<PAGE>
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 31,1999
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 3, 2000, as reported by the Nasdaq Stock Market, was $29,516,175.
The number of shares outstanding of the Registrant's Common Stock as of March 3,
2000: 3,027,300 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, 1999 (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 2000 Annual Meeting of
Stockholders of the Registrant.
<PAGE>
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" within the meanings of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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
the real estate market, 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.
<PAGE>
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.
In May 1998, the Company formed a Delaware business trust, Abington Bancorp
Capital Trust (the "Trust"). All of the common securities of this special
purpose Trust are owned by the Company. The Trust exists solely to issue capital
securities for financial reporting purposes, the Trust is reported as a
subsidiary and is consolidated into the financial statements of Abington
Bancorp, Inc. and subsidiaries. The capital securities are presented as a
separate line item on the consolidated balance sheet as a guaranteed preferred
beneficial interest in the Company's Junior Subordinated Debentures ("Trust
Preferred Securities"). The Trust has issued Trust Preferred Securities and has
invested the net proceeds in Junior Subordinated Deferrable interest debentures
("Subordinated Debentures") issued to the Trust by the Company. These
Subordinated Debentures are the sole assets of the Trust.
The Bank presently has four wholly-owned subsidiaries: Holt Park Place
Development Corporation and Norroway Pond Development Corporation, which own
properties being marketed for sale, Abington Securities Corporation, which
invests primarily in United States Government obligations and obligations of
related agencies and equity securities and Old Colony Mortgage Corporation,
which originates and sells primarily first-lien mortgages secured by 1 - 4
family residential property. 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, commercial loans, residential construction loans,
consumer loans, and investments in securities. The Company considers its
principal market area to be part of Plymouth County and Norfolk County,
Massachusetts; primarily Abington, Brockton, Cohasset, Halifax, Hanson,
Holbrook, Hull, Kingston, Pembroke, Randolph and Whitman where it has banking
offices, and nearby Rockland, Duxbury, Scituate, Plympton, Hanover, East
Bridgewater, Plymouth, Carver, Weymouth and Bridgewater. Additionally, the
Company has mortgage lending offices in Auburn, Brockton, Fall River and
Plymouth.
The Company has grown from $460.5 million in assets and $280.1 million in
deposits at December 31, 1995 to $696.3 million in assets and $389.7 million in
deposits at December 31, 1999. 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, (the "Depositors Insurance
Fund") for the portion of deposits in excess of that insured by the FDIC.
In August of 1997, the Company opened, in Cohasset, the first of five planned de
novo supermarket branches, with the Randolph and Hanson branches opening in
April and September, 1998, respectively and Brockton branch in May, 1999.
Currently a fifth supermarket branch in Canton is planned for the Fall of 2000.
These acquisitions and branch openings are consistent with the Company's ongoing
strategy of controlled growth with a focus on retail core deposit relationships
and will enable the Company to have a greater regional presence.
On April 1, 1999, the Company acquired Old Colony Mortgage Corporation ("OCM")
(See Note 2 to the Consolidated Financial Statements). OCM is headquartered in
Brockton, and has origination offices in Plymouth, Fall River and Auburn
Massachusetts as well as a presence in each of the Company's branches. This
acquisition was made to expand the Company's mortgage origination capabilities
from what they were previously as well as to provide the Company with a greater
diversity of sources of income.
<PAGE>
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, three-year and
five-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. The Company does anticipate a continued
emphasis in 2000 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 (generally hybrids with terms to first
adjustment of one, three, five and seven years with annual resets thereafter) 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 and Commercial
Real Estate Loans.") At December 31, 1999, the Company's loan portfolio included
$232.2 million in fixed-rate mortgage loans of which $2.7 million were held for
sale.
The Company's net loan portfolio, including loans held for sale, totaled
$388.7 million at December 31, 1999, representing approximately 55.8% 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 purchases loans in
other areas of the United States. Generally, loans purchased outside of
Massachusetts are well collateralized and reflect an adequate payment history.
Approximately 42.2% of the Company's total loan portfolio represent
owner-occupied first mortgages located outside of Massachusetts. The three
states (other than Massachusetts) in which the Company has its largest
concentrations of residential loans were California, Pennsylvania and Maryland
in which there were $29,300,000, $11,400,000 and $11,100,000, of loans,
respectively. No other states had a 2.5% or greater concentration.
The Company originated $14.6 million in commercial and commercial real
estate loans, $14.7 million of home equity loans, $4.2 million of consumer loans
and $110.5 million in residential first mortgage loans during the year ended
December 31, 1999. Of the latter amount, loans aggregating $16.5 million were
retained for the Company's own portfolio, of which approximately $2.7 million
were held for sale at December 31, 1999, and loans aggregating $95.2 million
were sold in the secondary market. As of December 31, 1999, loan commitments to
borrowers or potential borrowers of $38.4 million were outstanding. These
commitments included $2.4 million under existing construction loans, $21.7
million in residential and commercial and commercial real estate loans, $13.8
million under existing lines of credit (including home equity loans). The
Company had no outstanding commitments to purchase residential first mortgages.
RESIDENTIAL LOANS. The Company currently sells in the secondary market most
first mortgage loans originated on residential property. The Company generally
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). At December 31, 1999, the Company's loan servicing portfolio
amounted to $121.4 million.
As of December 31, 1999, the outstanding balance of residential first
mortgage loans totaled $290.0 million or 73.4% of the gross loans in the
Company's loan portfolio. Residential first mortgage loans purchased or
originated 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 generally 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.
<PAGE>
In most cases, the Company requires the residential first mortgage loans it
originates or purchases to meet Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation standards, with an exception being made
in some cases for the size of the loan, in order to provide for the flexibility
to sell such loans if the Company chooses to do so 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. Generally home equity loans must have a current appraisal of
the value of the mortgaged property at origination. At December 31, 1999, the
Company had in its portfolio approximately $23.5 million of outstanding home
equity and second mortgage loans and unused commitments amounting to $13.8
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, 1999, gross construction loans totaled $5.9 million, or 1.5% 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 real
estate loans are generally written for maximum terms of 5 years, and interest
rates on these loans generally are fixed. Currently, commercial real estate
loans are generally written in amounts up to $3,000,000 and are usually made in
Massachusetts counties of Plymouth, Norfolk, Bristol and Barnstable. At December
31, 1999, the Company had a total of $52.0 million of commercial real estate
loans, or 13.1% of the Company's total loan portfolio. The Company plans to
maintain its emphasis on commercial real estate lending into 2000 in an attempt
to further expand the portfolio, although commercial (business) loans as
described below are preferred.
Commercial loans are generally provided to small-to-medium-sized businesses
located within the Company's market area. Commercial loans may be structured as
term loans or as revolving lines of credit. Commercial loans generally have a
repayment schedule of five years or less, with interest rates which float in
relation to the Wall Street Journal prime rate. The majority of commercial loans
are collateralized by equipment, machinery, receivables, inventory or other
corporate assets. In addition, the Bank generally obtains personal guarantees
from the principals of the borrower for virtually all of its commercial loans.
At December 31, 1999, the Company had approximately $16.5 million of commercial
(non-real estate) loans outstanding, up from $9.5 million at December 31, 1998.
The Company is emphasizing this type of lending as a continued key business
focus in the future.
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
<PAGE>
are periodically sold in the secondary market. The Company's consumer loans
totaled $7.4 million at December 31, 1999, representing 1.8% of its total loan
portfolio.
<PAGE>
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,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
to Gross to Gross to Gross to Gross to Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Conventional $290,036 73.4% $270,887 73.8% $ 249,165 74.1% $236,635 77.7% $200,368 75.6%
Second mortgages and
home equity 23,490 6.0 20,339 5.5 20,392 6.1 17,368 5.7 18,027 6.8
Commercial real estate 51,973 13.1 50,493 13.8 39,341 11.7 24,718 8.1 17,622 6.6
Construction 5,883 1.5 7,109 1.9 7,681 2.3 5,956 2.0 6,805 2.5
Total mortgage loans 371,382 94.0 348,828 95.0 316,579 94.2 284,677 93.5 242,822 91.5
Less:
Due to borrowers on
incomplete loans (2,437) (2,557) (2,166) (2,758) (2,499)
Net deferred loan fees
and unearned discounts (381) (626) (813) (986) (940)
Subtotal 368,564 345,645 313,600 280,933 239,383
Commercial loans:
Unsecured lines of credit 128 .1 211 0.1 245 0.1 324 0.1 477 0.2
Secured and unsecured 16,369 4.1 9,262 2.5 7,399 2.2 4,210 1.4 1,861 0.7
Subtotal 16,497 4.2 9,473 2.6 7,644 2.3 4,534 1.5 2,338 0.9
Consumer loans:
Indirect automobile - - 158 - 1,263 0.4 4,355 1.4 10,049 3.8
Personal 1,243 .3 1,393 0.41,562 0.4 1,625 0.5 1,715 0.6
Education - - 62 - 423 0.1 509 0.2 728 0.3
Passbook and stock secured 5,950 1.4 6,951 1.9 8,323 2.5 8,416 2.8 6,980 2.6
Home improvement 216 .1 257 0.1 381 0.1 485 0.1 675 0.3
Total consumer loans 7,409 1.8 8,821 2.4 11,952 3.5 15,390 5.1 20,147 7.6
Net deferred loan costs
(fees) (59) (127) (124) (76) 150
Subtotal 7,350 8,694 11,828 15,314 20,297
----- ----- ------ ------ -------
Total loans 392,411 363,812 333,072 300,781 262,018
Less allowance for
loan losses (3,701) (3,077) (2,280) (1,811) (1,433)
Loans, net 388,710 360,735 330,792 298,970 260,585
------- ------- ------- ------- -------
Add (recapitulation):
Due to borrowers on
incomplete loans 2,437 2,557 2,166 2,758 2,499
Net deferred loan
fees and unearned
discounts 440 753 937 1,062 790
Allowance for loan loss 3,701 3,077 2,280 1,811 1,433
Loans, gross $395,288 100% $367,122 100.0% $ 336,175 100.0% $304,601 100.0% $265,307 100.0%
======= === ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
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 eleven mortgage originators who are
paid a commission based on the amount and volumes of residential loans
originated. Consumer and home equity loans are generally originated through the
Company's branch and call center personnel. 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 that 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.
<PAGE>
The following table shows the Company's loans by maturity or repricing
interval at December 31, 1999.
<TABLE>
<CAPTION>
Within 1 - 5 Over 5
1 Year Years Years Total
------- ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Conventional mortgages...................... $ 57,296 $163,885 $68,474 $289,655
Commercial real estate loans................ 12,752 39,221 - 51,973
Second mortgages and home equity............ 15,554 5,152 2,784 23,490
Construction, net .......................... 3,446 - - 3,446
Commercial loans............................ 16,438 - - 16,438
Other loans................................. 1,185 5,757 467 7,409
------- ------- ------ -------
Total $106,671 $214,015 $71,725 $392,411
======= ======= ====== =======
Percent of total 27.2% 54.5% 18.3% 100.0%
</TABLE>
The following table shows the composition of fixed-rate and
adjustable-rate loans, excluding $7.4 million of other loans, as set forth
above by maturity or repricing interval at December 31, 1999.
<TABLE>
<CAPTION>
Within 1 - 5 Over 5
1 Year Years Years Total
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fixed-rate residential mortgages .............. $ 20,557 $ 92,451 $63,735 $176,743
Construction loans, net - all fixed............ 3,446 - - 3,446
Adjustable-rate residential mortgages.......... 52,293 76,586 7,523 136,402
Commercial real estate loans - all
fixed rate..................................... 12,752 39,221 - 51,973
Commercial loans - all variable rate........... 16,438 - - 16,438
------- ------- ------ -------
Total fixed and adjustable-rate loans.......... $105,486 $208,258 $71,258 $385,002
======= ======= ====== =======
</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 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 sold, 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. 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.
<PAGE>
At December 31, 1999, non-performing assets were .09% of total assets,
compared with 0.12% and 0.18% at December 31, 1998 and 1997, respectively.
The following table sets forth non-performing assets at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis
and/or impaired ......................................... $ 616 $ 681 $ 622 $ 1,028 $ 485
Accruing loans past due 90 days or more
as to principal or interest ............................. -- 50 91 144 243
---- ---- ---- ------ ------
Total non-performing loans .............................. 616 731 713 1,172 728
Real estate acquired by foreclosure and other
real estate owned ....................................... -- -- 265 500 1,070
---- ---- ---- ------ ------
Total non-performing assets ............................. $ 616 $ 731 $ 978 $ 1,672 $ 1,798
==== ==== ==== ====== ======
</TABLE>
Impaired loans totaling $397,000 and $77,000, at December 31, 1999 and
1998, respectively, required an allocation of $75,000 and $20,000, 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 and/or non-accrual loans was approximately
$666,000, $622,000 and $966,000 in 1999, 1998 and 1997, respectively. The total
amount of interest income recognized on impaired loans during 1999, 1998 and
1997 was approximately $64,000, $55,000 and $50,000 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.
Currently, in the single family home sector, prices are stable 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 the
regional economy is stable and the local residential real estate market has been
strong over the past couple of years, it is difficult to predict to what extent
such stabilization and overall strong economic conditions will continue.
<PAGE>
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,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $3,077 $2,280 $1,811 $1,433 $2,845
Loans charged off:
Real estate - residential 11 18 100 48 1,090
Real estate - commercial 5 - 20 - 2,496
Real estate - construction - - - - -
Commercial - - - - 18
Consumer 248 206 246 247 273
----- ----- ----- ----- -----
Total loans charged-off 264 224 366 295 3,877
----- ----- ----- ----- -----
Loan recoveries:
Real estate - residential 4 7 5 17 32
Real estate - commercial 142 119 38 120 145
Real estate - construction - - - - -
Consumer 102 135 162 56 55
Commercial - - - - -
----- ----- ----- ----- -----
Total recoveries 248 261 205 193 232
----- ----- ----- ----- -----
Net charge-offs (recoveries) 16 (37) 161 102 3,645
-- ---- --- --- ------
Provision charged to operations 640 760 630 480 2,233
----- ----- ----- ----- -----
Balance, end of year $3,701 $3,077 $2,280 $1,811 $1,433
===== ===== ===== ===== =====
Average loans outstanding, net $368,578 $335,871 $304,925 $282,530 $243,949
Ratio of net charge-offs (recoveries)
to average loans outstanding, net .00% (.01)% .05% .04% 1.49%
===== ===== ===== ===== =====
Ratio of allowance for possible loan
losses to gross loans at year end .94% .85% .68% .60% .55%
===== ===== ===== ===== =====
Ratio of allowance for possible loan
losses to non-performing loans 600.8% 420.9% 319.8% 154.5% 196.8%
===== ====== ===== ===== ======
</TABLE>
<PAGE>
The following table summarizes the allocation of the allowance for possible loan
losses for the years indicated:
<TABLE>
<CAPTION>
At December 31,
1999 1998 1997 1996 1995
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in category in category in category in category in category
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 $959 79.4% $ 899 79.3% $ 869 80.2% $ 854 83.5% $ 743 82.4%
Real estate - commercial 590 13.1 479 13.8 372 11.7 224 8.1 226 6.6
Real estate - construction 35 1.5 71 1.9 77 2.3 60 1.9 68 2.5
Commercial 341 4.2 189 2.6 153 2.3 91 1.5 47 .9
Consumer 233 1.8 195 2.4 218 3.5 200 5.0 195 7.6
Unallocated 1,543 N/A 1,244 N/A 591 N/A 382 N/A 154 N/A
----- --- ----- --- --- --- --- --- --- ---
Total $3,701 100.0% $3,077 100.0% $2,280 100.0% $1,811 100.0% $1,433 100.0%
===== ===== ====== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company uses two methodologies to establish ranges of exposure to
measure the adequacy of the allowance for possible loan losses. The first or
"base" methodology is the Specific Identification Method. This method relies
upon the Company's risk monitoring systems, timely identification of all
potential problem credits and an accurate evaluation of related specific loss
exposures. Additionally, this methodology employs the use of "normalized"
charge-off or loss histories by loan category in order to establish reserves for
those loans not specifically reviewed. The Company also utilizes a Risk Rating
Approach which uses "actual" loss histories to determine reserve levels on
"pass-rated" portions of its loan portfolios while utilizing regulatory reserve
percentages for adversely classified loans. The Company then uses a Migration
Approach which utilizes the Risk Rating Approach adjusted for potential
migration of non-pass rated credits to a more adverse category. This methodology
recognizes that no risk identification system has comprehensive knowledge at a
point in time and therefore, there is an inherent unidentified risk of loss
which is not accurately characterized or identified in the loan portfolio. As of
December 31, 1999, it was noted that the Specific Identification Methodology,
which was used for the compilation of the table above for consistency purposes,
demonstrates the lowest requirement. The Risk Rating/Migration methodologies
supported reserve levels at December 31, 1999. Therefore, the allowance for
possible loan losses is within the range of estimated exposures and is deemed
adequate but not excessive by management.
The Company's provision for possible loan losses in 1999 was $640,000,
compared to $760,000 and $630,000 in 1998 and 1997, respectively. The primary
reason for the reduction in provisions in 1999 vs. 1998 was due to the recovery
of approximately $90,000 on a previously charged off commercial real estate loan
as well as the continued strength of other asset quality factors that management
uses to evaluate the adequacy of loan loss reserve levels. The provision for
1998 exceeded 1997 levels reflecting the increased risk associated with the
Company's emphasis of commercial and commercial real estate lending activities
as evidenced by the increase in "watch assets" in the commercial loan portfolio
during 1998.
