities .......................................... 11,983 166
Proceeds from principal payments and
maturities of available for sale
securities .......................................... 10,435 2,147
Proceeds from sales of loans held in
portfolio ........................................... 3,038 7,500
Purchase of held for investment -
mortgage-backed investments ......................... (3,633) (613)
Purchase of available for sale securities ............ (24,575) (8,540)
Loans (originated/purchased) paid off,
net ................................................. (25,347) (3,939)
Purchases of FHLB stock .............................. (472) -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
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ABINGTON SAVINGS BANK
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Six Months Ended
June 31,
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Purchase of banking premises and equipment
and improvements to other real estate
owned ............................................ $ (420) $ (894)
Proceeds from sales of other real estate
owned ............................................ 310 369
-------- --------
Net cash provided (used) by investing
activities ....................................... (24,131) (1,946)
-------- --------
Cash flows from financing activities:
Net increase in deposits .......................... 13,827 7,798
Net increase borrowings with original
maturities of three months or less ............... 19,130 22,661
Proceeds from short-term borrowings with
maturities in excess of three months ............. 5,000 -
Proceeds from exercise of stock options ........... 18 -
Principal payments on short-term borrow-
ings with maturities in excess of
three months ..................................... (15,500) (10,000)
Proceeds from issuance of long-term debt .......... 9,500 -
Principal payments on long term debt .............. (9,081) (15,842)
Cash paid for dividends ............................ (376) (188)
-------- --------
Net cash provided from financing
activities ...................................... 22,518 4,437
-------- --------
Net increase (decrease)in cash and cash
equivalents ...................................... (624) 1,475
Cash and cash equivalents at beginning of
period ........................................... $ 10,611 $ 8,786
-------- --------
Cash and cash equivalents at end of period ......... $ 9,987 $ 10,261
======== ========
Supplemental cash flow information:
Interest paid on deposits .......................... $ 5,217 $ 4,468
Interest paid on borrowed funds .................... 4,436 4,016
Income taxes paid .................................. 225 646
Transfers to other real estate owned,
net .............................................. - 360
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30,1996
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements as of June 30, 1996
and for the three and six month periods ended June 30, 1996 and 1995
have been prepared by Abington Savings Bank (the "Bank") without audit,
and reflect all adjustments (consisting of normal recurring
adjustments) which, in the opinion of management, are necessary to
reflect a fair statement of the results of the interim periods
presented. Certain information and footnote disclosures normally
included in the annual consolidated financial statements which are
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accordingly, the Bank believes that
although the disclosures are adequate to make the information presented
not misleading, the consolidated financial statements should be read in
conjunction with the footnotes contained in the Bank's consolidated
financial statements as of and for the year ended December 31, 1995,
which are included in the Bank's Annual Report to Stockholders. Interim
results are not necessarily indicative of results to be expected for
the entire year.
The consolidated financial statements include the accounts of the Bank
and its wholly-owned subsidiaries, Holt Park Place Development
Corporation and Norroway Pond Development Corporation each owning
properties being marketed for sale, ABBK Corporation, which invests in
real estate limited partnerships, and Abington Securities Corporation,
which invests primarily in obligations of the United States Government
and its agencies and equity securities. All significant intercompany
balances and transactions have been eliminated in consolidation.
B) DIVIDEND DECLARATION
The Bank's Board of Directors voted to pay a cash dividend to holders
of its common stock. A dividend of $.10 per share was declared in June
1996. The dividend was payable on August 1, 1996 to stockholders of
record as of the close of business on July 18, 1996.
8
<PAGE> 9
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1996
C) SFAS No. 122
On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." This Statement 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. 122
will 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 right 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. In the three and six month period ended June 30, 1996,
the Bank capitalized approximately $21,900 and $78,900, respectively of
mortgage servicing rights which resulted in a corresponding increase in
gains on sales of mortgages.
D) 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
plaintiff on February 28, 1996 under which the Bank agreed to purchase
from plaintiff a pool of conventional adjustable rate mortgage loans
having an unpaid principal balance of
9
<PAGE> 10
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
June 30, 1996
D) Litigation (continued)
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 ground 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.
10
<PAGE> 11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - - --------------------------------------------------------------------------------
GENERAL
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, 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.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates, and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Bank's net interest rate spread was
3.08% and 3.10% for the quarter and six months ended June 30, 1996,
respectively, and 3.17% and 3.27%, respectively, for the quarter and six months
ended June 30, 1995.
The level of impaired (non-accrual) loans and other real estate owned also has
an impact on net interest income. At June 30, 1996, the Bank had $760,000 in
impaired (non-accrual) loans, and $655,000 in other real estate owned compared
to $485,000 in non-accrual loans and $1,070,000 in other real estate owned,
respectively, as of December 31, 1995.
11
<PAGE> 12
- - - ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - ------------------------------------------------------------------------------
<TABLE>
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ............ $ 5,635 $ 4,992 $11,149 $ 9,989
Interest on mortgage-backed investments 2,305 2,289 4,640 4,465
Interest on bonds and obligations ..... 380 321 727 651
Dividend income ....................... 133 133 271 289
Interest on short-term investments .... 18 13 28 25
------- ------- ------- -------
Total interest and dividend income ... 8,471 7,748 16,815 15,419
------- ------- ------- -------
Interest expense:
Interest on deposits .................. 2,612 2,350 5,236 4,468
Interest on short-term borrowings ..... 954 1,177 1,879 2,204
Interest on long-term debt ............ 1,290 930 2,558 2,000
------- ------- ------- -------
Total interest expense ............... $ 4,856 $ 4,457 $ 9,673 $ 8,672
------- ------- ------- -------
Net interest income .................... $ 3,615 $ 3,291 $ 7,142 $ 6,747
======= ======= ======= =======
</TABLE>
<TABLE>
A breakdown of the components of the Bank's net interest-rate spread is as
follows:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield earned on:
Loans................................... 8.08% 8.59% 8.18% 8.53%
Mortgage-backed investments............. 6.62 6.73 6.67 6.72
Bonds and obligations................... 6.47 6.22 6.24 6.32
Marketable and other equity securities.. 4.94 7.04 5.08 7.68
Short-term investments.................. 7.76 6.54 5.75 6.08
Weighted average yield earned on
interest-earning assets.................. 7.47 7.80 7.53 7.79
Weighted average rate paid on:
NOW and non-interest NOW deposits....... .88 .89 .86 .87
Savings deposits........................ 2.36 2.48 2 38 2.42
Time deposits........................... 5.73 5.77 5.80 5.57
Total deposits........................ 3.65 3.76 3.69 3.62
Short-term borrowings................... 5.51 6.54 5.66 6.36
Long-term debt.......................... 5.91 5.89 5.91 5.88
Weighted average rate paid on
interest-bearing liabilities......... 4.39 4.63 4.43 4.52
Net interest-rate spread................... 3.08% 3.17% 3.10% 3.27%
</TABLE>
12
<PAGE> 13
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
<TABLE>
The following table presents, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<CAPTION>
Three Months Ended June 30,
-----------------------------
1996 vs 1995
Increase (decrease)
-----------------------------
Due to
-----------------------------
Volume Rate Total
-----------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ......................... $ 2,315 $(1,672) $ 643
Mortgage-backed investments ... 195 (179) 16
Bonds and obligations ......... 46 13 59
Equity securities ............. 187 (187) --
Short-term investments ........ 2 3 5
------- ------- -------
Total interest and dividend
income ................... 2,745 (2,022) 723
------- ------- -------
Interest expense:
NOW deposits .................. 39 (8) 31
Savings deposits .............. 113 (115) (2)
Time deposits ................. 300 (67) 233
Short-term borrowings ......... (43) (180) (223)
Long-term debt ................ 358 2 360
------- ------- -------
Total interest expense .... 767 (368) 399
------- ------- -------
Net interest income ............. $ 1,978 $(1,654) $ 324
======= ======= =======
</TABLE>
13
<PAGE> 14
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 vs 1995
Increase (decrease)
-----------------------------
Due to
-----------------------------
Volume Rate Total
-----------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ......................... $ 2,232 $(1,072) $ 1,160
Mortgage-backed investments ... 270 (95) 175
Bonds and obligations ......... 102 (26) 76
Equity securities ............. 207 (225) (18)
Short-term investments ........ 7 (4) 3
------- ------- -------
Total interest and dividend
income ................... 2,818 (1,422) 1,396
------- ------- -------
Interest expense:
NOW deposits .................. 69 (6) 63
Savings deposits .............. 51 (40) 11
Time deposits ................. 560 134 694
Short-term borrowings ......... (90) (235) (325)
Long-term debt ................ 548 10 558
------- ------- -------
Total interest expense .... 1,138 (137) 1,001
------- ------- -------
Net interest income ............. $ 1,680 $(1,285) $ 395
======= ======= =======
</TABLE>
14
<PAGE> 15
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. Net income for the quarter ended June 30, 1996 was $846,000 or $.43 per
share compared to net income of $642,000 or $.33 per share in the corresponding
period of 1995, a net increase of $204,000 or 31.8%. The overall improvement in
net income was mainly attributable to increases in customer service fees and
gains realized on sales of mortgage-backed investments and equity securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $723,000 or
9.3% during the three month period ended June 30, 1996 as compared to the same
period in 1995. The increase was attributable to increases in earning assets
which were partially offset by general decreases in rates earned on those
assets. The balance of average earning assets for the three month period ended
June 30, 1996 was approximately $453,465,000 as compared to $397,474,000 for the
same period in 1995, an overall increase of $55,991,000 or 14.1%. The increase
in earning assets was generally due to increases in average loan and
mortgage-backed investment balances which were $278,914,000 and $139,347,000,
respectively, for the three-months ended June 30, 1996, as compared to
$232,505,000 and $135,991,000, respectively, for the same period in 1995,
increases of 20.0% and 2.5%, respectively. These increases were caused by a more
favorable residential mortgage origination market in the latter part of 1995 and
into 1996 as compared to the first half of 1995, and the acquisition of various
residential loan pools and mortgage-backed investment securities in the fourth
quarter of 1995 and the first six months of 1996. See "Liquidity and Capital
Resources" and "Asset-Liability Management" for a further discussion of the
Bank's investment strategies. The average yield earned on interest earning
assets declined for the second quarter of 1996 as compared to 1995 primarily due
to overall declines in the yields on loans originated and purchased, which
averaged 8.08% in the second quarter of 1996 as compared to 8.59% in the same
period in 1995. These declines were generally caused by continued declines in
long-term interest rates since the beginning of 1995 and into 1996, which
impacted new purchases and/or originations as well as generated higher
prepayments over the past year within the Bank's residential loan portfolio.
