<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1997
Commission File No. 0-16018
ABINGTON BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3334127
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
536 Washington Street, Abington, Massachusetts 02351
(Address of Principal Executive Offices) (Zip Code)
(617) 982-3200
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Title of Class: Common Stock, par value $0.10 per share
Indicate by check mark whether the Registrant (together with its predecessor in
interest) (1) has filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment of this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sales price for the Registrant's Common Stock
on March 6, 1998, as reported by the Nasdaq Stock Market, was $73,990,000.
The number of shares outstanding of the Registrant's Common Stock as of March 6,
1998: 3,565,800 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part II (Items 6, 7 and 8) of this Form is incorporated
by reference herein from the Registrant's Annual Report to Stockholders for the
year ended December 31, 1997 (the "Annual Report").
Information required by Part III (Items 10, 11 and 12) of this Form is
incorporated by reference herein from the Registrant's definitive proxy
statement (the "Proxy Statement") relating to the 1998 Annual Meeting of
Stockholders of the Registrant.
When used in this Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe" or similar expressions are intended to identify "forward-looking
statements." The Company wishes to caution readers that all forward-looking
statements are necessarily speculative and not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various risks and uncertainties, including regional and
national economic conditions, changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated
or projected.
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PART I
Item 1. Business
General
Abington Bancorp, Inc. (the "Company") is a one-bank holding company which
owns all of the outstanding capital stock of Abington Savings Bank ("the Bank").
Abington Bancorp, Inc. was reestablished as the Bank's holding company on
January 31, 1997. Previously, the Company's predecessor, also known as Abington
Bancorp, Inc. had served as the Bank's holding company from February 1988 until
its dissolution in December 1992. The Company's primary business is serving as
the holding company of the Bank.
The Bank operated as a Massachusetts-chartered mutual savings bank from
its incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From June 1986 to the present, the Bank has operated as
a stock-owned savings Bank.
The Bank presently has three wholly-owned subsidiaries: Holt Park Place
Development Corporation and Norroway Pond Development Corporation, which own
properties being marketed for sale, and Abington Securities Corporation, which
invests primarily in United States Government obligations and obligations of
related agencies and equity securities. ABBK Corporation, which had previously
invested in real estate development limited partnerships engaged in qualified
housing projects, was dissolved in January 1997.
The Company is engaged principally in the business of attracting deposits
from the general public, borrowing funds and investing those deposits and funds.
In its investments, the Company has emphasized various types of residential and
commercial real estate loans, residential construction loans, consumer loans,
and investments in securities. The Company considers its principal market area
to be Plymouth County, Massachusetts; primarily Abington, Cohasset, Halifax,
Holbrook, Kingston, Whitman, Hull, Pembroke and Holbrook, where it has banking
offices, and nearby Rockland, Duxbury, Plympton, Brockton, Hanover, East
Bridgewater, Plymouth, Carver, Weymouth, Bridgewater and Hanson.
The Company has grown from $347.4 million in assets and $209.9 million in
deposits at December 31, 1993 to $532.0 million in assets and $324.9 million in
deposits at December 31, 1997. Deposits in the Company have been insured by the
Federal Deposit Insurance Corporation ("FDIC") since 1975. Deposits are insured
by the Bank Insurance Fund of the FDIC up to FDIC limits (generally $100,000 per
depositor) and by the Depositors Insurance Fund of the Mutual Savings Central
Fund, Inc. (the "Depositors Insurance Fund" or "Central Fund") for the portion
of deposits in excess of that insured by the FDIC.
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On June 3, 1994, the Company acquired Hull Co-Operative Bank ("Hull") by
merger. On June 26, 1995, the Company acquired the deposits and certain assets
and other liabilities of the Holbrook branch of The First National Bank of
Boston ("Holbrook"). Additionally, in August of 1997, the Company also opened,
in Cohasset, the first of three planned de novo supermarket branches, with
Randolph and Hanson scheduled to open in 1998. These acquisitions and branch
openings are consistent with the Company's ongoing strategy of planned growth
which will enable the Company to have a greater regional presence.
Market Area and Offices
The Company considers its primary service area to be Plymouth County,
Massachusetts; primarily the towns of Abington, Cohasset, Halifax, Kingston,
Whitman, Hull, Holbrook and Pembroke, where it has banking offices, and nearby
Rockland, Duxbury, Scituate, Cohasset, Plympton, Brockton, Hanover, Bridgewater,
Plymouth, Carver, Weymouth, Bridgewater and Hanson.
The Company has its corporate headquarters in Abington, Massachusetts, and
branch offices in Abington, Cohasset, Halifax, Whitman, Pembroke, Kingston,
Holbrook and Hull, Massachusetts. The Bank provides the full range of its
services at each of these offices. An Operations Center is also located in
Abington. The Company 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 Company's own
portfolio primarily have terms to maturity or repricing of 15 years or less,
such as residential construction loans and adjustable-rate and fixed-rate
mortgages on owner-occupied residential property. See "Item 7 Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for discussion of the Company's
asset-liability strategy. The Company also originates one-year and three-year
adjustable-rate mortgages on non-owner-occupied residential property as well as
commercial and commercial real estate loans. Prior to 1996, commercial,
commercial real estate or commercial construction lending had not been a primary
source of loan originations. The Company began to emphasize such lending in the
latter part of 1996 and into 1997. The Company does anticipate a continued
emphasis in 1998 and beyond for this type of loan origination. The Company has
stressed the origination or purchase of shorter-term 15-year fixed rate or
adjustable residential mortgage loans or seasoned 30-year fixed rate residential
mortgage loans for its own portfolio in connection with the asset/liability
management. (See "Lending Activities-Residential and Commercial Construction and
Commercial Real Estate Loans.") At December 31, 1997, the Company's loan
portfolio included $224.2 million in fixed-rate mortgage loans of which $1.3
million were held for sale.
The Company's net loan portfolio, including loans held for sale, totaled
$330.8 million at December 31, 1997, representing approximately 62% of its total
assets. The majority of the Company's loans are secured by real estate and are
made within Plymouth County, although the Company also makes and purchases loans
in other areas of the United States. Generally, loans
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purchased outside of Massachusetts are well collateralized and reflect an
adequate payment history. Approximately 25% of the Company's total loan
portfolio represent owner-occupied first mortgages located outside of
Massachusetts.
The Company originated $30.6 million in commercial and commercial real
estate loans and $20.0 million in residential first mortgage loans during the
year ended December 31, 1997. Of the latter amount, loans aggregating $3.6
million were retained for the Company's own portfolio, of which approximately
$1.3 million were held for sale at December 31, 1997, and loans aggregating 15.1
million were sold in the secondary market. As of December 31, 1997, loan
commitments to borrowers or potential borrowers of $24.0 million were
outstanding. These commitments included $2.2 million under existing construction
loans, $ 8.4 million in residential and commercial and commercial real estate
loans, $13.4 million under existing lines of credit (including home equity
loans).
Residential Loans. The Company currently sells in the secondary market
most first mortgage loans originated on owner-occupied residential property. The
Company sells loans it has originated to investors on a non-recourse basis.
Prior to 1996, the Company had generally retained the servicing rights on sold
loans. Currently, the Company typically sells the servicing rights along with
the loans. The Company currently receives annual loan servicing fees, where
servicing was retained, generally ranging from .25% to .425% of the principal
balance of the loans plus all late charges on previous loan sales (generally
before 1996) where servicing rights were retained. At December 31, 1997, the
Company's loan servicing portfolio amounted to $208.1 million.
As of December 31, 1997, the outstanding balance of residential first
mortgage loans totaled $249.2 million or 74.1% of the gross loans in the
Company's loan portfolio. Residential first mortgage loans are generally written
in amounts up to 95% of value if the property is owner-occupied. Borrowers on
residential first mortgage loans with a loan-to-value ratio in excess of 80% are
required to carry private mortgage insurance. Adjustable-rate mortgage loans to
owner occupants of one- to four-family residential property are subject to
certain requirements and limitations under guidelines issued by the
Massachusetts Commissioner of Banks (the "Commissioner"), including limitations
on the amount and frequency of changes in interest rates.
In most cases, the Company 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.
Home Equity and Second Mortgage Loans. The Company offers home equity
loans, which are revolving lines of credit secured by the equity in the
borrower's residence. The majority of home equity loans have interest rates that
adjust with movements in the prime lending rate although the Company does offer
fixed rate home equity loans. Home equity loans are currently written in amounts
from $7,500 to $100,000, but generally not more than the difference between 80%
of the appraised value of the property and the outstanding balance of the
existing first mortgage. However, home equity loans with higher loan-to-value
ratios up to 90% are available on a limited basis provided certain underwriting
criteria are met. All home equity loans must have a current appraisal of the
value of the mortgaged property at origination. At December 31, 1997, the
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Company had in its portfolio approximately $20.4 million of outstanding home
equity and second mortgage loans and unused commitments amounting to $11.2
million.
Residential and Commercial Construction and Commercial and Commercial Real
Estate Loans. The Company 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 with construction terms of no more than one year (residential
construction-to-permanent financing loans are offered with a 30-year loan)
post-construction mortgage. The Company generally makes construction loans to
builders who have pre-sold the homes to the future occupants. In most cases,
permanent financing is arranged through the Company on properties for which the
Company has been the construction lender. It is the Company's policy to require
on-site inspections before releasing funds on construction loans. Inspections on
construction loans are generally performed by third-party inspectors. At
December 31, 1997, gross construction loans totaled $7.7 million, or 2.3% of the
Company's total loan portfolio.
Commercial real estate loans generally relate to properties which are
typically non-owner occupied, income producing such as shopping centers, small
apartment buildings and other types of commercial properties. Commercial and
commercial real estate loans are generally written for maximum terms of 5 years,
and interest rates on these loans generally are fixed. Currently, commercial and
commercial real estate loans are written in amounts up to $3,000,000 and are
usually made in Massachusetts counties of Plymouth, Norfolk, Bristol and
Barnstable. At December 31, 1997, the Company had a total of $47.0 million of
commercial and commercial real estate loans, or 14.0% of the Company's total
loan portfolio. The Company plans to maintain its emphasis on commercial real
estate lending into 1998 in an attempt to further expand the portfolio.
Commercial, commercial construction and commercial real estate lending
entails greater risk than residential mortgage (including residential
construction) lending to owner occupants. Compared to residential mortgage loans
to owner occupants, the repayment of these types of loans is more dependent on
the underlying business and financial condition of the borrower and/or cash
flows from leases on the subject properties and, in the case of construction
loans, the economic viability of the project, and is more susceptible to adverse
future developments. Since 1996, the Company has emphasized commercial,
commercial real estate or commercial construction lending and intends to
continue to place an emphasis on commercial, commercial construction and
commercial real estate loan originations.
Consumer Loans. The Company also makes a variety of consumer loans, such
as new and used automobile and boat loans, unsecured loans, education loans, and
passbook and stock-secured loans. Education loans are periodically sold in the
secondary market. The Company's consumer loans totaled $12.0 million at December
31, 1997, representing 3.5% of its total loan portfolio.
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Composition of Loan Portfolio. The following table shows the composition
of the Company's loan portfolio by type of loan.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- -----------------------
Percent Percent Percent
to Gross to Gross to Gross
Amount Loans Amount Loans Amount Loans
--------- -------- --------- -------- ---------- ---------
(Dollars in thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Conventional 249,165 74.1% 236,635 77.7% $ 200,368 75.6%
Second mortgages and home equity 20,392 6.1 17,368 5.7 18,027 6.8
Commercial real estate 39,341 11.7 24,718 8.1 17,622 6.6
Construction 7,681 2.3 5,956 2.0 6,805 2.5
--------- -------- --------- -------- ---------- ---------
Total mortgage loans 316,579 94.2 284,677 93.5 242,822 91.5
--------- -------- --------- -------- ---------- ---------
Less:
Due to borrowers on incomplete loans (2,166) (2,758) (2,499)
Net deferred loan fees and unearned
discounts (813) (986) (940)
--------- --------- ----------
Subtotal 313,600 280,933 239,383
Commercial loans:
Unsecured lines of credit 245 0.1 324 0.1 477 0.2
Secured and unsecured 7,399 2.2 4,210 1.4 1,861 0.7
--------- -------- --------- -------- ---------- ---------
Subtotal 7,644 2.3 4,534 1.5 2,338 0.9
--------- -------- --------- -------- ---------- ---------
Consumer loans:
Indirect automobile 1,263 0.4 4,355 1.4 10,049 3.8
Personal 1,562 0.4 1,625 0.5 1,715 0.6
Education 423 0.1 509 0.2 728 0.3
Passbook and stock secured 8,323 2.5 8,416 2.8 6,980 2.6
Home improvement 381 0.1 485 0.1 675 0 3
--------- -------- --------- -------- ---------- ---------
Total consumer loans 11,952 3.5 15,390 5.1 20,147 7.62
--------- -------- --------- -------- ---------- ---------
Net deferred loan costs (fees) (124) (76) 150
--------- --------- ----------
Subtotal 11,828 15,314 20,297
--------- --------- ----------
Total loans 333,072 300,781 262,018
Less allowance for loan losses (2,280) (1,811) (1,433)
--------- --------- ----------
Loans, net 330,792 298,970 260,585
--------- --------- ----------
Add (recapitulation):
Due to borrowers on incomplete loans 2,166 2,758 2,499
Net deferred loan fees and unearned
discounts 937 1,062 790
Allowance for loan loss 2,280 1,811 1,433
--------- --------- ----------
Loans, gross 336,175 100.0% 304,601 100.0% $ 265,307 100.0%
========= ======== ========= ======== ========== =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1994 1993
-------------------------- --------------------------
Percent Percent
to Gross to Gross
Amount Loans Amount Loans
---------- ---------- ----------- ----------
Mortgage loans:
<S> <C> <C> <C> <C>
Conventional $ 158,607 65.6% $ 130,918 63.4%
Second mortgages and home equity 19,756 8.2 20,487 9.9
Commercial real estate 26,961 11.1 22,737 11.0
Construction 7,017 2.9 5,576 2.7
---------- ---------- ----------- ----------
Total mortgage loans 212,341 87.8 179,718 87.0
---------- ---------- ----------- ----------
Less:
Due to borrowers on incomplete loans (2,850) (4,133)
Net deferred loan fees and unearned
discounts (1,005) (980)
---------- -----------
Subtotal 208,486 174,605
Commercial loans:
Unsecured lines of credit 677 0.2 609 0.3
Secured and unsecured 1,772 0.8 1,790 0.9
---------- ---------- ----------- ----------
Subtotal 2,499 1 2,399 1.2
---------- ---------- ----------- ----------
Consumer loans:
Indirect automobile 18,738 7.7 16,795 8.1
Personal 1,726 0.7 4,881 2.4
Education 746 0.3 1,095 0.6
Passbook and stock secured 5,320 2.2 1,328 0.6
Home improvement 599 0.3 297 0.1
---------- ---------- ----------- ----------
Total consumer loans 7,129 11.2 24,396 11.8
Net deferred loan costs (fees) 395 ---------- 458 ----------
---------- -----------
Subtotal 27,524 24,854
---------- -----------
Total loans 238,459 201,858
Less allowance for loan losses (2,845) (2,051)
---------- -----------
Loans, net 233,614 199,807
---------- -----------
Add (recapitulation):
Due to borrowers on incomplete loans 2,850 4,133
Net deferred loan fees and unearned
discounts 610 522
Allowance for loan loss 2,845 2,051
---------- -----------
Loans, gross $ 241,919 100.0% $ 206,511 100.0%
========== ========== =========== ==========
</TABLE>
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Origination and Underwriting. Residential and consumer loan originations
are developed by the Company's officers and lending personnel from a number of
sources, including referrals from branches, realtors, builders, attorneys,
customers and Directors. The Company employs three retail loan representatives
who are paid a base salary plus incentives for consumer and residential loans
originated for the Company. Consumer loan services are also solicited by direct
mail to existing customers. Advertising media is also used to promote loans. The
Company 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 Company collects late charges on real
estate loans.
Commercial and commercial real estate loan originations are developed by
the Company's officers and lending personnel from a number of sources, including
referrals from attorneys, CPAs, customers, realtors, direct solicitation and
Directors. The Company employs four commercial loan officers who are paid a
salary and performance bonus. Loans originated by these officers are maintained
in the commercial loan portfolio.
Applications for all types of loans offered by the Company are taken at
all of the Company's offices, and in some cases over the phone, and referred to
the Company's operations center or commercial loan division for processing. The
Company's loan underwriting process is performed in accordance with a policy
approved by the Board of Directors. The process includes but is not limited to
the use of credit applications, property appraisals, verification of an
applicant's credit history, and analysis of financial statements, employment and
banking relationships, and other measures management deems appropriate in the
circumstances.
All loans to Directors must be approved by the full Board of Directors
after review by management. Commercial loans are prohibited to Executive
officers, officers or employees of the Company or the Bank.
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The following table shows the Company's loans by maturity or repricing
interval at December 31, 1997.
<TABLE>
<CAPTION>
Within 1 - 5 Over 5
1 Year Years Years Total
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Conventional mortgages ...................... $109,952 $136,499 $ 1,901 $248,352
Commercial real estate loans ................ 9,729 29,612 -- 39,341
Second mortgages and home equity ............ 13,956 4,121 2,315 20,392
Construction, net ........................... 5,515 -- -- 5,515
Commercial loans ............................ 7,520 -- -- 7,520
Other loans ................................. 4,106 7,846 -- 11,952
-------- -------- -------- --------
Total $150,778 $178,078 $ 4,216 $333,072
======== ======== ======== ========
Percent of total 45.3% 53.5% 1.2% 100%
</TABLE>
The following table shows the composition of fixed-rate and
adjustable-rate loans, excluding $12.0 million in other loans, as set forth
above by maturity or repricing interval at December 31, 1997.
<TABLE>
<CAPTION>
Within 1 - 5 Over 5
1 Year Years Years Total
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fixed-rate residential mortgages .............. $ 75,005 $100,103 $ 4,216 $179,324
Construction loans, net - all fixed ........... 5,515 -- -- 5,515
Adjustable-rate residential mortgages ......... 48,903 40,517 -- 89,420
Commercial real estate loans - all
fixed rate .................................... 9,729 29,612 -- 39,341
Commercial loans - all variable rate .......... 7,520 -- -- 7,520
-------- -------- -------- --------
Total fixed and adjustable-rate loans ......... $146,672 $170,232 $ 4,216 $321,120
======== ======== ======== ========
</TABLE>
Non-performing Assets. The Company 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. Interest on loans is generally not
accrued when such interest is not paid for a three month period and/or in the
judgment of management, the collectibility of the principal or interest becomes
doubtful. When a loan is placed on a non-accrual status, all interest previously
accrued but not collected is reversed against interest income in the current
period. Interest income is sometimes subsequently recognized only to the extent
that cash payments are received. Those loans that continue to accrue interest
after reaching a three month
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delinquency status generally include only consumer loans, although, on occasion,
some residential mortgage loans have been included. Real estate acquired by
foreclosure and other real estate owned is stated at the lower of the carrying
value of the underlying loan or the estimated fair value less estimated selling
costs. For further discussion of non-performing assets, see "Item 7 -
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations."
During 1995, the Company's management and Board of Directors evaluated the
feasibility of a sale, at a discount, of a group of approximately $9.2 million
of non-performing and high maintenance loans. The loans consisted of
approximately $5.7 million of loans which were on non-accrual and certain other
loans which, although performing, were expected to require a higher than average
level of attention and out of pocket costs in order to maintain performance
and/or to potentially foreclose upon or workout. The Company 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, 1997, non-performing assets were .18% of total assets,
compared with .34% and .39% at December 31, 1996 and 1995, respectively.
The following table sets forth non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1997 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis-
impaired ............................................................. $ 622 $1,028 $ 485 $5,249 $4,957
Accruing loans past due 90 days or more
as to principal or interest .......................................... 91 144 243 153 322
----- ------ ------ ------ ------
Total non-performing loans ........................................... 713 1,172 728 5,402 5,279
Real estate acquired by foreclosure and other real
estate owned ......................................................... 265 500 1,070 1,272 2,561
----- ------ ------ ------ ------
Total non-performing assets .......................................... $ 978 $1,672 $1,798 $6,674 $7,840
===== ====== ====== ====== ======
</TABLE>
Impaired loans totaling $293,000 and $314,000, at December 31, 1997 and
1996, respectively, required an allocation of $45,000 and $97,000, respectively
of the allowance for possible loan losses. The remaining impaired loans did not
require any allocation of the reserve for possible loan losses.
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The average balance of impaired loans was approximately $966,000, $721,000
and $3,733,000 in 1997, 1996 and 1995, respectively. The total amount of
interest income recognized on impaired loans during 1997, 1996 and 1995 was
approximately $50,000, $48,500 and $284,000, respectively, which approximated
the amount of cash received for interest during that period. The Company has no
commitments to lend additional funds to borrowers whose loans have been deemed
to be impaired.
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. Additionally, Boston
area vacancy rates on commercial real estate properties have remained relatively
low in comparison to the early 1990's which has helped to support the market
values of those properties. The Company cannot predict the impact on future
provisions for possible loan losses that may result from future market
conditions. While there has been a stabilization in the regional economy and in
the local residential real estate markets over the past couple of years, it is
difficult to predict to what extent such stabilization and overall strong
economic conditions will continue.