<PAGE>
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,
---------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Short-term investments ........................... $150 $ 143 $ 88
Federal funds sold ............................... 75 4,150 75
------ ------ ------
Total ............................................ 225 $ 4,293 $ 163
====== ====== =====
Percent of total assets .......................... .01% .73% .03%
Investment securities:
U. S. Government and federal agency
obligations, at market ......................... $42,043 $26,629 $30,890
Other bonds and obligations, at market ........... 23,786 20,221 3,120
------ ------ -----
Subtotal ......................................... 65,829 46,850 34,010
Marketable equity securities, at market .......... 8,165 4,796 5,027
----- ----- -----
Total investment securities ...................... $73,994 $51,646 $39,037
====== ====== ======
Percent of total assets .......................... 10.6% 8.7% 7.3%
</TABLE>
<PAGE>
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, 1999 follows:
<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 ......... $ 616 7.08% $3,000 6.33% $29,815 6.34% $11,000 7.11%
Other bonds and obligations... 2,007 6.75 4,935 5.67 36 7.5 18,680 7.11
Total $2,623 6.83% $7,935 6.18% $29,851 6.34% $29,680 7.11%
===== ==== ===== ==== ====== ==== ====== ====
</TABLE>
At December 31, 1999, the Company had twelve mortgage backed securities and
three corporate bonds which had a total amortized cost of $58,962,000, each of
which individually had an amortized cost 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, 1999 there were no such deposits.
At December 31, 1999, 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 $ 9,748
Over three to six months 18,063
Over six to twelve months 6,511
Over twelve months 1,397
-------
$35,719
======
</TABLE>
<PAGE>
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 10 and 11
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 6 to the Consolidated Financial
Statements".
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 offered investment services (including annuities) to its customers
in 1999 through a third-party broker-dealer, and its insurance agency affiliate.
The third-party paid fees to the Company based upon sales volume generated by
the Company's brokers.
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, credit unions, 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 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.
<PAGE>
EMPLOYEES
As of December 31, 1999, the Bank had 180 full-time employees, consisting
of 32 full-time officers and 148 full-time non-officers, as well as 58 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.
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to real estate
owned or leased by the Company at December 31, 1999.
<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 02351 1929 Owned -- --
Branches:
609 Belmont Street
Brockton, MA 02301 1999 Leased 5 years 2-5 years
319 Monponsett Street
Halifax, MA 02338 1975 Owned -- --
584 Washington St.
Whitman, MA 02382 1992 Owned -- --
157 Summer Street
Kingston, MA 02364 1995 Leased 20 years 10 years
175 Center Street
Pembroke, MA 02359 1992 Owned -- --
523 Nantasket Ave.
Hull, MA 02045 1994 Leased 15 years --
778 S. Franklin St.
Holbrook MA 02343 1995 Leased 10 years 2-5 years
739 Chief Justice Cushing Way
Cohasset, MA 02025 1997 Leased 5 years 2-5 years
121 Memorial Parkway
Randolph, MA 02368 1998 Leased 5 years 2-5 years
430 Liberty Street
Hanson, MA 02341 1998 Leased 5 years 2-5 years
Mortgage Offices:
1115 West Chestnut Street
Suite No. 202
Brockton, MA 02301 1998 Leased 5 years --
850 Southbridge Street
Auburn, MA 01501 1996 Leased 2 years --
401 Columbia Street
Fall River, MA 02721 1996 Leased 1 month --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
102-B 34 Main Street Extension
Plymouth, MA 02360 1995 Leased - -
Operation Center/Corporate Office
536 Washington St.
Abington, MA 02351 1989 Owned - -
Administrative Offices:
538 Bedford St.
Abington, MA 02351 1995 Leased 2 Years 18 months
</TABLE>
<PAGE>
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.
<PAGE>
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 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>
2000
(through March 3, 2000 $11 3/4 $ 9 5/8 $ -
1999
4th quarter 13 10 11/16 $.05
3rd quarter 13 3/4 12 1/16 $.05
2nd quarter 14 3/4 13 1/4 $.05
1st quarter 15 1/8 12 3/4 $.20
1998
4th quarter 17 12 $.05
3rd quarter 19 1/2 12 1/2 $.05
2nd quarter 22 3/4 17 1/2 $.05
1st quarter 22 1/2 18 3/4 $.15
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 1/4 $.05
</TABLE>
As of March 3, 2000, the Company had approximately 779 stockholders of
record who held 3,027,300 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 1,296 beneficial owners of the Company's common stock.
<PAGE>
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's
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 Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
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 1999 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 2000 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 2000 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
herein from the Company's Proxy Statement related to the 2000 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.
<PAGE>
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.
4.2 Form of Indenture between Abington Bancorp, Inc.
and State Street Bank and Trust Company
incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.3 Form of Junior Subordinated Debenture
incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.4 Form of Amended and Restated Trust Agreement by
and among the Company, State Street Bank and
Trust Company, Wilmington Trust Company and the
Administrative Trustees of the Trust incorporated
by reference to Exhibit 4.4 of the Registration
Statement on Form S-2 of the Company and Abington
Bancorp Capital Trust, filed on May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement
by and between the Company and State Street Bank
and Trust Company incorporated by reference to
Exhibit 4.6 of the Registration Statement on Form
S-2 of the Company and Abington Bancorp Capital
Trust, filed on May 12, 1998.
*10.1 (a) Amended and Restated Special Termination
Agreement dated as of January 1997 among the
Company, the Bank and James P. McDonough
incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1996 filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and James P.
McDonough, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
*10.2 Special Termination Agreement dated as of
November 2, 1998 among the Company, the Bank and
Kevin M. Tierney, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the third quarter of 1998, filed on November 12,
1998.
*10.3 Special Termination Agreement dated as of May 28,
1998 among the Company, the Bank and John R.
Sylva, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second
quarter of 1998, filed on August 10, 1998.
*10.4 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and Mario A. Berlinghieri
incorporated by
<PAGE>
reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and Mario A.
Berlinghieri, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated
Special Termination Agreement, dated as of
April 16, 1998, by and among the Company, the
Bank and Mario A. Berlinghieri, incorporated by
reference to the Company's quarterly report on
Form 10-Q for the first quarter of 1998, filed
on May 8, 1998.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, as amended and restated to
reflect holding company formation incorporated by
reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*10.6 Senior Management Incentive Plan, filed herewith.
*10.7 Revised Long Term Performance Incentive Plan
dated January 2000, filed herewith.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("lease"), used
for the Bank's principal and administrative
offices dated January 1, 1996 incorporated by
reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed
on March 31, 1997. Northeast Terminal Associates,
Limited owns the property. Dennis E. Barry and
Joseph L. Barry, Jr., who beneficially own more
than 5% of the Company's Common Stock, are the
principal beneficial owners of Northeast Terminal
Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on
Form 10-K filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective
January 31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's
proxy statement relating to its special meeting
in lieu of annual meeting held on June 17, 1997,
filed with the Commission on April 29, 1997.
*10.11 (a) Special Termination Agreement dated as of
July 1, 1997 among the Company, the Bank and
Robert M. Lallo, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination
Agreement, dated April 16, 1998, by and among
the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's
quarterly report on Form 10-Q for the first
quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of
August 28, 1997, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
third quarter of 1997, filed on November 15,
1997.
<PAGE>
*10.13 Supplemental Executive Retirement Agreement
between the Bank and James P. McDonough dated as
of March 26, 1998, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the first quarter of 1998, filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors,
effective July 1, 1998 incorporated by reference
to Appendix A to the Company's proxy statement
(schedule 14A) for its 1998 Annual Meeting, filed
with the Commission on April 13, 1998.
*10.15 Special Termination Agreement dated as of
February 7, 2000 among the Company, the Bank and
Jack B. Meehl, filed herewith.
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, 1999 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
27.1 Financial Data Schedule, December 31, 1999
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth quarter of
1999.
- --------
* Management contract or compensatory plan or arrangement.
<PAGE>
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 23, 2000
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ James P. McDonough President and March 23, 2000
- ------------------------ Chief Executive Officer;
James P. McDonough Director (Principal
Executive Officer)
/s/ Robert M. Lallo Chief Financial Officer & Treasurer March 23, 2000
- ------------------------ (Principal Financial Officer)
Robert M. Lallo
/s/ Bruce G. Atwood Director March 23, 2000
- ------------------------
Bruce G. Atwood
/s/ William F. Borhek Director March 23, 2000
- ------------------------
William F. Borhek
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Ralph B. Carver, Jr. Director March 23, 2000
- ------------------------
Ralph B. Carver, Jr.
/s/ Joel S. Geller
- ------------------------- Director March 23, 2000
Joel S. Geller
/s/ Rodney D. Henrikson
- ------------------------ Director March 23, 2000
Rodney D. Henrikson
/s/ A. Stanley Littlefield
- ------------------------ Director March 23, 2000
A. Stanley Littlefield
/s/ Jay Timothy Noonan
- ------------------------ Director March 23, 2000
Jay Timothy Noonan
/s/ Gordon N. Sanderson
- ------------------------ Director March 23, 2000
Gordon N. Sanderson
/s/ James J. Slattery
- ------------------------ Director March 23, 2000
James J. Slattery
/s/ Wayne P. Smith
- ------------------------ Director March 23, 2000
Wayne P. Smith
</TABLE>
<PAGE>
INDEX TO EXHIBITS
2.1 Plan of Reorganization and Acquisition dated as
of October 15, 1996 between the Company and
Abington Savings Bank incorporated by reference
to the Company's Registration Statement on Form
8-A, effective January 13, 1997.
3.1 Articles of Organization of the Company
incorporated by reference to the Company's
Registration Statement on Form 8-A, effective
January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference
to the Company's Registration Statement on Form
8-A, effective January 13, 1997.
4.1 Specimen stock certificate for the Company's
Common Stock incorporated by reference to the
Company's Registration Statement on Form 8-A,
effective January 31, 1997.
4.2 Form of Indenture between Abington Bancorp, Inc.
and State Street Bank and Trust Company
incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.3 Form of Junior Subordinated Debenture
incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May
12, 1998.
4.4 Form of Amended and Restated Trust Agreement by
and among the Company, State Street Bank and
Trust Company, Wilmington Trust Company and the
Administrative Trustees of the Trust incorporated
by reference to Exhibit 4.4 of the Registration
Statement on Form S-2 of the Company and Abington
Bancorp Capital Trust, filed on May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement
by and between the Company and State Street Bank
and Trust Company incorporated by reference to
Exhibit 4.6 of the Registration Statement on Form
S-2 of the Company and Abington Bancorp Capital
Trust, filed on May 12, 1998.
*10.1 (a) Amended and Restated Special Termination
Agreement dated as of January 31, 1997 among the
Company, the Bank and James P. McDonough
incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1996 filed on March 31, 1997.
*(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and James P.
McDonough, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
*10.2 Special Termination Agreement dated as of
November 2, 1998 among the Company, the Bank and
Kevin M. Tierney, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the third quarter of 1998, filed on November 12,
1998.
*10.3 Special Termination Agreement dated as of May 28,
1998 among the Company, the Bank and John R.
Sylva, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second
quarter of 1998, filed on August 10, 1998.
*10.4 (a) Amended and Restated Special Termination
Agreement dated as of January 31,
<PAGE>
1997 among the Company, the Bank and Mario A.
Berlinghieri incorporated by reference to the
Company's Annual Report for the year ended
December 31, 1996 on Form 10-K filed on March 31,
1997.
(b) Amendment to Amended and Restated Special
Termination Agreement, dated as of July 1, 1997
among the Company, the Bank and Mario A.
Berlinghieri, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
(c) Amendment No. 2 to Amended and Restated
Special Termination Agreement, dated as of April
16, 1998, by and among the Company, the Bank and
Mario A. Berlinghieri, incorporated by reference
to the Company's quarterly report on form 10-Q
for the first quarter of 1998, filed on May 8,
1998.
*10.5 Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, as amended and restated to
reflect holding company formation incorporated by
reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed
on March 31, 1997.
*10.6 Senior Management Incentive Plan, filed herewith.
*10.7 Revised Long Term Performance Incentive Plan
dated January 2000, filed herewith.
10.8 (a) Lease for office space located at 538 Bedford
Street, Abington, Massachusetts ("Lease"), used
for the Bank's principal and administrative
offices dated January 1, 1996 incorporated by
reference to the Company's Annual Report for the
year ended December 31, 1996 on Form 10-K filed
on March 31, 1997. Northeast Terminal Associates,
Limited owns the property. Dennis E. Barry and
Joseph L. Barry, Jr., who beneficially own more
than 5% of the Company's Common Stock, are the
principal beneficial owners of Northeast Terminal
Associates, Limited.
(b) Amendment to Lease dated December 31, 1997,
incorporated by reference to the Company's Annual
Report for the year ended December 31, 1997 on
Form 10-K filed on March 25, 1998.
10.9 Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective
January 31, 1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and
Nonqualified Stock Option Plan, incorporated by
reference herein to Appendix A to the Company's
proxy statement relating to its special meeting
in lieu of annual meeting held on June 17, 1997,
filed with the Commission on April 29, 1997.
*10.11 (a) Special Termination Agreement dated as of
July 1, 1997 among the Company, the Bank and
Robert M. Lallo, incorporated by reference to the
Company's quarterly report on Form 10-Q for the
second quarter of 1997, filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination
Agreement, dated as of April 16, 1998, by and
among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's
quarterly report on Form 10-Q for the first
quarter of 1998, filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of
August 28, 1997, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
third quarter of
<PAGE>
1997, filed on November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement
between the Bank and James P. McDonough dated as
of March 26, 1998, incorporated by reference to
the Company's quarterly report on Form 10-Q for
the first quarter of 1998, filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors,
effective July 1, 1998 incorporated by reference
to Appendix A to the Company's proxy statement
(schedule 14A) for its 1998 Annual Meeting, filed
with the Commission on April 13, 1998.
*10.15 Special Termination Agreement dated as of
February 7, 2000 among the Company, the Bank and
Jack B. Meehl, filed herewith.
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, 1999 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.
27.1 Financial Data Schedule, December 31, 1999
--------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 10.6
ABINGTON SAVINGS BANK
Abington, Massachusetts
SENIOR MANAGEMENT INCENTIVE PLAN
<PAGE>
ABINGTON SAVINGS BANK
Abington, Massachusetts
INCENTIVE PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Introduction and Highlights of
Incentive Plan............................................................................1-2
Incentive Plan
Section I - Definitions.....................................................................3
Section 11 - Participation..................................................................4
Section III - Activating the Plan...........................................................4
Section IV - Calculation of Awards..........................................................4
Section V - Distribution of Awards..........................................................5
Section VI - Plan Administration............................................................5
Section VII - Amendment, Modification, Suspension
or Termination..............................................................5
Section VIII - Effective Date...............................................................6
Section IX - Employer Relations with Participants...........................................6
Section X - Governing Law...................................................................6
Section XI - President's Discretion.........................................................6
</TABLE>
<PAGE>
ABINGTON SAVINGS BANK
Abington, Massachusetts
INTRODUCTION AND HIGHLIGHTS OF
INCENTIVE PLAN
Thomas Warren and Associates has been retained by the Abington Savings Bank to
develop an incentive plan. It is important to examine the benefits which accrue
to the organization through the operation of the incentive plan. The plan
impacts directly on senior officers - those most critical to the bank's success
- - and its purpose can be summarized as follows:
* PROVIDES MOTIVATION: The opportunity for incentive awards provides
executives with the impetus to "stretch" for challenging, yet attainable,
goals.
* PROVIDES RETENTION: by enhancing the bank's competitive compensation
posture.
* PROVIDES MANAGEMENT TEAM BUILDING: by making the incentive award
dependent on the attainment of bank goals, a "team orientation" is
fostered among the participant group.
* PROVIDES COMPETITIVE COMPENSATION STRATEGY: The implementation of
incentive arrangements is common in the banking industry today.
-1-
<PAGE>
The highlights of the incentive plan included in the following pages are as
follows:
1. The recommended plan is competitive compared with similar sized banks
and the banking industry in general.
2. The Board of Directors controls all aspects of the Plan.
3. Senior Officers are participants.
4. The financial criteria necessary for plan operation consists of an ROE
and Individual Objectives goals that are directly related to the
bank's strategic business plan.
5. Incentive distributions range from 0% of base salary (did not meet
goal) to 40% of base salary (maximum performance under plan).
6. Award distribution would be made during the first quarter for the
prior year's performance.
7. The categories of incentive plan participants are as follows:
<TABLE>
<CAPTION>
POSITION RANGE OF BONUS AWARDS
<S> <C>
President & CEO 0% - 40%
Executive Vice President 0% - 35%
Senior Vice President & Treasurer
Senior Officers 0% - 30%
</TABLE>
-2-
<PAGE>
ABINGTON SAVINGS BANK
Abington, Massachusetts
The Board of Directors of Abington Savings Bank has established this Incentive
Plan. The PURPOSE of the plan is to meet and exceed financial goals and to
promote a superior level of performance relative to the bank's competition in
its market area. Through payment of incentive compensation beyond base salaries,
the plan provides reward for meeting and exceeding the bank's financial goals as
well as recognition of individual achievements for plan participants.
SECTION I - DEFINITIONS
Various terms used in the plan are defined as follows:
BASE SALARY: the base salary at the end of the plan year, excluding any
bonuses, contributions to employee benefit programs, or other
compensation not designated as salary.
BOARD OF Directors: The Board of Directors of Abington Savings Bank.
PRESIDENT & CEO: President and CEO Abington Savings Bank.
MANAGEMENT PERFORMANCE GOALS: Those pre-set objectives and goals which
are required to activate distribution of awards under the plan.
COMPENSATION COMMITTEE: The Compensation Committee of the Board of
Directors of the Bank.
PLAN PARTICIPANT: An eligible employee of the bank designated by the
President & CEO and approved by the Compensation Committee for
participation for the Plan Year.
PLAN YEAR: The calendar year.