Yields on mortgage-backed securities also declined to 6.62% from 6.73% generally
due to the same conditions impacting residential loan yields noted above.
15
<PAGE> 16
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the quarter ended June 30, 1996 increased
$399,000 or 9.0% compared to the same period in 1995 generally due to overall
growth in the deposit and borrowings portfolios. The average balances of
deposits and borrowed funds were $286,257,000 and $156,568,000, respectively, in
the quarter ended June 30, 1996 as compared to $250,158,000 and $135,059,000,
respectively, in the corresponding period in 1995. The increases in deposit
balances is primarily attributable to the acquisition of Holbrook and other
general deposit growth which reflect management's continued focus on expanding
the Bank's core deposit base. Borrowings are generally used to fund a portion of
residential loan, mortgage-back investment, and investment securities portfolio
growth. See "Liquidity and Capital Resources" for further discussion of the
Bank's borrowed funds.
The weighted average rate paid on interest-bearing liabilities was 4.39% for the
three months ended June 30, 1996 as compared to 4.63% for the same period in
1995. The weighted average rates paid on deposits was 3.65% for the quarter
ended June 30, 1996 as compared to 3.76% for the same period in 1995. Rates paid
on deposits declined primarily as a result of the growth in core deposit
balances (non-time deposits) as well as due to the overall declines in market
interest rates since December 1995 which has resulted in slight declines in
rates paid on time deposits. While rates paid on certificates of deposit have
declined somewhat since mid-1995, the impact of these rate changes has not been
fully reflected given that the rates paid on such accounts are fixed for the
duration of each contract. The current weighted average rate paid on
certificates of deposit, totaling approximately $82,070,000, with a remaining
term of one year or less is approximately 5.49%. If those certificates were to
rollover for similar remaining terms at the current rates offered for those
terms, the Bank would expect the overall weighted average rate paid to decline
to approximately 4.95%. See "Asset-Liability Management" for further discussion
of the competitive market for deposits. The weighted average rates paid on
borrowings decreased to 5.73% for the three-months ended June 30, 1996 from
6.24% for the same period in 1995. This decrease in the weighted average rate
paid on borrowings generally coincided with decreases in rates established by
the Federal Reserve since November 1995.
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
NON-INTEREST INCOME. Total non-interest income increased $222,000 or 26.6% in
the second quarter of 1996 in comparison to the second quarter of 1995. Customer
service fees, which were $630,000 for the quarter ended June 30, 1996 as
compared to $355,000 for the quarter ended June 30, 1995, increased $275,000 or
77.5%. This increase was reflective of growth in deposit accounts, primarily NOW
and checking account portfolios. The growth in non-interest income was also
affected by increases in gains on sales of securities which were $144,000 in the
second quarter of 1996 as compared to $9,000 for the same period 1995. These
gains were reflective of the strong equity market in 1996. Non-interest income
was adversely impacted by decreases in gains on sales of residential mortgages,
which were $64,000 for the quarter ended June 30, 1996 as compared to $244,000
for the corresponding period in 1995. This decrease in gains on sales of
mortgages was generally due to the sale of approximately $7,500,000 of seasoned
20- and 30- year fixed rate mortgages in the second quarter of 1995, which
resulted in gains of approximately $175,000 for which there was no correspending
sale in 1996.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended June 30, 1996
increased by $263,000 or 8.9% compared to the same period in 1995. Salaries and
employee benefits increased 9.0% or $124,000 primarily due to the acquisition of
Holbrook. Occupancy expenses increased $112,000 or 24.4% primarily due to costs
associated with additional investments in and higher maintenance costs
associated with the Bank's computer system and the acquisition of Holbrook.
Other non-interest expenses also increased $27,000 or 2.4% for the quarter ended
June 30, 1996 in comparison to the same period in 1995 generally due to
increases in marketing related to Holbrook and other bankwide promotions
primarily to generate core deposit growth, increased intangible asset
amortization related to Holbrook and increased item processing costs related to
checking account growth. These increases were partially offset by a reduction in
the FDIC assessment rates from approximately $.23 per $100 of deposits in 1995
to the annual $2,000 minimum for the second quarter of 1996. Management
anticipates that this FDIC assessment rate reduction will be maintained for the
foreseeable future which will positively impact
17
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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other non-interest expenses. However, there is continued uncertainty regarding
any additional costs to be borne by banks for the costs associated with previous
thrift failures.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$120,000 for the quarter ended June 30, 1996 as compared to $150,000 for the
same period in 1995. This decrease of $30,000 primarily reflects the sale of
certain non-performing and high maintenance loans at a discounted price during
the third quarter of 1995.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the quarter
ended June 30, 1996 was 36.9% compared to 37.5% for the quarter ended June 30,
1995. The decrease in the effective tax rate for both periods in comparison to
statutory rates is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
18
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL. Net income for the six-month period ended June 30, 1996 was $1,680,000
or $.85 per share compared to net income of $1,308,000 or $.67 per share in the
corresponding period of 1995, a net increase of $372,000 or 28.4%. The overall
improvement in net income was mainly attributable to increases in customer
service fees and gains realized on sales of mortgage-backed investments and
equity securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $1,396,000
or 9.1% during the six-month period ended June 30, 1996 as compared to the same
period in 1995. The increase was attributable to increases in earning assets
which were partially offset by general decreases in rates earned on those
assets. The balance of average earning assets for the six-month period ended
June 30, 1996 was approximately $446,699,000 as compared to $396,061,000 for the
same period in 1995, an overall increase of $50,638,000 or 12.8%. The increase
in earning assets was generally due to increases in average loan and
mortgage-backed investment balances which were $272,537,000 and $139,197,000,
respectively, for the six-months ended June 30, 1996, as compared to
$234,233,000 and $132,895,000, respectively, for the same period in 1995,
increases of 16.4% and 4.7%, respectively. These increases were caused by a more
favorable residential mortgage origination market in late 1995 and thus far in
1996 as compared to early 1995, and the acquisition of various residential loan
pools and mortgage-backed investment securities. See "Liquidity and Capital
Resources" and "Asset-Liability Management" for a further discussion of the
Bank's investment strategies. The average yield earned on interest earning
assets declined for the second quarter of 1996 as compared to 1995 primarily due
to overall declines in the yields on loans originated and purchased, which
averaged 8.18% in the first six months of 1996 as compared to 8.53% for the same
period in 1995. These declines were generally caused by continued declines in
long-term interest rates since the beginning of 1995 and into 1996, which
impacted new purchases and/or originations as well as generated higher
prepayments over the past year within the Bank's residential loan portfolio.
Yields on mortgage-backed securities also declined to 6.67% from 6.72% generally
due to the same conditions impacting residential loan yields noted above.
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense for the six-month period ended June 30, 1996
increased $1,001,000 or 11.5% compared to the same period in 1995 generally due
to increases in the average rates paid on time deposits and overall growth in
the deposit and borrowings portfolios. The weighted average rate paid on
interest-bearing liabilities was 4.43% for the six-months ended June 30, 1996 as
compared to 4.52% for the same period in 1995. The weighted average rates paid
on deposits, which was 3.69% for the six-month period ended June 30, 1996 as
compared to 3.62% for the same period in 1995, was generally attributable to
increases in rates paid on time deposits and the shift of approximately $10
million of core deposits to certificates of deposit in the beginning of 1995.