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Allowance for Possible Loan Losses. The following table summarizes changes
in the allowance for possible loan losses and other selected statistics for the
years indicated:.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,811 $ 1,433 $ 2,845 $ 2,051 $ 2,060
Loans charged off:
Real estate - residential 100 48 1,090 245 30
Real estate - commercial 20 -- 2,496 88 687
Real estate - construction -- -- -- -- --
Commercial -- -- 18 22 --
Consumer 246 247 273 66 64
--------- --------- --------- --------- ---------
366 295 3,877 421 781
--------- --------- --------- --------- ---------
Loan recoveries:
Real estate - residential 5 17 32 -- 9
Real estate - commercial 38 120 145 1 14
Real estate - construction -- -- -- 6 --
Consumer 162 56 55 16 21
Commercial -- -- -- 5 8
--------- --------- --------- --------- ---------
205 193 232 28 52
--------- --------- --------- --------- ---------
Net charge-offs 161 102 3,645 393 729
--------- --------- --------- --------- ---------
Reserves acquired from Hull -- 577 -- --
Provision charged to operations 630 480 2,233 610 720
--------- --------- --------- --------- ---------
Balance, end of year $ 2,280 $ 1,811 $ 1,433 $ 2,845 $ 2,051
========= ========= ========= ========= =========
Average loans outstanding, net $ 304,925 $ 282,530 $ 243,949 $ 222,313 $ 191,502
========= ========= ========= ========= =========
Ratio of net charge-offs to average
loans outstanding, net .05% .04% 1.49% .18% .38%
========= ========= ========= ========= =========
Ratio of allowance for possible loan
losses to gross loans at year end .68% .60% .55% 1.18% .99%
========= ========= ========= ========= =========
Ratio of allowance for possible loan
losses to non-performing loans 319.78% 154.52% 196.84% 52.67% 38.85%
========= ========= ========= ========= =========
</TABLE>
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The following table summarizes the allocation of the allowance for possible loan
losses for the years indicated:
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------------------------
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 $ 869 80.2% $ 854 83.5% $ 743 82.4% $ 863 73.8% $ 758 73.3%
Real estate - commercial 372 11.7 224 8.1 226 6.6 713 11.1 430 11.0
Real estate - construction 77 2.3 60 1.9 68 2.5 70 2.9 56 2.7
Commercial 153 2.3 91 1.5 47 .9 25 1.0 25 1.2
Consumer 218 3.5 200 5.0 195 7.6 440 11.2 408 11.8
Unallocated 591 N/A 382 N/A 154 N/A 734 N/A 374 N/A
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $2,280 100.0% $1,811 100.0% $1,433 100.0% $2,845 100.0% 2,051 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The Company establishes its allowance for loan losses primarily through
periodic credit reviews. The Company 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 Company allocates reserves. The
allocated reserves shown above are also comprised of general reserves assigned
to various risk categories based upon various factors including net charge-off
history. The unallocated reserve also includes a difference between the general
and allocated reserves and total reserve. The Company 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 Company's provision for possible loan losses in 1997 was $630,000,
compared to $480,000 and $2,233,000 in 1996 and 1995, respectively. The
provision for 1997 exceeded 1996 levels reflecting the increased risk associated
with the Company's commercial and commercial real estate lending activities. The
provision for 1996 decreased in comparison to 1995 due to the sale of certain
non-performing and high maintenance loans in 1995. The loss associated with that
sale was reflected as a charge-off to the allowance for possible loan losses
with an associated special provision for possible loan losses of $1,654,000. The
remaining $480,000 provision for possible loan losses was due to, among other
factors, growth in the Company's loan portfolio, and management's and the Board
of Directors' assessment of the risk of the types of loans being
12
<PAGE> 13
originated in 1996, including commercial real estate. The Company views the
level of delinquent loans, which improved during 1996 and 1997, as one of the
more important factors in determining the allowance for loan losses. The New
England real estate market and overall economy in general has been relatively
strong over the past two years.
Investment Activities
The Company's investment portfolio is currently managed in accordance with
an investment policy approved by the Board of Directors. The Company's
investments are subject to the laws of the Commonwealth of Massachusetts,
including regulations of the Commissioner, and certain provisions of the federal
law.
The following table sets forth certain information regarding the carrying
value of the Company's investment portfolio, excluding mortgage-backed
securities and Federal Home Loan Bank stock:
<TABLE>
<CAPTION>
At December 31,
---------------------------------
1997 1996 1995
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Short-term investments ........................... $ 88 $ 77 $ 73
Federal funds sold ............................... 75 75 75
------- ------- -------
Total ............................................ $ 163 $ 152 $ 148
======= ======= =======
Percent of total assets .......................... .03% .03% .03%
Investment securities:
U. S. Government and federal agency obligations,
at market ........................................ $30,890 $18,498 $17,719
Other bonds and obligations, at market ........... 3,120 1,138 5,221
------- ------- -------
Subtotal ......................................... 34,010 19,636 22,940
Marketable equity securities, at market .......... 5,027 4,411 3,004
------- ------- -------
Total investment securities ...................... $39,037 $24,047 $25,944
======= ======= =======
Percent of total assets .......................... 7.3% 4.9% 5.6%
</TABLE>
A schedule of the maturity distribution of investment securities held by
the Company, other than equity securities and FHLB stock, and the related
weighted average yield, at December 31, 1997 follows:
13
<PAGE> 14
<TABLE>
<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 $ -- -- % $ 7,999 7.02% $21,112 6.98% $ 1,684 7.05%
Other bonds and obligations ................... 35 7.50 1,060 9.63 -- -- 2,000 7.20
------- ---- ------- ---- ------- ---- ------- ----
Total .................................... $ 35 7.50% $ 9,059 7.32% $21,112 6.98% $ 3,684 7.13%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
At December 31, 1997, the Company had three mortgage backed securities
which had a total amortized cost of $17,754,000, each of which individually had
a book value in excess of ten percent of stockholders' equity, and were not
obligations of the U. S. Government or federal agencies.
Sources of Funds
General. Deposits and borrowings are the Company's primary sources of
funds for investment. The Company 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 Company offices and competition.
Deposits. Most of the Company's deposits are derived from customers who
work or reside in the Company's primary service area. The Company'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 Company 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
Company currently offers non-interest NOW accounts for commercial customers and
individuals. Although in previous years the Company has solicited brokered
deposits, at December 31, 1997 there were no such deposits.
At December 31, 1997, the Company's outstanding certificates of deposit
with balances in excess of $100,000 are scheduled to mature as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less $ 7,378
Over three to six months 2,875
Over six to twelve months 7,594
Over twelve months 8,823
-------
$26,670
=======
</TABLE>
14
<PAGE> 15
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 Company's interest
rate hedge strategy, see "Item 8 - Note 5 to the Consolidated Financial
Statements" and "Item 7 - Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations-Liquidity and Capital Resources".
Other Activities
Savings Bank Life Insurance. The Company sells savings bank life insurance
as an agent but not as an issuer and receives a commission on the sale.
Other. The Company also offers safe deposit box services, an automated
teller machine and drive-up banking services. The Company also provides its
borrowers the opportunity to purchase life, accident and disability insurance.
The Company 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 Company based
upon referrals of the Company's customers to FISCO Equity, Inc. to purchase
alternative investments, regardless of whether or not a sale is made to the
customer.
Supervision and Regulation
As an FDIC-insured, state-chartered bank, the Bank is subject to
supervision and regulation by the Commissioner and the FDIC and is subject to
periodic examination. The Company is subject to regulation and supervision of
the Federal Reserve as a bank holding company.
Competition
The Company 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 Company 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 Company's primary competitors are other
savings banks, commercial banks and co-operative banks, credit unions, and
mutual funds. Other competition for deposits
15
<PAGE> 16
comes from government securities as investments. The Company'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 Company 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
Company competes for these deposits by attempting to offer competitive rates,
convenient branch locations, and convenient business hours and by attempting to
build an active, civic-spirited image in these communities.
Financial institutions that are not now located within the Company's
market area may find entry in the Company's market area attractive. Such entry
could have an adverse effect on the Company's growth or profitability. The
Company's potential competitors may have substantially greater financial and
other resources than the Company. In addition, increased competition for
deposits has had an impact on the rates which the Company pays on certificates
of deposit.
Employees
As of December 31, 1997, the Bank had 116 full-time employees, consisting
of 28 full-time officers and 88 full-time non-officers, as well as 49 part-time
employees. None of the Company's employees is represented by a union or other
labor organization. The Company provides its employees with a comprehensive
range of employee benefit programs. Management believes that its employee
relations are good.
16
<PAGE> 17
Item 2. Properties.
The following table sets forth certain information relating to real estate
owned or leased by the Company at December 31, 1997.
<TABLE>
<CAPTION>
Original Lease
Year Owned Lease Renewal
Opened or Leased Term Option
------ --------- -------- ---------
<S> <C> <C> <C> <C>
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
739 Chief Justice Cushing Way
Cohasset, MA 02025 1997 Leased 5 Years 2-5 years
Operation Center/Corporate Office
536 Washington St.
Abington, MA 1989 Owned -- --
Administrative Offices:
538 Bedford St.
Abington, MA 1995 Leased 2 Years 18 months
</TABLE>
17
<PAGE> 18
Item 3. Legal Proceedings
The Company is a defendant in various legal matters, none of which is
believed by management to be material to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
18
<PAGE> 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stock Holder Matters.
The common stock of the Company is currently listed on the Nasdaq Stock
Market National Market System (NMS) under the symbol "ABBK".
The table below sets forth the range of high and low sales prices for the
stock of the Company for the quarters indicated. Market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
Transactions through January 31, 1997 are for common stock of the Bank.
Transactions after that date are for common stock of the Company.
<TABLE>
<CAPTION>
Price Dividends
High Low Declared
-------- --------- ---------
<S> <C> <C> <C>
1998
1st quarter $22 $19 --
(through March 6, 1998)
1997
4th quarter 23 1/2 15 5/8 $.05
3rd quarter 17 12 3/4 $.05
2nd quarter 13 10 1/4 $.05
1st quarter 11 5/8 9 1/2 $.05
1996
4th quarter 10 7/8 8 7/16 $.05
3rd quarter 9 7 3/4 $.05
2nd quarter 8 1/8 7 1/4 $.05
1st quarter 8 7/8 7 23/32 $.05
1995
4th quarter 9 1/2 7 3/4 $.05
3rd quarter 8 1/2 6 3/4 $.05
2nd quarter 7 9/16 6 1/4 $.05
1st quarter 7 1/2 6 $.05
</TABLE>
19
<PAGE> 20
As of March 6,1998, the Company had approximately 801 stockholders of
record who held outstanding shares of the Company's Common Stock. The number of
stockholders indicated does not reflect the number of persons or entities who
hold their common stock in nominee or "street" name through various brokerage
firms. If all of such persons are included, the Company believes that there are
approximately 1,100 beneficial owners of the Company's common stock. Item 6.
Selected Financial Data
Information required by Item 6 of this Form is incorporated by reference
herein from the section of the Company's Annual Report entitled "Financial
Highlights."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information required by Item 7 of this Form is incorporated by reference
herein from the section of the Company's Annual Report entitled "Management's
Discussion and Analysis". Certain Guide 3 information which is required by Item
7 is included in Item 1 of this Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required by Item 7A of this Form is incorporated by reference
herein from the section of the Company's Annual Report entitled "Management
Discussion and Analysis."
Item 8. Financial Statements and Supplementary Data
Information required by Item 8 of this Form is incorporated by reference
from the sections of the Company's Annual Report entitled Report of Independent
Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure.
None.
20
<PAGE> 21
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by Item 10 of this Form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1998 Annual Meeting of
Stockholders of the Company.
Item 11. Executive Compensation
Information required by Item 11 of this Form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1998 Annual Meeting of
Stockholders of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by Item 12 of this Form is incorporated by reference
herein from the Company's Proxy Statement relating to the 1998 Annual Meeting of
Stockholders of the Company.
Item 13. Certain Relationships and Related Transactions.
Information required by Item 13 of this Form is incorporated by reference
here in from the Company's Proxy Statement related to the 1998 Annual Meeting of
Stockholders of the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Contents
1) Financial Statements. See Part II Item 8 of this Report.
2) Financial Statement Schedules. All financial statement schedules
have been omitted because they are not applicable, the data is not
significant or the required information is shown elsewhere in this report.
21
<PAGE> 22
3) Exhibits
2.1 Plan of Reorganization and Acquisition dated as of
October 15, 1996 between the Company and Abington
Savings Bank incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January
13, 1997.
3.1 Articles of Organization of the Company incorporated by
reference to the Company's Registration Statement on
Form 8-A, effective January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference to the
Company's Registration Statement on Form 8-A, effective
January 13, 1997.
4.1 Specimen stock certificate for the Company's Common
Stock incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January
31, 1997.
*10.1 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the Bank
and James P. McDonough incorporated by reference to the
Company's Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and James P. McDonough,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.2 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the Bank
and Edward J. Merritt incorporated by reference to the
Company's Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
22
<PAGE> 23
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Edward J. Merritt,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.3 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the Bank
and Donna L. Thaxter incorporated by reference to the
Company's Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated asc of July 1, 1997 among
the Company, the Bank and Donna L. Thaxter, incorporated
by reference to the Company's quarterly report on Form
10-Q for the second quarter of 1997, filed on August 13,
1997.
*10.4 (a) Amended and Restated Special Termination Agreement
dated as of January 31, 1997 among the Company, the Bank
and Mario A. Berlinghieri incorporated by reference to
the Company's Annual Report for the year ended December
31, 1996 on Form 10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997 among
the Company, the Bank and Mario A Berlinghieri,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified Stock
Option Plan, as amended and restated to reflect holding
company formation incorporated by reference to the
Company's Annual Report for the year ended December 31,
1996 on Form 10-K filed on March 31, 1997.
*10.6 Management Incentive Compensation Program dated March
1997, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
1997, filed on August 13, 1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("lease"), used for the
Bank's principal and
23
<PAGE> 24
administrative offices dated January 1, 1996
incorporated by reference to the Company's Annual Report
for the year ended December 31, 1996 on Form 10-K filed
on March 31, 1997. Northeast Terminal Associates,
Limited owns the property. Dennis E. Barry and Joseph L.
Barry, Jr., who beneficially own more than 5% of the
Company's Common Stock, are the principal beneficial
owners of Northeast Terminal Associates, Limited.
(b) Amendment to Lease dated December 31, 1997.
10.9 Dividend reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January
31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified
Stock Option Plan, incorporated by reference herein to
Appendix A to the Company's proxy statement relating to
its special meeting in lieu of annual meeting held on
June 17, 1997, filed with the Commission on April 29,
1997.
*10.11 Special Termination Agreement dated as of July 1, 1997
among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly
report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.
*10.12 Merger Severance Benefit Program dated as of August 28,
1997, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the third quarter of
1997, filed on November 15, 1997.
11.1 A statement regarding the computation of earnings per
share is included in Item 8 of this Report.
13.1 Annual Report to Stockholders for the Year Ended
December 31, 1997 which is furnished for the information
of the Securities and Exchange Commission only and is
not deemed to be "filed" as part of this Report except
to the extent expressly incorporated by reference
herein.
21.1 Subsidiaries of the Company.
23.1 Consent of Accountants.
24.1 Power of Attorney is included on signature page.
24
<PAGE> 25
27.1 Financial Data Schedule, December 31, 1997.
27.2 Restated Financial Data Schedule, September 30, 1997.
27.3 Restated Financial Data Schedule, June 30, 1997.
27.4 Restated Financial Data Schedule, March 31, 1997.
27.5 Restated Financial Data Schedule, December 31, 1996.
27.6 Restated Financial Data Schedule, September 30, 1996.
27.7 Restated Financial Data Schedule, June 30, 1996.
27.8 Restated Financial Data Schedule, March 31, 1996.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth
quarter of 1997.
- -----------------------
* Management contract or compensatory plan or arrangement.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ABINGTON BANCORP, INC.
Date: March 24, 1998
By: /s/ James P. McDonough
---------------------------------------
James P. McDonough
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints James P. McDonough, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Form 10-K, and to file the same,
will all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
which he may deem necessary or advisable to be done in connection with this Form
10-K, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or any
substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ James P. McDonough
- ---------------------------- President and March 24, 1998
James P. McDonough Chief Executive Officer;
Director (Principal
Executive Officer)
26
<PAGE> 27
/s/ Robert M. Lallo
- ---------------------------- Treasurer March 24, 1998
Robert M. Lallo (Principal Financial Officer)
/s/ Robert J. Armstrong
- ---------------------------- Director March 24, 1998
Robert J. Armstrong
/s/ Bruce G. Atwood
- ---------------------------- Director March 24, 1998
Bruce G. Atwood
/s/ William F. Borhek
- ---------------------------- Director March 24, 1998
William F. Borhek
/s/ Ralph B. Carver, Jr.
- ---------------------------- Director March 24, 1998
Ralph B. Carver, Jr.
/s/ Joel S. Geller
- ---------------------------- Director March 24, 1998
Joel S. Geller
/s/ Rodney D. Henrikson
- ---------------------------- Director March 24, 1998
Rodney D. Henrikson
/s/ A. Stanley Littlefield
- ---------------------------- Director March 24, 1998
A. Stanley Littlefield
/s/ Jay Timothy Noonan
- ---------------------------- Director March 24, 1998
Jay Timothy Noonan
/s/ Gordon N. Sanderson
- ---------------------------- Director March 24, 1998
Gordon N. Sanderson
27
<PAGE> 28
/s/ James J. Slattery
- ---------------------------- Director March 24, 1998
James J. Slattery
/s/ Wayne P. Smith
- ---------------------------- Director March 24, 1998
Wayne P. Smith
28
<PAGE> 29
INDEX TO EXHIBITS
2.1 Plan of Reorganization and Acquisition dated as of October 15,
1996 between the Company and Abington Savings Bank
incorporated by reference to the Company's Registration
Statement on Form 8-A, effective January 13, 1997.
3.1 Articles of Organization of the Company incorporated by
reference to the Company's Registration Statement on Form 8-A,
effective January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference to the
Company's Registration Statement on Form 8-A, effective
January 13, 1997.
4.1 Specimen stock certificate for the Company's Common Stock
incorporated by reference to the Company's Registration
Statement on Form 8-A, effective January 31, 1997.
*10.1 (a) Amended and Restated Special Termination Agreement dated
as of January 31, 1997 among the Company, the Bank and James
P. McDonough incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*(b) Amendment to Amended and Restated Special Termination
Agreement, dated as of July 1, 1997 among the Company, the
Bank and James P. McDonough, incorporated by reference to the
Company's quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.2 (a) Amended and Restated Special Termination Agreement dated
as of January 31, 1997 among the Company, the Bank and Edward
J. Merritt incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*(b) Amendment to Amended and Restated Special Termination
Agreement, dated as of July 1, 1997 among the Company, the
Bank and Edward J. Merritt, incorporated by reference to the
Company's quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
29
<PAGE> 30
*10.3 (a) Amended and Restated Special Termination Agreement dated
as of January 31, 1997 among the Company, the Bank and Donna
L. Thaxter incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*(b) Amendment to Amended and Restated Special Termination
Agreement, dated as of July 1, 1997 among the Company, the
Bank and Donna L. Thaxter, incorporated by reference to the
Company's quarterly report on Form 10-Q for the second quarter
of 1997, filed on August 13, 1997.
*10.4 (a) Amended and Restated Special Termination Agreement dated
as of January 31, 1997 among the Company, the Bank and Mario
A. Berlinghieri incorporated by reference to the Company's
Annual Report for the year ended December 31, 1996 on Form
10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special Termination
Agreement, dated as of July 1, 1997 among the Company, the
Bank and Mario A Berlinghieri, incorporated by reference to
the Company's quarterly report on Form 10-Q for the second
quarter of 1997, filed on August 13, 1997.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified Stock Option
Plan, as amended and restated to reflect holding company
formation incorporated by reference to the Company's Annual
Report for the year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*10.6 Management Incentive Compensation Program dated March 1997,
incorporated by reference to the Company's quarterly report on
Form 10-Q for the second quarter of 1997, filed on August 13,
1997.
*10.7 Long Term Performance Incentive Plan dated July 1997,
incorporated by reference to the Company's quarterly report on
Form 10-Q for the second quarter of 1997, filed on August 13,
1997.
10.8 (a) Lease for office space located at 538 Bedford Street,
Abington, Massachusetts ("Lease"), used for the Bank's
principal and administrative offices dated January 1, 1996
incorporated by reference to the Company's Annual Report for
the year ended December 31, 1996 on Form 10-K filed on March
31, 1997. Northeast Terminal Associates, Limited owns the
property. Dennis E. Barry and Joseph L. Barry, Jr., who
beneficially own more than 5% of the Company's Common Stock,
30
<PAGE> 31
are the principal beneficial owners of Northeast Terminal
Associates, Limited.
(b) Amendment to Lease dated December 31, 1997.
10.9 Dividend reinvestment and Stock Purchase Plan is incorporated
by reference herein to the Company's Registration Statement on
Form S-3, effective January 31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified Stock
Option Plan, incorporated by reference herein to Appendix A to
the Company's proxy statement relating to its special meeting
in lieu of annual meeting held on June 17, 1997, filed with
the Commission on April 29, 1997.
*10.11 Special Termination Agreement dated as of July 1, 1997 among
the Company, the Bank and Robert M. Lallo, incorporated by
reference to the Company's quarterly report on Form 10-Q for
the second quarter of 1997, filed on August 13, 1997.
*10.12 Merger Severance Benefit Program dated as of August 28, 1997,
incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the third quarter of 1997, filed on November 15,
1997.
11.1 A statement regarding the computation of earnings per share is
included in Item 8 of this Report.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1997 which is furnished for the information of the Securities
and Exchange Commission only and is not deemed to be "filed"
as part of this Report except to the extent expressly
incorporated by reference herein.
21.1 Subsidiaries of the Bank.
23.1 Consent of Accountants.
24.1 Power of Attorney is included on signature page.
27.1 Financial Data Schedule, December 31, 1997.
27.2 Restated Financial Data Schedule, September 30, 1997.
27.3 Restated Financial Data Schedule, June 30, 1997.
27.4 Restated Financial Data Schedule, March 31, 1997.
27.5 Restated Financial Data Schedule, December 31, 1996.
27.6 Restated Financial Data Schedule, September 30, 1996.
27.7 Restated Financial Data Schedule, June 30, 1996.
27.8 Restated Financial Data Schedule, March 31, 1996.
- -------------------------------
* Management contract or compensatory plan or arrangement.