-3-
<PAGE>
SECTION 11 - ELIGIBILITY TO PARTICIPATE
To be eligible for an award under the plan, a plan participant must be in the
full-time service of the bank at the start and close of the calendar year. If a
plan participant leaves the employ of the bank during the plan year, he/she is
not eligible to receive an award. However, if the active full-time service with
the bank of a participant in the plan is terminated by death, disability,
retirement, or if the participant is on an approved leave of absence, the
President may recommend an award to such a participant based on the proportion
of the plan year that he/ she was in active service with the bank. The plan
participants for the plan year are set forth in Appendix A.
SECTION III - ACTIVATING THE PLAN
The operation of the plan is predicated on attaining and exceeding management
performance goals. The goals will consist of ROE and Individual Objectives. The
performance goals for the plan year are set forth in Appendix B.
SECTION IV - CALCULATION OF AWARDS
The Compensation Committee designates a rate of distribution for the executive
award. The actual rate of distribution is based upon bank performance. The full
Board of Directors will approve the final award distributions.
-4-
<PAGE>
SECTION V - DISTRIBUTION OF AWARDS
Distribution of awards will be made during the first quarter following the plan
year. Distribution of the bonus award must be approved by the Compensation
Committee. IN THE EVENT OF DEATH, any approved award as outlined in Section II
for distribution will become payable to the designated beneficiary of the
participant as recorded under the bank's group life insurance program, or in the
absence of a valid designation, to the participant's estate.
SECTION VI - PLAN ADMINISTRATION
The Compensation Committee shall, with respect to the plan, have full power and
authority to construe, interpret and manage, control and administer this plan,
and to pass and decide upon cases in conformity with the objectives of the plan
under such rules as the Board of Directors of the bank may establish.
Any decision made or action taken by the Bank, the Board of Directors, or the
Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of the plan shall be at their
absolute discretion and will be conclusive and binding on all parties.
No member of the Board of Directors, Compensation Committee, or employee of the
bank shall be liable for any act or action hereunder, whether of omission or
commission, by a plan participant or employee or by any agent to whom duties in
connection with the administration of the plan have been delegated in accordance
with the provision of the plan.
SECTION VII - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
The bank reserves the right, by and through its Board of Directors to amend,
modify, suspend, reinstate or terminate all or part of the plan at the end of
any plan year. The Compensation Committee will give prompt written notice to
each participant of any amendment, suspension or termination or any material
modification of the plan.
-5-
<PAGE>
SECTION VIII - EFFECTIVE DATE OF THE PLAN
The initial effective date of the plan shall be January 1, 1999 and the January
I of each calendar year for succeeding plan years.
SECTION IX - EMPLOYER RELATION WITH PARTICIPANTS
Neither establishment nor the maintenance of the plan shall be construed as
conferring any legal rights upon any participant or any person for a
continuation of employment, nor shall it interfere with the right of an employer
to discharge any participant or otherwise deal with him/her without regard to
the existence of the plan.
SECTION X - GOVERNING LAW
Except to the extent pre-empted under federal law, the provisions of the plan
shall be construed, administered and enforced in accordance with the domestic
internal law of the State of Massachusetts. In the event of relevant changes in
the Internal Revenue Code, related rulings and regulations, or changes imposed
by other regulatory agencies affecting the continued appropriateness of the plan
and awards made thereunder, the Board may, at its sole discretion, accelerate or
change the manner of payments of any unpaid awards or amend the provisions of
the plan.
SECTION XI - PRESIDENT'S DISCRETION
The President & CEO will review the amounts to be awarded to individual
participants in the incentive plan. No award will be made to a participant whose
normal performance appraisal does not meet acceptable standards. The President
may recommend to the Compensation Committee an adjustment to a bonus award for
an individual if their performance warrants. Board of Directors may adjust the
President & CEO's bonus award.
-6-
<PAGE>
APPENDIX A
1999 INCENTIVE PLAN PARTICIPANTS
INTENTIONALLY OMITTED
-7-
<PAGE>
APPENDIX B
ABINGTON SAVINGS BANK
Abington, Massachusetts
1999 PERFORMANCE GOALS
INTENTIONALLY OMITTED
-8-
<PAGE>
Exhibit 10.7
- -------------------------------------------------------------------------------
ABINGTON SAVINGS BANK
- -------------------------------------------------------------------------------
LONG TERM PERFORMANCE
INCENTIVE PLAN
1
<PAGE>
LONG TERM PERFORMANCE INCENTIVE PLAN
PURPOSE:
To incent Executive Management and members of the Board of Directors to build
long-term shareholder value. Specifically, to encourage focus on the price of
the company's stock.
TYPE:
The bank's Long Term Performance Incentive Plan which provides for the granting
of stock options of the bank's Common Stock to Executive Management and members
of the Board of Directors. The program would incorporate Incentive Stock Options
(ISO's) (1) as well as Non-Qualified Stock Options (NSO's) (2) for management
while using NSO's for non-employee directors. The options granted will be based
upon the achievement of the annual business plan.
(1) Incentive Stock Options: Options granted pursuant to the plan
which qualify under Section 422 of the Internal Revenue Code.
The aggregate fair market value (determined as of the date of
grant) of stock covered by incentive stock options which
become exercisable for the first time in any calendar year may
not exceed $100,000. In general, an optionee will not be
deemed to receive taxable income upon grant to exercise of an
incentive stock option, and any gain realized at the time of
sale of shares acquired upon exercise of an incentive stock
option will be treated as capital gain, provided that such
shares are held by the optionee for at least one year after
the date of exercise and two years after the date of grant.
ISO's are only available for employees of the Bank.
(2) Non-Qualified Stock Options: Options in which an optionee will
be deemed to receive taxable income at ordinary income rates
upon exercise of a non-qualified stock option in an amount
equal to the difference between the exercise price and the
fair market value of the Common Stock on the date of exercise.
PARTICIPANTS:
<TABLE>
<CAPTION>
POSITION ANNUAL GRANT (SHARES) *
<S> <C>
Board of Directors(2000 Each) 22,000
CEO 10,000
EVP 8,500
Division Head (7000 each) 21,000
------
61,500
</TABLE>
* In the unlikely event that the number of shares needed to meet the annual
grant are not available options will be granted on a pro-rata basis.
2
<PAGE>
MECHANICS:
- Generally, bank performance of the annual business plan will
be determined and options will be granted by the end of
February following the plan year end.
- The holder shall have the right to exercise the option in
whole or in part at any time until the option expires ten
years from the grant date.
- The exercise price will be a minimum of the fair market value
of the day of the grant (February Board of Directors meeting)
- The options would become exercisable after a specific stock
trading price target is met.
- All options become exercisable in full upon a change in
control of the company even if the stock price target is not
met.
- All options with delayed vesting would fully vest at the end
of year nine, even if none of the targets are met. This
provision is required to avoid unnecessary financial statement
charges for compensation.
- The options are forfeited in accordance to the terms as
outlined in the particular Stock Option Agreement.
EXERCISE OF OPTION:
- The options will vest upon grant and be exercisable at the
grant price.
- The maximum amount of incentive options which can become first
exercisable in any one year will be limited to $100,000.,
based on the grant price. In the event of a change in control
of the company all options in the plan become fully vested and
exercisable.
3
<PAGE>
ADMINISTRATION:
- Plan will be administered by the Director of Human Resources
under the direction of the Compensation Committee.
- Participants who join the organization prior to July first may
be eligible to participate in the program with the approval of
the Compensation Committee (on a pro-rata basis).
- An eligible participant must be an Officer or Board Member of
the company at the time the options are awarded in order to
receive a grant.
- Options granted shall be subject to the conditions as outlined
in the particular Stock Option Agreement.
ADDITIONAL GRANTS:
Additional grants may be made for such events as acquisitions, asset purchase,
etc. as these goals are accomplished for incentive purposes.
4
<PAGE>
EXHIBIT 10.15
EXECUTION COPY
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT is dated as of the 7th day of February, 2000 by and
among Abington Bancorp, Inc., a Massachusetts corporation (the "Company"), its
subsidiary, Abington Savings Bank, a Massachusetts savings bank with its main
office in Abington, Massachusetts (the "Bank"; the Company and Bank are
sometimes collectively referred to herein as the "Employers"), and Jack B.
Meehl, Jr., an individual currently employed by the Bank in the capacity of
Senior Vice President, Business Banking (the "Executive").
1. PURPOSE. In order to allow the Executive to consider the prospect of
a Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers are
willing to provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a Terminating Event
(as defined in Section 3) occurring subsequent to a Change in Control.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any of the following events:
(i) if there has occurred a change in control which the Company
would be required to report in response to Item 1 of Form 8-K
promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or, if such Form is no longer in effect in its present
form, any Form or regulation promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act which is intended to serve similar
purposes; or
(ii) when any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the 1934 Act), directly
or indirectly, of securities of the Company or the Bank representing
twenty-five percent (25%) or more of the total number of votes that may
be cast for the election of directors of the Company or the Bank; or
(iii) if during any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who are Continuing Directors (as herein defined) cease for
any reason to constitute at least a majority of the Board of Directors
of the Company. For this purpose, a "Continuing Director" shall mean
(a) an individual who was a director of the Company at the beginning of
such period or (b) any new director (other than a director designated
by a person who has entered into any agreement with the Company to
effect a transaction described in clause (i) or (ii) of this Section 2
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved; or
<PAGE>
(iv) the stockholders of the Company approve a merger or
consolidation of the Company with any other bank or corporation, other
than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 80%
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (b) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined
voting power of the Company's then outstanding securities; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of its assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean either of the
following:
(a) termination by either of the Employers of the employment of the
Executive as Senior Vice President of the Bank for any reason other than (i)
death, (ii) deliberate dishonesty of the Executive with respect to the Company
or the Bank or any subsidiary or affiliate thereof, or (iii) conviction of the
Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of the Company or the
Bank, while the Executive is not receiving payments or benefits from the Company
or the Bank by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(i) a significant change in the nature or scope of the
Executive's responsibilities, authorities, powers, functions or duties
from the responsibilities, authorities, powers, functions or duties
exercised by the Executive at the Company or the Bank immediately prior
to the Change in Control; or
(ii) a reasonable determination by the Executive that, as a
result of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties exercised by
the Executive at the Company or the Bank immediately prior to such
Change in Control; or
(iii) a decrease in the total annual compensation payable by the
Company or the Bank to the Executive other than as a result of a salary
reduction similarly affecting the Executive and all other executive
officers of the Company or the Bank on the basis of the Company's or
the Bank's financial performance; or
(iv) the failure by the Company or the Bank to continue in effect
any material compensation, incentive, bonus or benefit plan in which
the Executive participates immediately prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or
2
<PAGE>
the failure by the Company or the Bank to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's participation
relative to other participants, than the basis when existed at the time
of the Change of Control; or
(v) the failure of the Company or the Bank to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
three (3) years after a Change in Control, the Employers shall pay to the
Executive an amount equal to (x) two times the "base amount" (as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) applicable to the Executive, less (y) One Dollar ($1.00), payable in
one lump-sum payment on the date of termination. Notwithstanding the foregoing,
if a Change of Control takes place after the second anniversary of the date on
which the Executive's employment with the Bank commenced AND a Terminating Event
occurs within three (3) years after such Change in Control, the Employers shall
pay to the Executive an amount equal to (x) three times such "base amount"
applicable to the Executive, less (y) One Dollar ($1.00), payable in one
lump-sum payment on the date of termination.
5. LIMITATION ON BENEFITS.
(a) It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be deducted by the
Employers. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Employers with interest thereon at the applicable
Federal Rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall be
non-deductible to the Employers by reason of the operation of said Section 280G.
To the extent that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the Executive shall
determine which method shall be followed, provided that if the Executive fails
to make such determination within forty-five days after the Employers have sent
him written notice of the need for such reduction, the Employers may determine
the method of such reduction in their sole discretion.
(b) If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 5 or the method of calculating
such amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written notice to the
3
<PAGE>
other, may refer the dispute to a partner in a Massachusetts office of a firm of
independent certified public accountants selected jointly by the Employers and
the Executive. The determination of such partner as to the amounts to be
determined under Section 5(a) and the method of calculating such amounts shall
be final and binding on both the Employers and the Executive. The Employers
shall bear the costs of any such determination.
(c) The Executive confirms that he is aware of the fact that the
Federal Deposit Insurance Corporation has the power to preclude the Bank from
making payments to the Executive under this Agreement under certain
circumstances. The Executive agrees that the Bank shall not be deemed to be in
breach of this Agreement if it is precluded from making a payment otherwise
payable hereunder by reason of regulatory requirements binding on the Bank.
6. EMPLOYMENT STATUS. This Agreement is not an agreement for the
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. TERM. This Agreement shall take effect on the date first written
above, and shall terminate upon the earlier of (a) the termination by the
Employers of the employment of the Executive because of death, deliberate
dishonesty of the Executive with respect to the Company or the Bank or any
subsidiary or affiliate thereof, or conviction of the Executive of a crime
involving moral turpitude, (b) the resignation or termination of employment with
the Company or the Bank by the Executive for any reason prior to a Change in
Control, or (c) the resignation from employment of the Executive after a Change
in Control for any reason other than the occurrence of any of the events
enumerated in Section 3(b) of this Agreement.
8. WITHHOLDING. All payments made by the Employers under this Agreement
shall be paid net of, and after deduction of, any tax or other amounts required
to be withheld by the Employers under applicable law.
9. ASSIGNMENT. Neither the Employers nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This Agreement
shall inure to the benefit of, and be binding upon, the Employers and the
Executive, and their respective heirs, legal representatives, successors and
permitted assigns. In the event of the Executive's death prior to the completion
by the Employers of all payments due him under this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if he fails to
make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
4
<PAGE>
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at 17 Independence Road, Bedford, Massachusetts 01730, or to such
other address as the Executive has filed in writing with the Employers or, in
the case of the Employers, at their main office, attention of the Clerk or the
Secretary.
13. EFFECT ON OTHER AGREEMENTS. An election by the Executive to resign
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive and shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Employer's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under any
employment agreement he may then have with the Employers.
14. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Executive Committee of the Board of Directors of each of
the Employers.
15. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts without regard for its principles of conflicts of laws.
* * * *
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Bank, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: ABINGTON BANCORP, INC.
/s/ Lewis J. Paragona By: /s/ James P. Mcdonough
- ----------------------------------- -----------------------------
Clerk Title: President and CEO
[Seal]
WITNESS:
ATTEST: ABINGTON SAVINGS BANK
/s/ Lewis J. Paragona By: /s/ James P. Mcdonough
- ----------------------------------- -----------------------------
Clerk Title: President and CEO
[Seal]
WITNESS:
/s/ Kathleen L. Boyce /s/ Jack B. Meehl, Jr.
- ----------------------------------- --------------------------------
Jack B. Meehl, Jr.
6
<PAGE>
ABINGTON BANCORP
1999 ANNUAL REPORT
[GRAPHIC: COVER PHOTO]
A NEW ERA OF DIVERSITY.
<PAGE>
We will be passionate about selling and delivering such extraordinary service
and value so that our customers and employees will tell their friends and
associates about us.
Mission Statement
<PAGE>
Dear Fellow Shareholders: It is my pleasure to bring you this review of key
developments at Abington Bancorp during 1999. As our organization enters a third
century, I am delighted to share with you my belief that we are better prepared
than ever to take advantage of the many opportunities presented by today's
challenging financial services marketplace.
For the past few years, we have pursued a program of strategic diversification,
designed to expand and strengthen our product offerings and distribution
channels. Major pieces of this plan fell into place last year as we continued to
embrace technologies and business strategies that position us for growth. We are
now well on the road to fulfilling our vision of becoming the total financial
services provider that middle-market consumers and small businesses will want as
their financial partner.
In this era of financial modernization, many monumental changes are occurring
that will revolutionize our banking industry. Mergers and deregulation have
created both opportunity and challenge for small community banks. Customers
still seek the intimate relationship they have come to depend on, and Goliath
banks have left them wanting for this personalized service. As David challenged
the giant of his day, we too asked, "What is our slingshot?" Our strategy is to
provide superior service to our customers by developing advanced technology,
flexibility in the delivery of service, and the diversification of our product
line.
A Year of Action. Last year's highlights included the opening of our fourth
supermarket branch, the purchase of Old Colony Mortgage Corporation, and the
introduction of a broader range of financial planning and investment services.
Also, by year's end we completed the development of an innovative Internet
banking site that will open a whole new market for our products and services.
Along with our objective of becoming the principal financial services provider
for our customers, another impetus behind much of this activity was the
challenging investment environment that all banks continued to face in 1999.
While time deposits remain a solid, low-risk source of interest income for
investors, the potential of high rates of return on technology or
Internet-related stocks again lured record volumes of investment dollars into
stocks, mutual funds, and annuities. Despite this climate, our bank again stood
out among its peers in attracting core deposits, which increased approximately
$20 million, or 10%, in 1999 with overall deposit growth at approximately 7%.
These results again put us in the top 15% of banks in the state, including large
regional banks, in terms of growth in gross dollars of core deposit without
acquisition.
[PHOTO]
James P. McDonough
ABINGTON BANCORP
2
<PAGE>
Core earnings enjoyed continued strong success while the investments made for
future core earnings growth continue to be on target toward near-term
profitability.
[The following information was depicted as a bar chart in the printed material.]
Deposits In Millions
1996 ........... $300.5
1997 ........... $324.9
1998 ........... $364.0
1999 ........... $389.7
This growth has helped us reduce our cost of deposits to 3.03% in 1999 compared
to 3.45% in 1998. This increase in core deposits with a reduction in overall
rates paid on all deposits demonstrates our ability to continue to attract new
deposits without paying a premium on rates. This has been a key contributor to
our success over the past few years and will continue to enhance our franchise
value in the future.