This shift was representative of customers' desires, given the markets'
unwillingness to increase the rates paid on core deposits, to find higher yields
on their deposits. While rates paid on certificates of deposit have declined
somewhat since early 1995, the impact of these rate changes has not been fully
reflected given that the rates paid on such accounts are fixed for the duration
of each contract. The current weighted average rate paid on certificates of
deposit with a remaining term of one year or less totaling approximately
$82,070,000, is approximately 5.49%. If those certificates were to refinance for
similar terms at the current rates offered, the Bank would expect the overall
weighted average rate paid to decline to approximately 4.95%. See
"Asset-Liability Management" for further discussion of the competitive market
for deposits. The weighted average rates paid on borrowings decreased to 5.80%
for the six-months ended June 30, 1996 from 6.12% for the same period in 1995.
This decrease in the weighted average rate paid on borrowings generally
coincided with decreases in rates established by the Federal Reserve since
November 1995.
The average balances of deposits and borrowed funds were $283,563,000 and
$152,911,000, respectively, in the six-month period ended June 30, 1996 as
compared to $246,545,000 and $137,287,000, respectively, in the corresponding
period in 1995. The increases in deposit balances is primarily attributable to
the acquisition of Holbrook and other general deposit growth which reflect
management's continued focus on expanding the Bank's core deposit base.
Borrowings are generally used to fund a portion of residential loan,
mortgage-back investment, and investment securities portfolio growth. See
"Liquidity and Capital Resources" for further discussion of the Bank's borrowed
funds.
20
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
NON-INTEREST INCOME. Total non-interest income increased $700,000 or 48.9% in
the first six-months of 1996 in comparison to the same period in 1995. Customer
service fees, which were $1,189,000 for the six-months ended June 30, 1996 as
compared to $690,000 for the six-months ended June 30, 1995, increased $499,000
or 72.3%. This increase was primarily reflective of growth in deposit accounts,
primarily NOW and checking account portfolios. The growth in non-interest income
was also affected by increases in gains on sales of securities which were
$265,000 in the six-months of 1996 as compared to $9,000 for the same period
1995. These gains were reflective of the strong equity market in 1996.
Non-interest income was adversely impacted by decreases on gains on sales of
residential mortgages, which were $197,000 for the six months ended June 30,
1996 as compared to $304,000 for the corresponding period in 1995. This decrease
in gains on sales of mortgages was generally due to the sale of approximately
$7,500,000 of seasoned 20- and 30- year fixed rate mortgages in the second
quarter of 1995, which resulted in gains of approximately $175,000 for which
there was no corresponding sale in 1996. Excluding this loan sale, overall gains
on sales of mortgages actually increased in 1996 over 1995 levels primarily due
to the impact of the Bank's adoption of FASB No.122 - "Accounting for Mortgage
Servicing Rights". See Note C to Unaudited Consolidated Financial Statements.
NON-INTEREST EXPENSES. Non-interest expenses for the six-months ended June 30,
1996 increased by $561,000 or 9.7% compared to the same period in 1995. Salaries
and employee benefits increased 6.0% or $166,000 primarily due to the
acquisition of Holbrook. Occupancy expenses increased $264,000 or 28.3%
primarily due to costs associated with additional investments in and higher
maintenance costs associated with the Bank's computer system and the acquisition
of Holbrook. Other non-interest expenses also increased $131,000 or 6.3% for the
six-months ended June 30, 1996 in comparison to the same period in 1995 due to
increases in marketing related to Holbrook and other bankwide promotions
primarily to generate core deposit growth, increased intangible asset
amortization related to Holbrook and increased item processing costs related to
checking account growth. These increases were partially offset by a reduction in
the FDIC assessment rates from approximately $.23 per $100 of deposits per annum
to the annual $2,000 minimum for the six-month period ended
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
June 30, 1996. Management anticipates that this FDIC assessment rate reduction
will be maintained for the foreseeable future which will positively impact other
non-interest expenses. However, there is continued uncertainty regarding any
additional costs to be borne by banks for the costs associated with previous
thrift failures.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$240,000 for the six-month period ended June 30, 1996 as compared to $300,000
for the same period in 1995. This decrease of $60,000 primarily reflects the
sale of certain non-performing and high maintenance loans at a discounted price
during the third quarter of 1995.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the
six-month period ended June 30, 1996 was 37.6% compared to 37.7% for the
six-months ended June 30, 1995. The decrease in the effective tax rate for both
periods in comparison to statutory rates is reflective of the levels of income
earned by certain non-bank subsidiaries which are taxed, for state tax purposes,
at lower rates.
22
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
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 margin. 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
which are developed for the goal of maximizing the overall net interest margin
of the Bank without subjecting financial results to high degrees of volatility
based on future potential interest rate movements. A dynamic income simulation
model is the primary mechanism used in assessing the impact on net interest
income of anticipated changes in interest rates. The model reflects management's
assumptions with respect to growth rates of specific interest earning assets and
liabilities, pricing strategies, consensus prepayment rate estimates and other
rate-influenced variables. The model also reflects the impact of any off-balance
sheet hedge strategies which may be in place at a given time. This model then
projects various financial results of the Bank in light of various interest rate
assumptions as 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 best as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans which
the Bank currently originates and retains for its portfolio are primarily one
and three-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 approximately $20,000,000 to
$30,000,000 primarily in short-term fixed rate mortgage loans (generally 10- to
15-year) to be held in portfolio, in order to
23
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
provide a hedge against the Bank's asset sensitivity. The Bank also emphasizes
loans with terms to maturity or repricing of three years or less, such as
certain adjustable rate residential mortgage loans, residential construction
loans, second mortgages and home equity loans.
In addition, to manage interest rate sensitivity, in July 1994, the Bank entered
into an interest swap agreement with an international investment firm whereby
the Bank receives a fixed rate of interest of 5.35% and pays interest based on
the six-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 $13,427,000 at June 30, 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 is approximately 6.12%. 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 the Bank's interest earning asset base in future
periods primarily through growth in the Bank's loan portfolio. Loans comprised
approximately 61.0% of the average interest earning
24
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
assets in the first six months of 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 deposits acquired of approximately $91,153,000. Also during this
period, the Bank has experienced two key cycles in the residential lending
market, which has historically been the Bank's primary source of loan growth. In
1992 and through the early portion of 1994, interest rates on mortgages
generally declined to levels which were the lowest in recent history. While this
market was very favorable for loan originations, it also had a negative impact
on the balances of loans outstanding primarily due to high prepayment rates, a
competitive marketplace for loan originations and the types of loans being made.
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 resulting 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 has become more favorable for residential loan originations. In the
future the Bank intends to be competitive in the residential mortgage market but
will also emphasize greater diversification with a focus toward consumer and
commercial loans. The Bank also has and will remain active in pursuing wholesale
opportunities to purchase loans. During the first six months of 1996 and through
1995, the Bank acquired approximately $26,200,000 and $43,300,000, 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.
25
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The level of the Bank's liquid assets and the mix of its investments may vary,
depending upon management's judgement as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has aggressively been 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 deposits. 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. Similar migrations of core deposits to
certificates of deposits 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 $154,658,000 at June 30,
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 acquisitions and purchases of mortgage-backed
investments. Management believes that the current amount of borrowings as a
percentage of interest bearing liabilities is not inconsistent with the Bank's
ability to meet asset-liability objectives.
26
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The table on the following page sets forth maturity and repricing information
relating to interest-sensitive assets and liabilities and the Bank's interest
rate swap at June 30, 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
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
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 six months. This table does not include non-interest
bearing NOW accounts.
While this table presents a negative gap position in the six month to five 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 deposits 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.
27
<PAGE> 28
<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - ---------------------------------------------------------------------------------------------------------------------------
At June 30, 1996
----------------------------------------------------------------------------------------
Repricing/Maturity Internal
<CAPTION> ----------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
Over
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. 5 Yrs. Total
----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Federal funds sold ........... $ 75 $ -- $ -- $ -- $ -- $ -- $ 75
Short-term investments ....... 75 -- -- -- -- -- 75
Bonds and obligations ........ 11,041 3,500 1,353 35 2,091 5,993 24,013
Mortgage-backed investments .. 30,475 18,805 14,372 10,640 23,602 41,503 139,397
Mortgage loans subject to
rate review ................. 43,080 9,251 26,410 6,449 2,683 -- 87,873
Fixed-rate mortgage loans .... 11,272 10,064 19,113 17,840 32,203 88,437 178,929
Commercial and other loans
contractual maturity ........ 4,385 3,490 5,050 2,331 1,798 2,097 19,151
--------- --------- --------- --------- -------- -------- ---------
Total .................... 100,403 45,110 66,298 37,295 62,377 138,030 449,513
--------- --------- --------- --------- -------- -------- ---------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 17,891 -- -- -- -- -- 17,891
Savings deposits - term
certificates ................ 51,023 37,124 17,029 10,47 20,822 -- 136,477
Other savings accounts ....... 112,171 -- -- -- -- -- 112,171
Borrowed funds ............... 115,938 7,543 16,177 15,000 -- -- 154,658
--------- --------- --------- -------- -------- -------- ---------
Total .................... 297,023 44,667 33,206 25,479 20,822 -- 421,197
--------- --------- --------- --------- -------- -------- ---------
Impact of interest rate swap ... (13,427) -- 13,427 -- -- -- --
--------- --------- --------- --------- -------- -------- ---------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ......... $(210,047) $ 443 $ 46,519 $ 11,816 $ 41,555 $138,030 $ 28,316
--------- --------- --------- --------- -------- -------- ---------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities .... $(210,047) $(209,604) $(163,085) $(151,269) $(109,714) $ 28,316
========= ========= ========= ========= ========= ========
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1) ............... 32.3% 41.0% 56.5% 62.2% 74.0% 106.7%
<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>
28
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Payments on the Bank's loan and mortgage-backed investment portfolios,
prepayments on loans, sales of fixed-rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Bank's primary sources of liquidity. The Bank is also a voluntary member of the
FHLB of Boston and as such, is entitled to borrow an amount up to the value of
its qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At June 30, 1996 the Bank had approximately
$117,000,000 in unused borrowing capacity which 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 Board of Directors, also works on the collection
of non-accrual loans and the disposition of real estate acquired by foreclosure.