31
<PAGE> 1
EXHIBIT 10.8(b) TO 10-K
AMENDMENT TO LEASE
THIS AMENDMENT made this 31st day of December, 1997, by and between
NORTHEAST TERMINAL ASSOCIATES, LIMITED (hereinafter called the "Lessor"), and
ABINGTON SAVINGS BANK, (hereinafter called the "Lessee").
WHEREAS, the Lessor and Lessee entered into a Lease (hereinafter called
the "Lease") on November 16, 1995, for certain Premises consisting of that
certain parcel of land located at 538 Bedford Street, Abington, Plymouth County,
Massachusetts consisting of 2.45 acres and the buildings thereon.
NOW, THEREFORE, in consideration of the promises contained in the
Lease, the parties hereby covenant and agree that said Lease shall be extended
for a period of eighteen (18) months beginning January 1, 1998 and ending on
June 30, 1999.
It is agreed that all provisions, obligations and covenants contained
in the Lease dated November 16, 1995, shall remain in effect and shall be
performed and completed as agreed upon by all parties to the Lease except that
the rent for said extended term shall be $75,600.00 payable in equal monthly
installments for $4,200.00.
IN WITNESS WHEREOF, this Lease Amendment has been executed by the
parties hereto on the date first above written.
Northeast Terminal Associates, Limited
by: /s/ Dennis Barry
---------------------------------------
Abington Savings Bank
/s/ James P. McDonough
---------------------------------------
James P. McDonough, President
<PAGE> 1
[ABINGTON BANCORP APPLE PICTURE]
===========================
ABINGTON BANCORP
----------------------
1997 ANNUAL REPORT
===========================
<PAGE> 2
[ABINGTON BANCORP LEAF PICTURE] 1997
- ----------------------------------------------
A VERY SUCCESSFUL YEAR
---------------------------------------------------
1 | President's Message
9 | Financial Highlights
11 | Management's Discussion and Analysis
21 | Report of Independent Public Accountants
22 | Consolidated Balance Sheets
23 | Consolidated Statements of Operations
24 | Consolidated Statements of Changes in Stockholders' Equity
25 | Consolidated Statements of Cash Flows
27 | Notes to Consolidated Financial Statements
46 | Stockholder Information
47 | Bank Directors & Officers
Inside Back Cover | Corporate Information
Back Cover | Bank Locations
<PAGE> 3
CORPORATE PROFILE
Abington Bancorp, Inc. (the "Company") is a one-bank holding company which
owns all of the outstanding capital stock of Abington Savings Bank (the "Bank").
Abington Bancorp, Inc. was reestablished as the Bank's holding company on
January 31, 1997.
The Bank operated as a Massachusetts chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From December 1992 to the present, the Bank has
operated as a stock-owned savings bank.
The Bank is engaged principally in the business of attracting deposits from
the general public, borrowing funds, and investing those deposits and funds. In
its investments, the Bank has emphasized various types of residential and
commercial real estate loans, residential construction loans, consumer loans,
and investments in securities. The Bank considers its principal market area to
be Plymouth County, Massachusetts, primarily Abington, Cohasset, Halifax,
Holbrook, Kingston, Whitman, Hull, and Pembroke where it has banking offices,
and nearby Rockland, Duxbury, Plympton, Brockton, Hanover, East Bridgewater,
Plymouth, Carver, Weymouth, Bridgewater, and Hanson.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to FDIC limits (generally $100,000 per depositor)
and by the Depositors Insurance Fund for deposits in excess of FDIC limits.
MISSION STATEMENT WE WILL PROVIDE SUCH EXTRAORDINARY SERVICE AND VALUE
THAT OUR CUSTOMERS WILL TELL THEIR FRIENDS AND
ASSOCIATES ABOUT US [ABINGTON BANCORP ASSOCIATES PICTURE]
<PAGE> 4
A MESSAGE FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDERS:
[ABINGTON BANCORP PRESIDENT PHOTO]
Last year was a rewarding one for Abington Bancorp. Throughout 1997, we
enjoyed the fruit of the key business strategies we have aggressively pursued
since 1994. I am pleased with our overall results, but I am particularly proud
to be able to report to you, our stockholders, that a 24% increase in net income
and a 115.4% appreciation in stock price were among the significant benefits we
realized in 1997 from the value-building initiatives undertaken over the past
three years.
This solid performance is the outcome of many factors, including, of
course, the generally strong economy enjoyed by our market area last year. In
today's highly competitive banking industry, however, a good economy alone is
not enough to produce the positive results that brought us recognition from
several market indexes as one of the very top performers in stock appreciation
among Massachusetts banks. This accomplishment required skillful strategic
guidance from our Board of Directors and an outstanding effort from employees at
all levels. My sincere thanks goes to every individual who played a role in
making 1997 such a strong year for our institution.
Looking ahead, we are confident our increasingly diverse package of
financial products and services, along with our dedication to top-notch service,
will enable us to continue to serve our expanding customer base well. Equally
important, our healthy financial performance will allow us to bring enhanced
value to our community, both as an institution that supports business growth and
as a responsible corporate citizen. Our commitment to working in partnership
with our community remains unwavering, and we are pleased to be well positioned
to play a leading role in the growth and well-being of the towns we serve.
SOLID FINANCIAL PERFORMANCE
HIGHLIGHTS 1997
Here are some notable details of the Bank's strong financial performance in
1997. As already mentioned, our earnings strength was marked by a 24% increase
in net income, which rose to $4,378,000. Taking into account the 2-for-1 stock
split that was declared on November 14, 1997, this substantial rise in net
income resulted in diluted earnings per share of $1.10, compared to $.89 per
diluted share for 1996.
These excellent results were due primarily to our continued strong focus on
building our transaction accounts and using the deposit growth this generates to
increase our business loans. As deposits grew by 8%, rising from $300 million to
$325 million during the year, the Bank benefited in two ways. First, the overall
cost of funds on deposit and borrowed funds was brought down from 4.41% in 1996
to 4.35% in 1997. Second, customer service fees grew by 36%, reaching $3,276,000
for the year; this figure is particularly noteworthy because it indicates that
our emphasis on attracting new customers through our High Performance Checking
Program, which began in 1995, continues to produce extremely strong results.
Abington Bancorp ended the year with assets of $532 million, up from $487
million, or 9%, from 1996. This reflected strong commercial loan activity
throughout the year, which saw our business loan portfolio grow by $18 million,
a 61% increase. While we have experienced substantial growth in our
1
<PAGE> 5
portfolio over the past two years, we have also worked hard to assure the
quality of these assets. During 1997, non-performing assets dropped by 41.5% to
stand at $978,000 at year's end. Both this figure and our delinquency rate of
.42% mean that our current asset quality is outstanding by any measure.
The growth of our business loan portfolio helped produce a 9% rise in our
interest income, which reached $16,206,000. Also contributing to this increase
was a restructuring of our securities portfolio. This process, which began in
the second half of 1996 and continued during the first nine months of 1997,
involved selling various lower yielding securities and reinvesting those funds
in higher yielding securities. We were disciplined and extended out the maturity
on approximately $30 million of borrowed funds during the first quarter of 1997
to achieve better interest rate balance and stability.
Our return on equity for 1997 was 12.59%, up from 11% in 1996. This
represented the highest return on equity since Abington Savings Bank converted
from a mutual savings bank to stock form of ownership in 1986. This was a good
achievement for us in 1997 compared to historical results, and we hope to build
on it in the future.
All of the factors mentioned above, as well as our continued strong
emphasis on expense management, combined to produce the robust stock
appreciation of 115% mentioned earlier. From December 31, 1996, to December 31,
1997, taking into account the 2-for-1 stock split, the Company's stock price
rose from $9.75 to $21. In addition to building shareholder value through the
stock split, the Board of Directors approved the repurchase of up to 10% of
outstanding common stock in March of 1997. As of February 1998, the Company had
repurchased 295,500 shares out of a total of 375,000 authorized under the
Company's initial stock repurchase plan. At its February 1998 meeting, the Board
authorized the repurchase of an additional 10% of shares.
ASB OPENS ITS FIRST SUPERMARKET BRANCH OFFICE
In August, Abington Savings Bank opened the first of three planned supermarket
branches. Located in a new shopping plaza along busy Rte. 3A in Cohasset, the
branch, which is open seven days a week, met with immediate success and easily
achieved its year end deposit target.
YEAR END STOCK PRICE PER SHARE
Our solid performance continues to favorably impact our stock price
[YEAR END STOCK PHOTO]
1992: $ 4.25
1993: $ 5.75
1994: $ 6.00
1995: $ 8.63
1996: $ 9.75
1997: $21.00
Net Overhead
Our net overhead continues to decrease [NET OVERHEAD PHOTO]
1992: 2.37%
1993: 2.31%
1994: 2.18%
1995: 2.05%
1996: 1.88%
1997: 1.81%
2
<PAGE> 6
OUR BUSINESS BANKING
DIVISION HAS TAKEN
A LARGE BITE OUT OF THE
SOUTH SHORE'S BUSINESSES.
[ABINGTON APPLE (#2) PHOTO]
<PAGE> 7
GROWING THE FRANCHISE
One of the most exciting developments for Abington Savings Bank in 1997 was
the launch of our first supermarket branch which opened in Cohasset in August.
Two more supermarket branches will follow in 1998, in Hanson and Randolph. We
are extremely pleased to be working on this new initiative with Shaw's
Supermarkets, an organization with a strong reputation for quality and value.
These supermarket branches are an important and highly efficient mechanism
for extending our franchise to give us a greater presence throughout the South
Shore. Equally important, they are a natural tie-in with our strategy to
increase our core retail deposit relationships. Highly cost-effective, these
branches enable us to deliver a full array of services at a place and with hours
that are extremely convenient to customers. We've received a positive reception
in Cohasset and anticipate equal success with the additional supermarket
branches set to open this year.
Just as the supermarket branches are designed to provide the type of
one-stop shopping experience that consumers increasingly demand these days, the
reorganization of our Consumer Lending Department last year also provided an
important convenience to customers. While our Loan Center in Whitman continues
to serve as a processing center, we now have loan specialists working in each
branch, bringing these important services closer to our customers. Placing the
loan specialists in the branches also gives rise to more opportunities for
efficient cross-selling, thereby reinforcing the sales culture we have worked
hard to build over the past few years.
As a result of this reorganization, our retail lending operation
experienced strong profitability and exceeded its lending targets. Throughout
the year, many homeowners sought to take advantage of the prevailing low
interest rates to refinance their mortgages. We anticipate this market will
remain strong in 1998, and we expect the market for first mortgages to grow as
interest in South Shore housing continues to build, thanks in part to the return
of the commuter rail which runs through the heart of our market area.
At the same time we are reaching out to a broader customer base with
supermarket branches and more convenient loan service locations, more and more
customers are taking advantage of our growing range of 24-hour telebanking
services. Last year, our telebanking system averaged 30,000 calls per month, a
remarkable increase from the 6,000 calls per month we were receiving just two
years ago. Significant numbers of people are taking advantage of our telebanking
capabilities by opening deposit and checking accounts or initiating loans via
this fast, efficient and highly convenient method. In 1998, we will make yet
another technological advance by offering remote access banking via personal
computers to our business customers.
All of these positive developments in our retail banking operation--
especially the tremendous success of our High Performance Checking Program,
which has produced a 129% increase in the number of checking accounts since the
program was introduced in March 1995--have lead to a need to expand and renovate
our branch facilities to serve this constantly growing customer base. Much of
this work has already been accomplished over the past two years and more will
come during the next 12 to 18 months when we will be expanding our banking
offices and facilities to provide faster and more efficient customer service.
NON-PERFORMING ASSETS (dollars in thousands)
Our non-performing assets have decreased which is indicative of our asset
quality [NON-PERFORMING ASSETS PHOTO]
1992: $10,828
1993: $ 7,840
1994: $ 6,674
1995: $ 1,798
1996: $ 1,672
1997: $ 978
4
<PAGE> 8
OUR PIECE OF THE
RETAIL BANKING PIE HAS
GREATLY INCREASED.
[BANKING PIE PHOTO]
<PAGE> 9
BUSINESS BANKING SUCCESS CONTINUES
In 1997, the talented Business Banking team we put in place in 1996
continued to increase the presence and reputation of Abington Savings Bank
throughout our market's business community. The previously mentioned 61%
increase in our business lending portfolio was the very favorable result of
their efforts. Equally important, despite the highly competitive lending
environment that prevailed in the region in 1997, we continued to place loans of
high quality with good yields, a direct result of the extensive experience of
our lending staff.
Looking ahead, we will work to continue the expansion of Business Banking
at Abington Savings Bank, with the growth in our lending portfolio continuing to
be funded by core deposit growth. We will work to improve the margin between
loan cost and yield, although we expect this to be more challenging in 1998. At
the same time that the competition for good quality lending opportunities
continues to increase in our region, the yield curve has dramatically flattened.
However, we are confident that our strong focus on providing top-quality service
to businesses seeking financing will continue to enable us to compete
effectively.
ON THE HORIZON
As always, risk management continues to be a primary focus of our efforts
at Abington Savings Bank. Along with the rest of the business world, we took
steps in 1997 to begin to address any potential software problems related to the
so-called "year 2000 problem." Based on an extensive review of our internal
systems, we believe our analysis and reporting mechanisms are sound, and we have
a plan in place to deal with remaining issues involving the companies that
provide us with software.
As we continue to build on the successful business strategies that
accounted for the strong year we experienced in 1997, we also will pay
considerable attention to the need to move beyond traditional banking to offer
customers greater convenience and value through one-stop shopping for a full
range of financial services. This truly is the wave of the future, and Abington
Savings Bank intends to be a strong competitor by expanding into new,
complimentary areas, which may include mutual funds, property and casualty
insurance, and trust and financial planning services.
BENEFIT FOR CARDINAL CUSHING SCHOOL
The proceeds of our highly successful 2nd Annual St. Patrick's Day Dance to
benefit the Cardinal Cushing School and Training Center in Hanover enabled the
graduating class to enjoy a visit to Disney World. We are extremely proud of
this important community partnership and take great joy from the support we're
able to give to these wonderful children.
TOTAL ASSETS (dollars in thousands)
Our total assets continue to grow [TOTAL ASSETS PHOTO]
1992: $315,048
1993: $347,354
1994: $421,833
1995: $460,492
1996: $486,958
1997: $531,986
NET-INTEREST INCOME (dollars in thousands)
Our net-interest income continues to increase
1992: $ 9,648 [NET INTEREST INCOME PHOTO]
1993: $11,289
1994: $12,733
1995: $13,727
1996: $14,815
1997: $16,206
6
<PAGE> 10
Thanks to the strength of the customer base that High Performance Checking
has enabled us to build over the past two years, we are extremely well
positioned to take advantage of the numerous cross-selling opportunities that an
expansion of our products and services will provide. By improving our ability to
analyze the extensive customer data to which we now have access, we will be able
to efficiently develop and market new products and services that will strengthen
our customer relationships and improve our financial results still further over
the long term.
Finally, in 1998 we will continue to take an active interest in the broader
well-being of the communities we serve. We are especially pleased that in 1997,
our employees donated $15,000 through payroll deductions to the Cardinal Cushing
School and Training Center, which is the focus of a major partnership for the
Bank. We also hosted our 2nd Annual St. Patrick's Day Dance fund-raiser for the
school, an event that made it possible for the school to send the graduating
class of 22 exceptional children on the trip of a lifetime to Disney World.
This relationship is a significant unifying influence for our staff, our
customers and our business partners, and along with the many other community
donations we make, serves to remind us of the importance of giving back to the
people who live in the towns we serve.
I would be remiss if I did not note that 1997 marked the final full year of
service for an outstanding Board member, Robert J. Armstrong. He will step down
from the Board at our 1998 Annual Meeting, having reached the mandatory
retirement age. Bob has served this organization since 1971, longer than any
other current director. Throughout this lengthy tenure, he has always taken his
responsibility to shareholders extremely seriously, as shown by his excellent
preparation for meetings and his willingness to regularly challenge management,
as a good director should. As a successful business person and a great family
man, Bob has also been a tremendous role model for everyone at Abington Savings
Bank. On behalf of my fellow Board members, I wish to express our gratitude for
his unstinting dedication through the years.
As always, I also wish to thank all the rest of the Board of Directors and
all of our employees for helping to make 1997 a successful year on many fronts
for our organization. I am confident that, working together, we will continue to
build on this success in 1998.
Respectfully submitted,
/s/ James P. McDonough
James P. McDonough
President and Chief Executive Officer
LOANS (dollars in thousands)
High sales in home equity and business loans [LOANS PHOTO]
1992: $186,520
1993: $199,807
1994: $235,614
1995: $260,585
1996: $298,970
1997: $330,792
DEPOSITS (dollars in thousands)
Deposits are up due to totally free checking [DEPOSITS PHOTO]
1992: $202,105
1993: $209,911
1994: $246,843
1995: $280,070
1996: $300,445
1997: $324,934
7
<PAGE> 11
The Bank considers its
principal market area to be
Plymouth County,
Massachusetts,
primarily
Hull,
Cohassett,
Holbrook,
Abington,
Whitman,
Pembroke,
Halifax, and
Kingston,
where it has
banking offices.
[MAP OF BOSTON WITH ARROWS TO THE TOWNS OF HULL, COHASSET, HOLBROOK,
ABINGTON, WHITMAN, PEMBROKE, HALIFAX, KINGSTON]
8
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $531,986 $486,958 $460,492 $421,833 $347,354
Total loans, net 330,792 298,970 260,585 235,614 199,807
Investment securities (1) 47,187 31,950 33,343 28,328 15,915
Mortgage-backed investments 126,016 131,184 138,937 133,882 113,052
Deposits 324,934 300,445 280,070 246,843 209,911
Borrowed funds 165,910 147,524 145,609 134,155 106,921
Stockholders' equity 36,321 33,546 30,561 28,366 27,869
Book value per share (2) 9.99 8.86 8.11 7.57 7.45
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (2)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest and dividend income $ 36,297 $34,332 $ 31,949 $ 27,082 $ 23,591
Interest expense 20,091 19,517 18,222 14,349 12,302
-------- -------- -------- -------- --------
Net interest income 16,206 14,815 13,727 12,733 11,289
Provision for possible loan losses 630 480 2,233 610 720
-------- -------- -------- -------- --------
Non-interest income:
Loan servicing fees 558 646 713 646 617
Customer service fees 3,276 2,412 1,644 1,050 759
Gain (loss) on sales of securities 540 495 181 322 459
Gain on sales of loans, net 236 315 453 389 890
Write-down of limited partnership - - (110) - -
Net gain (loss) on sales and write-down
of other real estate owned 109 67 (92) (2) (478)
Other 267 242 119 56 40
-------- -------- -------- -------- --------
Total non-interest income 4,986 4,177 2,908 2,461 2,287
-------- -------- -------- -------- --------
Non-interest expenses 13,505 12,840 11,955 10,255 8,771
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of accounting change 7,057 5,672 2,447 4,329 4,085
Provision for income taxes 2,679 2,139 1,018 1,586 1,556
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change 4,378 3,533 1,429 2,743 2,529
Cumulative effect of accounting change - - - - 650
-------- -------- -------- -------- --------
Net income $ 4,378 $ 3,533 $ 1,429 $ 2,743 $ 3,179
======== ======== ======== ======== ========
Basic:
Earnings per share before cumulative
effect of accounting change $ 1.18 $ .94 $ .38 $ .73 $ .68
Cumulative effect of accounting change - - - - .17
-------- -------- -------- -------- --------
Basic earnings per share $ 1.18 $ .94 $ .38 $ .73 $ .85
======== ======== ======== ======== ========
Diluted:
Earnings per share before cumulative
effect of accounting change $ 1.10 $ .89 $ .37 $ .70 $ .66
Cumulative effect of accounting change - - - - .17
-------- -------- -------- -------- --------
Diluted earnings per share $ 1.10 $ .89 $ .37 $ .70 $ .83
======== ======== ======== ======== ========
Dividends per share $ .20 $ .20 $ .20 $ .20 $ -
======== ======== ======== ======== ========
</TABLE>
ABINGTON BANCORP, INC. 9 1997 ANNUAL REPORT
<PAGE> 13
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average total assets .87% .74% .33% .70% .95%
Interest rate spread 3.29 3.14 3.14 3.32 3.37
Return on average equity 12.59 11.00 4.68 9.23 11.73
Dividend payout ratio 16.90 21.34 52.62 27.34 -
Average equity to average total assets 6.94 6.69 7.00 7.61 8.10
</TABLE>
(1) Includes Federal Home Loan Bank stock.
(2) The Company declared a 2-for-1 stock split in the form of a dividend to
holders of record on November 14, 1997. All share and per share data have
been adjusted to reflect this transaction.
ABINGTON BANCORP, INC. 10 1997 ANNUAL REPORT
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Abington Bancorp, Inc. (the "Company"), became the one-bank holding company for
the Abington Savings Bank (the "Bank") on January 31, 1997. The Company's
primary business is serving as the holding company of the Bank. The holding
company did not conduct any business in fiscal 1996.
The Company's results of operations depend primarily on its net interest income
after provision for possible loan losses, its revenue from loan fees and sales
and other banking services and non-interest expenses. The Company's net interest
income depends upon the net interest rate spread between the yield on the
Company's loan and investment portfolios and the cost of funds, consisting
primarily of interest expense on deposits and Federal Home Loan Bank advances.
The interest rate spread is affected by the match between the maturities or
repricing intervals of the Company'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 Company's net interest income is also affected by
the performance of its loan portfolio and in particular, the level of
non-earning assets. Revenues from loan fees and other banking services depend
upon the volume of new transactions and the market level of prices for
competitive products and services. Non-interest expenses depend upon the
efficiency of the Company's internal operations and general market and economic
conditions.