Healthy Earnings Levels with Investments in the Future on Track. Net income for
1999 was $4,149,000 or $1.20 per diluted share, compared to $4,371,000 or $1.17
per diluted share in 1998. While on the surface a 3% increase in earnings per
share appears modest, a deeper look shows that the core earnings enjoyed
continued strong success while the investments made for future core earnings
growth, in particular supermarket branches, continue to be on target toward
near-term profitability. Core earnings, excluding securities gains and the
supermarket banking investments made over the past year, actually increased over
20% on an after-tax basis.
This growth occurred despite a third straight year of net interest margin
compression driven predominantly by the mortgage refinance market. Contributing
to this growth was a 17.7% increase in customer service fees, which have
[PHOTO]
1999 ANNUAL REPORT
3
<PAGE>
nearly tripled since 1995, when we began our High Performance Checking program.
Diversification of Market Channels. Our effort to significantly expand our
market reach by opening highly efficient supermarket branches continued in 1999
with the opening of our fourth supermarket branch in the spring. Located in West
Brockton, this branch gives us a foothold in a city that is making a strong
economic comeback. This ongoing investment in supermarket banking diluted
earnings in 1999 by approximately $.13 per diluted share, compared to $.10 per
diluted share in 1998. Based on results from these branches, we remain confident
this investment will result in strong future earnings growth.
Each supermarket branch has, in fact, shown solid performance improvements in
each quarter since opening. The first two supermarket branches to be opened, in
Cohasset and Randolph, experienced their first break-even quarters in 1999, and
by year's end, the Hanson branch was also nearing this goal. Not only has the
progression of earnings levels at these branches exceeded our internal forecasts
in a competitive environment, they have generally achieved this critical
break-even number by the seventh quarter of operation. Our supermarket branches
attracted a total of $25 million in deposits by year-end. This result continues
to exceed our internal profitability forecasts, and with this positive
performance in mind, we plan to open a fifth supermarket branch in Canton in the
fall of 2000.
As we expanded our reach in the South Shore community last year, we also
prepared for an exciting new enterprise that will take us into the limitless
geography of cyberspace. Working with leaders in the technology industry, we
have developed an Internet banking site, www.abingtonsavings.com, which includes
cutting-edge services for personal and business banking.
Launched in early 2000, our site offers a first-of-its-kind program that allows
customers to purchase their Internet access service through our Bank. We are
confident that consumers, many of whom are highly concerned about on-line
security, will be attracted to the concept of having a financial institution
serve as their Internet service provider since guarding customer privacy is a
keystone of our business.
Diversification of Products and Services. As we worked last year to build our
geographic reach, we also took important steps to broaden our ability to deliver
quality, value-added products and service. We made two strategic moves that
greatly improved our ability to serve the needs of our chosen niche, mid-market
customers.
[PHOTO]
ABINGTON BANCORP
4
<PAGE>
Old Colony Mortgage is enabling us to benefit from the continued strength of the
South Shore residential market.
[The following information was depicted as a bar chart in the printed material.]
Mortgage Originations In Millions
1996 ........... $20
1997 ........... $25
1998 ........... $47
1999 ........... $110
First, in a move that significantly expanded the array of mortgage-related
products we can offer consumers, we acquired Old Colony Mort gage Corporation, a
highly regarded home mortgage company. Headquartered in Brock ton and with
offices in Auburn, Fall River and Plymouth, this company also significantly
increases the geographic reach of our lending program.
As a proven organization with seasoned personnel, Old Colony Mortgage is
enabling us to benefit from the continued strength of the South Shore
residential market. While higher mortgage rates slowed market growth slightly in
1999, the acquisition of Old Colony Mortgage and the continued overall good
health of the market enabled us to end the year with $110 million in mortgage
originations, up by 134% over 1998.
The other noteworthy expansion of our product and service line came at mid-year
with our agreement to take an ownership interest in Infinex Financial Group,
Inc., a bank-owned marketing firm that offers brokerage, insurance, and
investment products through participating banks. As we reached the end of the
first six months of our work with Infinex at year's end, we were extremely
pleased with the exceptionally strong sales volume and the projections of future
growth from this partnership.
[PHOTO]
1999 ANNUAL REPORT
5
<PAGE>
As part of the Infinex program, we introduced the position of Personal Banker to
our branches. In line with our effort to build a sales culture that makes this a
great place to bank, these trained, service-oriented individuals are increasing
our ability to cross-sell products and services to our retail and business
customers.
More Lending Success. Our Business Banking division had another successful year,
despite a highly competitive lending environment with strong pressures on loan
pricing. Our business loan portfolio grew by 11.7% during the year, reaching
$71.9 million. At the same time, we were able to obtain more
non-transaction-oriented business loans. Since such borrowers are focused on
developing a business relationship with their bank, our increased success in
this market segment produces more stable loan balances and results in more
deposit relationships as well.
As evidence of the strength of our Business Banking division, Abington Savings
Bank was the leading Small Business Administration (SBA) lender among community
banks in Plymouth County last year. To further enhance this position, we plan to
launch a new program, SBA Access, in the second quarter of 2000. This innovative
SBA loan center, one of only two such programs in Massachusetts, will support
small business growth by offering a quick, hassle-free way to obtain SBA credit
with no fees. This effort is being made possible, in part, by our newly earned
status as a preferred SBA lender. This means we can now underwrite SBA loans
directly, a capability that should be extremely attractive to the small firms
that make up our target business market. Non-performing assets at year-end were
$616,000, compared to $731,000 at the end of 1998. Once again our delinquency
rate dropped, falling to .28% from .36% for 1998. We are extremely proud that
this delinquency rate continues to be one of the lowest among 80 Northeastern
banking companies tracked by a leading bank analyst firm.
Year 2000 Preparedness Program a Success. Like the rest of the world, we
breathed a sigh of relief when the arrival of the New Year showed that all our
hard work in preparing our systems for Y2K had been successful. Beginning in
1997, we dealt with this challenge primarily through using internal resources,
and I am tremendously proud of what our Y2K Task Force accomplished. Thanks to
this experience, we are now better prepared than ever to weather any future
emergencies. The other good news that comes with putting Y2K behind us is that
the staff members who were involved in this effort have now been redeployed to
endeavors that will result in improved products and service.
[PHOTO]
ABINGTON BANCORP
6
<PAGE>
Our special relationship with the Cardinal Cushing School and Training Center
grows stronger each year.
[The following information was depicted as a bar chart in the printed material.]
Business Banking In Millions
1996 ........... $32.4
1997 ........... $52.3
1998 ........... $64.3
1999 ........... $71.9
Serving the Youth of Our Communities. In 1999, we carried on our tradition of
supporting the well-being of the communities we serve by continuing to provide
financial aid and other assistance to organizations focusing on the welfare of
children. The numerous community needs we responded to last year included
supporting the creation of a new teen center in Cohasset, helping the Brockton
Library Foundation's efforts to improve that facility for the city's youth, and
establishing a new college scholarship at Abington High School.
Our special relationship with the Cardinal Cushing School and Training Center
grows stronger and more mutually rewarding each year. Our fourth annual St.
Patrick's Day event for the school raised over $70,000, an increase of about
$15,000 from the previous year. Among other programs designed to improve the
lives of students at the school, this money was used to send the graduating
class of 21 exceptional children to Disney World. This event would not have been
possible without a huge outpouring of support from individuals and businesses in
the community; we are deeply grateful to everyone who played a role in making
this success possible.
At year's end, I again had the tremendous privilege of presenting the Cardinal
Cushing School with an additional $15,000 donation raised
[LOGO]
St. Coletta's
OF MASSACHUSETTS
1999 ANNUAL REPORT
7
<PAGE>
through employee payroll deductions. Our employees have now given over $55,000
to support the much-needed work of this wonderful institution. Their strong
commitment to the Cardinal Cushing students -- both with their financial support
and through the time they devote to various projects for the school -- helps
strengthen the teamwork approach to doing business that is such an important
part of our values at Abington Savings Bank.
Looking Toward the Future Together. I want to thank all members of our team for
their hard work in 1999. The Y2K effort placed even higher than usual demands on
people throughout our organization and, without exception, everyone responded
with outstanding professionalism. In the wake of this experience, my commitment
to fostering an organization where hard work and exceptional performance are
rewarded and celebrated is stronger than ever. Making this a great place to work
will naturally ensure that this is also a great place to bank. Finally, I am
grateful to the Board of Directors for their hard work in 1999 to support us in
fulfilling our mission and securing our Company's future. Thanks also go to our
shareholders and customers for their continued support. Everyone at Abington
Bancorp is dedicated to repaying your loyalty by building an outstanding
community bank that remains as much a part of the South Shore community in its
third century as it has been in the past two centuries. Looking to the future,
we believe the industry consolidation that occurred in 1999 created a vacuum in
the market that can only be filled by a community bank such as ours. We intend
to be here with the diverse range of products our customers need, along with the
personalized service that can only be found at a bank that is firmly grounded in
the communities it serves. We are confident this strategy will move us forward
as a stronger, more vital, and more valuable financial institution.
Respectfully submitted,
/s/ James P. McDonough
James P. McDonough
President and Chief Executive Officer
[PHOTO]
ABINGTON BANCORP
8
<PAGE>
Abington Bancorp is dedicated to repaying your loyalty by building an
outstanding South Shore community bank.
[The following information was depicted as a bar chart in the printed material.]
Checking Accounts
1996 ........... 26,000
1997 ........... 31,000
1998 ........... 36,000
1999 ........... 40,000
The Bank considers its principal market area to be Plymouth County,
Massachusetts, primarily Abington, Brockton, Cohasset, Halifax, Hanson,
Holbrook, Hull, Kingston, Pembroke, Randolph and Whitman. Additional Old Colony
Mortgage offices are in Auburn, Brockton, Fall River and Plymouth.
[MAP]
AUBURN
ABINGTON
BROCKTON
COHASSET
FALL RIVER
HALIFAX
HANSON
HOLBROOK
HULL
KINGSTON
PEMBROKE
PLYMOUTH
RANDOLPH
WHITMAN
1999 ANNUAL REPORT
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
At December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Balance Sheet Data:
Total assets $ 696,250 $ 591,151 $ 531,986 $ 486,958 $ 460,492
Total loans, net 388,710 360,735 330,792 298,970 260,585
Investment securities (1) 86,903 61,184 47,187 31,950 33,343
Mortgage-backed securities 161,630 129,700 126,016 131,184 138,937
Deposits 389,692 363,953 324,934 300,445 280,070
Borrowed funds 259,751 177,128 165,910 147,524 145,609
Preferred beneficial interest in junior
subordinated debentures, net (3) 12,010 11,934 - - -
Stockholders' equity 27,832 33,060 36,321 33,546 30,561
Book value per share (2) 8.72 9.88 9.99 8.86 8.11
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data) (2)
Operating Data:
Interest and dividend income $ 42,242 $ 38,442 $ 36,297 $ 34,332 $ 31,949
Interest expense 23,092 21,585 20,091 19,517 18,222
--------- --------- --------- --------- --------
Net interest income 19,150 16,857 16,206 14,815 13,727
Provision for possible loan losses 640 760 630 480 2,233
--------- --------- --------- --------- --------
Net interest income after provision
for possible loan losses 18,510 16,097 15,576 14,335 11,494
--------- --------- --------- --------- --------
Non-interest income:
Loan servicing fees 365 469 558 646 713
Customer service fees 4,491 3,816 3,276 2,412 1,644
Gain on sales of securities 823 1,731 540 495 181
Gain on sales of loans, net 1,222 492 236 315 453
Write-down of limited partnership - - - - (110)
Net gain (loss) on sales and write-down of
other real estate owned 68 43 109 67 (92)
Other 404 358 267 242 119
--------- --------- --------- --------- --------
Total non-interest income 7,373 6,909 4,986 4,177 2,908
--------- --------- --------- --------- --------
Non-interest expenses 19,420 16,267 13,505 12,840 11,955
--------- --------- --------- --------- --------
Income before income taxes 6,463 6,739 7,057 5,672 2,447
Provision for income taxes 2,314 2,368 2,679 2,139 1,018
--------- --------- --------- --------- --------
Net income $ 4,149 $ 4,371 $ 4,378 $ 3,533 $ 1,429
========= ========= ========= ========= ========
Basic earnings per share $ 1.26 $ 1.25 $ 1.18 $ .94 $ .38
========= ========= ========= ========= ========
Diluted earnings per share $ 1.20 $ 1.17 $ 1.10 $ .89 $ .37
========= ========= ========= ========= ========
Dividends per share (4) $ .35 $ .30 $ .20 $ .20 $ .20
========= ========= ========= ========= ========
</TABLE>
10
- ---
A B I N G T O N B A N C O R P
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average total assets .66% .79% .87% .74% .33%
Interest rate spread 3.15 3.13 3.29 3.14 3.14
Return on average equity 13.42 12.68 12.59 11.00 4.68
Dividend payout ratio 27.86 23.95 16.90 21.34 52.62
Average equity to average total assets 4.90 6.26 6.94 6.69 7.00
</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.
(3) In June 1998, the Company issued $12.6 million of guaranteed preferred
beneficial interests in junior subordinated debentures.
(4) Includes $.10 and $.15 per share special dividends declared in March 1998
and 1999, respectively.
11
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
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 other banking
services and non-interest expenses. The Company's net interest income depends
upon the net interest rate spread between the yield on the Company's loan and
investment portfolios and the cost of funds, consisting primarily of interest
expense on deposits and Federal Home Loan Bank advances. The interest rate
spread is affected by the match between the maturities or repricing intervals of
the Company's assets and liabilities, the mix and composition of interest
sensitive assets and liabilities, economic factors influencing general interest
rates, 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, amortization on accretion of premiums or discounts on purchased loans
or mortgage-backed securities and the level of non--earning assets. Revenues
from loan fees and other banking services depend upon the volume of new
transactions and the market level of prices for competitive products and
services. Non-interest expenses depend upon the efficiency of the Company's
internal operations and general market and economic conditions.
In August 1997, the Company opened, in Cohasset, the first of five planned de
novo supermarket branches, with the Randolph (April) and Hanson (September)
branches opening in 1998, and Brockton (May) opening in 1999 with Canton
scheduled to open in the fall of 2000. This expansion of the Company's community
banking business into supermarket banking is consistent with the Company's
strategy of controlled growth with a focus on core retail deposit relation ships
and will enable the Company to have a greater regional presence.
On April 1, 1999, the Company acquired Old Colony Mortgage Corporation ("OCM")
(See Note 2 to the Consolidated Financial Statements). OCM is headquartered in
Brockton, and has origination offices in Plymouth, Fall River and Auburn
Massachusetts as well as a presence in each of the Company's branches. This
acquisition was made to expand the Company's mortgage origination capabilities
from what they were previously as well as to provide the Company with a greater
diversity of sources of income.
Forward-Looking Statements
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" within the meanings of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
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 the real estate market, changes in levels of market
interest rates, credit risks of lending activities, 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.
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 3.15% and 3.13% for the years ended December 31, 1999
and 1998.
The level of non-accrual loans and other real estate owned can have an impact
on net interest income but has been immaterial in 1999 and 1998. At December
31 , 1999, the Company had $616,000 in non-accrual loans and no other real
estate owned compared to $681,000 in non-accrual loans and no other real estate
owned as of December 31, 1998.
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.
12
- ---
A B I N G T O N B A N C O R P
<PAGE>
Management's Discussion and Analysis
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Earning assets:
Federal funds sold and
short-term investments $ 436 $ 32 7.34% $ 2,059 $ 114 5.55%
Bonds and obligations (2) 63,607 4,237 6.66 43,034 3,027 7.03
Equity securities (1) 16,859 706 4.19 13,758 627 4.56
Mortgage-backed investments (2) 146,508 9,439 6.44 126,031 8,393 6.66
Loans (3) 368,578 27,828 7.55 335,871 26,281 7.82
-------- ------- -------- -------
Total earning assets 595,988 42,242 7.09 520,753 38,442 7.38
-------- ------- -------- -------
Cash and due from banks 16,414 12,407
Other assets 18,273 17,435
-------- --------
Total assets $630,675 $550,595
======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 51,744 $ 440 .85% $ 43,938 $ 652 1.48%
Savings deposits 115,726 2,545 2.20 102,022 2,281 2.24
Time deposits 164,254 8,404 5.12 157,858 8,818 5.59
-------- ------- -------- -------
Total interest-bearing deposits 331,724 11,389 3.43 303,818 11,751 3.87
Short-term borrowings 96,005 4,943 5.15 42,039 2,279 5.42
Long-term debt 113,905 6,760 5.93 125,521 7,555 6.02
-------- ------- -------- -------
Total interest-bearing liabilities 541,634 23,092 4.26 471,378 21,585 4.58
------- -------
Non-interest-bearing deposits 44,338 37,080
-------- --------
Total deposits and
borrowed funds 585,972 3.94 508,458 4.25
Other liabilities 13,795 7,656
-------- --------
Total liabilities 599,767 516,114
Stockholders' equity 30,908 34,481
-------- --------
Total liabilities and
stockholders' equity $630,675 $550,595
======== ========
Net interest income $19,150 $16,857
======= =======
Interest rate spread (4) 3.15% 3.13%
==== ====
Net yield on earning assets (5) 3.21% 3.24%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1997
- ---------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
---------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Assets
Earning assets:
Federal funds sold and
short-term investments $ 765 $ 50 6.54%
Bonds and obligations (2) 25,025 1,775 7.09
Equity securities (1) 11,987 589 4.91
Mortgage-backed investments (2) 132,721 9,045 6.82
Loans (3) 304,925 24,838 8.15
--------- -------
Total earning assets 475,423 36,297 7.64
--------- -------
Cash and due from banks 9,786
Other assets 16,227
---------
Total assets $ 501,436
=========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 37,256 $ 577 1.55%
Savings deposits 97,786 2,168 2.22
Time deposits 145,152 8,312 5.73
--------- -------
Total interest-bearing deposits 280,194 11,057 3.95
Short-term borrowings 45,833 2,557 5.58
Long-term debt 105,950 6,477 6.11
--------- -------
Total interest-bearing liabilities 431,977 20,091 4.65
-------
Non-interest-bearing deposits 29,447
---------
Total deposits and
borrowed funds 461,424 4.35
Other liabilities 5.239
----------
Total liabilities 466,663
Stockholders' equity 34,773
----------
Total liabilities and
stockholders' equity $ 501,436
==========
Net interest income $16,206
=======
Interest rate spread (4) 3.29%
====
Net yield on earning assets (5) 3.41%
====
</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.