The allowance for possible loan losses is determined by the Management Credit
Committee
29
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
after consideration of several key factors including, without limitation:
potential risk in the current portfolio, levels and types of non-performing
assets and delinquency and the expectations for the future state of the regional
economy and the potential impact that it may have on loan collateral and future
delinquencies. Workout approach and financial condition of borrowers are also
key considerations to the evaluation of non-performing loans. Non-performing
assets were $1,536,000 at June 30, 1996 compared to $1,798,000 at December 31,
1995 a decrease of $262,000 or 14.6%. The Bank's ratio of delinquent loans to
total loans was .98% at June 30, 1996 as compared to 1.45% at December 31, 1995.
During 1996, the Bank established a general reserve for other real estate owned
in light of the level of foreclosures, softness of the local real estate market
(particularly commercial) and costs associated with selling properties.
Provisions of approximately $59,000 were made for possible losses on other real
estate owned in the first six months of 1996. The provisions are reflected in
net writedowns of other real estate owned on the accompanying Consolidated
Statement of Operations. The balance of the general other real estate owned
reserve at June 30, 1996 was approximately $163,000 compared to $104,000 at
December 31, 1995.
There continues 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 June 30, 1996, the Bank had outstanding commitments to originate and sell
residential mortgage loans in the secondary market amounting to $6,106,000 and
$1,533,000, respectively. The Bank also has outstanding commitments to grant
advances under existing home equity lines of credit amounts to $10,355,000.
Commercial and construction loans totalling $6,511,000 have been committed to
and remain outstanding as of June 30, 1996. The Bank believes it has adequate
sources of liquidity to fund these commitments.
30
<PAGE> 31
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The Bank's total stockholders' equity was $31,436,000, or 6.5% of total assets
at June 30, 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, and an
increase in net unrealized loss on available for sale securities, was
approximately $875,000 or 2.9%. 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 the 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 June 30, 1996 the Bank's Tier 1 capital
ratio was 5.83%, exceeding regulatory capital requirements.
In addition, the FDIC has adopted risk-based capital guidelines for banks which
define core, or "Tier 1", capital and supplementary or "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
June 30, 1996 was 12.21%, exceeding applicable risk-based capital guidelines.
31
<PAGE> 32
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (concluded)
- - - --------------------------------------------------------------------------------
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.
32
<PAGE> 33
SIGNATURES
Under the requirements 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 SAVINGS BANK
---------------------
(Bank)
Date: August 12, 1996 By /S/James P. McDonough
--------------------------
James P. McDonough
President and Chief
Executive Officer
Date: August 12, 1996 By /S/Edward J. Merritt
--------------------------
Edward J. Merritt
Executive Vice President
and Chief Financial
Officer
Date: August 12, 1996 By /S/Robert M. Lallo
--------------------------
Robert M. Lallo
Vice President and Treasurer
33
<PAGE> 1
Exhibit 99.7
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
----------------------------------------
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934 for Quarter Ended September 30, 1996
----------------------------------------
FDIC Certificate Number 22051-5
-------
ABINGTON SAVINGS BANK
----------------------------------------
(Exact name of bank as specified in its charter)
Massachusetts 04-1012420
- - - ---------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or organization)
538 Bedford Street, Abington, Massachusetts 02351
- - - ------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code (617) 982-3200
------------------
533 Washington Street, Abington, Massachusetts 02351
- - - ---------------------------------------------------------------
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date: 1,892,738 shares as of October
28, 1996.
1
<PAGE> 2
ABINGTON SAVINGS BANK
FORM F-4
--------
INDEX
-----
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
(Unaudited) and December 31, 1995 . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited)
for the Three and Nine Months Ended September 30,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1996 and
1995. . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations . . . . 11
Signature Page. . . . . . . . . . . . . . . . . . . . 34
2
<PAGE> 3
<TABLE>
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
- - - --------------------------------------------------------------------------------
<CAPTION>
Unaudited
September 30, December 31,
1996 1995
------------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks ....................... $ 8,074 $ 10,463
Short-term investments ........................ 151 148
-------- --------
Total cash and cash equivalents ............. 8,225 10,611
-------- --------
Loans held for sale ........................... - 3,022
Securities:
Mortgage-backed investments - held for
investment - market value of $63,497
in 1996 and $68,697 in 1995 .............. 65,281 68,794
Securities available for sale - at
market value ............................. 94,337 96,087
Loans ......................................... 295,630 259,786
Less:
Allowance for possible loan losses .... (1,745) (1,433)
Unearned income ....................... (1,026) (790)
-------- --------
Loans, net ............................ 292,859 257,563
-------- --------
Federal Home Loan Bank stock .................. 7,903 7,399
Banking premises and equipment, net ........... 6,269 6,528
Other real estate owned, net .................. 635 1,070
Intangible assets ............................. 3,639 4,009
Other assets .................................. 4,923 5,409
-------- --------
$484,071 $460,492
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ...................................... $300,039 $280,070
Short-term borrowings ......................... 65,743 61,308
Long-term debt ................................ 80,799 84,301
Accrued taxes and expenses .................... 2,798 2,408
Other liabilities ............................. 2,293 1,844
-------- --------
Total liabilities .......................... 451,672 429,931
-------- --------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.10 par value,
3,000,000 shares authorized; none issued ... - -
Common stock, $.10 par value 7,000,000
shares authorized; 2,323,738 and 2,320,738
shares issued in 1996 and 1995, respectively 232 232
Additional paid-in capital .................. 20,829 20,811
Retained earnings ........................... 15,713 13,676
-------- --------
36,774 34,719
Treasury stock - 437,000 shares, at cost .... (3,703) (3,703)
Unearned compensation - ESOP ................ (333) (393)
Net unrealized loss on available for
sale securities, net of taxes ............. (339) (62)
-------- --------
Total stockholders' equity ............... 32,399 30,561
-------- --------
$484,071 $460,492
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
<TABLE>
- - - --------------------------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
- - - --------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ................ $ 5,799 $ 5,163 $ 16,948 $ 15,152
Interest on mortgage-backed investments ... 2,339 2,283 6,979 6,748
Interest on bonds and obligations ......... 398 442 1,125 1,093
Dividend income ........................... 140 145 410 434
Interest on short-term investments ........ 8 4 36 29
---------- ---------- ---------- ----------
Total interest and dividend income ...... 8,684 8,037 25,498 23,456
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits ...................... 2,730 2,572 7,966 7,040
Interest on short-term borrowings ......... 936 1,129 2,815 3,333
Interest on long-term debt ................ 1,262 914 3,819 2,914
---------- ---------- ---------- ----------
Total interest expense .................. 4,928 4,615 14,600 13,287
---------- ---------- ---------- ----------
Net interest income ........................ 3,756 3,422 10,898 10,169
Provision for possible loan losses ......... 120 1,804 360 2,104
---------- ---------- ---------- ----------
Net interest income, after provision for
possible loan losses ...................... 3,636 1,618 10,538 8,065
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing fees ....................... 132 181 478 521
Other customer service fees ............... 684 457 1,873 1,147
Gain on sale of securities, net ........... 97 17 362 77
Writedown of limited partnership investment - (110) - (110)
Gains on sales of mortgage loans, net ..... 55 62 252 366
Net gain (loss) on sales and writedown of
other real estate owned .................. 41 (115) 41 (91)
Other .................................... 53 24 187 88
---------- ---------- ---------- ----------
Total non-interest income ............... 1,062 567 3,193 1,998
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits ............ 1,513 1,450 4,451 4,222
Occupancy and equipment expenses .......... 548 522 1,744 1,454
Other non-interest expense ................ 1,167 1,139 3,373 3,214
---------- ---------- ---------- ----------
Total non-interest expense .............. 3,228 3,111 9,568 8,890
---------- ---------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes .............................. 1,470 (926) 4,163 1,173
Provision (benefit) for income taxes ....... 550 (258) 1,563 533