On June 26, 1995, the Company acquired a branch in Holbrook ("Holbrook") from
the Bank of Boston. Additionally, in August 1997, the Company also opened, in
Cohasset, the first of three planned de novo supermarket branches, with Randolph
and Hanson scheduled to open in 1998. This acquisition and expansion into
supermarket banking is consistent with the Company's strategy of controlled
growth with a focus on core retail deposit relationships and will enable the
Company 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 Company's net interest rate spread was
3.29% and 3.14% for the years ended December 31, 1997 and 1996.
The level of non-accrual loans and other real estate owned also has an impact on
net interest income. At December 31, 1997, the Company had $622,000 in
non-accrual loans and $265,000 in other real estate owned compared to $1,028,000
in non-accrual loans and $500,000 in other real estate owned as of December 31,
1996.
The Company's cost of funds remained essentially flat in 1997 from 1996 levels,
as total cost of funds was 4.65% in 1997 as compared to 4.68% in 1996. The
relatively low rates paid on deposit accounts by banks in general, compared with
generally historically high returns received in the equity market and from
non-bank competitors, such as mutual funds, continue to make deposit growth an
increasing challenge as some customers began to seek these alternate, higher
yielding investment sources. Management continues to re-evaluate other funding
alternatives and also the rates paid, compared to market, on time deposits and
other deposit gathering strategies. These conditions, in part, caused an
increase in borrowed funds in 1997 as compared to 1996 but have not had an
adverse impact on overall cost of funds as generally the Company has not paid a
premium rate to attract time deposits. Management believes that prudent deposit
growth will continue to be a challenge in the future and may adversely impact
cost of funds in the future.
The table on the following page presents average balances, interest income and
expense and yields earned or rates paid on the major categories of assets and
liabilities for the years indicated.
ABINGTON BANCORP, INC. 11 1997 ANNUAL REPORT
<PAGE> 15
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Federal funds sold $ 544 $ 34 6.25% $ 614 $ 37 6.03% $ 621 $ 42 6.76%
Other short-term investments 221 16 7.24 75 4 5.33 434 25 5.76
Bonds and obligations (2) 25,025 1,775 7.09 23,489 1,512 6.44 23,774 1,536 6.46
Equity securities (1) 11,987 589 4.91 10,966 556 5.07 10,300 574 5.57
Mortgage-backed investments (2) 132,721 9,045 6.82 137,166 9,245 6.74 137,007 8,984 6.56
Loans (3) 304,925 24,838 8.15 282,530 22,978 8.13 243,949 20,788 8.52
-------- ------- -------- ------- -------- -------
Total earning assets 475,423 36,297 7.64 454,840 34,332 7.55 416,085 31,949 7.68
-------- ------- -------- ------- -------- -------
Cash and due from banks 9,786 8,348 7,028
Other assets 16,227 16,891 13,746
-------- -------- --------
Total assets $501,436 $480,079 $436,859
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 37,256 $ 577 1.55% $ 33,392 $ 516 1.55% $ 26,083 $ 402 1.54%
Savings deposits 97,786 2,168 2.22 95,661 2,287 2.39 94,328 2,301 2.44
Time deposits 145,152 8,312 5.73 136,541 7,939 5.81 121,126 6,978 5.76
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits 280,194 11,057 3.95 265,594 10,742 4.04 241,537 9,681 4.01
Short-term borrowings 45,833 2,557 5.58 66,790 3,733 5.59 73,719 4,546 6.17
Long-term debt 105,950 6,477 6.11 84,977 5,042 5.93 66,614 3,995 6.00
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 431,977 20,091 4.65 417,361 19,517 4.68 381,870 18,222 4.77
------- -------- --------
Non-interest-bearing deposits 29,447 25,223 19,584
-------- -------- --------
Total deposits and
borrowed funds 461,424 4.35 442,584 4.41 401,454 4.54
Other liabilities 5,239 5,385 4,847
-------- -------- --------
Total liabilities 466,663 447,969 406,301
Stockholders' equity 34,773 32,110 30,558
-------- -------- --------
Total liabilities and
stockholders' equity $501,436 $480,079 $436,859
======== ======== ========
Net interest income $16,206 $14,815 $13,727
======= ======= =======
Interest rate spread (4) 3.29% 3.14% 3.14%
==== ==== ====
Net yield on earning assets (5) 3.41% 3.26% 3.30%
==== ==== ====
</TABLE>
(1) Includes Federal Home Loan Bank stock, investments held for investment and
available for sale (at amortized cost).
(2) Includes investments 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.
ABINGTON BANCORP, INC. 12 1997 ANNUAL REPORT
<PAGE> 16
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
the change in the volume of earning assets and interest-bearing liabilities. The
change attribute able 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, 1997 vs 1996 1996 vs 1995
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Increase (decrease) Increase (decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
--------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 1,824 $ 36 $ 1,860 $3,171 $(981) $2,190
Bonds and obligations 103 160 263 (18) (6) (24)
Equity securities 51 (18) 33 36 (54) (18)
Mortgage-backed
investments (302) 102 (200) 10 251 261
Federal funds sold (4) 1 (3) - (5) (5)
Interest-bearing deposits
in banks 10 2 12 (19) (2) (21)
------- ----- ------- ------ ----- ------
Total interest and
dividend income 1,682 283 1,965 3,180 (797) 2,383
------- ----- ------- ------ ----- ------
Interest expense:
NOW deposits 60 1 61 113 1 114
Savings deposits 50 (169) (119) 32 (46) (14)
Time deposits 495 (122) 373 896 65 961
Short-term borrowings (1,170) (6) (1,176) (407) (406) (813)
Long-term debt 1,278 157 1,435 1,090 (43) 1,047
------- ----- ------- ------ ----- ------
Total interest expense 713 (139) 574 1,724 (429) 1,295
------- ----- ------- ------ ----- ------
Net interest income $ 969 $ 422 $ 1,391 $1,456 $(368) $1,088
======= ===== ======= ====== ===== ======
</TABLE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL
Net income for the year ended December 31, 1997 was $4,378,000 or $1.10 per
diluted share compared to $3,533,000 or $.89 per diluted share in 1996, an
increase of $845,000 or 23.9%. The growth in earnings is generally attributable
to increased net interest income, increases in customer service fee revenues and
controlled growth in non-interest expenses.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $1,965,000 or 5.7% during 1997 as
compared to 1996. This increase was attributable to increases in earning assets,
particularly loans, and increases in the rates earned on investment securities,
including mortgage-backed investments and loans. The balance of average earning
assets was $475,423,000 in 1997 as compared to $454,840,000 in 1996, an increase
of $20,583,000 or 4.5%. This increase was generally caused by growth in the
Company's commercial loan portfolio in 1997 which had an average balance of
approximately $37,543,000 in 1997 as compared to $22,515,000 in 1996, an
increase of $15,028,000 or 66.7%. This increase is consistent with management's
strategy of diversifying the Company's asset-mix by increasing loan growth,
particularly higher yielding commercial loans. The remaining asset growth was
generated from residential loan purchases and originations partially offset by
decreases in the Company's investment and mortgage-backed securities portfolios.
The combined average balance of investments, including equity and
mortgage-backed securities, decreased to $169,733,000 in 1997, a decrease of
approximately $1,888,000 or 1.1% from 1996 average levels of $171,621,000. See
"Liquidity and Capital Resources" and "Asset/Liability Management" for a further
discussion of the Company's investment strategies. As a result of this strategy,
the average yield on interest earning assets increased in 1997 to 7.64% from
7.55% in 1996. Yields on loans increased slightly to 8.15% in 1997 from 8.13% in
1996. Increases due to greater concentrations of commercial loans generally
offset the declining interest rates on residential mortgage loans originated/
purchased over the second half of 1997 as well as declining yields on those
portfolios as the result of customer refinancings into lower yielding loans. The
yields on investment, excluding equities, and mortgage-backed securities
portfolios were 7.09% and 6.82%, respectively, as compared to 6.44% and 6.74%,
respectively, in 1996. This increase in yield, despite the generally declining
long-term interest rate environment, was achieved through the sale of various
lower yielding securities held by the Company in its portfo-
ABINGTON BANCORP, INC. 13 1997 ANNUAL REPORT
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
lio of securities available for sale and the acquisition of securities at higher
yields, primarily during the second half of 1996 and the first 9 months of 1997.
INTEREST EXPENSE
Interest expense in 1997 increased $574,000 or 2.9% as compared to 1996
generally due to increases in deposit balances and higher rates paid on borrowed
funds. This increase was partially offset by decreases in the average rates paid
on deposits. The average balance of core deposits (NOW accounts, savings and
money markets) and time deposits rose to $164,489,000 and $145,152,000,
respectively, in 1997 as compared to $154,276,000 and $136,541,000,
respectively, in 1996 for increases of $10,213,000 (or 6.6%) and $8,611,000 (or
6.3%), respectively. These increases reflect the success of management's
strategy to attract retail, core deposit relationships and increasing deposit
balances. The overall cost of interest bearing deposits decreased to 3.95% in
1997 from 4.04% in 1996 despite a continued competitive market for deposit
relationships. This is generally attributable to the Company's continued growth
in less expensive core deposit accounts as well as decreases in overall rates
paid on time deposits. While rates paid on time deposits have generally remained
flat for most of 1997, the overall cost has declined due to customers shifting
to shorter-maturity time deposits. The trend of shorter-term time deposits is
expected to continue in future periods should the current rate environment
continue with longer-term interest rates remaining relatively low in comparison
to short-term rates. The Company will manage its cost of deposits by continuing
to seek new methods of acquiring core deposits, by maintaining its current core
deposits at reasonable rates in comparison to local markets and by utilizing
funding alternatives, including borrowings.
Average balances of borrowed funds remained flat at $151,783,000 in 1997 as
compared to $151,767,000 in 1996. The overall weighted cost of borrowed funds
increased to 5.95% in 1997 from 5.78% in 1996. This increase in cost of borrowed
funds was generally due to management's decision to extend approximately
$28,000,000 of borrowings from short-term to longer-term maturities at the end
of the first quarter of 1997. This strategy in part offset the trend of growth
in shorter-term maturity time deposits, as noted above, and provided further
protection against potential rising interest rates. The Company will continue to
evaluate the use of borrowings as an alternative funding source for asset growth
in future periods. See "Asset/Liability Management" for further discussion of
the competitive market for deposits and overall strategies for uses of borrowed
funds.
NON-INTEREST INCOME
Total non-interest income increased $809,000 or 19.4% in 1997 as compared to
1996. Customer service fees, which were $3,276,000 in 1997 as compared to
$2,412,000 in 1996, increased $864,000 or 35.8%. This increase is consistent
with increases in core deposit accounts, particularly NOW and checking accounts.
Non-interest income was also favorably impacted by the sales of various other
real estate owned properties at better than anticipated prices. Income related
to the sales of other real estate owned was $109,000 in 1997 and $67,000 in
1996.
Gains on securities were $540,000 in 1997, an increase of $45,000 or 9.1% over
1996 levels. These gains were reflective of the strong equity markets
experienced over the past 2 years.
Gains on sales of mortgages and loan servicing income decreased during 1997 to
$236,000 and $558,000, respectively, from $315,000 and $646,000, respectively,
in 1996. This reflects management's decision in 1996 to sell most of its
residential loan production on a servicing released basis, as well as fewer
loans being originated for sale in 1997. The average balances of loans serviced
for others declined to $224,450,000 in 1997 from $235,949,000 in 1996, a decline
of 4.9%. The loan servicing income for 1997 was further negatively impacted by
the accelerated amortization of mortgage servicing rights (approximately
$76,000) given the acceleration of estimated prepayments on the related loan
servicing pools. Declining trends in loan servicing income are expected to
continue due to the Company's current strategy of selling wholesale mortgage
production on a servicing released basis.
NON-INTEREST EXPENSE
Non-interest expense for 1997 increased $665,000 or 5.2% over 1996 levels.
Salaries and employee benefits increased 9.6% or $585,000 generally due to
increases in health insurance costs and staffing levels of the Company's
business banking and retail areas, including the Cohasset supermarket branch.
Additionally, costs associated with the Company's employee stock plan and other
incentive compensation expenses increased by approximately $280,000 over 1996
levels as the result of the increase in the Company's stock price during 1997
and also because certain performance-related incentives were met as a result of
the improved financial performance of the Company in 1997.
Occupancy and equipment expenses increased $46,000 or 1.9% primarily due to the
opening of the Cohasset branch and other minor inflationary increases. Other
non-interest expenses increased $34,000 or .8%, primarily as the result of
increased advertising expenses and other costs associated with the Company's
retail banking efforts and the opening of the Cohasset branch.
PROVISION FOR POSSIBLE LOAN LOSS
The provision for possible loan losses was $630,000 for 1997 as compared to
$480,000 for 1996. This increase of $150,000 primarily reflects the increased
risk associated with increases in the Company's commercial loan portfolio as
compared to residential lending.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for 1997 was 38.0% compared to 37.7% for
1996. The lower effective tax rate in comparison to statutory rates for both
periods is reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
ABINGTON BANCORP, INC. 14 1997 ANNUAL REPORT
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net income for the year ended December 31, 1996 was $3,533,000 or $.89 per
diluted share compared to $1,429,000 or $.37 per diluted share in 1995, an
increase of $2,104,000 or 147.2%. The key factor impacting the level of earnings
for 1995 was management's decision to aggressively dispose of a significant
portion of the Company's non-accrual and certain "high maintenance" loans which
resulted in a special provision for loan losses of $1,654,000 and increases in
other non-interest expenses of $150,000 due to other related costs during 1995.
The overall improvement in net income from core operating activities in 1996 as
compared to 1995 was mainly attributable to increases in customer service fees
and net interest income.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased $2,383,000 or 7.5% during 1996 as
compared to 1995. This increase was attributable to increases in earning assets
that were partially offset by general decreases in the rates earned on those
assets. The balance of average earning assets was $454,840,000 in 1996 as
compared to $416,085,000 in 1995, an increase of $38,755,000 or 9.3%. The
increase in average earning assets was primarily due to increases in the
Company's loan portfolio which grew from an average balance of $243,949,000 in
1995 to $282,530,000 in 1996, an increase of $38,581,000 or 15.8%. This increase
was primarily due to the acquisition of various residential loan pools made
throughout the year. See "Liquidity and Capital Resources" and "Asset/Liability
Management" for further discussion of the Company's investment strategies. The
average yield on interest earning assets declined in 1996 to 7.55% as compared
to 7.68% in 1995 due to overall declines in the yields on loans originated and
purchased. The yield on loans for 1996 was 8.13% as compared to 8.52% in 1995.
These declines were generally caused by continued declines in interest rates
from 1995 through the first 4 months of 1996, which impacted new
purchases/originations as well as generating higher prepayments on higher
yielding loans held in the Company's portfolio over the same period. Yields on
mortgage-backed securities increased from 6.56% in 1995 to 6.74% in 1996 due to
a combination of favorable yield adjustments on adjustable rate mortgage-backed
securities as well as the result of higher yields obtained due to certain
investment purchases which took place in the third quarter of 1996 which
replaced lower yielding securities which were sold in the same period.
INTEREST EXPENSE
Interest expense in 1996 increased $1,295,000 or 7.1% as compared to 1995
generally due to increases in the average balances of time deposits and
borrowings and overall growth in the Company's core deposit portfolio. The
average balances of deposits and borrowed funds were $290,817,000 and
$151,767,000, respectively, in 1996 as compared to $261,121,000 and
$140,333,000, respectively, in 1995. The increases in average deposit balances
was primarily due to the acquisition of the Holbrook branch in June 1995
(represents approximately $8 million of the increase in average balances) and
other general deposit growth which reflected management's continued focus on
expanding the Company's core deposit base. The average balances of interest
bearing NOW and non-interest bearing deposits accounts increased $12,948,000 or
28.4% in 1996 (of which approximately $2 million related to Holbrook). This was
generally reflective of the Company's success in its focused promotion
activities to attract checking accounts in 1996. Also, the average balances of
time deposits increased 12.7% or $15,415,000 in 1996 as compared to 1995 which
was generally reflective of customers' desire to attain higher yields than were
being offered by banks' core deposit rates in the Company's market area. Also,
the weighted average of borrowings increased $11,434,000 in 1996 as compared to
1995 generally due to the timing of various loan purchases in 1995 and 1996.
Overall balances of borrowings outstanding at December 31, 1996 were
$147,524,000 which was relatively consistent with the $145,609,000 outstanding
at December 31, 1995.
The weighted average rate paid on interest-bearing liabilities was 4.68% in 1996
as compared to 4.77% in 1995. The weighted average rate paid on interest-bearing
deposits was 4.04% in 1996 as compared to 4.01% in 1995. This increase was
generally attributable to increases in the weighted average rate paid on time
deposits in 1996 as compared to 1995, and the fact that the 1996 average rate
reflects the full year impact of the shift of approximately $10 million of core
deposits to certificates of deposit during the first half of 1995. This shift
was representative of customers' desire, given the market's unwillingness to
increase the rates paid on core deposits, to find higher yields for their
deposits. While rates paid on certificates of deposit declined somewhat from
early 1995 to the end of 1996, the potential impact of such rate changes had not
been fully reflected in the Company's cost of funds in 1996 given that the rates
paid on certificates of deposit are generally fixed for the duration of the
contract.
As of December 31, 1996, the weighted average rate paid on certificates of
deposit with a remaining term of 1 year or less (totaling approximately
$89,073,000) was approximately 5.49%. If those certificates had rolled over for
similar remaining terms at the rates offered as of December 31, 1996, the
weighted average paid on such deposits would decline to approximately 4.86%. See
"Asset/Liability Management" for further discussion of the competitive market
for deposits.
The weighted average rate paid on borrowings decreased to 5.78% in 1996 from
6.09% in 1995. This decrease generally coincided with decreases in rates
established by the Federal Reserve in early 1996. See "Liquidity and Capital
Resources" for further discussion of the Company's borrowed funds.
NON-INTEREST INCOME
Total non-interest income increased $1,269,000 or 43.6% in 1996 as compared to
1995. Customer service fees, which were $2,412,000 in 1996 as compared to
$1,644,000 in 1995, increased $768,000 or 46.7%. This increase was primarily
attributable to growth in core deposit accounts, particularly NOW and checking
account portfolios in 1996. The Company also realized net gains on sales of
other real estate owned of $67,000 in 1996 as compared to net losses of $92,000
in 1995. This was reflective of improved market conditions for properties held
in other real estate owned in 1996 as compared to 1995 and the overall reduced
risk on the valuation of properties that the Company held in other real estate
owned in 1996 as compared to 1995. Additionally, the Company wrote-off a real
estate limited partnership investment, in full, in 1995 for which there was no
corresponding write-down in 1996.
The growth in non-interest income was also affected by increases in gains on
sales of securities which were $495,000 in 1996 as compared to $181,000 in 1995.
These gains were generally reflective of the strong equity market in 1996 and
were also net of losses taken on sales of lower yielding mortgage-backed
securities which was done as part of an effort to increase future yields on that
portfolio. Non-interest income was adversely impacted by decreases in gains on
sales of mortgages from $453,000 in 1995 to $315,000 in 1996. The results for
1995 were favorably impacted by a gain of approximately $175,000 on the sale of
approximately $7,200,000 of seasoned 20-year and 30-year fixed rate mortgages.
Excluding the impact of
ABINGTON BANCORP, INC. 15 1997 ANNUAL REPORT
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
this sale, the gains on sales of mortgages were actually $37,000 less in 1995
than those levels in 1996. This was in part due to the Company's prospective
adoption of FASB No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No.
122") as of January 1, 1996. See Note 1 to the Consolidated Financial Statements
for further discussion. Loan servicing fees also declined $67,000 or 9.4% in
1996 as compared to 1995 due to general declines in the balances of loans
serviced for others which were $252,940,000 at December 31, 1995 as compared to
$235,949,000 at December 31, 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $885,000 or 7.4% in 1996 as compared to 1995.
Salaries and employee benefits increased 7.8% or $440,000 primarily due to the
acquisition of the Holbrook branch in June 1995 and other cost of living or
inflationary increases for salaries of employees and other related costs.
Occupancy expense increased $364,000 or 18.1% primarily due to costs associated
with additional investments in and higher maintenance costs associated with the
Company's computer system and the acquisition of the Holbrook branch. Other
non-interest expenses also increased $81,000 or 1.88%, generally due to
increased marketing efforts associated with Holbrook and other checking account
promotions which were partially offset by decreases of approximately $150,000 in
other costs which were incurred in 1995 related to the Company's sale of certain
non-accrual and "high maintenance" loans. The Company also benefited from
declines in the FDIC assessment rate in 1996 as compared to 1995. In 1996, the
Bank paid FDIC assessments at the minimum rate available of $2,000 per year. In
1995, the Bank also paid the lowest available rate; however, the rate of
assessment was $.23 per $100 of deposits for the first 6 months of 1995 and $.04
per $100 of deposits per annum for the second half of 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $480,000 for 1996 as compared to
$2,233,000 for 1995. The decrease of $1,753,000 primarily reflects provisions
taken in connection with the Company's sale of certain non-performing and "high
maintenance" loans at a discounted price in the third quarter of 1995 for which
there was no corresponding provision in 1996.
PROVISION FOR INCOME TAX
The Company's effective tax rate for 1996 was 37.7% as compared to 41.6% in
1995. The decrease in the effective tax rate from 1995 was due to certain
statutory tax limitations associated with the state tax benefits related to the
loss on sales of loans and the effect of estimated tax recapture associated with
management's write-off of a real estate limited partnership investment during
1995. The decrease in the effective tax rate for 1996 in comparison to statutory
rates is generally reflective of the levels of income earned by certain non-bank
subsidiaries which are taxed for state tax purposes at lower rates.