13
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Management's Discussion and Analysis
Rate/Volume Analysis
The following table presents, for the periods indicated, the changes in
interest income and in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Years Ended December 31, 1999 vs 1998 1998 vs 1997
- ----------------------------------------------------------------------------------------------------------
(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 $2,493 $ (946) $1,547 $2,449 $(1,006) $1,443
Bonds and obligations 1,378 (168) 1,210 1,267 (15) 1,252
Equity securities 133 (54) 79 83 (45) 38
Mortgage-backed securities 1,327 (281) 1,046 (449) (203) (652)
Federal funds sold and
short-term investments (111) 29 (82) 72 (8) 64
------ ------ ------ ------ --------- ------
Total interest and
dividend income 5,220 (1,420) 3,800 3,422 (1,277) 2,145
------ ------ ------ ------ -------- ------
Interest expense:
NOW deposits 101 (313) (212) 100 (25) 75
Savings deposits 302 (38) 264 95 18 113
Time deposits 348 (762) (414) 714 (208) 506
Short-term borrowings 2,784 (121) 2,663 (207) (71) (278)
Long-term debt (691) (103) (794) 1,178 (100) 1,078
------ ------ ------ ------ -------- ------
Total interest expense 2,844 (1,337) 1,507 1,880 (386) 1,494
------ ------ ------ ------ -------- ------
Net interest income $2,376 $ (83) $2,293 $1,542 $ (891) $ 651
====== ====== ====== ====== ======== ======
</TABLE>
Comparison of the Years Ended December 31, 1999 and 1998
General
Net income for the year ended December 31, 1999 was $4,149,000 or $1.20 per
diluted share compared to a net income of $4,371,000 or $1.17 per diluted share
in 1998, a net decrease of $222,000 or 5.1%. Earnings on a per diluted share
basis increased in 1999 over 1998 as a result of the Company's repurchase of
shares under current buy back plans. The overall decline in net income was
mainly attributable to lower gains on sales of securities and increases in
non-interest expenses, including salaries expense and trust preferred
securities, offset in part by increases in net interest income, customer service
fees and gains on sales of mortgages.
Interest and Dividend Income
Interest and dividend income increased $3,799,000 or 9.9% during 1999, as
compared to 1998. The increase was attributable to increases in earning assets
offset in part by reductions in the yield earned on those assets. The balance
of average earning assets for 1999 was approximately $595,988,000 as compared
to $520,753,000 in 1998, an overall increase of $75,235,000 or 14.4%. The
increase in earning assets was in part due to increases in average loan
balances which were $368,578,000 for 1999, as compared to $335,871,000 in 1998,
an increase of $32,707,000 or 9.7%. This increase was generally caused by
larger volumes of commercial loan originations in 1998 and into 1999 as well as
higher residential loan balances which were the result of the steady volume of
loan originations and purchases throughout 1998 and into 1999. See "Liquidity
and Capital Resources" and "Asset/Liability Management" for further discussion
of the Company's investment strategies.
The average yield earned on loans decreased in 1999 as compared to 1998
primarily due to the effect of higher prepayments on higher yielding
residential loans and lower rates earned on newer originations or purchases.
The yield on loans for 1999 was 7.55% as compared to 7.82% in 1998. Loan yields
in 1999 have been affected by consistently high levels of prepayment activity
experienced throughout 1998 into 1999 on higher yielding residential loans
which were in turn replaced by lower yielding loans as a result of market
conditions in 1998 and 1999 as compared to loans which were originated prior to
1997. Yields on loans were positively affected by growth in the Company's
commercial loan portfolio which has grown to approximately $71,900,000 at
December 31, 1999 from $64,400,000 at December 31, 1998, an increase of
$7,500,000 or 11.7%. Commercial loans typically carry a higher yield than
residential mortgages.
Average balances of mortgage-backed investments and bond investments were
$146,508,000 and $63,607,000, respectively, for 1999 as compared to
$126,031,000 and $43,034,000, respectively, in 1998. These balances, when
combined, increased $41,050,000 or 24.3%. The yield on mortgage-backed
investments and bond investments declined to 6.44% and 6.66% respectively in
1999, as compared to 6.66% and 7.03%, respectively in 1998. As with loan
yields, these yields were adversely
14
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A B I N G T O N B A N C O R P
<PAGE>
Management's Discussion and Analysis
affected by general rate declines and prepayments on higher yielding securities
over the past two years.
Also, the yield on bond investments decreased generally due to some of the
Company's higher yielding bonds being called by the issuers with proceeds being
reinvested at lower rates.
Interest Expense
Interest expense for 1999 increased $1,507,000 or 7.0% compared to 1998,
generally due to increases in the average balances of deposits and borrowed
funds, which was partially offset by decreases in the rates paid on deposit and
borrowed funds. The average balance of core and time deposits rose to
$211,808,000 and $164,254,000, respectively, for 1999 as compared to
$183,040,000 and $157,858,000, respectively, in 1998, for increases of 15.7% and
4.1%, respectively. The Company will continue to closely manage its cost of
deposits by continuing to seek methods of acquiring new core deposits and
maintaining its current core deposits while prudently adding time deposits at
reasonable rates in comparison to local markets and other funding alternatives,
including borrowings. The average balances of borrowed funds increased overall,
during 1999 as compared to 1998, to $209,910,000 from $167,560,000, an increase
of 25.3%. This increase generally relates to the funding of asset growth. The
blended weighted average rate paid on interest-bearing deposits and borrowed
funds was 4.26% for 1999 as compared to 4.58% in 1998. The weighted average
rates paid on deposits was 3.03% for 1999 as compared to 3.45% in 1998. The
overall cost of deposits has declined in 1999 as compared to 1998, generally due
to the continued success of promotional efforts to attract core deposits (NOW
accounts, demand deposits, savings and money markets), which typically have a
lower cost of funds than time deposits and borrowings. The overall weighted
average rates paid on borrowed funds decreased to approximately 5.58% for 1999
from 5.87% in 1998. This decrease represents the renewal of certain borrowings
which came due in 1998 at lower rates than they had been obtained for
previously. The decrease in the cost of borrowed money is consistent with the
cumulative effect of the Federal Reserve's actions taken in the second half of
1998 to reduce the inter-bank borrowing rate by 75 basis points partially offset
by the actions taken by the Federal Reserve in 1999 to increase that same rate
by 75 basis points. The Company will continue to evaluate the use of borrowing
as an alternative funding source for asset growth in future periods. See
"Asset/Liability Management" for further discussion of the competitive market
for deposits and overall strategies for uses of borrowed funds.
Non-Interest Income
Total non-interest income increased $464,000 or 6.7% in 1999 in comparison to
1998. Customer service fees, which were $4,491,000 for 1999 as compared to
$3,816,000 for 1998, for an increase of $675,000 or 17.7%, rose primarily due
to growth in deposit accounts, primarily NOW and checking accounts. Loan
servicing fees and gains on sales of mortgage loans were $365,000 and
$1,222,000, respectively, for 1999 as compared to $469,000 and $492,000,
respectively, in 1998, a combined increase of $626,000 or 65.1%. The increase
in gains on sales is generally reflective of the Company's acquisition of Old
Colony Mortgage and also the favorable consumer rates for residential loans for
the first nine months of 1999 which has resulted in increased saleable loan
production compared to the same period in 1998. As the Company has been selling
loans generally on a servicing released basis since 1996, the portfolio of
loans serviced for others has declined which has caused the continued drop in
loan servicing income. Current rate levels for residential mortgages, combined
with the interest rate outlook as forecasted by many economists expect interest
rates for residential mortgages to remain at current levels or increase for
most of the next year. Management anticipates that this will have a material
impact on the Company in 2000, reducing saleable volumes and the resulting
gains on mortgage loan sales as well as reducing some volume-based expenses.
Gains on sales of securities were $823,000 for 1999 as compared to $1,731,000
for 1998 for a decrease of $908,000 or 52.5%. While the equity markets remained
relatively strong for 1999, management elected to sell fewer holdings.
Non-Interest Expenses
Non-interest expenses for 1999 increased $3,154,000 or 19.4% compared to 1998.
Salaries and employee benefits increased 17.9% or $1,404,000 primarily due to
the acquisition of Old Colony Mortgage (approximately $884,000), and increases
in supermarket branch staff (approximately $347,000). The increases in
supermarket staffing are the result of more supermarket branches being open
during 1999 than compared to the same period in 1998. The branches primarily
affecting this difference, with their opening dates in parenthesis, were
Randolph (April 1998), Hanson (September 1998) and Brockton (May 1999). These
increases correspond with the Company's strategic focus of attracting core
deposits and new customer relationships. The increase in salaries and benefits
expense, excluding Old Colony Mortgage and the supermarket branches, was
approximately $173,000 or 2.5%. Occupancy expenses increased $698,000 or 26.1%
primarily due to the acquisition of Old Colony Mortgage (approximately
$94,000), the effect of increasing the number of supermarket branches
(approximately $217,000), and increases in other capital and technology
expenditures. Other non-interest expenses, including trust preferred expenses,
also increased $1,052,000 or 18.3% for 1999 in comparison to 1998. Of this
amount, approximately $534,000 of the aforementioned increases relates to
expenses related to guaranteed preferred beneficial interests in junior
subordinated debentures ("Trust Preferred Securities") which were issued in
June 1998, and approximately $306,000 related to the Old Colony Mortgage
operation and an additional $152,000 related to increases in the number of
supermarket branches.
Provision for Possible Loan Losses
The provision for possible loan losses was reduced to $640,000 for 1999 from
$760,000 in 1998, a decline of $120,000 or 15.8%. The primary reason for the
reduction in provisions in 1999 vs. 1998 was due to the recovery of
approximately $90,000 on a previously charged-off commercial real estate loan
as well as the continued strength of other asset quality factors that
management uses to evaluate the adequacy of loan loss reserve levels.
Provision for Income Taxes
The Company's effective income tax rate for 1999 was 35.8% compared to 35.1%
for 1998. The lower effective tax rate in comparison to statutory rates for
both periods is reflective of income earned by certain non-bank subsidiaries
which are taxed, for state tax purposes, at lower rates. Additionally, the
overall effective tax rate is influenced by the proportion of income generated
by non-bank subsidiaries. In 1998, a greater portion of income was generated
through non-bank subsidiaries as compared to 1999.
15
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Management's Discussion and Analysis
Comparison of the Years
Ended December 31, 1998
and 1997
General
Net income for 1998 was $4,371,000 or $1.17 per diluted share compared to a net
income of $4,378,000 or $1.10 per diluted share in 1997, a net decrease of
$7,000 or .2%. Earnings, on a per diluted share basis, increased in 1998 over
1997 as a result of the Company's repurchase of shares under current buy back
plans. The results in 1998, as compared to 1997, include increases in net
interest income, customer service fees and gains on sales of securities and
mortgages offset by an increase in non-interest expense related primarily to
three newly opened supermarket branches, Year 2000 testing expenses and
expenses associated with Trust Preferred Securities.
Interest and Dividend Income
Interest and dividend income increased $2,145,000 or 5.9% in 1998 as compared to
1997. The increase was attributable to increases in earning assets, particularly
loans, offset in part by reductions in the yield earned on those assets. The
balance of average earning assets for 1998 was approximately $520,753,000 as
compared to $475,423,000 for 1997, an overall increase of $45,330,000 or 9.5%.
The increase in earning assets was generally due to increases in average loan
balances which were $335,871,000 in 1998, as compared to $304,925,000 in 1997,
an increase of $30,946,000 or 10.2%. This increase was generally caused by
larger volumes of commercial loan originations in 1997 and into 1998 as well as
higher residential loan balances which were the result of the steady volume of
loan originations and purchases throughout 1997 and into 1998. See "Liquidity
and Capital Resources" and "Asset/Liability Management" for further discussion
of the Company's investment strategies.
The average yield earned on loans decreased for 1998 as compared to 1997,
primarily due to the effect of faster prepayments on higher yielding residential
loans and lower rates earned on newer loan originations or purchases.
Additionally, loan yields were negatively affected by yield adjustments on loan
pools which had been acquired at a premium purchase price, which was the result
of unusually heavy prepayment activity on those pools associated with the
favorable refinancing market which caused an acceleration of premium
amortization. The yield on loans for 1998 was 7.82% as compared to 8.15% for
1997. Management estimates that, excluding the unusual prepayment adjustments
realized during the first half of 1998, the yield on loans would have been
approximately 7.94% or $400,000 higher than reported. Yields on loans were
positively affected by growth in the Company's commercial loan portfolio, which
has grown to approximately $64,500,000 at December 31, 1998 from $52,500,000 at
December 31, 1997, an increase of $12,000,000 or 22.9%. Commercial loans
typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and investment securities were
$126,031,000 and $43,034,000, respectively, for 1998 as compared to $132,721,000
and $25,025,000, respectively, for 1997. These balances, when combined,
increased by approximately $11,319,000 or 7.2%. The yield on mortgage-backed
investments and investment securities decreased to 6.66% and 7.03%,
respectively, in 1998 as compared to 6.82% and 7.09%, respectively, in 1997.
The declines in these yields reflects the lower interest rate environment for
investment opportunities from mid-1997 through 1998, as well as the effects of
increased prepayments on the Company's higher yielding securities in the
mortgage-backed investment portfolio, the proceeds of which were invested at
lower rates.
Interest Expense
Interest expense for 1998 increased $1,494,000 or 7.4% compared to 1997,
generally due to increases in deposit and borrowed fund balances, which was
partially offset by decreases in the average rates paid on deposits and
borrowed funds. The blended weighted average rate paid on deposits and borrowed
funds was 4.58% for 1998 as compared to 4.65% for the same period in 1997. The
weighted average rates paid on interest bearing deposits was 3.87% for 1998 as
compared to 3.95% in 1997. The overall cost of deposits declined in 1998 as
compared to 1997, generally due to the continued success of promotional efforts
to attract core deposits (NOW accounts, demand deposits, savings and money
markets), which typically have a lower cost of funds than time deposits and
borrowings, as well as due to overall declines in the rates paid on time
deposits. The average balance of core and time deposits rose to $183,040,000
and $157,858,000, respectively, for 1998 as compared to $164,489,000 and
$145,152,000, respectively, in 1997, for increases of 11.3% and 8.8%,
respectively. Additionally, the weighted average rate paid on time deposits
declined to 5.59% for 1998, as compared to 5.73% in 1997. This change reflected
the refinancing of various certificates as they matured at lower rates than
they had been paying in previous periods and, to a lesser extent, the result of
the generally declining rate environment which existed in 1998, although
competition for time deposit accounts kept rates at higher levels in 1998 as
compared to general economic rates. The average balances of borrowed funds
increased overall during 1998 as compared to 1997, to $167,560,000 and
$151,783,000 an increase of 10.4%. This increase generally related to the
funding of certain loan portfolio purchases during 1998. The overall weighted
average rates paid on borrowed funds decreased to approximately 5.87% for 1998
from 5.95% in 1997. This increase was generally due to the Federal Reserve's
decisions to drop the inter-bank borrowing rate by 75 basis points in the
latter portion of 1998. 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 $1,923,000 or 38.6% in 1998 in comparison
to 1997. Customer service fees, which were $3,816,000 in 1998 as compared to
$3,276,000 for the same period in 1997, for an increase of $540,000 or 16.5%,
rose primarily due to growth in deposit accounts, primarily NOW and checking
account portfolios. Loan servicing fees and gains on sales of mortgage loans
were $469,000 and $492,000, respectively, in 1998 as compared to $558,000 and
$236,000, respectively, in 1997, a combined increase of $167,000 or 21.0%. This
generally was reflective of the favorable refinancing market for residential
loans in 1998 which resulted in increased saleable volumes and related gains on
sales as compared to the same period in 1997. Loan servicing fees in 1998
declined as that portfolio paid down in 1998 refinance market, as well as in
part due to the fact that the Company has been selling mortgage loans servicing
released since 1996. Gains on sales of securities were $1,731,000 in 1998 as
compared to $540,000 for 1997 for an increase of $1,191,000 or 220.6%. These
gains were generally reflective of a consistently strong market for equity
securities.
Non-Interest Expense
Non-interest expense for 1998 increased $2,762,000 or 20.5% compared to 1997.
Salaries and employee benefits increased
16
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A B I N G T O N B A N C O R P
<PAGE>
Management's Discussion and Analysis
17.6% or $1,172,000 primarily due to increases in health insurance costs and
staffing levels in the Company's business banking and retail areas, including
the Bank's supermarket branches in Cohasset (August 1997), Randolph (April
1998) and Hanson (September 1998). These increases correspond with the
Company's strategic focuses of increasing business banking relationships and
attracting core deposits. Occupancy expenses increased $259,000 or 10.7%
primarily due to increased capital and operating expenditures related to the
supermarket branches, and to the general inflationary and capital expenditure
increases, particularly in technology. Other non-interest expenses, including
Trust Preferred Securities expense, also increased $1,331,000 or 30.0% for
1998, in comparison to the same period in 1997, generally due to increased
costs associated with statement rendering and item processing as well as other
operating costs associated with servicing an expanded retail customer base.