---------- ---------- ---------- ----------
Net income (loss) ....................... $ 920 $ (668) $ 2,600 $ 640
========== ========== ========== ==========
Dividends per share ........................ $ .10 $ .10 $ .30 $ .30
========== ========== ========== ==========
Earnings (loss) per share .................. $ .47 $ (.36) $ 1.32 $ .33
========== ========== ========== ==========
Weighted average common and common share
equivalents ............................... 1,979,000 1,876,000 1,976,000 1,959,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
<TABLE>
- - - ---------------------------------------------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - - ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Additional Available Unearned
Common Paid-In Retained Treasury for Sale Compensa-
Stock Capital Earnings Stock Securities tion-ESOP Total
- - - ---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... $232 $20,811 $13,676 $(3,703) $ (62) $(393) $30,561
Net income........................... - - 2,600 - - - 2,600
Exercise of stock options
(3,000 options).................... - 18 - - - - 18
Decrease in unearned compen-
sation - ESOP...................... - - - - - 60 60
Increase in unrealized loss on
available for sale securities,
net of taxes....................... - - - - (277) - (277)
Dividends declared ($.30 per share) - - (563) - - - (563)
---- ------- ------- ------- ------- ----- -------
Balance at September 30, 1996........ $232 $20,829 $15,713 $(3,703) $ (339) $(333) $32,399
==== ======= ======= ======= ======= ===== =======
Balance at December 31, 1994........ $231 $20,721 $12,999 $(3,703) $(1,407) $(475) $28,366
Net income.......................... - - 640 - - - 640
Exercise of stock options (1,300
shares)........................... - 8 - - - - 8
Decrease in unearned compen-
sation - ESOP..................... - - - - - 61 61
Decrease in unrealized loss on
available for sale securities,
net of taxes...................... - - - - 1,171 - 1,171
Dividends declared ($.30 per share) - - (564) - - - (564)
---- ------- ------- ------- ------- ----- -------
Balance at September 30, 1995....... $231 $20,729 $13,075 $(3,703) $ (236) $(414) $29,682
==== ======= ======= ======= ======= ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
<TABLE>
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................. $ 2,600 $ 640
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Provision for loan losses ................. 360 2,104
Net (gain)loss on sales and writedown of
other real estate owned .................. (41) 91
Amortization, accretion and depreciation,
net ...................................... 1,223 1,039
Gain on sales of available for sale
securities ............................... (362) (77)
Writedown of limited partnership investment - 110
Loans originated for sale in the
secondary market ......................... (12,128) (31,319)
Proceeds from sales of loans .............. 15,299 30,451
Gain on sales of mortgage loans, net ...... (252) (366)
Other, net ................................ 1,637 (1,201)
-------- --------
Net cash provided (used) by operating
activities ................................. $ 8,336 $ 1,472
-------- --------
Cash flows from investing activities:
Decrease in due to brokers .................. - (8,311)
Maturities of held for investment -
securities ................................. - 1,200
Purchase of held for investment -
securities ................................. - (10,164)
Proceeds from principal payments received
on held for investment
mortgage-backed investments ................ 7,137 6,166
Proceeds from sales of available for sale
securities ................................. 19,386 1,515
Proceeds from principal payments and
maturities of available for sale
securities ................................. 14,275 4,804
Proceeds from sales of loans held in
portfolio .................................. 3,038 7,352
Purchase of held for investment -
mortgage-backed investments ................ (3,633) (613)
Purchase of available for sale securities ... (32,013) (13,512)
Loans (originated/purchased) paid off,
net ........................................ (38,756) (14,078)
Purchases of FHLB stock ..................... (504) -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
<TABLE>
- - - --------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- - - --------------------------------------------------------------------------------
(Unaudited)
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Net cash received in acquisitions ........ $ - $ 14,875
Purchase of banking premises and equipment
and improvements to other real estate
owned ................................... (547) (1,341)
Proceeds from sales of other real estate
owned ................................... 538 934
-------- --------
Net cash provided (used) by investing
activities .............................. (31,079) (11,173)
-------- --------
Cash flows from financing activities:
Net increase in deposits ................. 19,969 12,219
Net increase in borrowings with original
maturities of three months or less ...... 38,935 33,540
Proceeds from short-term borrowings with
maturities in excess of three months .... 5,000 36,000
Proceeds from exercise of stock options .. 18 8
Principal payments on short-term borrow-
ings with maturities in excess of
three months ............................ (39,500) (53,000)
Proceeds from issuance of long-term debt . 27,000 -
Principal payments on long term debt ..... (30,502) (17,806)
Cash paid for dividends ................... (563) (563)
-------- --------
Net cash provided from financing
activities ............................. 20,357 10,398
-------- --------
Net increase (decrease) in cash and cash
equivalents ............................. (2,386) 697
Cash and cash equivalents at beginning of
period .................................. $ 10,611 $ 8,786
-------- --------
Cash and cash equivalents at end of period $ 8,225 $ 9,483
======== ========
Supplemental cash flow information:
Interest paid on deposits ................. $ 7,963 $ 7,031
Interest paid on borrowed funds ........... 6,723 6,079
Income taxes paid ......................... 369 1,106
Transfers to other real estate owned,
net ..................................... 62 769
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements as of September 30,1996
and for the three and nine month periods ended September 30, 1996 and 1995
have been prepared by Abington Savings Bank (the "Bank") without audit, and
reflect all adjustments (consisting of normal recurring adjustments) which,
in the opinion of management, are necessary to reflect a fair statement of
the results of the interim periods presented. Certain information and
footnote disclosures normally included in the annual consolidated financial
statements which are prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, the Bank
believes that although the disclosures are adequate to make the information
presented not misleading, these consolidated financial statements should be
read in conjunction with the footnotes contained in the Bank's consolidated
financial statements as of and for the year ended December 31, 1995, which
are included in the Bank's Annual Report to Stockholders. Interim results
are not necessarily indicative of results to be expected for the entire
year.
The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiaries, Holt Park Place Development Corporation and
Norroway Pond Development Corporation each owning properties being marketed
for sale, ABBK Corporation, which invests in real estate limited
partnerships, and Abington Securities Corporation, which invests primarily
in obligations of the United States Government and its agencies and equity
securities. All significant intercompany balances and transactions have
been eliminated in consolidation.
B) DIVIDEND DECLARATION
The Bank's Board of Directors voted to pay a cash dividend to holders of
its common stock. A dividend of $.10 per share was declared in September
1996. The dividend was payable on October 24, 1996 to stockholders of
record as of the close of business on October 10, 1996.
8
<PAGE> 9
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996
C) SFAS No. 122
On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This Statement 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. 122 will 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 right
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. In the three and nine
month periods ended September 30, 1996, the Bank capitalized approximately
$24,100 and $103,000 respectively of mortgage servicing rights which
resulted in a corresponding increase in gains on sales of mortgages.
D) 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
9
<PAGE> 10
ABINGTON SAVINGS BANK
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
September 30, 1996
D) Litigation (continued)
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.
10
<PAGE> 11
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - - --------------------------------------------------------------------------------
GENERAL
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, the mix and composition of
interest sensitive assets and liabilities, economic factors influencing general
interest rates, loan demand and savings flows, as well as the effect of
competition for deposits and loans. The 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.
NET INTEREST INCOME
Net interest income is affected by the mix and volume of assets and liabilities,
the movement and level of interest rates, and interest spread, which is the
difference between the average yield received on earning assets and the average
rate paid on deposits and borrowings. The Bank's net interest rate spread was
3.13% and 3.11% for the quarter and nine months ended September 30, 1996,
respectively, and 3.17% and 3.24%, respectively, for the quarter and nine months
ended September 30, 1995.