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to ensure that liquidity, capital
and market risk are prudently managed. Asset/liability management is governed by
policies reviewed and approved annually by the Company's Board of Directors
(Board). The Board delegates responsibility for asset/liability management to
the corporate Asset/Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset/liability management activities of
the Company. ALCO also reviews and approves all major funding, capital and
market risk-management programs. ALCO is comprised of members of management and
executive management of the Company and the Bank.
Interest rate risk is the sensitivity of income to variations in interest rates
over both short-term and long-term time horizons. The primary objective of
interest rate risk management is to control this risk within limits approved by
the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company attempts to control interest rate
risk by identifying potential exposures and developing tactical plans to address
such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a more
simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales and, in some cases, hedge strategies are also considered in the
evaluation and management of interest rate risk exposures.
The Company uses simulation analysis to measure the exposure of net interest
income to changes in interest rates over a 1 to 5 year time horizon. Simulation
analysis involves projecting future interest income and expense from the
Company's assets, liabilities, and off-balance sheet positions under various
interest rate scenarios.
The Company's limits on interest rate risk specify that if interest rates were
to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. The
following table reflects the Company's estimated exposure, as a percentage of
estimated net interest income for the next 12 months, which does not materially
differ from the impact on net income, on the above basis:
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
- -----------------------------------------------
+200 1.8%
-200 .3%
The Company uses valuation analysis to provide insight into the exposure of
earnings and equity to changes in interest rates based on the balance sheet
position of the Company at a set point in time without regard to potential
future strategic changes. Valuation analysis involves projecting future cash
flows from the Company's assets, liabilities and off-balance sheet positions
and then discounting such cash flows at appropriate interest rates. The
Company's economic value of equity is the estimated net present value of its
assets, liabilities and off-balance sheet positions.
The Company's limits on interest rate risk specify that if interest rates were
to shift immediately up or down 200 basis points, the estimated economic value
of equity should decline by less than 25%. The following table reflects the
Company's estimated exposure as a percentage of estimated economic value of
equity assuming an immediate shift in interest rates:
Rate Change Estimated Exposure as a
(Basis Points) % of Economic Value
- ----------------------------------------------
+200 (6.5)%
-200 (17.5)%
Interest rate gap analysis provides a static view of the maturity and repricing
characteristics of the on-balance sheet and off-balance sheet positions. The
interest rate gap analysis is prepared by scheduling all assets, liabilities and
off-balance sheet positions according to scheduled repricing or maturity.
Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
ABINGTON BANCORP, INC. 16 1997 ANNUAL REPORT
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's limits on interest rate risk specify that rate sensitive assets be
maintained at at least 40% of rate sensitive liabilities at the cumulative
1-year gap, as presented on a basis consistent with methods prescribed by
generally accepted accounting principles. As of December 31, 1997, the Company
was liability sensitive with rate sensitive assets at 61.8% of rate sensitive
liabilities at the 1-year gap.
The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Residential mortgage loans, which
the Company currently originates or purchases for the Company's own portfolio,
are primarily 1-year and 3-year adjustable rate mortgages. Fixed rate
residential mortgage loans originated by the Company are primarily sold in the
secondary market, although in each year since 1989 the Bank has originated or
purchased approximately $30,000,000 primarily in shorter-term fixed rate
mortgage loans (generally 10-years to 15-years) to be held in portfolio in order
to provide a hedge against the Company's asset sensitivity.
The Company also emphasizes loans with terms to maturity or repricing of 3 years
or less, such as certain adjustable rate residential mortgage loans, commercial
mortgages, business loans, residential construction loans, second mortgages and
home equity loans.
In addition, to help manage interest rate sensitivity, in July 1994, the Company
entered into an interest rate swap agreement with an international investment
banking firm whereby the Company received a fixed rate of interest of 5.35% and
paid interest based on the 6 month floating LIBOR rate which reset semi-annually
(February and August). The notional amount of this swap was initially
$15,000,000. This amount amortized down at a rate consistent with the
amortization and prepayments of a referenced pool of residential mortgages as
specified in the agreement. In addition to the fixed rate of interest, the
Company also received a discount of $300,000 from the investment banking firm in
cash upon execution of this agreement. This discount was 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 Company including the impact of this accretion was approximately
6.25%. This agreement expired on August 25, 1997. The Company had entered into
this agreement as a micro-hedge against its 1-year adjustable rate mortgage
portfolio (including those held as mortgage-backed securities). Interest income
(expense) associated with this swap was recognized generally by the accrual
method with monthly settlements. Management did not renew this interest rate
swap.
Management desires to expand its interest-earning asset base in future periods
primarily through growth in the Company's loan portfolio. Loans comprised
approximately 64.1% of the average interest earning assets in 1997. In the
future, the Company intends to be competitive in the residential mortgage market
but plans to place greater emphasis on consumer and commercial loans. The
Company also has been, and expects to remain, active in pursuing wholesale
opportunities to purchase loans. During 1997 and 1996, the Company acquired
approximately $57,800,000 and $36,200,000, respectively, of residential first
mortgages.
The Company has also used mortgage-backed investments (typically with weighted
average lives of 5 to 7 years) as a vehicle for fixed and adjustable rate
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 Company with greater reinvestment
flexibility.
The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management has been aggressively promoting the Company's
core deposit products since the first quarter of 1995, particularly checking and
NOW accounts. The success of this program has favorably impacted the overall
deposit growth to date, despite interest rate and general market pressures, and
has helped the Company to increase its customer base.
However, given the strong performance of money mutual funds and the equity
markets in general, the Company and many of its peers have begun to see lower
levels of growth in time deposits as compared to prior years as customers
reflect their desire to increase their returns on investment. This pressure has
been exacerbated currently by the historically low long-term economic interest
rates. Management believes that the markets for future time deposit growth,
particularly with terms in excess of 2 years, will remain highly competitive.
Management will continue to evaluate future finding strategies and alternatives
accordingly as well as continuing to focus its efforts on attracting core,
retail deposit relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB") of
Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company considers it more
advantageous to borrow money from the FHLB of Boston than to raise money through
non-core deposits (i.e., certificates of deposit). Borrowed funds totaled
$165,910,000 at December 31, 1997 compared to $147,524,000 at December 31, 1996.
These borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities.
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at December 31, 1997. The balance of
such accounts has been allocated among the various periods based upon the terms
and repricing intervals of the particular assets and liabilities. For example,
fixed rate mortgage loans and mortgage-backed securities, regardless of held in
portfolio or available for sale classification, are shown in the table in the
time periods corresponding to projected principal amortization computed based on
their respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market. Adjustable rate
loans and securities are allocated to the period in which the rates would be
next adjusted. The following 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 6 months. This table
does not include non-interest bearing deposits.
While this table presents a cumulative negative gap position in the 6 month to 5
year horizon, the Company considers its earning assets to be more sensitive to
interest rate movements than its liabilities. In general, assets are tied to
increases that are immediately impacted by interest rate movements while deposit
rates are generally driven by market area and demand which tend to be less
sensitive to general interest rate changes. In addition, other savings accounts
and money market accounts are substantially stable core deposits, although
subject to rate changes. A substantial core balance in these type of accounts is
anticipated to be maintained over time.
ABINGTON BANCORP, INC. 17 1997 ANNUAL REPORT
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Repricing/Maturity Interval
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 0-6 Mos. 6-12 Mos. 1-2 Yrs. 2-3 Yrs. 3-5 Yrs. Over 5 Total Total
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ 163 $ - $ - $ - $ - $ - $ 163
Bonds and obligations 3,683 4,181 3,997 2,068 3,000 16,961 33,890
Mortgage-backed investments 32,254 27,009 10,529 9,258 15,556 30,692 125,298
Mortgage loans subject to rate
review 40,671 17,961 22,826 30,938 16,365 - 128,761
Fixed rate mortgage loans 45,759 34,761 51,350 27,907 20,846 4,216 184,839
Commercial and other loans
contractual maturity 8,483 3,143 2,978 2,180 2,688 - 19,472
--------- --------- -------- -------- -------- ------- --------
Total 131,013 87,055 91,680 72,351 58,455 51,869 492,423
--------- --------- -------- -------- -------- ------- --------
Liabilities subject to interest
rate adjustment:
Money market deposit accounts 15,477 - - - - - 15,477
Savings deposits - term
certificates 57,039 45,642 25,214 18,632 5,804 - 152,331
Other savings accounts 123,201 - - - - - 123,201
Borrowed funds 81,410 30,000 19,000 18,000 17,000 500 165,910
--------- --------- -------- -------- -------- ------- --------
Total 277,127 75,642 44,214 36,632 22,804 500 456,919
--------- --------- -------- -------- -------- ------- --------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities (146,114) 11,413 47,466 35,719 35,651 51,369 35,504
--------- --------- -------- -------- -------- ------- --------
Cumulative excess (deficiency) of
rate sensitive assets over rate
sensitive liabilities (1) $(146,114) $(134,701) $(87,235) $(51,516) $(15,865) $35,504
========= ========= ======== ======== ======== =======
Rate sensitive assets as a percent
of rate sensitive liabilities 47.3% 61.8% 78.0% 88.1% 96.5% 107.8%
</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 BANCORP, INC. 18 1997 ANNUAL REPORT
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Payments and prepayments on the Company's loan and mortgage-backed investment
portfolios, sales of fixed rate residential loans, increases in deposits,
borrowed funds and maturities of various investments comprise the Company's
primary sources of liquidity. The Company is also a voluntary member of the FHLB
of Boston and, as such, is entitled to borrow an amount up to the value of its
qualified collateral that has not been pledged to outside sources. Qualified
collateral generally consists of residential first mortgage loans, securities
issued, insured or guaranteed by the U. S. Government or its agencies, and funds
on deposit at the FHLB of Boston. Short-term advances may be used for any sound
business purpose, while long-term advances may be used only for the purpose of
providing funds to finance housing. At December 31, 1997, the Company had
approximately $80,000,000 in unused borrowing capacity that is contingent upon
the purchase of additional FHLB of Boston stock. Use of this borrowing capacity
is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately 1 to 3 months. The Company
utilizes borrowed funds as a primary vehicle to manage interest rate risk, due
to the ability to easily extend or shorten maturities as needed. This enables
the Company to adjust its cash needs to the increased prepayment activity in its
loan and mortgage-backed investment portfolios, as well as to quickly extend
maturities when the need to further balance the Company's GAP position arises.
The Company regularly monitors its asset quality to determine the level of its
loan loss reserves through periodic credit reviews by members of the Company's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Company's Board of Directors, also works on the
collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation: potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, 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 $978,000 at December 31, 1997,
compared to $1,672,000 at December 31, 1996, a decrease of $694,000 or 41.5%.
The Bank's ratio of delinquent loans to total loans was .42% at December 31,
1997, as compared to .72% at December 31, 1996. Management believes that overall
trends in delinquencies and non-performing assets will continue to be favorable
in 1998.
During 1997, the Company maintained a general reserve for other real estate
owned in light of the level of foreclosures, softness of the local real estate
market (particularly commercial) and costs associated with selling properties.
No provisions were made for possible losses on other real estate owned in 1997.
The balance of the general other real estate owned reserves at December 31, 1997
was approximately $60,000 compared to $159,400 at December 31, 1996.
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 December 31, 1997, the Company had outstanding commitments to originate and
sell residential mortgage loans in the secondary market amounting to $2,003,000
and $1,415,000, respectively. The Company also has outstanding commitments to
grant advances under existing home equity lines of credit amounting to
$11,230,000. Unadvanced commitments under outstanding commercial and
construction loans totaled $10,764,000 as of December 31, 1997. The Company
believes it has adequate sources of liquidity to fund these commitments.
The Company's total stockholders' equity was $36,321,000 or 6.8% of total assets
at December 31, 1997, compared with $33,546,000 or 6.9% of total assets at
December 31, 1996. The increase in total stockholders' equity of approximately
$2,776,000 or 8.3% primarily resulted from earnings of the Company and increases
in the market value of its portfolio of available for sale securities, net of
applicable taxes, offset, in part, by dividends paid and the effect of the
Company's stock repurchase program. In accordance with current guidelines, the
net unrealized gain on available for sale securities has not been included in
regulatory capital calculations.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 1997, the Company's Tier 1 leverage capital
ratio was approximately 6.01%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At December 31, 1997, the Company's Tier 1 and total
risk-based capital ratios were approximately 12.15% and 13.02%, respectively.
The Company is categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also
categorized as "well-capitalized" as of December 31, 1997.
IMPACT OF THE YEAR 2000
The year 2000 problem, which is common to most companies, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000 approaches.
The Company has completed an assessment of the majority of its systems to
identify the systems that could be affected by the year 2000 issue and is in the
process of developing an implementation plan to address this issue. The
Company's various systems generally operate on software which is provided and
maintained by outside vendors, many of whom are larger, well-established
companies who are well-known and established in the banking industry. At this
time, the Company does not anticipate incurring significant costs related to the
year 2000 problem as currently the Company is highly reliant on the efforts of
these outside vendors. The Company does, however, anticipate an increase in the
amount of time management and staff will devote to closely monitor the progress
of these vendors and also testing applications. To the extent that costs are
incurred related to the year 2000 problem, they will be expensed. The Company
currently believes it will be able to modify or replace its affected systems in
time to minimize any detrimental effects on operations. While it is not
possible, at present, to give an accurate estimate of the cost of this work, the
Company does not expect that such costs will be material to the Company's
results of operations in one or more fiscal quarters or years or have a material
adverse impact on the long-term results of operations, liquidity or consolidated
financial position of the
ABINGTON BANCORP, INC. 19 1997 ANNUAL REPORT
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
Company. However, there can be no assurance that the systems of other companies
on which the Company's systems rely also will be timely converted or that any
such failure to convert by another company would not have an adverse effect on
the Company's systems.
IMPACT OF INFLATION
The Consolidated Financial Statements of the Company and related Financial Data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
PROPOSED ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement will be effective for the Company's financial
statements issued for the fiscal year ending December 31, 1998. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting, called the
"management approach."
The management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure - any manner in which management
disaggregates a company. This statement is effective and will be adopted for the
Company's financial statements for the fiscal year ending December 31, 1998 and
requires the restatement of previously reported segment information for all
periods presented.
ABINGTON BANCORP, INC. 20 1997 ANNUAL REPORT
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ABINGTON BANCORP, INC.:
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Abington
Bancorp, Inc. and subsidiary ("the Company") as of December 31, 1997 and 1996,
and the related statements of operations, changes in stockholders' equity and
cash flows for each of the 3 years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mis-statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Abington Bancorp, Inc. and
subsidiary as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for each of the 3 years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
January 16, 1998 (except with respect to the third paragraph of
Note 19, as to which the date is February 24, 1998)
ABINGTON BANCORP, INC. 21 1997 ANNUAL REPORT
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 18) $ 13,312 $ 9,556
Short-term investments 163 152
-------- --------
Total cash and cash equivalents 13,475 9,708
-------- --------
Loans held for sale (Note 6) 1,332 3,176
Securities (Notes 4, 9 and 10):
Held for investment - at cost (market value
of $64,129 in 1997 and $62,456 in 1996) 64,021 63,670
Available for sale - at market value 101,031 91,561
-------- --------
Total securities 165,052 155,231
-------- --------
Loans (Notes 6, 9 and 10) 332,677 298,667
Less: Allowance for possible loan losses (2,280) (1,811)
Unearned income (937) (1,062)
-------- --------
Loans, net 329,460 295,794
-------- --------
Federal Home Loan Bank stock 8,151 7,903
Banking premises and equipment, net (Note 7) 6,294 6,346
Other real estate owned, net (Note 6) 265 500
Intangible assets (Notes 1 and 2) 3,284 3,685
Other assets (Note 11) 4,673 4,615
-------- --------
$531,986 $486,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8) $324,934 $300,445
Short-term borrowings (Note 9) 55,910 63,171
Long-term debt (Note 10) 110,000 84,353
Accrued taxes and expenses (Notes 11 and 14) 3,337 3,447
Other liabilities 1,484 1,996
-------- --------
Total liabilities 495,665 453,412
-------- --------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 3, 4, 13, 16, 17, and 19):
Serial preferred stock, $.10 par value, 3,000,000
shares authorized; none issued -- --
Common stock, $.10 par value, 12,000,000 shares
authorized; 4,676,000 shares issued in 1997
and 4,660,000 shares issued in 1996 468 467
Additional paid-in capital 21,094 20,923
Retained earnings 19,858 16,221
-------- --------
41,420 37,611
Treasury stock - 1,039,000 and 874,000 shares
in 1997 and 1996, at cost (5,931) (3,703)
Unearned compensation - ESOP (231) (312)
Net unrealized gain/(loss), on available for sale
securities, net of taxes 1,063 (50)
-------- --------
Total stockholders' equity 36,321 33,546
-------- --------
$531,986 $486,958
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 22 1997 ANNUAL REPORT
<PAGE> 26
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(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) $ 24,838 $ 22,978 $ 20,788
Interest on mortgage-backed investments 9,045 9,245 8,984
Interest on bonds and obligations 1,775 1,512 1,536
Dividend income 589 556 556574
Interest on short-term investments 50 41 67
---------- ---------- ----------
Total interest and dividend income 36,297 34,332 31,949
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 8) 11,057 10,742 9,681
Interest on short-term borrowings (Note 9) 2,557 3,733 4,546
Interest on long-term debt (Note 10) 6,477 5,042 3,995
---------- ---------- ----------
Total interest expense 20,091 19,517 18,222
---------- ---------- ----------
Net interest income 16,206 14,815 13,727
Provision for possible loan losses (Note 6) 630 480 2,233
---------- ---------- ----------
Net interest income, after provision for
possible loan losses 15,576 14,335 11,494
---------- ---------- ----------
Non-interest income (charges):
Loan servicing fees (Note 6) 558 646 713
Other customer service fees 3,276 2,412 1,644
Gain on sales of securities, net 540 495 181
Gain on sales of mortgage loans, net 236 315 453
Write-down of investment in limited partnership - - (110)
Net gain (loss) on sales and write-down of other
real estate owned 109 67 (92)
Other 267 242 119
---------- ---------- ----------
Total non-interest income 4,986 4,177 2,908
---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits (Notes 12, 14 and 17) 6,660 6,075 5,635
Occupancy and equipment expenses (Notes 7 and 12) 2,420 2,374 2,010
Other non-interest expenses (Note 15) 4,425 4,391 4,310
---------- ---------- ----------
Total non-interest expense 13,505 12,840 11,955
---------- ---------- ----------
Income before income taxes 7,057 5,672 2,447
Provision for income taxes (Note 11) 2,679 2,139 1,018
---------- ---------- ----------
Net income $ 4,378 $ 3,533 $ 1,429
========== ========== ==========
Earnings per share (Note 1):
Basic -
Net income per share $ 1.18 $ .94 $ .38
========== ========== ==========
Weighted average common shares 3,716,000 3,774,000 3,758,000
========== ========== ==========
Diluted -
Net income per share $ 1.10 $ .89 $ .37
========== ========== ==========
Weighted average common shares
and share equivalents 3,966,000 3,964,000 3,928,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 23 1997 ANNUAL REPORT
<PAGE> 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional on Available Unearned
Common Paid-in Retained Treasury for Sale Compensation
(Dollars in thousands) Stock Capital Earnings Stock Securities ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $465 $20,721 $12,765 $(3,703) $(1,407) $(475) $28,366
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 1,429 - - - 1,429
Issuance of stock 1 90 - - - - 91
Amortization of unearned compensation -
ESOP - - - - - 82 82
Dividends declared ($.20 per share) - - (752) - - - (752)
Changes in unrealized loss on available
for sale securities as a result of
transfers from held for investment,
net of tax effects - - - - (169) - (169)
Change in market value on
available for sale securities, net of taxes - - - - 1,514 - 1,514
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 466 20,811 13,442 (3,703) (62) (393) 30,561
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 3,533 - - - 3,533
Issuance of stock 1 112 - - - - 113
Amortization of unearned compensation -
ESOP - - - - - 81 81
Dividends declared ($.20 per share) - - (754) - - - (754)
Change in market value on
available for sale securities, net of taxes - - - - 12 - 12
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 467 20,923 16,221 (3,703) (50) (312) 33,546
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - 4,378 - - - 4,378
Issuance of stock 1 171 - - - - 172
Amortization of unearned compensation-
ESOP - - - - - 81 81
Dividends declared ($.20 per share) - - (741) - - - (741)
Repurchase of common stock - - - (2,228) - - (2,228)
Change in market value on
available for sale securities, net of taxes - - - - 1,113 - 1,113
---- ------- ------- ------- ------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $468 $21,094 $19,858 $(5,931) $ 1,063 $(231) $36,321
- ------------------------------------------------------------------------------------------------------------------------------------
==== ======= ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 24 1997 ANNUAL REPORT
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,378 $ 3,533 $ 1,429
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 630 480 2,233
Net (gain) loss on sales and write-down of other real
estate owned and investment in limited partnership (109) (67) 202
Amortization, accretion and depreciation, net 1,798 1,784 1,478
Provision for deferred taxes (166) 131 379
Gain on sales of securities, net (540) (495) (181)
Gain on sales of mortgage loans, net (236) (315) (453)
Loans originated for sale in the secondary market (17,688) (18,344) (40,192)
Proceeds from sales of loans 19,768 18,440 37,762
Other, net (1,101) 1,922 (9,593)
-------- -------- --------
Net cash provided by (used in) operating activities 6,734 7,069 (6,936)
-------- -------- --------
Cash flows from investing activities:
Net cash received in acquisitions - - 14,875
Maturities of held for investment securities - - 1,748
Purchase of held for investment securities (8,968) (3,633) (25,186)
Proceeds from principal payments received
and redemptions of held for investment securities 8,571 8,734 49,469
Proceeds from sales of available for sale securities 32,126 36,665 11,891
Proceeds from principal payments on and maturities
of available for sale securities 19,041 15,517 8,294
Purchase of available for sale securities (58,323) (47,244) (13,965)
Loans originated/purchased, net of amortization and payoffs (34,721) (41,746) (38,699)
Proceeds from sales of loans held in portfolio - 3,038 13,548
Purchases of FHLB stock (248) (504) -
Purchase of banking premises and equipment and
improvements to other real estate owned (1,192) (972) (1,914)
Proceeds from sales of other real estate owned 769 564 1,000
Investments and advances made to low income housing
limited partnerships - (40) -
-------- -------- --------
Net cash used in investing activities (42,945) (29,621) (18,939)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 24,489 20,375 16,908
Net increase (decrease) in borrowings with
maturities of 3 months or less 19,739 11,363 (6,244)
Proceeds from issuance of short-term borrowings
with maturities in excess of 3 months 20,000 37,000 29,500
Principal payments on short-term borrowings with
maturities in excess of 3 months (47,000) (46,500) (20,000)
Proceeds from issuance of long-term debt 49,500 37,000 36,000
Principal payments on long-term debt (23,853) (36,948) (27,802)
Payment of cash dividends (741) (754) (753)
Purchase of treasury stock (2,228) - -
Proceeds from the exercise of stock options 72 113 91
-------- -------- --------
Net cash provided by financing activities 39,978 21,649 27,700
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,767 (903) 1,825
Cash and cash equivalents at beginning of year 9,708 10,611 8,786
-------- -------- --------
Cash and cash equivalents at end of year $ 13,475 $ 9,708 $ 10,611
======== ======== ========
</TABLE>
ABINGTON BANCORP, INC. 25 1997 ANNUAL REPORT
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid on deposits $11,063 $10,741 $ 9,676
Interest paid on borrowed funds 8,935 8,891 8,219
Income taxes paid 3,717 379 1,098
Transfers of loans to other real estate owned 425 62 848
Transfers of securities to available for sale
from held for investment - - 66,692
Transfer of securities from available for sale to
held for investment - - 8,485
Acquisitions: (Note 2)
Liabilities assumed $ - $ - $16,534
Less: Assets purchased - - 472
Premium paid - - 1,187
------- ------- -------
Net cash received $ - $ - $14,875
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ABINGTON BANCORP, INC. 26 1997 ANNUAL REPORT
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") and its wholly-owned subsidiary, Abington Savings Bank (the
"Bank"). The Bank also includes its wholly-owned subsidiaries, Holt Park Place
Development Corporation and Norroway Pond Development Corporation, each
typically owning properties being marketed for sale, ABBK Corporation, which
invested in real estate limited partnerships and was dissolved in January 1997,
and Abington Securities Corporation, which invests primarily in obligations of
the United States Government and its agencies and equity securities.