This increased expense also included approximately $150,000 of expenses related
to the Company's efforts to address the Year 2000 issue (see "Impact of Year
2000" for further discussion). Additionally, approximately $586,000 of the
aforementioned increase represented expenses related to Trust Preferred
Securities which were issued in June 1998. See "Liquidity and Capital
Resources" for additional discussion of Trust Preferred Securities.
Provision for Possible Loan Loss
The provision for possible loan losses was $760,000 in 1998 as compared to
$630,000 for the same period in 1997. This increase of $130,000 primarily
reflected management's estimate of increased risk, associated with increases in
the Company's commercial loan portfolios as compared to residential real estate
loans.
Provision for Income Taxes
The Company's effective income tax rate for 1998 was 35.1% compared to 38.0%
for 1997. The lower effective tax rate in comparison to statutory rates for
both periods reflected income earned by certain non-bank subsidiaries which are
taxed, for state tax purposes, at lower rates. Additionally, the overall
effective tax rate was influenced by the proportion of income generated by
non-bank subsidiaries. In 1998, a greater portion of income was generated
through non-bank subsidiaries as compared to 1997.
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:
<TABLE>
<CAPTION>
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
- --------------------------------------------
<S> <C>
+200 (2.6)%
-200 1.5%
</TABLE>
Interest rate gap analysis provides a static view of the maturity and repricing
characteristics of the on-balance sheet and off-balance sheet positions. The
interest rate gap analysis is prepared by scheduling all assets, liabilities
and off-balance sheet positions according to scheduled repricing or maturity.
Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Generally, residential mortgage
loans currently originated by the Company are sold in the secondary market.
Residential mortgage loans that the Company currently originates, from time to
time, or purchases for the Company's own portfolio are primarily 1-year,
3-year, 5-year and 7-year adjustable rate mortgages and shorter term (generally
15-year or seasoned 30-year) fixed rate mortgages.
The Company also emphasizes loans with terms to maturity or repricing of 5
years or less, such as certain commercial mortgages, business loans,
residential construction loans and home equity loans.
Management desires to expand its interest earning asset base in future periods
primarily through growth in the Company's loan portfolio. Loans comprised
approximately 61.8% of the average interest earning assets in 1999. In the
future, the Company intends to continue to be competitive in the residential
mortgage market but plans to place greater emphasis on home equity and
commercial loans. The Company also has been, and expects to remain, active in
pursuing wholesale opportunities to purchase loans. During 1999 and 1998, the
Company acquired approximately $73,000,000 and $95,600,000, 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
17
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Management's Discussion and Analysis
investments and as an overall asset/ liability tool. These securities have been
highly liquid given current levels of prepayments in the underlying mortgage
pools and, as a result, have provided the Company with greater reinvestment
flexibility.
One of the factors influencing earnings asset levels and their yields since
1997 has been the intensity of prepayment activity on mortgage related assets
which have been prompted by the very attractive refinancing opportunities that
the market has presented consumers for the better part of the past two years.
Management estimates that 60% of the earning assets which existed on the
Company's balance sheet at December 31, 1997 have paid off and were thus
replaced with similar assets at lower yields. This has contributed to the
continued downward trend on asset yields over the past two years.
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 mutual funds and the equity markets in general, the Company and
many of its peers have begun to see lower levels of growth in time deposits as
compared to prior years as customers reflect their desire to increase their
returns on investment. This pressure has been exacerbated currently by the
historically low long-term economic interest rates. Management believes that the
markets for future time deposit growth, particularly with terms in excess of 2
years, will remain highly competitive. Management will continue to evaluate
future funding strategies and alternatives accordingly as well as to continue to
focus its efforts on attracting core, retail deposit relationships.
The Company is also a voluntary member of the Federal Home Loan Bank ("FHLB")
of Boston. This borrowing capacity assists the Company in managing its asset/
liability growth because, at times, the Company considers it more advantageous
to borrow money from the FHLB of Boston than to raise money through non-core
deposits (i.e., certificates of deposit). Borrowed funds totaled $259,751,000
at December 31, 1999 compared to $177,128,000 at December 31, 1998. These
borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities. Additionally, as of
December 31, 1999, approximately $18 million of the Company's borrowings were
used to acquire cash as part of the Company's Year 2000 contingency plans.
Nearly all of this amount was paid off in early January 2000 as the majority of
the cash was returned to the Federal Reserve.
Also, the Company obtained funding in June 1998 through the issuance of Trust
Preferred Securities which carry a higher interest rate than similar FHLB
borrowings but at the same time are included as capital, without diluting
earnings per share and are tax deductible. See "Liquidity and Capital
Resources" for further discussion.
The following table sets forth maturity and repricing information relating to
interest sensitive assets and liabilities at December 31, 1999. The balance of
such accounts has been allocated among the various periods based upon the terms
and repricing intervals of the particular assets and liabilities. For example,
fixed rate mortgage loans and mortgage-backed securities, regardless of
"available for sale" classification, are shown in the table in the time periods
corresponding to projected principal amortization computed based on their
respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market.
Adjustable rate loans and securities are allocated to the period in which the
rates would be next adjusted. The following table does not reflect partial or
full prepayment of certain types of loans and investment securities prior to
scheduled contractual maturity. Additionally, all securities or borrowings
which are callable at the option of the issuer or lender are reflected in the
following table based upon the likelihood of call options being exercised by
the issuer on certain investments or borrowings in a most likely interest rate
environment. Since regular passbook savings and NOW accounts are subject to
immediate withdrawal, such accounts have been included in the "Other Savings
Accounts" category and are assumed to mature within 6 months. This table does
not include non-interest bearing deposits.
While this table presents a cumulative negative gap position in the 6 month to
5 year horizon, the Company considers its earning assets to be more sensitive
to interest rate movements than its liabilities. In general, assets are tied to
increases that are immediately impacted by interest rate movements while
deposit rates are generally driven by market area and demand which tend to be
less sensitive to general interest rate changes. In addition, other savings
accounts and money market accounts are substantially stable core deposits,
although subject to rate changes. A substantial core balance in these type of
accounts is anticipated to be maintained over time.
18
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A B I N G T O N B A N C O R P
<PAGE>
Management's Discussion and Analysis
Repricing/Maturity Interval
<TABLE>
<CAPTION>
At December 31, 1999 0-6 Mos. 6-12 Mos. 1-2 Yrs.
- -----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ 225 $ - $ -
Bonds and obligations 39,383 5,003 7,078
Mortgage-backed investments 26,508 20,471 21,404
Mortgage loans subject to rate review 29,665 22,628 18,885
Fixed rate mortgage loans 23,507 13,248 31,264
Commercial and other loans
contractual maturity 13,980 3,643 1,588
---------- ---------- ----------
Total 133,268 64,993 80,219
---------- ---------- ----------
Liabilities subject to interest rate
adjustment:
Money market deposit accounts 19,199 - -
Savings deposits - term certificates 91,173 42,150 24,301
Other savings accounts 155,934 - -
Borrowed funds 181,550 18,350 30,350
---------- ---------- ----------
Total 447,856 60,500 54,651
---------- ---------- ----------
Guaranteed preferred beneficial
interest in junior subordinated
debentures - - -
---------- ---------- ----------
Excess (deficiency) of rate sensitive
assets over rate sensitive liabilities (314,588) 4,493 25,568
---------- ---------- ----------
Cumulative excess (deficiency) of rate
sensitive assets over rate sensitive
liabilities (1) $ (314,588) $ (310,095) $ (284,527)
========== ========== ==========
Rate sensitive assets as a
percent of rate sensitive
liabilities (cumulative) 29.8% 39.0% 49.5%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999 2-3 Yrs. 3-5 Yrs. Over 5 Yrs. Total
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets subject to interest rate
adjustment:
Short-term investments $ - $ - $ - $ 225
Bonds and obligations 6,022 10,592 2,011 70,089
Mortgage-backed investments 19,740 29,837 49,583 167,543
Mortgage loans subject to rate review 18,640 39,061 7,523 136,402
Fixed rate mortgage loans 42,652 57,756 63,735 232,162
Commercial and other loans
contractual maturity 1,368 2,801 467 23,847
---------- --------- ---------- ---------
Total 88,422 140,047 123,319 630,268
---------- --------- ---------- ---------
Liabilities subject to interest rate
adjustment:
Money market deposit accounts - - - 19,199
Savings deposits - term certificates 4,797 6,861 - 169,282
Other savings accounts - - - 155,934
Borrowed funds 4,000 10,000 28,150 272,400
---------- --------- ---------- ---------
Total 8,797 16,861 28,150 616,815
---------- --------- ---------- ---------
Guaranteed preferred beneficial
interest in junior subordinated
debentures - - 12,010 12,010
---------- --------- ---------- ---------
Excess (deficiency) of rate sensitive
assets over rate sensitive liabilities 79,625 123,186 83,159 1,443
---------- --------- ---------- ---------
Cumulative excess (deficiency) of rate
sensitive assets over rate sensitive
liabilities (1) $ (204,902) $ (81,716) $ 1,443
========== ========= ==========
Rate sensitive assets as a
percent of rate sensitive
liabilities (cumulative) 64.2% 86.1% 100.2%
</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.
19
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
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,
1999, the Company had approximately $130,000,000 in unused borrowing capacity
that is contingent upon the purchase of additional FHLB of Boston stock. Use of
this borrowing capacity is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of Boston
advances with original maturities of approximately 1 to 3 months. The Company
utilizes borrowed funds as a primary vehicle to manage interest rate risk, due
to the ability to easily extend or shorten maturities as needed. This enables
the Company to adjust its cash needs to the increased prepayment activity in its
loan and mortgage-backed investment portfolios, as well as to quickly extend
maturities when the need to further balance the Company's GAP position arises.
The Company regularly monitors its asset quality to determine the level of its
loan loss reserves through periodic credit reviews by members of the Company's
Management Credit Committee. The Management Credit Committee, which reports to
the Executive Committee of the Company's Board of Directors, also works on the
collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, levels of potential problem
loans, which generally have varying degrees of loan collateral and repayment
issues, on the watched asset reports. Workout approach and financial condition
of borrowers are also key considerations to the evaluation of non-performing
loans.
Non-performing assets were $616,000 at December 31, 1999, compared to $731,000
at December 31, 1998, a decrease of $115,000 or 15.7%. The Company's percentage
of delinquent loans to total loans was .28% at December 31, 1999, as compared
to .36% at December 31, 1998. Management believes that while delinquency rates
and non-performing assets remain at relatively low levels at December 31, 1999.
Given these factors are at historic lows, at some point in the future some
degree of economic slow down would likely result in future increases in problem
assets and ultimately loan loss provisions. Management continues to monitor the
overall economic environment and its potential effects on future credit quality
on an ongoing basis.
At December 31, 1999, the Company had outstanding commitments to originate,
purchase and sell residential mortgage loans in the secondary market amounting
to $11,309,000, $0 and $2,730,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $13,789,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $13,369,000 as of December 31, 1999.
The Company believes it has adequate sources of liquidity to fund these
commitments.
The Company's total stockholders' equity was $27,832,000 or 4.0% of total
assets at December 31, 1999, compared with $33,060,000 or 5.6% of total assets
at December 31, 1998. The decrease in total stockholders' equity of
approximately $5,228,000 or 15.8% primarily resulted from decreases in the
unrealized gain on market value of available for sale securities, net of taxes.
Stock repurchases and dividends paid, were offset by earnings of the Company.
The Company issued $12,650,000 of 8.25% Trust Preferred Securities in June
1998. Under current regulatory guidelines, trust preferred securities are
allowed to represent up to approximately 25% of the Company's Tier 1 capital
with any excess amounts available as Tier 2 capital. As of December 31, 1999,
approximately $11,100,000 of these securities was included in Tier 1 capital.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 1999, the Company's Tier 1 leverage capital
ratio was approximately 5.94%. 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, 1999, the Company's Tier 1 and total risk-
based capital ratios were approximately 10.93% and 12.24%, 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, 1999.
Impact of the Year 2000
The Year 2000 problem, which was common to most companies, concerned the
inability of information systems, primarily (but not exclusively) computer
software programs, to properly recognize and process date-sensitive information
at or after Janaury 1, 2000. The following constitutes the Company's Year 2000
readiness disclosure under the Year 2000 Information and Readiness Disclosure
Act.
The Company took numerous remedial steps over the past several years to prepare
for the change of century. These steps included forming a Year 2000 Task Force
to identify possible issues and oversee their resolution; working with third
party data processing vendors to ensure that the Company's mission critical
information systems were Year 2000 compliant; and establishing contingency
plans in the event that an unforseen problem were to arise.
The Company has experienced no problems or issues relating to the Year 2000
problem as of the date of this report, nor is the Company aware of any material
problems or issues among its customers or vendors.
The chief components of the Company's Year 2000 expenses were generally related
to the costs of acquiring testing systems, cost of borrowing funds to acquire
additional cash and related transport and security costs for year end
contingent liquidity,
20
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A B I N G T O N B A N C O R P
<PAGE>
Management's Discussion and Analysis
independent auditors and consultants to assist the Task Force and management in
assessing the adequacy of its plan, testing of its systems, and propriety of
its conclusions and, in some instances, minor programming for system interfaces
and the purchase of non-mission critical software replacements which were
necessitated as a result of management's Year 2000 risk assessment and/or
testing. It is estimated that the Company directly incurred $160,000 and
$150,000 in expenses in 1999 and 1998, respectively, related to Year 2000. As
no material business or technical issues have arisen to this point since
January 1, 2000 related to Year 2000 matters, it is not anticipated that
material expenses should be incurred in the future as a result of these
matters.
Impact of Inflation
The Consolidated Financial Statements of the Company and related Financial Data
presented herein have been prepared in accordance with generally accepted
accounting principles which generally require the measurement of financial
condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies, almost
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
Proposed Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company does not expect that
the adoption of this Statement will have a material impact on the Company's
financial position or results of operation.