11
<PAGE> 12
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
<TABLE>
The table below presents the components of interest income and expense for the
major categories of assets and liabilities for the periods indicated.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ............ $5,799 $5,163 $16,948 $15,152
Interest on mortgage-backed investments 2,339 2,283 6,979 6,748
Interest on bonds and obligations ..... 398 442 1,125 1,093
Dividend income ....................... 140 145 410 434
Interest on short-term investments .... 8 4 36 29
------ ------ ------- -------
Total interest and dividend income ... 8,684 8,037 25,498 23,456
------ ------ ------- -------
Interest expense:
Interest on deposits .................. 2,730 2,572 7,966 7,040
Interest on short-term borrowings ..... 936 1,129 2,815 3,333
Interest on long-term debt ............ 1,262 914 3,819 2,914
------ ------ ------- -------
Total interest expense ............... $4,928 $4,615 $14,600 $13,287
------ ------ ------- -------
Net interest income .................... $3,756 $3,422 $10,898 $10,169
====== ====== ======= =======
</TABLE>
<TABLE>
A breakdown of the components of the Bank's net interest-rate spread is as
follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield earned on:
Loans .................................. 8.09% 8.53% 8.15% 8.53%
Mortgage-backed investments ............ 6.78 6.58 6.70 6.67
Bonds and obligations .................. 6.57 6.53 6.35 6.39
Marketable and other equity securities . 5.12 6.17 5.09 7.14
Short-term investments ................. 6.53 6.52 5.91 6.15
Weighted average yield earned on
interest-earning assets ................. 7.54 7.70 7.53 7.76
Weighted average rate paid on:
NOW and non-interest NOW deposits ...... .90 .86 .87 .86
Savings deposits ....................... 2.41 2.48 2.39 2.44
Time deposits .......................... 5.85 5.92 5.82 5.69
Total deposits ........................ 3.71 3.76 3.70 3.67
Short-term borrowings ................... 5.50 6.01 5.61 6.24
Long-term debt .......................... 5.97 6.19 5.93 5.98
Weighted average rate paid on
interest-bearing liabilities ........... 4.41 4.53 4.42 4.52
Net interest-rate spread .................. 3.13% 3.17% 3.11% 3.24%
</TABLE>
12
<PAGE> 13
- - - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
<TABLE>
The following table presents, for the periods indicated, the change in interest
income and the change in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 vs 1995
Increase (decrease)
--------------------------------
Due to
--------------------------------
Volume Rate Total
--------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ......................... $2,172 $(1,536) $ 636
Mortgage-backed investments ... (77) 133 56
Bonds and obligations ......... (63) 19 (44)
Equity securities ............. 94 (99) (5)
Short-term investments ........ 4 0 4
------ ------- -----
Total interest and dividend
income ................... 2,130 (1,483) 647
------ ------- -----
Interest expense:
NOW deposits .................. 20 6 26
Savings deposits .............. 26 (40) (14)
Time deposits ................. 292 (146) 146
Short-term borrowings ......... (101) (92) (193)
Long-term debt ................ 565 (217) 348
------ ------- -----
Total interest expense .... 802 (489) 313
------ ------- -----
Net interest income ............. $1,328 $ (994) $ 334
====== ======= =====
</TABLE>
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 vs 1995
Increase (decrease)
--------------------------------
Due to
--------------------------------
Volume Rate Total
--------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans ......................... $2,853 $(1,057) $1,796
Mortgage-backed investments ... 199 32 231
Bonds and obligations ......... 43 (11) 32
Equity securities ............. 164 (188) (24)
Short-term investments ........ 10 (2) 8
------ ------- ------
Total interest and dividend
income ................... 3,269 (1,226) 2,043
------ ------- ------
Interest expense:
NOW deposits .................. 86 3 89
Savings deposits .............. 39 (42) (3)
Time deposits ................. 731 109 840
Short-term borrowings ......... (194) (324) (518)
Long-term debt ................ 946 (41) 905
------ ------- ------
Total interest expense .... 1,608 (295) 1,313
------ ------- ------
Net interest income ............. $1,661 $ (931) $ 730
====== ======= ======
</TABLE>
14
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income for the quarter ended September 30, 1996 was $920,000 or
$.47 per share compared to a net loss of $668,000 or $.36 per share in the
corresponding period of 1995, a net increase of $1,588,000. The key factor
causing the net loss in the third quarter of 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 approximately $1,654,000 and increases in other non-interest expenses
of $150,000 due to other related costs. Net income for the third quarter of 1995
was also adversely effected by management's decision to write off, in full, a
real estate limited partnership investment of approximately $110,000 in a low
income housing development. The overall improvement in net income from core
operating activities was mainly attributable to increases in net interest
income, customer service fees and gains realized on sales of securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income during the three
month period ended September 30, 1996 increased $647,000 or 8.1% as compared to
the same period in 1995. The increase was attributable to increases in earning
assets which were partially offset by general decreases in rates earned on those
assets. The balance of average earning assets for the three month period ended
September 30, 1996 was approximately $460,427,000 as compared to $417,490,000
for the same period in 1995, an overall increase of $42,937,000 or 10.3%. The
increase in earning assets was generally due to increases in average loan
balances which were $286,772,000 for the three months ended September 30, 1996,
as compared to $242,051,000 for the same period in 1995, an increase of
$44,721,000 or 18.5%. This increase primarily due to the acquisition of various
residential loan pools in the fourth quarter of 1995 and the first nine months
of 1996. See "Liquidity and Capital Resources" and "Asset-Liability Management"
for a further discussion of the Bank's investment strategies. The average yield
earned on interest earning assets declined for the third quarter of 1996 as
compared to 1995 primarily due to overall declines in the yields on loans
originated and purchased, which averaged 8.09% in the
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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third quarter of 1996 as compared to 8.53% in the same period in 1995. These
declines were generally caused by continued declines in long-term interest rates
since the beginning of 1995 and into 1996, which impacted new purchases and/or
originations as well as generated higher prepayments over the past year within
the Bank's residential loan portfolio. The weighted average rate earned on the
Bank's mortgage-backed securities portfolio increased to 6.78% for the third
quarter of 1996 as compared to 6.58% for the same period in 1995 despite the
aformentioned prepayment speeds on higher yielding securities as a result of
favorable yield adjustments on the adjustable rate portion of that portfolio.
The weighted average balance of mortgage-backed securities was $138,000,000 for
the three months ended September 30, 1996 as compared to $138,769,000 for the
same period 1995.
INTEREST EXPENSE. Interest expense for the quarter ended September 30, 1996
increased $313,000 or 6.8% compared to the same period in 1995 generally due to
overall growth in the deposit and borrowings portfolios. The average balances of
deposits and borrowed funds were $294,551,000 and $152,650,000, respectively, in
the quarter ended September 30, 1996 as compared to $273,268,000 and
$134,143,000, respectively, in the corresponding period in 1995. The increase in
deposit balances is primarily attributable to general deposit growth which
reflects management's continued focus on expanding the Bank's core deposit base.
Borrowings are generally used to fund a portion of residential loan,
mortgage-back investment, and investment securities portfolio growth. See
"Liquidity and Capital Resources" for further discussion of the Bank's borrowed
funds.
The weighted average rate paid on interest-bearing liabilities was 4.41% for the
three months ended September 30, 1996 as compared to 4.53% for the same period
in 1995. The weighted average rates paid on deposits was 3.71% for the quarter
ended September 30, 1996 as compared to 3.76% for the same period in 1995. Rates
paid on deposits declined primarily as a result of the growth in core deposit
balances (non-time deposits) as well as due to the overall declines in market
interest rates since December 1995 which has resulted in slight declines in
rates paid on time deposits. While rates paid on certificates of deposit have
declined somewhat since mid-1995, the impact of these rate changes has not been
fully reflected given that
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
the rates paid on such accounts are fixed for the duration of each contract. As
of September 30, 1996, the weighted average rate paid on certificates of
deposit, totaling approximately $89,322,000, with a remaining term of one year
or less is approximately 5.50%. If those certificates were to rollover for
similar remaining terms at the current rates offered for those terms, the Bank
would expect the overall weighted average rate paid to decline to approximately
4.82%. See "Asset-Liability Management" for further discussion of the
competitive market for deposits. The weighted average rates paid on borrowings
decreased to 5.76% for the three-months ended September 30, 1996 from 6.09% for
the same period in 1995. This decrease in the weighted average rate paid on
borrowings generally coincided with decreases in rates established by the
Federal Reserve since November 1995.
NON-INTEREST INCOME. Total non-interest income increased $495,000 or 87.3% in
the third quarter of 1996 in comparison to the third quarter of 1995. Customer
service fees, which were $684,000 for the quarter ended September 30, 1996 as
compared to $457,000 for the quarter ended September 30, 1995, increased
$227,000 or 49.7%. This increase was reflective of growth in deposit accounts,
primarily NOW and checking account portfolios. The Bank also realized a net gain
on sales of other real estate owned of $41,000 for the three months ended
September 30, 1996 as compared a net loss of $115,000 for the same period in
1995. This was reflective of the market conditions for the properties held in
portfolio in the third quarter of 1995 as compared to those held for the same
period in 1996. The 1996 period was also positively impacted by the sale of a
residential property sold at an amount which exceeded the Bank's recorded book
value. Additionally, the Bank wrote off a real estate limited partnership
investment, in full, in the third quarter of 1995 for which there was no
corresponding writedown in 1996. The growth in non-interest income was also
affected by increases in net gains on sales of securities which were $97,000 in
the third quarter of 1996 as compared to $17,000 for the same period 1995. These
gains which were reflective of the strong equity market in 1996 offset in part
by losses taken on the sale of some lower yielding bonds in an effort to
increase future yields on the mortgage-backed securities portfolio.
NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended September 30,
1996 increased by $117,000 or 3.8% compared to the same period in 1995. Salaries
and employee benefits increased 4.3% or
17
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
$63,000 primarily due to cost of living adjustments for employees. Occupancy
expenses increased $26,000 or 5.0% primarily due to costs associated with
additional investments in and higher maintenance costs associated with the
Bank's computer system and the related technology investments. Other
non-interest expenses also increased $28,000 or 2.5% for the quarter ended
September 30, 1996 in comparison to the same period in 1995 as a result of
bankwide promotions primarily to generate core deposit growth and increased item
processing costs related to checking account growth. These increases were
partially offset by a reduction in costs associated with the sale of certain
non-performing and "high-maintenance" loans which were $150,000 in the third
quarter of 1995 for which there was no corresponding charge in 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$120,000 for the quarter ended September 30, 1996 as compared to $1,804,000 for
the same period in 1995. This decrease of $1,684,000 primarily reflects the sale
of certain non-performing and high maintenance loans at a discounted price
during the third quarter of 1995 for which there was no corresponding sale in
1996.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the quarter
ended September 30, 1996 was 37.4% compared to 27.9% for the quarter ended
September 30, 1995. The lower effective tax benefit for 1995 was the result of
certain state tax limitations associated with the loss on the sale of
non-performing loans and the effect of the estimated tax credit recapture
associated with management's write-off of a real estate limited partnership
investment. The lower effective tax rate for 1996 in comparison to statutory
rates is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
18
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income for the nine-month period ended September 30, 1996 was
$2,600,000 or as compared to $640,000 for the same period in 1995, an increase
of $1,960,000. The key factor causing the level of earnings in 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. Net income for the
nine month period ended September 30, 1995 was also adversely effected by
management's decision to write-off, in full, a real estate limited partnership
investment of approximately $110,000 in a low income housing development. The
overall improvement in net income from core operating activities was mainly
attributable to increases in customer service fees and gains realized on the
sale of securities.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased $2,042,000
or 8.7% during the nine month period ended September 30, 1996 as compared to the
same period in 1995. The increase was attributable to increases in earning
assets which were partially offset by general decreases in rates earned on those
assets. The balance of average earning assets for the nine-month period ended
September 30, 1996 was approximately $451,306,000 as compared to $403,233,000
for the same period in 1995, an overall increase of $48,073,000 or 11.9%. The
increase in earning assets was generally due to increases in average loan and
mortgage-backed investment balances which were $277,316,000 and $138,815,000,
respectively, for the nine months ended September 30, 1996, as compared to
$236,868,000 and $134,848,000, respectively, for the same period in 1995,
increases of 17.1% and 2.9%, respectively. These increases were primarily due to
the acquisition of various residential loan pools and mortgage-backed investment
securities. See "Liquidity and Capital Resources" and "Asset-Liability
Management" for a further discussion of the Bank's investment strategies. The
average yield earned on interest-earning assets declined for the nine month
period ended September 30,
19
<PAGE> 20
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
1996 as compared to the same period in 1995 primarily due to overall declines in
the yields on loans originated and purchased, which averaged 8.15% in the first
nine months of 1996 as compared to 8.53% for the same period in 1995. These
declines were generally caused by continued declines in long-term interest rates
since the beginning of 1995 and into 1996, which impacted new purchases and/or
originations as well as generated higher prepayments over the past year within
the Bank's residential loan portfolio. Yields on mortgage-backed securities,
however, increased slightly to 6.70% from 6.67% despite the aforementioned
interest rate movements primarily as a result of favorable yield adjustments on
the adjustable rate portion of that portfolio.
INTEREST EXPENSE. Interest expense for the nine month period ended September 30,
1996 increased $1,313,000 or 9.9% compared to the same period in 1995 generally
due to increases in the average balances on time deposits and overall growth in
the deposit and borrowings portfolios. The average balances of deposits and
borrowed funds were $287,179,000 and $152,882,000 respectively, in the nine
month period ended September 30, 1996 as compared to $255,713,000 and
$136,227,000, respectively, in the corresponding period in 1995. The increase in
deposit balances is primarily attributable to the acquisition of Holbrook and
other general deposit growth which reflect management's continued focus on
expanding the Bank's core deposit base. Borrowings are generally used to fund a
portion of residential loan, mortgage-backed investment, and investment
securities portfolio growth.
The weighted average rate paid on interest-bearing liabilities was 4.42% for
the nine months ended September 30, 1996 as compared to 4.52% for the same
period in 1995. The weighted average rates paid on deposits was 3.70% for the
nine month period ended September 30, 1996 as compared to 3.67% for the same
period in 1995. This increase was generally attributable to increases in rates
paid on time deposits and the shift of approximately $10 million of core
deposits to certificates of deposit in the beginning of 1995. This shift was
representative of customers' desires, given the markets' unwillingness to
increase the rates paid on core deposits, to find higher yields on their
deposits. While rates paid on certificates of deposit have
20
<PAGE> 21
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
declined somewhat since early 1995, the impact of these rate changes has not
been fully reflected given that the rates paid on such accounts are fixed for
the duration of each contract. As of September 30, 1996, the weighted average
rate paid on certificates of deposit with a remaining term of one year or less,
totaling approximately $89,322,000, is approximately 5.50%. If those
certificates were to refinance for similar terms at the current rates offered,
the Bank would expect the overall weighted average rate paid to decline to
approximately 4.82%. See "Asset-Liability Management" for further discussion of
the competitive market for deposits.
The weighted average rate paid on borrowings decreased to 5.79% for the nine
months ended September 30, 1996 from 6.12% for the same period in 1995. This
decrease in the weighted average rate paid on borrowings generally coincided
with decreases in rates established by the Federal Reserve since November 1995.
See "Liquidity and Capital Resources" for further discussion of the Bank's
borrowed funds.
NON-INTEREST INCOME. Total non interest income increased $1,195,000 or 59.8% in
the first nine months of 1996 in comparison to the same period in 1995. Customer
service fees, which were $1,873,000 for the nine months ended September 30, 1996
as compared to $1,147,000 for the nine months ended September 30, 1995,
increased $726,000 or 63.3%. This increase was primarily reflective of growth in
deposit accounts, primarily NOW and checking account portfolios. The Bank also
realized a net gain on sales of other real estate owned of $41,000 for the nine
months ended September 30, 1996 as compared net losses of $91,000 for the
corresponding period in 1995. This was reflective of the market conditions for
the properties held in portfolio in 1995 as compared to the first nine months of
1996. In 1996, a residential property sold at an amount which exceeded the
Bank's book value which also positively affected the 1996 results. Additionally,
the Bank wrote off a real estate limited partnership investment, in full, in the
third quarter of 1995 for which these was no corresponding writedown in 1996.
The growth in non-interest income was also affected by increases in gains on
sales of securities which were $362,000 in the first nine months of 1996 as
compared to $77,000 for the same period
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
in 1995. These gains which were reflective of the strong equity market in 1996
also are net of some losses taken on lower yielding mortgage-backed securities
in an effort to increase future yields on that portfolio. Non-interest income
was adversely impacted by decreases on gains on sales of residential mortgages,
which were $252,000 for the nine months ended September 30, 1996 as compared to
$366,000 for the corresponding period in 1995. This decrease in gains on sales
of mortgages was generally due to the sale of approximately $7,200,000 of
seasoned 20- and 30- year fixed rate mortgages in the second quarter of 1995,
which resulted in gains of approximately $175,000 for which there was no
corresponding sale in 1996. Excluding this loan sale, overall gains on sales of
mortgages actually increased in 1996 over 1995 levels primarily due to the
impact of the Bank's adoption of FASB
No.122 - "Accounting for Mortgage Servicing Rights". See Note C to Unaudited
Consolidated Financial Statements.
NON-INTEREST EXPENSES. Non-interest expenses for the nine-months ended September
30, 1996 increased by $678,000 or 7.6% compared to the same period in 1995.
Salaries and employee benefits increased 5.4% or $229,000 primarily due to the
acquisition of Holbrook in June 1995. Occupancy expenses increased $290,000 or
19.9% primarily due to costs associated with additional investments in and
higher maintenance costs associated with the Bank's computer system and the
acquisition of Holbrook. Other non interest expenses also increased $159,000 or
4.9% for the nine months ended September 30, 1996 in comparison to the same
period in 1995 due to increases in marketing related to Holbrook and other
bankwide promotions primarily to generate core deposit growth, increased
intangible asset amortization related to Holbrook and increased item processing
costs related to checking account growth. Offsetting this increase was the
elimination of approximately $150,000 in costs associated with the sale of
certain non-accrual and "high-maintenance" loans which was incurred in 1995.
These increases were also offset by a reduction in the FDIC assessment rates
from approximately $.23 and $.04 per $100 of deposits per annum to the annual
$2,000 minimum for the nine-month period ended September 30, 1996. FDIC premiums
for the Bank will be approximately $.0129 per $100 of deposit in 1997 based on
the BIF/SAIF/FICO plan of resolution appropriations bill which has recently been
signed by the President.
22
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$360,000 for the nine-month period ended September 30, 1996 as compared to
$2,104,000 for the same period in 1995. This decrease of $1,744,000 primarily
reflects the provision taken in connection with the sale of certain
non-performing and "high-maintenance" loans at a discounted price during the
third quarter of 1995 for which there was no corresponding provision in 1996.