Abington Bancorp, Inc., was reestablished as the Bank's holding company on
January 31, 1997. Previously, the Company's predecessor, also known as Abington
Bancorp, Inc., had served as the Bank's holding company from February 1988 until
its dissolution in December 1992. The Company's primary business is serving as
the holding company of the Bank.
On January 31, 1997, in connection with the holding company formation, each
share of the Bank's common stock previously outstanding was converted
automatically into 1 share of common stock of the Company, and the Bank became a
wholly-owned subsidiary of the Company. This reorganization had no impact on the
consolidated financial statements. 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 1996 and 1995 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than 3 months and federal funds sold on a daily
basis.
SECURITIES
Investment securities are classified in 1 of 3 categories and are accounted for
as follows:
* Debt securities that the Company 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 Company had no securities classified as trading securities at December 31,
1997 and 1996.
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 expected maturity 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 Company 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 Company's debtors to honor
their contracts is generally dependent upon the stability of real estate and the
general economic conditions in the Company's market area.
Of the total loan portfolio at December 31, 1997, approximately 25% represent
owner-occupied first mortgages located throughout the United States. Of this
portion of the portfolio, there are no concentrations in a single state
exceeding 5% of the Company's total loans.
Loan origination and commitment fees and certain direct loan origination costs,
as defined, are deferred and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the
investments. Unearned discounts are amortized under the interest method over the
term of the related loans. All other interest on loans is recognized on a simple
interest basis.
Interest on loans is generally not accrued when the principal or interest on the
loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for possible loan losses is based on management's evaluation of
the level of the allowance required in relation to the estimated loss exposure
in the loan portfolio. Procedures employed in considering the allowance
requirements include, among other factors, management's ongoing review of
individual loans, an evaluation of results of examinations by regulatory
authorities and analyses of historical trends in charge-offs and delinquencies.
Loans are charged-off to the allowance for loan losses when, in the opinion of
management, such loans are deemed to be uncollectible. The allowance is an
estimate, and ultimate losses may vary from current estimates. As adjustments
become necessary, they are reported in earnings during the periods in which they
become known.
The allowance for possible loan losses as of December 31, 1997 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
ABINGTON BANCORP, INC. 27 1997 ANNUAL REPORT
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
result in the Company experiencing increases in non-performing loans, additional
provisions for loan losses and increased lost interest income on non-accrual
loans.
Funds for lending are partially derived from selling participating and whole
interests in mortgage loans. Loans designated as held for sale are accounted for
at the lower of their aggregate cost or market value. Gains or losses on sales
of loans are recognized at the time of the sale and are adjusted when the
average interest rate on the loans sold, after normal servicing fees, differs
from the agreed yield to the buyer.
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 Company 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 Company 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, 1996 and 1997, that loans recognized by the Company as
non-accrual are equivalent to "impaired loans" as defined in SFAS No. 114. The
Company has also determined that the reserve for possible loan losses at January
1, 1995 did not require an additional loan loss provision as a result of the
adoption of this standard.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement, which was superseded in June 1996 upon the
issuance of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities," requires the recognition of a
separate asset for the rights to service mortgage loans for others regardless of
how those servicing rights were created. SFAS No. 125 impacts the Company to the
extent fixed rate loan originations having terms in excess of 15 years are sold
in the secondary mortgage market with servicing of the related loan retained by
the Company. In such cases, the Company is required to allocate a portion of the
cost of the loan to the mortgage servicing rights based on the relative fair
values of such servicing rights and the loan. The value of such servicing rights
is to be periodically assessed for impairment based on the fair value of those
rights. During 1996, the Company capitalized approximately $103,000 of mortgage
servicing rights which resulted in a corresponding increase in gains on sales of
mortgages. No mortgage servicing rights were capitalized in 1997 as
substantially all loan sales on the secondary market were made on a servicing
released basis. All previously capitalized mortgage servicing rights were
written-off in 1997 as the result of higher than anticipated prepayment
experience on the related loan portfolios.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure and acquired by deed in lieu of foreclosure
are classified as other real estate owned and initially recorded at the lower of
cost or fair value less estimated selling costs. In the event of subsequent
declines in value, other real estate owned is adjusted to fair market value
through a charge to non-interest income.
The fair value for these assets is based on periodic analysis of the real estate
by management. Factors considered include, but are not limited to, general
economic and market conditions, geographic location, the composition of the real
estate holdings and property conditions.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The statement also requires that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of the carrying amount or fair value less cost to sell. The implementation of
this statement did not have any impact on the results of operations or financial
condition of the Company.
BANKING PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements and equipment are
carried at cost, less accumulated depreciation computed on the straight-line
method over the estimated useful lives of the assets, or the terms of the
leases, if shorter. The cost of maintenance and repairs are expensed as
incurred; major expenditures for betterments are capitalized and depreciated.
INVESTMENT IN REAL ESTATE LIMITED PARTNERSHIP
The Company has an investment in a real estate limited partnership which is
accounted for on the cost recovery method and is included in other assets. The
carrying value of this investment is periodically evaluated by management as to
its expected future recoverability and write-downs are recorded once impairment
in value is identified and quantified.
INTANGIBLE ASSETS
Core deposit intangibles are being amortized on a straight-line basis over their
estimated lives of 7 to 10 years. Goodwill is being amortized on a straight-line
basis over 10 to 15 years. Organization costs are amortized on a straight-line
basis over 5 years. The carrying value of these assets is periodically evaluated
by management as to their expected future recoverability and write-downs are
recorded once an impairment in value is identified and quantified.
INCOME TAXES
Tax assets and liabilities are reflected at currently enacted income tax rates.
As changes in tax laws and rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share." This statement was issued in March 1997 and establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock. This statement replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS computations. This statement also
requires a restatement of all prior-period EPS data presented. The only
reconciling difference between the Company's computation of basic and diluted
earnings per share is the diluitive effect of stock options issued and
unexercised (see Note 16 for stock options). At December 31, 1997, all options
and warrants which were unexercised were excercisable and included in diluted
EPS calculations.
Additionally, on October 30, 1997, the Board of Directors of Abington Bancorp,
Inc. approved a split of its common stock on a 2-for-1 basis in the form of a
stock dividend payable on December 12, 1997, to share-
ABINGTON BANCORP, INC. 28 1997 ANNUAL REPORT
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
holders of record as of November 14, 1997. All share and per share data
presented in these consolidated financial statements has been retroactively
restated for this event.
The effect of this new pronouncement on previously reported earnings per share
is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31, 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
EPS as reported, affected for
stock split $.89 $.37 $.70
Effect of SFAS No. 128 .05 .01 .03
---- ---- ----
Basic EPS as restated $.94 $.38 $.73
==== ==== ====
EPS as reported, affected for
stock split $.89 $.37 $.70
Effect of SFAS No. 128 - - -
---- ---- ----
Diluted EPS as restated $.89 $.37 $.70
==== ==== ====
</TABLE>
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in equity.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. This statement will be effective for the Company's financial
statements issued for the fiscal year ending December 31, 1998. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting, called the
"management approach."
The management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure - any manner in which management
disaggregates a company. This statement is effective and will be adopted for the
Company's financial statements for the fiscal year ending December 31, 1998 and
requires the restatement of previously reported segment information for all
periods presented.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its stock-based compensation plans (Note 16). Accordingly, no accounting
recognition is given to options granted at fair market value until they are
exercised. Upon exercise, net proceeds, including tax benefits realized, if any,
are credited to equity.
Effective in 1995, the Company adopted the disclosure option of SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
their employee stock compensation plans. This statement requires that entities
which do not choose to account for stock-based compensation as prescribed by
this statement shall continue to account for these plans under APB 25 and
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted.
2. ACQUISITIONS
- --------------------------------------------------------------------------------
On June 26, 1995, the Company 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 Company received
$14,875,000 in cash and $472,000 in property and other assets. The resultant
core deposit premium and other intangible assets of $1,187,000 are being
amortized over their estimated life of 10 years.
ABINGTON BANCORP, INC. 29 1997 ANNUAL REPORT
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Company and the Bank are subject to various regulatory requirements
administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's and 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 Company and 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,
1997, that the Company and the Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 1997 and 1996 (Bank only), the Company and the Bank were
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, an insured depository institution must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Company's or the Bank's
category. The Company's and the Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- ---------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Company
Total Capital (to risk-weighted assets ) $34,254 13.02% $21,053 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) $31,974 12.15% $10,526 4.00% N/A N/A
Tier 1 capital (to average assets) $31,974 6.01% $21,279 4.00% N/A N/A
Bank
Total Capital (to risk-weighted assets ) $32,982 12.54% $21,047 8.00% $26,309 10.00%
Tier 1 capital (to risk-weighted assets) $30,702 11.67% $10,524 4.00% $15,785 6.00%
Tier 1 capital (to average assets) $30,702 5.72% $21,279 4.00% $26,845 5.00%
As of December 31, 1996:
Bank
Total Capital (to risk-weighted assets ) $31,824 13.65% $18,648 8.00% $23,314 10.00%
Tier 1 capital (to risk-weighted assets) $30,013 12.88% $ 9,324 4.00% $13,981 6.00%
Tier 1 capital (to average assets) $30,013 6.14% $19,565 4.00% $24,456 5.00%
</TABLE>
ABINGTON BANCORP, INC. 30 1997 ANNUAL REPORT
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SECURITIES
- --------------------------------------------------------------------------------
The amortized cost and market value of securities classified as held for
investment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation $16,502 $ 62 $197 $ 16,367 $19,173 $ 40 $ 549 $18,664
Federal National
Mortgage Association 28,624 358 212 28,770 29,152 115 785 28,482
Government National
Mortgage Association 1,434 4 - 1,438 - - - -
Other 17,461 147 54 17,554 15,345 17 52 15,310
------- ------ ---- -------- ------- ---- ------ -------
Total mortgage-backed securities $64,021 $ 571 $463 $ 64,129 $63,670 $172 $1,386 $62,456
======= ====== ==== ======== ======= ==== ====== =======
</TABLE>
The amortized cost and estimated market value of securities classified as
available for sale at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government obligations $ 683 $ - $ - $ 683 $ 713 $ 7 $ - $ 720
Federal agency obligations 30,112 143 48 30,207 17,966 90 278 17,778
Other bonds and obligations 3,095 28 3 3,120 1,116 22 - 1,138
------- ------ ---- -------- ------- ---- ------ -------
Total investment securities 33,890 171 51 34,010 19,795 119 278 19,636
------- ------ ---- -------- ------- ---- ------ -------
Marketable equity securities 4,137 996 106 5,027 4,044 445 78 4,411
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation 12,906 186 30 13,062 23,058 84 352 22,790
Federal National
Mortgage Association 29,660 586 71 30,175 44,751 338 365 44,724
Government National
Mortgage Association 9,476 - 44 9,432 - - - -
Other 9,235 90 - 9,325 - - - -
------- ------ ---- -------- ------- ---- ------ -------
Total mortgage-backed securities 61,277 862 145 61,994 67,809 422 717 67,514
------- ------ ---- -------- ------- ---- ------ -------
$99,304 $2,029 $302 $101,031 $91,648 $986 $1,073 $91,561
======= ====== ==== ======== ======= ==== ====== =======
</TABLE>
The market value and amortized cost of investments and mortgage-backed
securities, respectively, at December 31, 1997 by contractual maturity follows.
Expected maturities or cash flows from securities will differ from contractual
maturities because the issuer may have the right to call or repay obligations
with or without call or prepayment penalties. Projected payments and prepayments
for mortgage-backed securities have not been considered for purposes of this
presentation.
ABINGTON BANCORP, INC. 31 1997 ANNUAL REPORT
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Amortized Cost % to Total Market Value
- ------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Within 1 year $ 35 .1% $ 35
Over 1 year to 5 years 9,059 23.6 9,139
Over 5 years to 10 years 21,112 62.3 21,170
Over 10 years 3,684 14.0 3,666
------- ----- -------
$33,890 100.0% $34,010
======= ===== =======
</TABLE>
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Held for Investment Available for Sale
- -----------------------------------------------------------------------------------
(Dollars in thousands)
Amortized Market Amortized Market
Cost Value Cost Value
---------------------- ------------------------
<S> <C> <C> <C> <C>
Within 1 year $ - $ - $ - $ -
Over 1 year to 5 years 1,434 1,438 3,107 3,077
Over 5 years to 10 years 746 796 380 383
Over 10 years 61,841 61,895 57,790 58,534
------- ------- ------- -------
$64,021 $64,129 $61,277 $61,994
======= ======= ======= =======
</TABLE>
Gross gains on sales of marketable equity securities were $687,000, $407,000 and
$68,000 for 1997, 1996 and 1995, respectively. There were no losses on sales of
equity securities in 1997, 1996 or 1995.
Gross gains on sales of investment securities were $0, $30,000 and $77,000 for
1997, 1996 and 1995, respectively. Gross losses on sales of investment
securities were $54,000, $54,000 and $4,000 for 1997, 1996 and 1995,
respectively.
Proceeds from sales of mortgage-backed investments classified as available for
sale during 1997, 1996 and 1995 were $26,402,000, $17,082,000 and $6,109,000,
respectively. Gross gains of $142,000, $130,000 and $69,000 in 1997, 1996 and
1995, respectively, were realized on those sales. Gross losses of $235,000,
$18,000 and $29,000 were realized in 1997, 1996 and 1995, respectively.
A U.S. agency obligation security with a carrying value of $1,165,000 was
pledged to collateralize treasury, tax and loan obligations.
All agency and mortgage-backed securities also serve as collateral for FHLB
borrowings as part of a blanket collateral agreement as further described in
Note 9.
5. INTEREST RATE SWAP AGREEMENT
- --------------------------------------------------------------------------------
To help manage interest rate sensitivity on the Company's adjustable rate
mortgage loan portfolio, the Company 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 Company received a fixed rate
of interest of 5.35% on the notional amount and paid interest based on the 6
month floating LIBOR rate on the notional amount which reset semi-annually
(February and August). The notional amount of this swap was initially
$15,000,000. This amount amortized at a rate consistent with the amortization
and prepayment of a reference pool of residential mortgages as specified in the
agreement. In addition to the fixed rate of interest, the Company also received
$300,000 in cash upon execution of this agreement. This amount was 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
Company, including the impact of the accretion, was approximately 6.25% in 1997.
This agreement expired on August 15, 1997.
Net interest income (expense) associated with this swap was recognized based on
the accrual method. The net interest income (expense) recognized by the Bank
during 1997, 1996 and 1995 as a result of this agreement was $34,000, $77,000
and $(26,000), respectively.
ABINGTON BANCORP, INC. 32 1997 ANNUAL REPORT
<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, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Mortgage loans:
Residential $249,165 $236,635
Second mortgages and home equity 20,392 17,368
Construction 7,681 5,956
Commercial 39,341 24,718
-------- --------
316,579 284,677
Less: Due to borrowers on incomplete loans (2,166) (2,758)
Net deferred loan fees (813) (986)
-------- --------
Total mortgage loans 313,600 280,933
Commercial loans:
Unsecured lines of credit 245 324
Secured and unsecured 7,399 4,210
-------- --------
7,644 4,534
Net deferred loan fees (124) (76)
-------- --------
Total commercial loans 7,520 4,458
Other loans:
Indirect automobile 1,263 4,355
Personal 1,562 1,625
Education 423 509
Passbook and other secured 8,323 8,416
Home improvement 381 485
-------- --------
Total other loans 11,952 15,390
-------- --------
Total loans 333,072 300,781
Less allowance for possible loan losses (2,280) (1,811)
-------- --------
Loans and loans held for sale, net $330,792 $298,970
======== ========
</TABLE>
Included in residential real estate mortgages at December 31, 1997 and 1996,
respectively, are approximately $1,332,000 and $3,176,000 of loans held for
sale. At December 31, 1997 and 1996, the estimated market values of loans held
for sale was in excess of their carrying value. The Company was servicing
mortgage loans sold under non-recourse agreements amounting to approximately
$208,073,000 and $235,949,000 at December 31, 1997 and 1996, respectively.
During October 1995, the Company's management and Board of Directors evaluated
the feasibility of a sale, at a discount, of a group of approximately $9.2
million of loans. This pool consisted of approximately $5.7 million of loans
which were on non-accrual at September 30, 1995 and certain other loans which,
although performing, were expected to require a higher than average level of
management attention and out-of-pocket costs to maintain performance or to
potentially foreclose upon or workout.
The transaction was reflected in the third quarter results for 1995. These loans
were sold at approximately 64% of par. The loss associated with this sale was
reflected as a charge-off to the allowance for possible loan losses.
In the ordinary course of business, the Company 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 $1,714,000 at December 31,
1997, and $2,569,000 at December 31, 1996. During the year ended December 31,
1997, total principal additions were $1,000 and total principal reductions were
$856,000.
The following analysis summarizes the Company's non-performing assets at
December 31, 1997 and 1996.
ABINGTON BANCORP, INC. 33 1997 ANNUAL REPORT
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Impaired loans or loans accounted for
on a non-accrual basis $622 $1,028
Accruing loans past due 90 days or more
as to principal or interest 91 144
---- ------
Total non-performing loans 713 1,172
Other real estate owned, net 265 500
---- ------
Total non-performing assets $978 $1,672
==== ======
</TABLE>
Impaired loans totaling $293,000 and $314,000, at December 31, 1997 and 1996,
respectively, required an allocation of $45,000 and $97,000, respectively, of
the allowance for possible loan losses. The remaining impaired loans did not
require any allocation of the reserve for possible loan losses. The average
balance of impaired loans was approximately $966,000 and $721,000 in 1997 and
1996, respectively. The total amount of interest income recognized on impaired
loans during 1997 and 1996 was approximately $50,000 and $48,500, respectively,
which approximated the amount of cash received for interest during those
periods. The Company 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, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $1,811 $1,433
Provision 630 480
Recoveries 205 193
------ ------
2,646 2,106
Loans charged-off (366) (295)
------ ------
Balance at end of year $2,280 $1,811
====== ======
</TABLE>
An analysis of the general allowance for possible losses on other real estate
owned follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $ 160 $ 104
Provision - 75
Charge-offs (100) (19)
----- -----
$ 60 $ 160
===== =====
</TABLE>
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, 1997 1996 Estimated Useful Lives
- ------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Banking premises:
Land $ 671 $ 671
Buildings and improvements 5,000 4,911 10-25 years
Leasehold improvements 637 514 10-15 years
Equipment 8,219 7,240 3-10 years
------ -------
14,527 13,336
Less accumulated depreciation (8,233) (6,990)
------ -------
$6,294 $ 6,346
====== =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
amounted to $1,243,000, $1,154,000 and $941,000, respectively.