21
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
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. (a Massachusetts corporation) and subsidiaries ("the Company") as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, comprehensive income and cash
flows for each of the three years in the period ended December 31, 1999. 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Abington Bancorp, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
January 10, 2000
22
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A B I N G T O N B A N C O R P
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
ASSETS
Cash and due from banks (Note 19) $ 33,497 $ 15,424
Short-term investments 225 4,293
--------- ---------
Total cash and cash equivalents 33,722 19,717
--------- ---------
Loans held for sale (Notes 1 and 7) 2,730 3,901
Securities (Notes 1, 5, 10 and 11):
Available for sale - at fair value 235,623 181,346
Loans (Notes 1, 7, 10 and 11) 390,122 360,665
Less: Allowance for possible loan losses (3,701) (3,077)
Unearned income (441) (754)
--------- ---------
Loans, net 385,980 356,834
--------- ---------
Federal Home Loan Bank stock, at cost 12,910 9,538
Banking premises and equipment, net (Note 8) 9,037 8,328
Other real estate owned, net (Note 7) - -
Intangible assets (Notes 1, 2 and 3) 3,161 2,789
Bank-owned life insurance - contract value (Note 21) 3,348 3,184
Deferred tax asset, net (Note 12) 4,146 -
Other assets (Note 21) 5,593 5,514
--------- ---------
$ 696,250 $ 591,151
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 9) $ 389,692 $ 363,953
Short-term borrowings (Note 10) 152,551 66,628
Long-term debt (Note 11) 107,200 110,500
Accrued taxes and expenses (Notes 12 and 15) 2,552 3,286
Other liabilities 4,413 1,790
--------- ---------
Total liabilities 656,408 546,157
--------- ---------
Guaranteed preferred beneficial interests in the Company's junior
subordinated debentures (Note 3) 12,010 11,934
Commitments and contingencies (Note 13)
Stockholders' equity (Notes 4, 5, 14, 17, 18 and 20):
Serial preferred stock, $.10 par value, 3,000,000 shares
authorized; none issued - -
Common stock, $.10 par value, 12,000,000 shares
authorized; 4,834,000 shares issued in 1999
and 4,795,000 shares issued in 1998 483 480
Additional paid-in capital 22,610 21,830
Retained earnings 26,176 23,182
--------- ---------
49,269 45,492
Treasury stock - 1,641,000 and 1,448,000 shares
in 1999 and 1998, at cost (15,885) (13,283)
Compensation plans 29 (114)
Net unrealized gain (loss) on available for sale
securities, net of taxes (5,581) 965
--------- ---------
Total stockholders' equity 27,832 33,060
--------- ---------
$ 696,250 $ 591,151
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands, except per share data)
Interest and dividend income:
Interest and fees on loans (Notes 1, 6 and 7) $ 27,828 $ 26,281 $ 24,838
Interest on mortgage-backed investments 9,439 8,393 9,045
Interest on bonds and obligations 4,237 3,027 1,775
Dividend income 706 627 589
Interest on short-term investments 32 114 50
---------- ---------- ----------
Total interest and dividend income 42,242 38,442 36,297
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 9) 11,389 11,751 11,057
Interest on short-term borrowings (Note 10) 4,943 2,279 2,557
Interest on long-term debt (Note 11) 6,760 7,555 6,477
---------- ---------- ----------
Total interest expense 23,092 21,585 20,091
---------- ---------- ----------
Net interest income 19,150 16,857 16,206
Provision for possible loan losses (Note 7) 640 760 630
---------- ---------- ----------
Net interest income after provisions for
possible loan losses 18,510 16,097 15,576
---------- ---------- ----------
Non-interest income:
Loan servicing fees (Note 7) 365 469 558
Other customer service fees 4,491 3,816 3,276
Gain on sales of securities, net 823 1,731 540
Gain on sales of mortgage loans, net 1,222 492 236
Net gain on sales and write-down of other
real estate owned 68 43 109
Other (Note 21) 404 358 267
---------- ---------- ----------
Total non-interest income 7,373 6,909 4,986
---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits (Notes 13, 15 and 18) 9,236 7,832 6,660
Occupancy and equipment expenses (Notes 8 and 13) 3,377 2,679 2,420
Trust preferred securities expense (Note 3) 1,120 586 -
Other non-interest expenses (Note 16) 5,687 5,170 4,425
---------- ---------- ----------
Total non-interest expense 19,420 16,267 13,505
---------- ---------- ----------
Income before income taxes 6,463 6,739 7,057
Provision for income taxes (Note 12) 2,314 2,368 2,679
---------- ---------- ----------
Net income $ 4,149 $ 4,371 $ 4,378
========== ========== ==========
Earnings per share (Note 1):
Basic -
Net income per share $ 1.26 $ 1.25 $ 1.18
========== ========== ==========
Weighted average common shares 3,285,000 3,491,000 3,716,000
========== ========== ==========
Diluted -
Net income per share $ 1.20 $ 1.17 $ 1.10
========== ========== ==========
Weighted average common shares
and share equivalents 3,460,000 3,722,000 3,966,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
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A B I N G T O N B A N C O R P
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional on Available
Common Paid-in Retained Treasury for Sale Compensation
(Dollars in thousands) Stock Capital Earnings Stock Securities Plans Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 71 - - - - 72
Amortization of unearned
compensation - ESOP - 100 - - - 81 181
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
Net income - - 4,371 - - - 4,371
Issuance of stock 12 656 - - - - 668
Amortization of unearned
compensation - ESOP - 80 - - - 81 161
Obligation related to directors'
deferred stock plan - - - - - 36 36
Dividends declared ($.30 per share) - - (1,047) - - - (1,047)
Repurchase of common stock - - - (7,352) - - (7,352)
Effect of reclassification of securities
from held-to-maturity to available for
sale, net of taxes - - - - 245 - 245
Change in market value on available
for sale securities, net of taxes - - - - (343) - (343)
---- ------- -------- --------- -------- ------ --------
Balance at December 31, 1998 $480 $21,830 $ 23,182 $ (13,283) $ 965 $ (114) $ 33,060
Net income - - 4,149 - - - 4,149
Issuance of stock 3 691 - - - - 694
Amortization of unearned
compensation - ESOP - 89 - - - 81 170
Obligation related to directors'
deferred stock plan - - - - - 62 62
Dividends declared ($.35 per share) - - (1,155) - - - (1,155)
Repurchase of common stock - - - (2,602) - - (2,602)
Change in market value on available
for sale securities, net of taxes - - - - (6,546) - (6,546)
---- ------- -------- --------- -------- ------ --------
Balance at December 31, 1999 $483 $22,610 $ 26,176 $ (15,885) $ (5,581) $ 29 $ 27,832
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Net income, as reported $ 4,149 $4,371 $4,378
Unrealized gains (losses) on securities, net of taxes (6,011) 782 1,448
Less: Reclassification adjustment for securities gains
included in net income, net of taxes 535 1,125 335
-------- ------ ------
Comprehensive income (loss) before transfers
of held-to-maturity securities (2,397) 4,028 5,491
Add: Net unrealized gains on securities transferred from held-
to-maturity to available for sale, net of taxes - 245 -
-------- ------ ------
Comprehensive income (loss) $ (2,397) $4,273 $5,491
======== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
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A B I N G T O N B A N C O R P
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 4,149 $ 4,371 $ 4,378
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 640 760 630
Net gain on sales and write-down of other real estate
owned and investment in limited partnership (68) (43) (109)
Amortization, accretion and depreciation, net 1,855 1,800 1,798
Provision for (prepaid) deferred taxes (225) (66) (166)
Gain on sales of securities, net (823) (1,731) (540)
Gain on sales of mortgage loans, net (1,222) (492) (236)
Loans originated for sale in the secondary market (94,000) (34,481) (17,688)
Proceeds from sales of loans 95,171 32,404 19,768
Other, net 2,144 (3,505) (1,101)
---------- ---------- ---------
Net cash (used in) provided by operating activities 7,621 (983) 6,734
---------- ---------- ---------
Cash flows from investing activities:
Net cash paid for Old Colony acquisition (1,113) - -
Purchase of held for investment securities (2,844) (8,968)
Proceeds from principal payments received and
redemptions of held for investment securities - 5,562 8,571
Proceeds from sales of available for sale securities 7,102 74,624 32,126
Proceeds from principal payments on and maturities of available for
sale securities 35,424 49,979 19,041
Purchase of available for sale securities (106,742) (142,019) (58,323)
Loans originated/purchased, net of amortization and payoffs (24,992) (28,134) (34,721)
Purchases of FHLB stock (3,372) (1,387) (248)
Purchase of banking premises and equipment (2,091) (3,269) (1,192)
Proceeds from sales of other real estate owned 68 308 769
---------- ---------- ---------
Net cash used in investing activities (95,716) (47,180) (42,945)
---------- ---------- ---------
Cash flows from financing activities:
Net increase in deposits 25,739 39,019 24,489
Net increase (decrease) in borrowings with maturities
of 3 months or less 107,719 (14,282) 19,739
Proceeds from issuance of short-term borrowings with maturities in
excess of 3 months 10,000 45,000 20,000
Principal payments on short-term borrowings with maturities in excess
of 3 months (35,000) (20,000) (47,000)
Proceeds from issuance of long-term debt 66,700 50,000 49,500
Principal payments on long-term debt (70,000) (49,500) (23,853)
Net proceeds on issuance of guaranteed preferred beneficial interests
in junior subordinated debentures 11,915 -
Payment of cash dividends (1,150) (1,062) (741)
Purchase of treasury stock (2,602) (7,352) (2,228)
Proceeds from the exercise of stock options 694 667 72
---------- ---------- ---------
Net cash provided by financing activities 102,100 54,405 39,978
---------- ---------- ---------
Net increase in cash and cash equivalents 14,005 6,242 3,767
Cash and cash equivalents at beginning of year 19,717 13,475 9,708
---------- ---------- ---------
Cash and cash equivalents at end of year $ 33,722 $ 19,717 $ 13,475
========== ========== =========
</TABLE>
27
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Supplemental cash flow information:
Interest paid on deposits $ 11,419 $11,718 $11,063
Interest paid on borrowed funds 11,907 9,807 8,935
Income taxes paid 1,517 3,154 3,717
Transfers of loans to other real estate owned - - 425
Transfers of securities to available for sale
from held for investment - 61,232 -
Acquisition:
Liabilities assumed 3,370 - -
Less: assets purchased 3,688 - -
Premium paid 795 - -
-------- ------- -------
Net cash paid $ (1,113) $ - $ -
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Presentation
and Consolidation
The consolidated financial statements include the accounts of Abington Bancorp,
Inc. (the "Company") (a Massachusetts corporation) and its wholly-owned
subsidiaries, Abington Savings Bank (the "Bank") and Abington Bancorp Capital
Trust (See Note 3). 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, Abington Securities
Corporation, which invests primarily in obligations of the United States
Government and its agencies and equity securities and Old Colony Mortgage which
originates and sells loans to investors on a servicing released basis (See Note
2).
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 one share of common stock of the Company, and the Bank became
a wholly-owned subsidiary of the Company. This reorganization had no impact on
the consolidated financial statements. 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 1998 and 1997 consolidated financial statements have
been reclassified to conform to the 1999 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:
o 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.
o 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.
o Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at fair 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 or held for
investment at December 31, 1999 and 1998.
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.
As of June 30, 1998, the Company elected to transfer the balance of its
securities classified as held for investment to available for sale in
accordance with the guidelines set forth by Statement of Financial Accounting
Standards (SFAS) No. 115. This decision was made by the Board of Directors and
management of the Company after a review of its policies and practices of
accounting for investments in light of recent economic changes and given
potential opportunities from an asset/liability management perspective. At the
time of transfer there had been no sales or transfers of securities which would
otherwise necessitate this broad reclassification. However, the
reclassification was made as of June 30, 1998 to more accurately reflect the
Company's change in intention with respect to securities previously classified
as held for investment. Under Securities Exchange Commission guidelines, this
reclassification prohibits the Company from classifying securities as held for
investment for a period of at least 2 years.
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 market
and the general economic conditions in the Company's market area.
Of the total loan portfolio at December 31, 1999, approximately 42% represents
owner-occupied first mortgages located outside of Massachusetts, throughout the
United States. In this purchased loan portfolio, the Company owns approximately
$29,300,000, $11,400,000 and $11,100,000 of loans collateralized by residential
properties located in California, Pennsylvania and Maryland, respectively. No
other concentration in any other states, except for Massachusetts, exceeds 2.5%
of total residential mortgage 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 loans.
Unearned discounts are amortized under the interest method over
29
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
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, trends in levels of watched or criticized assets, 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, 1999 is based on
management's estimate of the amount required to absorb losses in the loan
portfolio based on known current circumstances including real estate market
conditions. Additionally, management assesses the risk of increased, inherent
but unidentified losses which are believed to exist based on evaluation of
watched asset report trends and migration analysis, the results of which are
reflected in current reserves. However, uncertainty exists as to future trends
in the local economy and real estate market. If there is significant
deterioration in the local economy the Company would expect increases in
non-performing loans requiring 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.
Mortgage Servicing Rights
The Company adopted 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. No mortgage servicing rights were
capitalized in 1997, 1998 nor 1999 as substantially all loan sales on the
secondary market were made on a servicing released basis. All previously
capitalized mortgage servicing rights totaling $103,000 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 subsequent
declines in value are identified, 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
The management of the Company reviews long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If impairment is deemed to exist, long-lived assets and certain
identifiable intangibles are reported at the lower of the carrying amount or
fair value less cost to sell.
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 investments in a real estate limited partnership which is
accounted for on the cost recovery method and have been substantially
written-off as of December 31, 1998. The carrying value of this investment and
related deferred tax assets is periodically evaluated by management as to its
expected future recoverability and write-downs are recorded once an 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 7 to 15 years. The carrying value of these assets is
periodically evaluated by management as to their expected future
recoverability. To date no write-downs have been recognized.
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." The only reconciling difference between the Company's computation of
basic and diluted earnings per share is the dilutive effect of stock options
issued and unexercised (see Note 17 for stock options). 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
30
- ---
A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
of a stock dividend payable on December 12, 1997, to shareholders 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.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for the 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; unrealized gains and losses on debt and equity securities in
the case of the Company. 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.
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 17). 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.
Accounting for Derivative
Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The Statement, as amended by SFAS No. 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company does not expect that the adoption of this Statement will have
a material impact on the Company's financial position or results of operation.
2. Acquisition of Old Colony Mortgage
- --------------------------------------------------------------------------------
On April 1, 1999, the Company acquired all of the outstanding common stock of
Old Colony Mortgage Corporation (OCM) for $1.3 million in cash. OCM is
headquartered in Brockton, Massachusetts and has loan production offices in
Plymouth, Fall River and Auburn, Massachusetts. OCM primarily originates
residential first-lien mortgages which are subsequently sold on a servicing
released basis to investors, which include a number of banks and mortgage
companies.
As of April 1, 1999, OCM had approximately $4.1 million in assets, which were
primarily loans held for sale, and liabilities of approximately $3.3 million,
most of which were borrowings outstanding on a warehouse line with an
independent third party. This transaction was accounted for under the purchase
method of accounting.
3. Guaranteed Preferred Beneficial Interest in the Company's Junior Subordinated
Debentures (Trust Preferred Securities)
- --------------------------------------------------------------------------------
In May 1998, the Company formed a Delaware business trust, Abington Bancorp
Capital Trust (the "Trust"). All of the common securities of this special
purpose Trust are owned by the Company; the Trust exists solely to issue
capital securities. For financial reporting purposes, the Trust is reported as
a subsidiary and is consolidated into the financial statements of Abington
Bancorp, Inc. and subsidiaries. The capital securities are presented as a
separate line item on the consolidated balance sheet as a guaranteed preferred
beneficial interest in the Company's Junior Subordinated Debentures (trust
preferred securities). The Trust has issued trust preferred securities and
invested the net proceeds in junior subordinated deferrable interest debentures
(subordinated debentures) issued to the Trust by the Company. The subordinated
debentures are the sole assets of the Trust. The Company has the right to defer
payment of interest on the subordinated debentures at any time, or from time to
time, for periods not exceeding 5 years. If interest payments on the
subordinated debentures are deferred, the distributions on the trust preferred
securities are also deferred. Interest on the subordinated debentures is
cumulative. The Company, through guarantees and agreements, has fully and
unconditionally guaranteed all of the Trust's obligations under the trust
preferred securities.
The Federal Reserve Bank has accorded the trust preferred securities Tier 1
capital status. The ability to apply Tier 1 capital treatment, as well as to
deduct the expense of the subordinated debentures for income tax purposes,
provided the Company with a cost-effective way to raise regulatory capital. The
trust preferred securities are not included as a component of total
shareholders' equity on the consolidated balance sheet.
The 8.25% trust preferred securities pay quarterly distributions which
commenced on the last day of September 1998. The Trust issued 1,265,000 shares
of $10 per share liquidation value per preferred security at a total cost of
approximately $735,000 which has been deferred and is netted against the
outstanding value of the trust preferred securities on the accompanying balance
sheet. The offering costs are being amortized over the anticipated life of the
trust preferred securities, which will mature on June 30, 2029. Distributions,
including those accrued and accumulated, and amortization expense of $1,120,000
and $586,000, for 1999 and 1998, respectively, relating to these trust
preferred securities is reflected as minority interest in non-interest expense.
31
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
The maturity date may be shortened to a date not earlier than 2003 if certain
conditions are met, including obtaining approval from the Board of Governors of
the Federal Reserve System. The redemption price of the trust preferred
securities would equal the liquidation value of each security.
4. 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,
1999, that the Company and the Bank met all capital adequacy requirements to
which they are subject. As of December 31, 1999, the most recent notification
from the FDIC categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the institution's
category. To be considered well-capitalized under the regulatory framework for
prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier
1 risk-based, and total risk-based capital ratios as set forth in the table
below.
<TABLE>
<CAPTION>
To be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
As of December 31, 1999:
Company
Total capital (to risk-weighted assets) $46,354 12.24% $30,304 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) $41,389 10.93% $15,152 4.00% N/A N/A
Tier 1 capital (to average assets) $41,389 5.94% $27,871 4.00% N/A N/A
Bank
Total capital (to risk-weighted assets) $42,040 11.22% $29,981 8.00% $37,477 10.00%
Tier 1 capital (to risk-weighted assets) $38,339 10.23% $14,990 4.00% $22,486 6.00%
Total capital (to average assets) $38,339 5.50% $27,883 4.00% $34,854 5.00%
As of December 31, 1998:
Company
Total capital (to risk-weighted assets) $44,399 13.86% $25,633 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) $40,004 12.49% $12,817 4.00% N/A N/A
Tier 1 capital (to average assets) $40,004 7.27% $22,024 4.00% N/A N/A
Bank
Total capital (to risk-weighted assets) $36,792 11.56% $25,460 8.00% $31,825 10.00%
Tier 1 capital (to risk-weighted assets) $33,715 10.59% $12,730 4.00% $19,095 6.00%
Total capital (to average assets) $33,715 5.95% $22,668 4.00% $28,335 5.00%
</TABLE>
32
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
5. Securities
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities classified as available for
sale at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities:
U.S. Government obligations $ 616 $ - $ 18 $ 598
Federal agency obligations 43,815 4 2,374 41,445
Other bonds and obligations 25,658 6 1,878 23,786
-------- ------ ------- --------
Total investment securities 70,089 10 4,270 65,829
-------- ------ ------- --------
Marketable equity securities 7,292 1,458 585 8,165
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation 11,607 8 476 11,139
Federal National
Mortgage Association 54,045 148 1,437 52,756
Government National
Mortgage Association 29,791 33 924 28,900
Other 72,100 14 3,280 68,834
-------- ------ ------- --------
Total mortgage-backed securities 167,543 203 6,117 161,629
-------- ------ ------- --------
$244,924 $1,671 $10,972 $235,623
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
At December 31, 1998
- ------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities:
U.S. Government obligations $ 652 $ 23 $ - $ 675
Federal agency obligations 25,842 204 92 25,954
Other bonds and obligations 20,799 303 881 20,221
-------- ------ ------ --------
Total investment securities 47,293 530 973 46,850
-------- ------ ------ --------
Marketable equity securities 4,339 727 270 4,796
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation 14,540 125 36 14,629
Federal National
Mortgage Association 45,527 818 22 46,323
Government National
Mortgage Association 22,943 172 81 23,034
Other 45,096 890 272 45,714
-------- ------ ------ --------
Total mortgage-backed securities 128,106 2,005 411 129,700
-------- ------ ------ --------
$179,738 $3,262 $1,654 $181,346
======== ====== ====== ========
</TABLE>
The fair value and amortized cost of investments and mortgage-backed
securities, respectively, at December 31, 1999 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.
<TABLE>
<CAPTION>
Investment Securities Amortized Cost % to Total Fair Value
- ------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Within 1 year $ 2,623 3.7% $ 2,562
Over 1 year to 5 years 7,935 11.3 7,669
Over 5 years to 10 years 29,851 42.6 28,256
Over 10 years 29,680 42.4 27,342
------- ----- -------
$70,089 100.0% $65,829
======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
- --------------------------------------------------
(Dollars in thousands)
Amortized Fair
Cost Value
---------------------
<S> <C> <C>
Within 1 year $ - $ -
Over 1 year to 5 years - -
Over 5 years to 10 years 20,189 20,241
Over 10 years 147,354 141,388
-------- --------
$167,543 $161,629
======== ========
</TABLE>
33
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
Gross gains on sales of marketable equity securities were $825,000, $1,591,000
and $687,000, for 1999, 1998 and 1997, respectively. There were losses of
$118,000 on sales of equity securities in 1998. There were no losses on sales
of equity securities in 1999 or 1997.