PROVISION FOR INCOME TAXES. The Bank's effective income tax rate for the
nine-month period ended September 30, 1996 was 37.5% compared to 47.1% for the
nine months ended September 30, 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 loan sales and the effect of estimated tax
credit recapture associated with management's write off of a real estate limited
partnership investment. The decrease in the effective tax rate for 1996 in
comparison to statutory rates is reflective of the levels of income earned by
certain non-bank subsidiaries which are taxed, for state tax purposes, at lower
rates.
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 margin. 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
which are developed for the goal of maximizing the overall net interest margin
of the Bank without subjecting financial results to high degrees of volatility
based on future potential interest rate movements. A dynamic income simulation
model is the primary mechanism used in assessing the impact on net interest
income of anticipated changes in interest rates. The model reflects management's
assumptions with respect to growth rates of specific interest-earning assets and
liabilities, pricing strategies, consensus prepayment rate estimates and other
rate-influenced variables. The model also
23
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
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 as 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 best as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans which
the Bank currently originates and retains for its portfolio are primarily one
and three-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 approximately $20,000,000 primarily in short-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 three years or less, such as certain
adjustable rate residential mortgage loans, residential construction loans,
second mortgages and home equity loans.
In addition, to manage interest rate sensitivity, in July 1994, the Bank entered
into an interest swap agreement with an international investment firm whereby
the Bank receives a fixed rate of interest of 5.35% and pays interest based on
the six-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 $13,105,000 at September 30,
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 accredit to income over the life of
the swap agreement at a rate consistent with the payment and prepayment
24
<PAGE> 25
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
levels of the referenced pool of mortgages. The resulting yield received by the
Bank including the impact of this accretion is approximately 6.12%. 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 the Bank's interest earning
asset base in future periods primarily through growth in the Bank's loan
portfolio. Loans comprised approximately 60.5% of the average interest earning
assets in the first nine months of 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 deposits acquired of approximately $91,153,000. Also during this
period, the Bank has experienced two key cycles in the residential lending
market, which has historically been the Bank's primary source of loan growth. In
1992 and through the early portion of 1994, interest rates on mortgages
generally declined to levels which were the lowest in recent history. While this
market was very favorable for loan originations, it also had a negative impact
on the balances of loans outstanding primarily due to high prepayment rates, a
competitive marketplace for loan originations and the types of loans being made.
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 resulting 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
25
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
early part of 1996, the market has become more favorable for residential loan
originations. In the future the Bank intends to be competitive in the
residential mortgage market but will place greater emphasis on consumer and
commercial loans. The Bank also has and will remain active in pursuing wholesale
opportunities to purchase loans. During the first nine months of 1996 and all of
1995, the Bank acquired approximately $27,000,000 and $43,300,000 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 judgement as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has aggressively been 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 deposits. 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. Similar
26
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
migrations of core deposits to certificates of deposits 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 $146,542,000 at
September 30, 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 acquisitions and purchases of
mortgage-backed investments. Management believes that the current amount of
borrowings as a percentage of interest bearing liabilities is not inconsistent
with the Bank's ability to meet asset-liability objectives.
The table on the following page sets forth maturity and repricing information
relating to interest-sensitive assets and liabilities and the Bank's interest
rate swap at September 30, 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
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
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 six months. This table does not include non-interest
bearing NOW accounts.
27
<PAGE> 28
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
While this table presents a negative gap position in the six month to five 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 deposits rates are generally driven by market area and
demand which tend to be less sensitive to general interest rate changes. In
addition, other savings accounts and money market accounts are substantially
stable core deposits, although subject to rate changes. A substantial core
balance in these type of accounts is anticipated to be maintained over time.
28
<PAGE> 29
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------------------------------------------------------
Repricing/Maturity Interval
-----------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
Over
0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. 5 Yrs. Total
-----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments ............. $ 151 $ - $ - $ - $ - $ - $ 151
Bonds and obligations .............. 9,973 3,500 1,348 1,035 2,087 7,000 24,943
Mortgage-backed investments ........ 40,569 13,301 10,887 8,682 18,362 40,379 132,180
Mortgage loans subject to
rate review ....................... 37,332 15,370 18,069 21,493 4,403 - 96,667
Fixed-rate mortgage loans .......... 20,079 15,007 12,359 16,792 38,169 74,928 177,334
Commercial and other loans ......... 6,805 4,281 4,769 2,440 2,308 , 20,603
--------- --------- --------- --------- -------- -------- --------
Total .......................... 114,909 51,459 47,432 60,442 65,329 122,307 451,878
--------- --------- --------- --------- -------- -------- --------
Liabilities subject to interest rate
adjustment:
Money market deposit accounts ...... 17,948 - - - - - 17,948
Savings deposits - term
certificates ...................... 65,020 30,044 15,983 10,628 19,242 - 140,917
Other savings accounts ............. 114,318 - - - - - 114,318
Borrowed funds ..................... 99,324 5,218 22,000 20,000 - - 146,542
--------- --------- --------- --------- -------- -------- --------
Total ................................ 296,610 35,262 37,983 30,628 19,242 , 419,725
--------- --------- --------- --------- -------- -------- --------
Impact of interest rate swap ......... (13,105) (13,105) - - - - -
--------- --------- --------- --------- -------- -------- --------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities ............... $(194,806) $ 29,302 $ 9,449 $ 19,814 $ 46,087 $122,307 $ 32,153
--------- --------- --------- --------- -------- -------- --------
Cumulative excess (deficiency)
of rate-sensitive assets over
rate sensitive liabilities .......... $(194,806) $(165,504) $(156,055) $(136,241) $(90,154) $ 32,153
========= ========= ========= ========= ======== ========
Rate-sensitive assets as a
percent of rate-sensitive
liabilities (1) ..................... 37.1% 50.1% 57.8% 66.0% 78.5% 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>
29
<PAGE> 30
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Payments on the Bank's loan and mortgage-backed investment portfolios,
prepayments on loans, sales of fixed-rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Bank's primary sources of liquidity. The Bank is also a voluntary member of the
FHLB of Boston and as such, is entitled to borrow an amount up to the value of
its qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U.S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At September 30, 1996 the Bank had
approximately $120,000,000 in unused borrowing capacity which 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 Board of Directors, also works on the collection
of non-accrual loans and the disposition of real estate acquired by foreclosure.
The allowance for possible loan losses is determined by the Management Credit
Committee
30
<PAGE> 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
after consideration of several key factors including, without limitation:
potential risk in the current portfolio, levels and types of non-performing
assets and delinquency and the expectations for the future state of the regional
economy and the potential impact that it may have on loan collateral and future
delinquencies. Workout approach and financial condition of borrowers are also
key considerations to the evaluation of non-performing loans. Non-performing
assets were $1,285,000 at September 30, 1996 compared to $1,798,000 at December
31, 1995 a decrease of $513,000 or 28.5%. The Bank's ratio of delinquent loans
to total loans was .75% at September 30, 1996 as compared to 1.45% at December
31, 1995.
During 1996, the Bank established a general reserve for other real estate owned
in light of the level of foreclosures, softness of the local real estate market
(particularly commercial) and costs associated with selling properties.
Provisions of approximately $74,900 were made for possible losses on other real
estate owned in the first nine months of 1996. The provisions are reflected in
net writedowns of other real estate owned on the accompanying Consolidated
Statement of Operations. The balance of the general other real estate owned
reserve at September 30, 1996 was approximately $159,400 compared to $104,000 at
December 31, 1995.
There continues 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 September 30, 1996, the Bank had outstanding commitments to originate and
sell residential mortgage loans in the secondary market amounting to $4,850,000
and $501,000 respectively. The Bank also has outstanding commitments to grant
advances under existing home equity lines of credit amounts to $10,698,000.
Commercial and construction loans totaling $7,197,000 have been committed to and
remain outstanding as of September 30, 1996. The Bank believes it has adequate
sources of liquidity to fund these commitments.
31
<PAGE> 32
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- - - --------------------------------------------------------------------------------
The Bank's total stockholders' equity was $32,399,000 or 6.7% of total assets at
September 30, 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, and an increase in net unrealized loss on available for sale securities,
was approximately $1,838,000 or 6.0%. 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 the 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 September 30, 1996 the Bank's Tier 1
capital ratio was 6.02%, exceeding regulatory capital requirements.
In addition, the FDIC has adopted risk-based capital guidelines for banks which
define core, or "Tier 1", capital and supplementary or "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
September 30, 1996 was 12.63%, exceeding applicable risk-based capital
guidelines.
32
<PAGE> 33
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MANAGEMENT'S DISCUSSION AND ANALYSIS (concluded)
- - - --------------------------------------------------------------------------------
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.
33
<PAGE> 34
SIGNATURES
Under the requirements 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 SAVINGS BANK
---------------------
(Bank)
Date: October 31, 1996 By /S/ James P. McDonough
-------------------------
James P. McDonough
President and Chief
Executive Officer
Date: October 31, 1996 By /S/ Edward J. Merritt
-------------------------
Edward J. Merritt
Executive Vice President
and Chief Financial
Officer
Date: October 31, 1996 By /S/ Robert M. Lallo
-------------------------
Robert M. Lallo
Vice President and Treasurer
34