ABINGTON BANCORP, INC. 34 1997 ANNUAL REPORT
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS
- --------------------------------------------------------------------------------
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-interest NOW $ 33,925 $ 27,912
NOW 41,278 35,812
Other savings 81,923 79,470
Money market deposits 15,477 16,527
-------- --------
Total non-certificate accounts 172,603 159,721
Term certificate accounts 125,661 117,419
Certificates of deposit greater than $100 26,670 23,305
-------- --------
Total certificate accounts 152,331 140,724
-------- --------
Total deposits $324,934 $300,445
======== ========
</TABLE>
A summary of certificate accounts by maturity is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------------
(Dollars in thousands)
Weighted Weighted
Amount Average Rate Amount Average Rate
----------------------- -----------------------
<S> <C> <C> <C> <C>
Within 1 year $102,681 5.53% $ 89,073 5.49%
Over 1 year to 3 years 43,846 6.26 33,757 6.13
Over 3 years to 5 years 5,804 5.67 17,894 6.65
-------- --------
$152,331 5.74% $140,724 5.79%
======== ========
</TABLE>
9. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings consist primarily of Federal Home Loan Bank advances with
original maturities of 1 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 85% to 90% of the carrying value of U.S. Government and
agency obligations, including mortgage-backed securities, and 75% of the
carrying value of residential mortgage loans. Information relating to activity
and rates paid under these borrowing agreements is presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding during the year $94,506 $78,300 $108,700
Average month-end borrowings outstanding during the year $45,833 $66,790 $ 73,719
Average interest rate during the year 5.58% 5.59% 6.17%
Unused line of credit at Federal Home Loan Bank of Boston $ 4,780 $ 8,767 $ 6,689
Amount outstanding at end of year $55,910 $63,171 $ 61,308
Weighted average interest rate at end of year 5.68% 5.68% 5.75%
</TABLE>
ABINGTON BANCORP, INC. 35 1997 ANNUAL REPORT
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT
- --------------------------------------------------------------------------------
A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than 1 year is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Maturity Date Interest rate December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
March 25, 1997 5.25% $ - $ 4,000
May 5, 1997** 6.12 - 1,799
July 15, 1997** 6.32 - 1,554
August 18, 1997 6.94 - 4,000
October 27, 1997 5.83 - 5,000
November 24, 1997* 5.82 - 16,000
December 19, 1997 5.81 - 7,500
February 4, 1998 5.30 4,500 4,500
July 20, 1998 5.78 5,000 -
September 30, 1998 6.22 5,000 5,000
November 9, 1998 5.80 15,000 15,000
November 13, 1998 5.90 5,000 5,000
May 4, 1999*** 5.99 5,000 5,000
May 13, 1999 6.38 4,000 -
September 16, 1999 6.66 5,000 5,000
October 20, 1999 6.06 5,000 -
November 1, 1999 6.23 5,000 5,000
February 24, 2000 5.79 16,000 -
March 6, 2000 6.51 4,000 -
March 20, 2000 6.61 5,000 -
April 11, 2000 6.82 4,000 -
October 20, 2000 6.21 5,000 -
March 6, 2001 6.66 4,000 -
March 19, 2001 6.77 5,000 -
April 11, 2001 6.98 4,000 -
May 14, 2001 6.74 4,000 -
December 9, 2017 5.66 500 -
-------- -------
$110,000 $84,353
======== =======
</TABLE>
* Variable rate advance with quarterly resets; with prepayment option at
reset dates without penalty
** Amortizing advance
*** LIBOR floating advance with a monthly reset
11. INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Current: Federal $2,509 $1,704 $ 595
State 336 304 44
------ ------ ------
2,845 2,008 639
Deferred: Federal (121) 110 264
State (45) 21 115
------ ------ ------
(166) 131 379
------ ------ ------
Total $2,679 $2,139 $1,018
====== ====== ======
</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, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 2.7 3.8 4.3
Effect of amortization of non-deductible goodwill .6 .7 3.1
Other, net .7 (.8) .2
---- ---- ----
38.0% 37.7% 41.6%
==== ==== ====
</TABLE>
ABINGTON BANCORP, INC. 36 1997 ANNUAL REPORT
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net deferred taxes as recorded as of December 31, 1997 and
1996 are as follows (assets/(liabilities)):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Loan loss reserves $ 827 $ 582
Loan fee income 40 79
Dividends on deposits not yet deducted
for tax purposes 74 114
Pension expense 194 200
Equity in partnership losses (1,391) (1,273)
Core deposit intangible (312) (227)
Other, net 76 (41)
------- -------
(492) (566)
Deferred tax assets applicable to unrealized
(gains) losses on securities (597) 34
------- -------
Net deferred tax assets (liabilities) included
in other assets (other liabilities) $(1,089) $ (532)
======= =======
</TABLE>
In August of 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions for
income tax purposes. Thrift institutions now will be viewed as commercial banks
for income tax purposes. The repeal is effective for tax years beginning after
December 31, 1995.
One effect of this legislative change is to suspend the Bank's bad debt reserve
for income tax purposes as of its base year (October 31, 1988). Any bad debt
reserve in excess of the base year amount is subject to recapture over a 6 year
time period. The suspended (i.e., base year) amount is subject to recapture upon
the occurrence of certain events, such as complete or partial redemption of the
Bank's stock or if the Bank ceases to qualify as a bank for income tax purposes.
At December 31, 1997, the Bank's surplus includes approximately $1,960,000 of
bad debt deductions for which income taxes have not been provided. As the Bank
does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.
12. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements.
LITIGATION
On or about April 10, 1996, a civil action entitled Merrill Lynch Mortgage
Capital, Inc. v. Abington Savings Bank, Spires Financial, L.P. and Geoffrey
Lawes, Docket No. MRS-L-1169-96, was filed in the Law Division of the Superior
Court of New Jersey, venued in Morris County. The complaint named the Bank as a
defendant, along with the Bank's alleged financial broker, Spires Financial,
L.P. ("Spires") and an employee of Spires, Geoffrey Lawes ("Lawes").
The complaint alleged, among other things, that (1) Spires and/or Lawes, as
agent for the Bank, entered into a binding agreement with the plaintiff on
February 28, 1996 under which the Bank agreed to purchase from the plaintiff a
pool of conventional adjustable rate mortgage loans having an unpaid principal
balance of approximately $34,000,000 as of March 1, 1996 and (2) the Bank
subsequently refused to close on the alleged contract. Plaintiff originally
sought damages of no less than $530,000 against the Bank on the grounds that the
Bank breached its alleged contract. The Bank settled its portion of the
plaintiff's claim in December 1997 for $100,000.
The Company is a defendant in various other legal claims incident to its
business, none of which is believed by management, based on the advice of legal
counsel, to be material to the consolidated financial statements.
SPECIAL TERMINATION AGREEMENTS
The Company has entered into Special Termination Agreements with five officers
which provide for a lump-sum severance payment within a 3 year period following
a "change in control," as defined in the agreements.
LOAN AND GENERAL COMMITMENTS
The Company 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 Company has
in these particular classes of financial instruments. The Company's exposure to
credit loss is represented by the contractual amount or unpaid principal balance
of those instruments. The Company 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, 1997 and 1996 are as follows:
ABINGTON BANCORP, INC. 37 1997 ANNUAL REPORT
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At December 31, 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Contract amount of:
Commitments to grant loans $ 8,359 $ 6,355
Commitments to sell loans 1,415 2,516
Unadvanced funds on home equity lines of credit 11,230 10,679
Unadvanced funds on other lines of credit 2,242 1,949
Commitments to advance funds under
construction loan agreements 2,166 2,758
</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 Company evaluates each customer's credit
worthiness on a case-by-case basis. The Company has an investment in a limited
partnership with a book value of $57,000 at December 31, 1997. This partnership
was established for the rehabilitation and management of low income housing
projects. Credit risk, which is limited to funds previously advanced and tax
credits subject to recapture, arises from the possible financial insolvency of
the project and the ultimate ability of the partnership to survive as a going
concern. In this case, the Company'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 non-cancelable lease agreements in effect, future
minimum rent commitments for the next 5 years and thereafter are as follows at
December 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Amount
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
1998 $ 277
1999 251
2000 212
2001 157
2002 161
2003 and thereafter 1,365
------
$2,423
======
</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, 1997, 1996 and
1995 amounted to approximately $238,000, $235,000 and $156,000, respectively.
13. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit. Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible account holder will be entitled to receive a
distribution in an amount equal to their current adjusted liquidation account
balances to the extent that funds are available.
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Company. The total amount of dividends
which may be paid at any date is generally limited to the undivided profits of
the Company. Undivided profits at the Company totaled $19,858,000 at December
31, 1997. Additionally, future dividends, if any, will depend on the earnings of
the Company and its subsidiary, its need for funds, its financial condition, and
other factors, including applicable government regulations. (See Note 3.)
14. EMPLOYEE BENEFIT PLAN
- --------------------------------------------------------------------------------
The Bank provides basic pension benefits for eligible employees through the
Savings Bank's Employees Retirement Associations ("SBERA") Pension Plan. Each
employee reaching the age of 21 and having completed at least 1,000 hours of
service in a consecutive 12 month period beginning with such employee's date of
employment automatically becomes a participant in the pension plan. All
participants are fully vested after being credited with 3 years of service or at
age 62, if earlier. Net periodic pension expense for the plan years ended
October 31, 1997, 1996 and 1995, consisted of the following:
ABINGTON BANCORP, INC. 38 1997 ANNUAL REPORT
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended October 31, 1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost benefits earned during the year $ 247 $ 247 $ 184
Interest cost on projected benefits 189 180 163
Actual return on plan assets (409) (347) (326)
Net amortization and deferral 163 151 176
----- ----- -----
$ 190 $ 231 $ 197
===== ===== =====
</TABLE>
According to SBERA's actuary, a reconciliation of the funded status of the plan
at October 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
At October 31, 1997 1996
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Plan assets at fair value, primarily bonds, common stock,
and short-term money market investments $ 3,215 $ 2,709
Projected benefit obligation (3,171) (2,527)
------- -------
(Excess) deficit of projected benefit obligation over plan assets 44 182
Unrecognized net surplus at adoption (86) (93)
Unrecognized net gain (398) (563)
------- -------
Accrued pension liability included on balance sheet $ (440) $ (474)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1997 and 1996 amounted to $1,896,000 and $1,805,000, respectively, which is less
than the plan assets at fair value.
For the plan years ended October 31, 1997, 1996 and 1995, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.25%, 7.50% and
7.00%, respectively, and an expected long-term rate of return on plan assets of
8.00%. 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 1997, 1996 and 1995 was approximately $310,000, $175,000 and
$150,000, respectively.
15. OTHER NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
Other non-interest expense consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Professional services $1,144 $1,252 $ 865
Item processing and statement rendering 368 371 259
Advertising 746 647 598
Deposit insurance 67 16 324
Real estate in foreclosure and other real estate owned 86 169 491
Amortization of intangible assets 387 423 355
Other 1,627 1,513 1,418
------ ------ ------
$4,425 $4,391 $4,310
====== ====== ======
</TABLE>
Professional services include amounts paid for legal services, audits and
regulatory examinations.
16. STOCK OPTION PLAN
- --------------------------------------------------------------------------------
The Bank adopted a stock option plan, the 1986 Incentive and Nonqualified Stock
Option Plan (the "1986 Stock Option Plan"), in connection with its conversion
from mutual to stock form in 1986. On the effective date of the Holding Company
Plan, the 1986 Stock Option Plan became the Stock Option Plan of the Company. By
its terms, the 1986 Stock Option Plan has expired, and new options may no longer
be granted. The Company has adopted the Abington Bancorp, Inc. 1997 Incentive
and Nonqualified Stock Option Plan ("the 1997 Stock Option Plan") to replace the
1986 Stock Option Plan.
The 1997 Stock Option Plan authorizes the grant of (i) options to purchase
common stock intended to qualify as incentive stock options
ABINGTON BANCORP, INC. 39 1997 ANNUAL REPORT
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("Incentive Options") as defined in Section 422 of the Code, and (ii) options
that do not so qualify ("Nonqualified Options"). Up to 300,000 shares of common
stock (subject to adjustment upon certain changes in the capitalization of the
Company) may be issued pursuant to awards granted under the 1997 Stock Option
Plan. The 1997 Stock Option Plan is administered by the Company's Compensation
Committee (the "Compensation Committee"). The Compensation Committee recommends
to the full Board of Directors the individuals to whom awards are granted and
determines the terms of each award, subject to the provisions of the 1997 Stock
Option Plan. Incentive Options may be granted under the 1997 Stock Option Plan
only to officers and other employees of the Company or its subsidiary.
Nonqualified Options may be granted under the 1997 Stock Option Plan to officers
or other employees of the Company or its subsidiaries, and to members of the
Board of Directors and consultants or other persons who render services to the
Company.
Each option shall expire on the date specified in the option agreement, which
date shall not, in the case of an Incentive Option, extend for more than 10
years from the date of grant (5 years in the case of an optionee who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary ("greater-than-ten-percent-
stockholder")). The exercise price of each option shall be determined by the
Compensation Committee at the time the option is granted, provided, however,
that the option price of any Incentive Option granted under the 1997 Stock
Option Plan must be at least equal to the fair market value of the common stock
on the date of grant (110% of fair market value in the case of a
greater-than-ten-percent-stockholder). The aggregate fair market value
(determined at the time of grant) of shares issuable pursuant to Incentive
Options which first become exercisable by an employee or officer in any calendar
year may not exceed one hundred thousand dollars ($100,000). Options are
non-transferable except by will or by the laws of descent or distribution and
are exercisable, during the optionee's lifetime, only by the optionee.
Options generally may not be exercised (i) after termination of the optionee's
employment with the Company or any of its subsidiaries, or directorship with the
Company, for cause or by reason of such optionee's voluntary resignation, (ii)
30 days after termination of the optionee's employment with the Company or its
subsidiary, or directorship with the Company, without cause or by reason of
retirement in accordance with the Company's (or the applicable subsidiary's)
retirement policies, (iii) 90 days after termination of the optionee's
employment with the Company or its subsidiary, or directorship with the Company,
by reason of disability, and (iv) 180 days after termination of the optionee's
employment with the Company, its subsidiary, or directorship with the Company,
by reason of death. In all cases, however, the Board has the discretion to
extend the exercise date. Payment of the exercise price of the shares subject to
the option may be made (i) in cash in an amount, or by check, bank draft or
postal or express money order payable in an amount, equal to the aggregate
exercise price for such shares, (ii) with the consent of the Compensation
Committee, in the form of shares of common stock having a fair market value
equal to the exercise price of such shares, (iii) with the consent of the
Compensation Committee, by reducing the number of option shares otherwise
issuable to the optionee upon exercise of the option by a number of shares
having a fair market value equal to the aggregate exercise price of such shares,
(iv) with the consent of the Compensation Committee, by delivering such other
consideration that is acceptable to the Compensation Committee and that has a
fair market value, as determined by the Compensation Committee, equal to the
aggregate exercise price of such shares, including any broker-directed cashless
exercise/resale procedure adopted by the Compensation Committee, or (v) with the
consent of the Compensation Committee, any combination of the foregoing.
At the discretion of the Company, options granted under the 1997 Stock Option
Plan may include a so-called "reload" feature pursuant to which an optionee
exercising an option by the delivery of a number of shares of common stock would
automatically be granted an additional option (with an exercise price equal to
the fair market value of the common stock on the date the additional option is
granted and with the same expiration date as the original option being
exercised, and with such other terms as the Compensation Committee may provide)
to purchase that number of shares of common stock equal to the number delivered
to exercise the original option.
In the event of a change of control, as defined in the 1997 Stock Option Plan,
(i) the time for exercise of all unexercised and unexpired awards will be
automatically accelerated, effective as of the effective time of the change of
control (or such earlier date as may be specified by the Board) and (ii) after
the effective time of the change of control, all unexercised awards will remain
outstanding and will be exercisable in full for shares of common stock or, if
applicable, for shares of such securities, cash or property as the holders of
shares of common stock received in connection with the change of control.
The per share exercise prices of the options granted by the 1986 and 1997 Option
Plan range from $1.50 to $15.50 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, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Number of Weighted Avg. Number of Weighted Avg. Number of Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 398,824 $ 4.40 367,824 $3.92 318,924 $3.40
Granted 46,500 15.50 50,500 8.50 70,500 6.81
Exercised (15,300) 4.75 (19,000) 5.93 (17,600) 5.17
Canceled - - (500) 8.03 (4,000) 8.03
------- ------ ------- ----- ------- -----
Outstanding at end of year 430,024 $ 5.59 398,824 $4.40 367,824 $3.92
======= ====== ======= ===== ======= =====
Exercisable at end of year 430,024 $ 5.59 358,324 $4.12 327,324 $3.56
======= ====== ======= ===== ======= =====
Option price per share $1.50-$15.50 $1.50-$8.50 $1.50-$8.03
Weighted average fair value of
options granted during the year $5.09 $3.35 $3.00
</TABLE>
ABINGTON BANCORP, INC. 40 1997 ANNUAL REPORT
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the Company's aforementioned Stock Option Plans, the Company
adopted a Long Term Performance Incentive Plan to encourage executive management
and members of the Board of Directors to build long-term shareholder value. The
plan was a 3 year program which provided a mechanism for granting options under
the Company's Stock Option Plan. Options to purchase approximately 40,500 to
46,500 shares of common stock for each of the 1994, 1995 and 1996 fiscal years
were granted to members of the Board of Directors and certain principal
officers. All options granted under this plan are included in the preceding
table. The options are granted based on achievement of strategic goals such as
acquisitions and asset purchases. The exercise price would be at least equaled
to the fair market value of the common stock on the date of grant. The options
become exercisable upon a change of control of the Company or after the average
market price of the common stock exceeds 120-140% of the exercise price for
periods of 5 to 180 days depending on the qualifications set for each issuance.
As of December 31, 1997, all previously issued options under this plan were
exercisable.
All options granted become fully vested no later than at the end of the ninth
year after issuance. The maximum amount of options which can become exercisable
in any 1 year is limited to $100,000 based on grant prices except in the event
of a change of control, in which case all options become exercisable.
As discussed in Note 1, the Bank applies APB 25 in accounting for its
stock-based compensation plans under which no compensation cost has been
recognized. Had compensation cost for awards in 1997 and 1996 under the Bank's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Bank's net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands, except in share amounts)
<S> <C> <C> <C>
Net income:
As reported $4,378 $3,533 $1,429
Pro forma 4,236 3,428 1,309
Earnings per share:
As reported -
Basic 1.18 .94 .38
Diluted 1.10 .89 .37
Pro forma -
Basic 1.14 .91 .35
Diluted 1.07 .86 .33
</TABLE>
The initial impact of applying SFAS No. 123 on pro forma net income may not be
indicative of future amounts when the method prescribed by SFAS No. 123 will
apply to all outstanding awards because compensation expense for options granted
prior to January 1, 1995 is not reflected in the pro forma amounts above.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 21.10% 34.05% 34.05%
Risk-free interest rate 6.17% 5.71% 7.57%
Term of options 7.0 yrs. 9.2 yrs. 9.4yrs.
Expected dividend yield 1.40% 2.35% 2.93%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
17. EMPLOYEES' STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
The Company has established an Employees' Stock Ownership Plan ("ESOP") which is
being funded by the Company'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 Company loaned the ESOP $570,000 to acquire additional
shares for participants on the open market. The loan is to be repaid over 7
years with principal and interest (at a rate equal to 85% of the prevailing
prime rate) payable quarterly. The loan is secured by the unallocated shares
acquired by the ESOP.
The Company's ESOP expense for the years ended December 31, 1997, 1996 and 1995
amounted to $181,000, $81,000 and $82,000, respectively.
In the event that the stock price of the Company fluctuates materially at the
point that shares vest with participants from the cost of shares acquired by the
ESOP (at prices which range from $5.63 - $6.13 per share) the Company's
statement of operations could be adversely (if increasing stock price) or
favorably (decreasing stock price) affected. However, in all instances there
will be no negative impact on the Company's capital. During 1997, the impact of
such price variations increased the Company's ESOP expense by $100,000 in
addition to normal amortization expense associated with the participants' earn
out of the shares allocated. There was no material impact related to changes in
the market price in 1996 and 1995.
ABINGTON BANCORP, INC. 41 1997 ANNUAL REPORT
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. RESTRICTION ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
At December 31, 1997 and 1996, cash and due from banks included $3,618,000 and
$2,203,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.
19. STOCK REPURCHASE PROGRAM
- --------------------------------------------------------------------------------
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its currently
outstanding common stock from time to time at prevailing market prices. The
Board delegated to the discretion of the Company's senior management the
authority to determine the timing of the repurchase program's commencement,
subsequent purchases and the prices at which the repurchases will be made.
As of December 31, 1997, the Company had repurchased 165,000 shares of its
common stock under this plan at a total cost of approximately $2,228,000. All of
the repurchases were subsequent to March 31, 1997.
On February 24, 1998 the Company's Board of Directors authorized the Company to
repurchase up to 347,000 shares of its then outstanding common stock
(representing 10% of the then outstanding stock, net of the remaining shares to
be repurchased under the previously authorized repurchase program). The Company
had repurchased approximately 295,500 shares in total under the March 27, 1997
repurchase program at a cost of approximately $4,896,000.
20. 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 Company 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.
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1997 and 1996 are represented as follows:
ABINGTON BANCORP, INC. 42 1997 ANNUAL REPORT
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
At December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
------------------------- ------------------------
<S> <C> <C> <C> <C>
Financial instrument assets:
Cash and cash equivalents $ 13,475 $ 13,475 $ 9,708 $ 9,708
Securities 165,052 165,160 155,231 154,017
Loans, including held for sale, net 330,792 343,984 298,970 304,669
Mortgage servicing rights 26 26 56 56
Financial instrument liabilities:
Deposits $324,934 $327,563 $300,445 $302,149
Short-term borrowings 55,910 55,934 63,171 63,194
Long-term debt 110,000 109,241 84,353 83,155
Off-balance sheet financial instruments:
Commitments to grant loans $ 8,359 $ 8,359 $ 6,355 $ 6,355
Commitments to sell loans 1,415 1,415 2,516 2,516
Unadvanced funds on home equity
lines of credit 11,230 11,230 10,679 10,679
Commitments to advance funds under
construction loan agreements 2,242 2,242 2,758 2,758
Unadvanced funds on other lines of
credit 2,166 2,166 1,949 1,949
Interest rate swap agreement - - 12,964 12,984
</TABLE>
ABINGTON BANCORP, INC. 43 1997 ANNUAL REPORT
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. PARENT COMPANY FINANCIAL STATEMENTS - ABINGTON BANCORP, INC. (PARENT
COMPANY ONLY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BALANCE SHEETS December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Assets:
Cash and cash equivalents $ 1,186
Investment in Bank ASB 35,765
Other assets 216
-------
Total assets $37,167
=======
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses and other liabilities $ 845
-------
Total liabilities 845
-------
Total stockholders' equity 36,322
-------
Total liabilities and stockholders' equity $37,167
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME Eleven Months December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Operating income:
Dividends from Bank $4,000
Interest income 13
------
Total operating income 4,013
Operating expenses 307
------
Income before income taxes and equity in undistributed earnings of subsidiaries 3,706
Income tax benefit (85)
------
Income before equity in undistributed earnings of subsidiaries 3,791
Equity in undistributed earnings of Bank 233
------
Net Income $4,024
======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Statements of Cash Flows December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 4,024
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiaries (233)
Other, net 59
-------
Net cash provided by operating activities 3,850
Cash flows from investing activities:
Net cash used in investing activities -
Cash flows from financing activities:
Proceeds from issuance of treasury and common stock 72
Dividends on common stock (559)
Repurchase of common stock (2,228)
-------
Net cash used in financing activities (2,715)
Net increase in cash and cash equivalents 1,135
Cash and cash equivalents at beginning of year 51
-------
Cash and cash equivalents at end of year $ 1,186
=======
</TABLE>
ABINGTON BANCORP, INC. 44 1997 ANNUAL REPORT
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Operating results on a quarterly basis for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(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 $9,312 $9,140 $9,028 $8,817 $8,833 $8,684 $8,471 $8,344
Interest expense 5,251 5,069 5,007 4,764 4,916 4,928 4,856 4,817
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 4,061 4,071 4,021 4,053 3,917 3,756 3,615 3,527
Provision for possible loan losses 157 158 157 158 120 120 120 120
------ ------ ------ ------ ------ ------ ------ ------
Net interest income, after provision
for possible loan losses 3,904 3,913 3,864 3,895 3,797 3,636 3,495 3,407
Non-interest income 1,436 1,212 1,201 1,137 984 1,062 1,057 1,074
Non-interest expenses 3,621 3,307 3,286 3,291 3,272 3,228 3,212 3,128
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes 1,719 1,818 1,779 1,741 1,509 1,470 1,340 1,353
Provision for income taxes 616 691 683 689 576 550 494 519
------ ------ ------ ------ ------ ------ ------ ------
Net income $1,103 $1,127 $1,096 $1,052 $ 933 $ 920 $ 846 $ 834
====== ====== ====== ====== ====== ====== ====== ======
Basic earnings per share $ .30 $ .31 $ .29 $ .28 $ .25 $ .24 $ .22 $ .22
====== ====== ====== ====== ====== ====== ====== ======
Diluted earnings per share $ .28 $ .29 $ .28 $ .26 $ .23 $ .23 $ .21 $ .21
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares outstanding 3,654 3,686 3,738 3,788 3,786 3,774 3,770 3,768
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares and share equivalents
outstanding 3,933 3,946 3,974 4,014 3,996 3,958 3,946 3,954
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
ABINGTON BANCORP, INC. 45 1997 ANNUAL REPORT
<PAGE> 49
STOCKHOLDER INFORMATION
STOCK MARKET DATA
The common stock of the Company is currently listed on the NASDAQ National
Market System (NMS) under the symbol "ABBK." The table below sets forth the
range of high and low sales prices for the stock for the quarters indicated.
Market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
Transactions through January 31, 1997 are for the common stock of the Bank.
Transactions on and after that date are for the common stock of the Company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Price High Low Dividends Declared
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
1st quarter (through March 6, 1998) 22 19 $ -
1997
4th quarter 23 1/2 15 5/8 $.05
3rd quarter 17 12 3/4 $.05
2nd quarter 13 10 1/4 $.05
1st quarter 11 5/8 9 1/2 $.05
1996
4th quarter 10 7/8 8 7/16 $.05
3rd quarter 9 7 3/4 $.05
2nd quarter 8 1/8 7 1/4 $.05
1st quarter 8 7/8 7 23/32 $.05
1995
4th quarter 9 1/2 7 3/4 $.05
3rd quarter 8 1/2 6 3/4 $.05
2nd quarter 7 9/16 6 1/4 $.05
1st quarter 7 1/2 6 $.05
</TABLE>
As of March 6, 1998, the Company had approximately 801 stockholders of record
who held 3,565,800 outstanding shares of the Company's common stock. The number
of stockholders indicated does not reflect the number of persons or entities who
hold their common stock in nominee or "street" name through various brokerage
firms. If all such persons are included, the Company believes there are
approximately 1,100 beneficial owners of common stock.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1997 as filed with the Securities Exchange Commission, is available to
stockholders without charge upon written request to:
Investor Relations
Abington Bancorp, Inc.
536 Washington Street
Abington, MA 02351
INQUIRIES
Robert M. Lallo
Senior Vice President and Treasurer
Abington Bancorp, Inc.
ABINGTON BANCORP, INC. 46 1997 ANNUAL REPORT
<PAGE> 50
<TABLE>
<CAPTION>
BANK DIRECTORS & OFFICERS
- --------------------------------------------------------------------------------
DIRECTORS BANK OFFICERS
<S> <C>
JAMES P. MCDONOUGH 1 JAMES P. MCDONOUGH 3
President and CEO President and CEO
Abington Bancorp, Inc.
President and CEO EDWARD J. MERRITT
Abington Savings Bank Executive Vice President - Operations
ROBERT J. ARMSTRONG MARIO A. BERLINGHIERI
President and General Manager Senior Vice President - Business Banking
Armstrong Construction Corp.
ROBERT M. LALLO 3
BRUCE G. ATWOOD 1 Senior Vice President - Treasurer & CFO
Vice President Operations
Hyer Industries, Inc. DONNA L. THAXTER
Senior Vice President - Consumer Banking
WILLIAM F. BORHEK 2
President DAVID J. AMES
William F. Borhek Associates Vice President - Business Banking
RALPH B. CARVER, JR. PAUL D. AMATO
President and Treasurer Assistant Vice President - Controller
Den-Lea Rental, Inc.
MARY E. BOOTHBY
JOEL S. GELLER 1 Credit Officer
Owner-Manager and Director
Abington Liquors Corp. RUTH E. COOK
Human Resources Officer
RODNEY HENRIKSON 2
Treasurer and Director ELAINE CROSSLAND
Henrikson Realty Corp. Branch Officer
A. STANLEY LITTLEFIELD 1 STEPHANIE DUNN
Attorney Vice President - Management Information Systems
Private Practice
IDA C. FRAZIER
JAY TIMOTHY NOONAN 2 Vice President - Compliance
Manager
J. P. Noonan Trans., Inc. MARY E. HAGEN
Assistant Vice President - Branch Administration
GORDON N. SANDERSON
Retired JULIE JENKINS
Vice President - Loan Operations
JAMES J. SLATTERY 1
President BETH LAPPEN
J. H. Slattery Insurance Assistant Vice President - Business Banking
Agency, Inc.
WILLIAM D. LEWIS
WAYNE P. SMITH Vice President - Business Banking
Treasurer and Director
Suburban Enterprises, Inc. STEPHEN K. LUCITT
Vice President - Business Banking
1: Member of Executive Committee
2: Member of Audit Committee BARBARA M. MANNING 3
Clerk of the Bank
DAVID J. MCCARTHY
Assistant Vice President
DEBORAH J. MINIER
Vice President - Loan Origination/Underwriting
LEWIS J. PARAGONA
Vice President - Human Resources
RAYMOND J. QUIGLEY
Assistant Vice President
EVELYNE A. RICO
Branch Officer
DIANNE ROWAN MCBRIDE
Assistant Vice President
CAROL M. SHARPLESS
Assistant Vice President
3: Officer of Bancorp
</TABLE>
ABINGTON BANCORP, INC. 47 1997 ANNUAL REPORT
<PAGE> 51
[CORPORATE INFORMATION PICTURE]
CORPORATE INFORMATION
- ---------------------
Corporate Office
Abington Bancorp, Inc.
536 Washington Street
Abington, MA 02351
(781) 982-3200
Independent Public Accountants
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110
(617) 330-4000
Legal Counsel
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
(617) 832-1000
Transfer Agent and Registrar
Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-2548 x7760
<PAGE> 52
BANK OFFICES
ABINGTON
533 Washington Street
Abington, MA 02351
COHASSET
Shaw's Supermarket
Route 3A
Cohasset, MA 02025
HALIFAX
319 Monponsett Street
Halifax, MA 02338
HOLBROOK
778 South Franklin Street
Holbrook, MA 02343
HULL
523 Nantasket Avenue
Hull, MA 02045
KINGSTON
157 Summer Street
Kingston, MA 02364
PEMBROKE
175 Center Street
Pembroke, MA 02359
WHITMAN
584 Washington Street
Whitman, MA 02382
ADMINISTRATIVE OFFICES
538 Bedford Street
Abington, MA 02351
[APPLE LOGO]
(C) 1998 Abington Bancorp, Inc. Design by Red Leaf, Inc.
<PAGE> 1
Exhibit 21.1
Subsidiaries of Abington Bancorp, Inc.
Abington Bancorp, Inc. has one wholly-owned subsidiary, Abington
Savings Bank, which is a Massachusetts-chartered savings bank. The Bank has
three wholly-owned subsidiaries, Holt Park Place Development Corporation and
Norroway Pond Development Corporation which are both Massachusetts Corporations,
and Abington Securities Corporation, which is a Delaware Corporation. ABBK
Corporation, which was a wholly owned subsidiary of Abington Savings Bank
incorporated in Massachusetts, was dissolved in January of 1997.
<PAGE> 1
Exhibit 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Abington Bancorp, Inc:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 16, 1998 (and, with respect to other
information, February 24, 1998) included in this Form 10-K, into Abington
Bancorp, Inc.'s previously filed Registration Statement on Form S-3, File No.
333-20915, Registration Statement on Form S-8, File No. 333-20961 and
Registration Statement on Form S-8, File No. 333-34987. It should be noted that
we have not audited any financial statements of the company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
ABINGTON BANCORP, INC FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1997 OF ABINGTON BANCORP, INC.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1,000
<CASH> 13,312
<INT-BEARING-DEPOSITS> 163
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,031
<INVESTMENTS-CARRYING> 64,021
<INVESTMENTS-MARKET> 64,129
<LOANS> 333,072
<ALLOWANCE> (2,280)
<TOTAL-ASSETS> 531,986
<DEPOSITS> 324,934
<SHORT-TERM> 55,910
<LIABILITIES-OTHER> 4,821
<LONG-TERM> 110,000
0
0
<COMMON> 468
<OTHER-SE> 35,853
<TOTAL-LIABILITIES-AND-EQUITY> 531,986
<INTEREST-LOAN> 24,838
<INTEREST-INVEST> 11,409
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 36,297
<INTEREST-DEPOSIT> 11,057
<INTEREST-EXPENSE> 20,091
<INTEREST-INCOME-NET> 16,206
<LOAN-LOSSES> 630
<SECURITIES-GAINS> 540
<EXPENSE-OTHER> 13,505
<INCOME-PRETAX> 7,057
<INCOME-PRE-EXTRAORDINARY> 7,057
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,378
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 7.64
<LOANS-NON> 622
<LOANS-PAST> 91
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,811
<CHARGE-OFFS> 366
<RECOVERIES> 205
<ALLOWANCE-CLOSE> 2,280
<ALLOWANCE-DOMESTIC> 1,689
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 591
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 9,759
<INT-BEARING-DEPOSITS> 162
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,977
<INVESTMENTS-CARRYING> 60,166
<INVESTMENTS-MARKET> 59,762
<LOANS> 310,473
<ALLOWANCE> (2,193)
<TOTAL-ASSETS> 501,622
<DEPOSITS> 315,568
<SHORT-TERM> 32,870
<LIABILITIES-OTHER> 5,440
<LONG-TERM> 112,000
0
0
<COMMON> 468
<OTHER-SE> 35,276
<TOTAL-LIABILITIES-AND-EQUITY> 501,622
<INTEREST-LOAN> 18,397
<INTEREST-INVEST> 8,553
<INTEREST-OTHER> 35
<INTEREST-TOTAL> 26,985
<INTEREST-DEPOSIT> 8,197
<INTEREST-EXPENSE> 14,840
<INTEREST-INCOME-NET> 12,145
<LOAN-LOSSES> 473
<SECURITIES-GAINS> 326
<EXPENSE-OTHER> 9,884
<INCOME-PRETAX> 5,338
<INCOME-PRE-EXTRAORDINARY> 5,338
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,275
<EPS-PRIMARY> .88<F1>
<EPS-DILUTED> .82<F2>
<YIELD-ACTUAL> 7.67
<LOANS-NON> 617
<LOANS-PAST> 36
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,811
<CHARGE-OFFS> 243
<RECOVERIES> 152
<ALLOWANCE-CLOSE> 2,193
<ALLOWANCE-DOMESTIC> 1,505
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 688
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE 6 MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 10,243
<INT-BEARING-DEPOSITS> 161
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,677
<INVESTMENTS-CARRYING> 62,659
<INVESTMENTS-MARKET> 61,511
<LOANS> 302,475
<ALLOWANCE> (2,090)
<TOTAL-ASSETS> 501,256
<DEPOSITS> 310,624
<SHORT-TERM> 39,983
<LIABILITIES-OTHER> 4,574
<LONG-TERM> 111,395
0
0
<COMMON> 466
<OTHER-SE> 34,214
<TOTAL-LIABILITIES-AND-EQUITY> 501,256
<INTEREST-LOAN> 12,171
<INTEREST-INVEST> 5,651
<INTEREST-OTHER> 23
<INTEREST-TOTAL> 17,845
<INTEREST-DEPOSIT> 5,394
<INTEREST-EXPENSE> 9,771
<INTEREST-INCOME-NET> 8,074
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 218
<EXPENSE-OTHER> 6,577
<INCOME-PRETAX> 3,520
<INCOME-PRE-EXTRAORDINARY> 3,520
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,148
<EPS-PRIMARY> .57<F1>
<EPS-DILUTED> .54<F2>
<YIELD-ACTUAL> 7.65
<LOANS-NON> 866
<LOANS-PAST> 120
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,811
<CHARGE-OFFS> 133
<RECOVERIES> 97
<ALLOWANCE-CLOSE> 2,090
<ALLOWANCE-DOMESTIC> 1,550
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 540
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE 3 MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1,000
<CASH> 9,885
<INT-BEARING-DEPOSITS> 1,952
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,375
<INVESTMENTS-CARRYING> 62,239
<INVESTMENTS-MARKET> 60,109
<LOANS> 302,082
<ALLOWANCE> 1,945
<TOTAL-ASSETS> 492,058
<DEPOSITS> 305,674
<SHORT-TERM> 50,950
<LIABILITIES-OTHER> 4,713
<LONG-TERM> 96,886
0
0
<COMMON> 466
<OTHER-SE> 33,369
<TOTAL-LIABILITIES-AND-EQUITY> 492,058
<INTEREST-LOAN> 6,039
<INTEREST-INVEST> 2,770
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 8,817
<INTEREST-DEPOSIT> 2,680
<INTEREST-EXPENSE> 4,764
<INTEREST-INCOME-NET> 4,053
<LOAN-LOSSES> 158
<SECURITIES-GAINS> 110
<EXPENSE-OTHER> 3,291
<INCOME-PRETAX> 1,741
<INCOME-PRE-EXTRAORDINARY> 1,741
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,052
<EPS-PRIMARY> .28<F1>
<EPS-DILUTED> .26<F2>
<YIELD-ACTUAL> 7.62
<LOANS-NON> 795
<LOANS-PAST> 272
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,811
<CHARGE-OFFS> 72
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 1,945
<ALLOWANCE-DOMESTIC> 1,462
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 483
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 9,556
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,561
<INVESTMENTS-CARRYING> 63,670
<INVESTMENTS-MARKET> 62,456
<LOANS> 301,843
<ALLOWANCE> 1,811
<TOTAL-ASSETS> 486,958
<DEPOSITS> 300,445
<SHORT-TERM> 63,171
<LIABILITIES-OTHER> 5,443
<LONG-TERM> 84,353
0
0
<COMMON> 466
<OTHER-SE> 33,080
<TOTAL-LIABILITIES-AND-EQUITY> 486,958
<INTEREST-LOAN> 22,978
<INTEREST-INVEST> 11,313
<INTEREST-OTHER> 41
<INTEREST-TOTAL> 34,332
<INTEREST-DEPOSIT> 10,742
<INTEREST-EXPENSE> 19,517
<INTEREST-INCOME-NET> 14,815
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 495
<EXPENSE-OTHER> 12,840
<INCOME-PRETAX> 5,672
<INCOME-PRE-EXTRAORDINARY> 5,672
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,533
<EPS-PRIMARY> .94<F1>
<EPS-DILUTED> .89<F2>
<YIELD-ACTUAL> 7.55
<LOANS-NON> 1,028
<LOANS-PAST> 144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> 295
<RECOVERIES> 193
<ALLOWANCE-CLOSE> 1,811
<ALLOWANCE-DOMESTIC> 1,429
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 382
<FN>
<F1>RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE STOCK SPLIT
EFFECTIVE DECEMBER 12, 1997
<F2>RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 8,074
<INT-BEARING-DEPOSITS> 151
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,337
<INVESTMENTS-CARRYING> 65,281
<INVESTMENTS-MARKET> 63,497
<LOANS> 294,604
<ALLOWANCE> 1,745
<TOTAL-ASSETS> 484,071
<DEPOSITS> 300,039
<SHORT-TERM> 65,743
<LIABILITIES-OTHER> 5,091
<LONG-TERM> 80,799
0
0
<COMMON> 464
<OTHER-SE> 31,935
<TOTAL-LIABILITIES-AND-EQUITY> 484,071
<INTEREST-LOAN> 16,948
<INTEREST-INVEST> 8,514
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 25,498
<INTEREST-DEPOSIT> 7,966
<INTEREST-EXPENSE> 14,600
<INTEREST-INCOME-NET> 10,898
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 362
<EXPENSE-OTHER> 9,568
<INCOME-PRETAX> 4,163
<INCOME-PRE-EXTRAORDINARY> 4,163
<EXTRAORDINARY> 0
<CHANGES> 00
<NET-INCOME> 2,600
<EPS-PRIMARY> .69<F1>
<EPS-DILUTED> .66<F2>
<YIELD-ACTUAL> 7.53
<LOANS-NON> 563
<LOANS-PAST> 87
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> 220
<RECOVERIES> 172
<ALLOWANCE-CLOSE> 1,745
<ALLOWANCE-DOMESTIC> 1,281
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 464
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE 6 MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 9,837
<INT-BEARING-DEPOSITS> 150
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,721
<INVESTMENTS-CARRYING> 67,828
<INVESTMENTS-MARKET> 65,702
<LOANS> 285,953
<ALLOWANCE> 1,725
<TOTAL-ASSETS> 483,549
<DEPOSITS> 293,897
<SHORT-TERM> 69,938
<LIABILITIES-OTHER> 3,558
<LONG-TERM> 84,720
0
0
<COMMON> 464
<OTHER-SE> 30,972
<TOTAL-LIABILITIES-AND-EQUITY> 483,549
<INTEREST-LOAN> 11,149
<INTEREST-INVEST> 5,638
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 16,815
<INTEREST-DEPOSIT> 5,236
<INTEREST-EXPENSE> 9,673
<INTEREST-INCOME-NET> 7,142
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 265
<EXPENSE-OTHER> 6,340
<INCOME-PRETAX> 2,693
<INCOME-PRE-EXTRAORDINARY> 2,693
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,680
<EPS-PRIMARY> .45<F1>
<EPS-DILUTED> .43<F2>
<YIELD-ACTUAL> 7.53
<LOANS-NON> 655
<LOANS-PAST> 121
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> 97
<RECOVERIES> 149
<ALLOWANCE-CLOSE> 1,725
<ALLOWANCE-DOMESTIC> 1,264
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 461
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE 3 MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 8,752
<INT-BEARING-DEPOSITS> 8,544
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,566
<INVESTMENTS-CARRYING> 70,364
<INVESTMENTS-MARKET> 68,904
<LOANS> 270,600
<ALLOWANCE> 1,570
<TOTAL-ASSETS> 478,457
<DEPOSITS> 287,544
<SHORT-TERM> 68,529
<LIABILITIES-OTHER> 4,487
<LONG-TERM> 86,775
0
0
<COMMON> 464
<OTHER-SE> 30,658
<TOTAL-LIABILITIES-AND-EQUITY> 478,457
<INTEREST-LOAN> 5,514
<INTEREST-INVEST> 2,820
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 8,344
<INTEREST-DEPOSIT> 2,624
<INTEREST-EXPENSE> 4,817
<INTEREST-INCOME-NET> 3,527
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 121
<EXPENSE-OTHER> 3,128
<INCOME-PRETAX> 1,353
<INCOME-PRE-EXTRAORDINARY> 1,353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 834
<EPS-PRIMARY> .22<F1>
<EPS-DILUTED> .21<F2>
<YIELD-ACTUAL> 7.50
<LOANS-NON> 637
<LOANS-PAST> 249
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> 40
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 1,570
<ALLOWANCE-DOMESTIC> 1,234
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 336
<FN>
<F1> RESTATED TO REFLECT APPLICATION OF FAS 128 AND TWO FOR ONE
STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<F2> RESTATED TO REFLECT TWO FOR ONE STOCK SPLIT EFFECTIVE DECEMBER 12, 1997
<1FN>
</TABLE>