Gross gains on sales of investment securities were $0, $12,000 and $0 for 1999,
1998 and 1997, respectively. Gross losses on sales of investment securities
were $2,000, $0, and $54,000 for 1999, 1998 and 1997, respectively.
Proceeds from sales of mortgage-backed investments classified is available for
sale during 1999, 1998 and 1997, were $1,456,000, $58,011,000 and $26,402,000
respectively. Gross gains of $0, $324,000 and $142,000 in 1999, 1998 and 1997,
respectively, were realized on those sales. Gross losses of $0, $78,000 and
$235,000 were realized in 1999, 1998 and 1997, respectively.
A U.S. agency obligation security with a carrying value of $1,023,000 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 10.
6. 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 national 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 recognized by the Bank during 1997
as a result of this agreement was $34,000.
7. Loans and Other Real Estate Owned
- --------------------------------------------------------------------------------
A summary of the loan portfolio follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Mortgage loans:
Residential $290,036 $270,887
Second mortgages and home equity 23,490 20,339
Construction 5,883 7,109
Commercial 51,973 50,493
-------- --------
371,382 348,828
Less: Due to borrowers on incomplete loans (2,437) (2,557)
Net deferred loan fees (381) (626)
-------- --------
Total mortgage loans 368,564 345,645
Commercial loans:
Unsecured lines of credit 128 211
Secured and unsecured 16,369 9,262
-------- --------
16,497 9,473
Net deferred loan fees (59) (127)
-------- --------
Total commercial loans 16,438 9,346
Other loans:
Indirect automobile - 158
Personal 1,243 1,393
Education - 62
Passbook and other secured 5,950 6,951
Home improvement 216 257
-------- --------
Total other loans 7,409 8,821
-------- --------
Total loans 392,411 363,812
Less: allowance for possible loan losses (3,701) (3,077)
-------- --------
Loans and loans held for sale, net $388,710 $360,735
======== ========
</TABLE>
34
- ---
A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
Included in residential mortgages at December 31, 1999 and 1998, are
approximately $2,730,000 and $3,901,000, respectively, of loans held for sale.
At December 31, 1999 and 1998, 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
$121,407,000 and $153,145,000 at December 31, 1999 and 1998, respectively.
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 amounted to any related party amounted to $1,171,000 at
December 31, 1999, and $1,216,000 at December 31, 1998. During the year ended
December 31, 1999, total principal additions were $7,000 and total principal
reductions were $52,000.
The following analysis summarizes the Company's non-performing assets at
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Impaired loans and/or loans accounted for on a non-accrual basis $616 $681
Accruing loans past due 90 days or more as to principal or interest -- 50
---- ----
Total non-performing loans 616 731
Other real estate owned, net -- --
---- ----
Total non-performing assets $616 $731
==== ====
</TABLE>
Impaired loans totaling $397,000 and $77,000 at December 31, 1999 and 1998,
respectively, required an allocation of $75,000 and $20,000, respectively, of
the allowance for possible loan losses. The remaining impaired or non-accrual
loans did not require any allocation of the reserve for possible loan losses.
The average balance of impaired loans and loans accounted for on a non-accrual
basis, was approximately $666,000, $622,000 and $966,000 in 1999, 1998 and
1997, respectively. The total amount of interest income recognized on impaired
loans during 1999, 1998 and 1997 was approximately $64,000, $55,000 and
$50,000, 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, 1999 1998
- ------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Balance at beginning of year $3,077 $2,280
Provision 640 760
Recoveries 248 261
------ ------
3,965 3,301
Loans charged-off (264) (224)
------ ------
Balance at end of year $3,701 $3,077
====== ======
</TABLE>
8. 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>
Years Ended December 31, 1999 1998 Estimated Useful Lives
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Banking premises:
Land $ 1,971 $ 1,971
Buildings and improvements 6,347 5,345 10-25 years
Leasehold improvements 1,018 883 10-15 years
Equipment 10,466 9,597 3-10 years
--------- --------
19,802 17,796
Less accumulated depreciation (10,765) (9,468)
--------- --------
$ 9,037 $ 8,328
========= ========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
amounted to $1,422,000, $1,235,000 and $1,243,000, respectively.
35
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
9. Deposits
- --------------------------------------------------------------------------------
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Non-interest NOW $ 45,277 $ 43,874
NOW 54,102 50,569
Other savings 101,832 90,823
Money market deposits 19,199 14,995
-------- --------
Total non-certificate accounts 220,410 200,261
Term certificate accounts 133,563 131,305
Certificates of deposit greater than $100 35,719 32,387
-------- --------
Total certificate accounts 169,282 163,692
-------- --------
Total deposits $389,692 $363,953
======== ========
</TABLE>
A summary of certificate accounts by maturity is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
Weighted Weighted
Amount Average Rate Amount Average Rate
----------------------- ---------------------
<S> <C> <C> <C> <C>
Within 1 year $133,323 5.14% $119,064 5.24%
Over 1 year to 3 years 29,098 5.15 38,886 5.82
Over 3 years to 5 years 6,872 5.13 5,742 5.25
-------- --------
$169,282 5.14% $163,692 5.38%
======== ========
</TABLE>
10. Short-Term Borrowings
- --------------------------------------------------------------------------------
Short-term borrowings consist primarily of Federal Home Loan Bank (FHLB)
advances with original maturities of 1 year or less. All borrowings from the
FHLB 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, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Maximum amount of borrowings outstanding during the year $ 158,757 $ 83,778 $ 94,506
Average month-end borrowings outstanding during the year $ 96,005 $ 42,039 $ 45,833
Average interest rate during the year 5.15% 5.42% 5.58%
Unused line of credit at FHLB $ 9,733 $ 9,733 $ 4,780
Amount outstanding at end of year $ 152,551 $ 66,628 $ 55,910
Weighted average interest rate at end of year 5.29% 5.09% 5.68%
</TABLE>
36
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
11. Long-Term Debt
- --------------------------------------------------------------------------------
A summary of long-tern 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, 1999 December 31, 1998
- -----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
May 4, 1999* 5.05% $ - $ 5,000
May 13, 1999 6.38 - 4,000
September 16, 1999 6.66 - 5,000
October 20, 1999 6.06 - 5,000
November 1, 1999 6.23 - 5,000
February 24, 2000** 5.79 - 16,000
March 6, 2000 6.51 4,000 4,000
March 20, 2000 6.61 5,000 5,000
April 11, 2000 6.82 4,000 4,000
September 14, 2000 5.15 5,000 5,000
October 20, 2000 6.21 5,000 5,000
December 4, 2000 5.51 5,000 -
December 20, 2000 5.74 3,350 -
March 6, 2001 6.66 4,000 4,000
March 19, 2001 5.44 5,000 -
March 19, 2001 6.77 5,000 5,000
April 11, 2001 6.98 4,000 4,000
May 14, 2001 6.74 4,000 4,000
June 22, 2001 5.86 3,350 -
September 17, 2001 6.15 5,000 -
March 4, 2002 6.14 4,000 -
May 24, 2002** 5.51 16,000 -
August 30, 2004++ 5.79 5,000 -
November 8, 2004+++ 5.58 5,000 -
January 8, 2008*** 4.99 - 15,000
September 2, 2008**** 4.99 - 5,000
November 1, 2009* 5.54 5,000 -
November 9, 2009** 5.57 10,000 -
December 9, 2017 5.66 500 500
July 27, 2017+ 4.99 - 10,000
-------- --------
$107,200 $110,500
======== ========
</TABLE>
* LIBOR floating advance with a monthly reset
** Variable rate advance with quarterly resets; with prepayment option at
reset dates without penalty
*** Option advance; callable quarterly at FHLB option commencing January 8,
1999
**** Option advance; callable quarterly at FHLB option commencing September 1,
1999
+ Option advance; callable quarterly at FHLB option commencing July 28, 1999
++ Option advance; callable quarterly at FHLB option commencing August 30,
2001
+++ Option advance; callable quarterly at FHLB option commencing November 8,
2000
37
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
12. Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Current: Federal $2,373 $2,325 $2,509
State 166 109 336
------ ------ ------
2,539 2,434 2,845
Deferred: Federal (129) (49) (121)
State (96) (17) (45)
------ ------ ------
(225) (66) (166)
------ ------ ------
Total $2,314 $2,368 $2,679
====== ====== ======
</TABLE>
The reason for the differences between the effective tax rates and the
statutory tax rate are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 1.1 .9 2.7
Amortization of non-deductible goodwill 1.1 .6 .6
Other, net (.4) (.4) .7
----- ----- -----
35.8% 35.1% 38.0%
===== ===== =====
</TABLE>
The components of net deferred taxes as recorded as of December 31, 1999 and
1998 are as follows (assets/(liabilities)):
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Loan loss reserves $1,462 $1,179
Depreciation 308 228
Accrued pension 175 159
Equity in partnership losses (1,519) (1,474)
Core deposit intangible/goodwill (122) (168)
Other, net 122 (234)
------ ------
426 (310)
Deferred tax assets (liabilities) applicable to
unrealized (gains) losses on securities 3,720 (658)
------ ------
Net deferred tax assets (liabilities) $4,146 $ (968)
====== ======
</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 was 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, 1999, 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.
38
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
13. 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
The Company is a defendant in various legal claims incident to its business,
none of which is believed by management, based on the advice of legal counsel,
to be material to the consolidated financial statements.
Special Termination Agreements
The Company has entered into Special Termination Agreements with six officers
which provide for a lump-sum severance payment if there is a terminating event
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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
At December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Contract amount of:
Commitments to grant loans $21,727 $11,071
Commitments to sell loans 2,730 3,428
Unadvanced funds on home equity lines of credit 13,789 11,085
Unadvanced funds on other lines of credit 516 499
Commitments to advance funds under
construction loan agreements 2,437 2,557
Commitments to purchase loans - 26,580
</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.
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, 1999:
<TABLE>
<CAPTION>
Year Amount
- ------------------------------
<S> <C>
(Dollars in thousands)
2000 $ 460
2001 464
2002 477
2003 443
2004 445
2005 and thereafter 1,912
------
$4,201
======
</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, 1999,
1998 and 1997 amounted to approximately $475,000, $338,000 and $238,000,
respectively.
14. 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 the 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
39
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
which may be paid at any date is generally limited to the undivided profits of
the Company. Undivided profits at the Company totaled $26,176,000 at December
31, 1999. 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 4.)
15. Employee Benefit Plan
- --------------------------------------------------------------------------------
The Company 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. Employees are also able to participate in a contributory
plan administered by SBERA based on the same eligibility requirements. The
Company has no obligation to contribute to this plan.
Net periodic pension expense for the plan years ended October 31, 1999, 1998
and 1997, consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Benefit obligation at beginning of year $ 3,501 $3,172
Service cost 353 350
Interest cost 224 215
Actuarial loss (gain) (498) (87)
Benefits paid (214) (149)
-------- ------
Benefit obligation at end of year $ 3,366 $3,501
======== ======
Value of vested benefits $ 2,407 $2,168
Accumulated benefit obligation $ 2,458 $2,212
Change in plan assets:
Fair value of plan assets at beginning of year $ 3,652 $3,214
Actuarial return on plan assets 731 264
Contributions 175 323
Benefits paid (214) (149)
-------- ------
Fair value of plan assets at end of year $ 4,344 $3,652
======== ======
Funding status:
Transition liability/(asset) $ (73) $ (80)
Deferred loss/(gain) (1,342) (449)
Accrued expense 437 378
-------- ------
Net amount recognized $ (978) $ (151)
======== ======
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Components of net periodic benefit cost:
Service cost $ 353 $ 350 $ 247
Interest cost 224 215 190
Expected return on plan assets (310) (278) (217)
Amortization of prior service cost (7) (6) (7)
Recognized net actuarial gain (26) (23) (23)
----- ----- -----
Net periodic benefit cost $ 234 $ 258 $ 190
===== ===== =====
Weighted average assumptions:
Discount rate 6.75% 7.00% 7.25%
Expected return on plan assets 8.50% 8.50% 8.00%
Rate of compensation increase 5.00% 5.50% 6.00%
</TABLE>
40
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
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 1999, 1998 and 1997 was approximately $340,000, $204,000 and
$310,000, respectively.
16. Other Non-Interest Expense
- --------------------------------------------------------------------------------
Other non-interest expense consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Professional services $1,600 $1,317 $1,144
Item processing and statement rendering 423 395 368
Advertising 833 874 746
Deposit insurance 68 65 67
Real estate in foreclosure and other real estate
owned 27 56 86
Amortization of intangible assets 617 495 387
Other 2,119 1,968 1,627
------ ------ ------
$5,687 $5,170 $4,425
====== ====== ======
</TABLE>
Professional services include amounts paid for legal services, audits and
regulatory examinations.
17. 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 ("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 subsidiaries, 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 subsidiaries, 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) in the form of shares of common
stock having a fair market value equal to the exercise price of such shares,
(iii) by reducing the number of option shares otherwise issuable to the
optionee upon exercise of the option by a
41
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
number of shares having a fair market value equal to the aggregate exercise
price of such shares, (iv) by delivering such other consideration that is
acceptable and that has a fair market value, equal to the aggregate exercise
price of such shares, including any broker-directed cashless exercise/resale
procedure adopted by the Compensation Committee, or (v) 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 the 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 $20.75 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, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
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 371,400 $ 7.80 430,024 $ 5.59 398,824 $ 4.40
Granted 113,083 13.79 85,000 19.02 46,500 15.50
Exercised (38,500) 3.14 (119,624) 5.58 (15,300) 4.75
Canceled (5,000) 14.88 (24,000) 19.00 - -
------- ------ -------- ------ ------- ------
Outstanding at end of year 440,983 $ 9.66 371,400 $ 7.80 430,024 $ 5.59
======= ====== ======== ====== ======= ======
Exercisable at end of year 289,344 $ 6.42 309,050 $ 5.53 430,024 $ 5.59
======= ====== ======== ====== ======= ======
Option price per share $ 1.50-$20.75 $ 1.50-$20.75 $ 1.50-$15.50
Weighted average fair value of
options granted during the year $5.10 $6.39 $5.09
</TABLE>
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 48,000, 60,000 and 46,500 shares of common stock in 1999, 1998
and 1997, respectively, 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 pur-chases. The exercise price was at
least equal 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.
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.
At December 31, 1999, based on the closing price of the Company's stock of
$10.56, there were approximately 56,444 shares which were vested, with exercise
prices ranging from $14.00 to $15.50, which were not considered dilutive for
purposes of earnings per share calculations.
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 1999, 1998, and 1997 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:
42
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands, except in share amounts)
Net income:
As reported $4,149 $4,371 $4,378
Pro forma 3,954 4,213 4,236
Earnings per share:
As reported -
Basic 1.26 1.25 1.18
Diluted 1.20 1.17 1.10
Pro forma -
Basic 1.20 1.21 1.14
Diluted 1.14 1.13 1.07
</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>
1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 32.62% 21.10% 21.10%
Risk-free interest rate 5.38% 5.75% 6.17%
Terms of options 7.0 yrs. 7.0 yrs. 7.0 yrs.
Expected dividend yield 1.80% 1.20% 1.40%
</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.
18. Employee Stock Ownership Plan
- --------------------------------------------------------------------------------
The Company has established an Employee Stock Ownership Plan ("ESOP") which is
being funded by the Company's contributions made in cash (which gener ally 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, 1999, 1998 and 1997
amounted to $170,000, $161,000 and $181,000, 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 to $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 1999, 1998 and
1997, the impact of the stock price market value in excess of original cost
increased the Company's ESOP expense by $89,000, $80,000 and $100,000,
respectively, in addition to normal amortization expense associated with the
participant's earn out of the shares allocated.
19. Restriction on Cash and Due from Banks
- --------------------------------------------------------------------------------
At December 31, 1999 and 1998, cash and due from banks included $6,162,000 and
$5,486,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.
20. Stock Repurchase Program
- --------------------------------------------------------------------------------
On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its
currently outstanding common stock from time to time at prevailing market
prices. On February 24, 1998, the Company announced that its Board of Directors
had authorized the Company to repurchase an additional 10% (347,000) of its
outstanding common stock, as adjusted for amounts remaining to be repurchased
under the March 1997 plan. On March 25, 1999, the Board of Directors authorized
the Company to repurchase an additional 10% (320,000) of its outstanding common
stock, as adjusted for amounts remaining to be purchased under the previously
authorized plans. The Board delegated to the discretion of the Company's senior
management the authority to determine the timing of the repurchase program's
commencement, subsequent purchases and the prices at which the repurchases will
be made.
43
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
As of March 3, 2000, the Company had repurchased 932,600 shares of its common
stock under these plans at a total cost of approximately $13,882,000.
21. Supplemental Executive Retirement Program
- --------------------------------------------------------------------------------
In 1998, the Company has a supplemental executive retirement plan with a single
participant. Under this arrangement, the individual is entitled to receive
monthly benefits for approximately 18 years in amounts specified in the
contract. Benefits commence upon retirement date which is deemed to be the age
of sixty-five. If death occurs during employment at the Company, the individual
designated as beneficiary will receive a distribution equal to 3 times the
annual salary of the executive, as determined under the plan. The key employee
vests in the rights under the supplemental retirement plan ratably over a 5
year period, which entitles this individual to the vested portion of the amount
accrued by the Company under the plan. This right is only exercisable in the
event the executive terminates employment from the Company prior to retirement
age. In March 1998, the Company also purchased a single life annuity insurance
policy. The contract was purchased at a cost of $2,863,184. The cash surrender
value is earning a rate of return, with a guaranteed minimum rate of 4%. In
addition, the Company has entered into a split dollar agreement with the
executive, which requires that any death benefit be shared between the Company
and the designated beneficiary, based on a predetermined schedule. The amounts
due to the beneficiary under the Plan are reduced to the extent death benefits
under the insurance contract are remitted to such beneficiary. The obligation
under the plan is being accrued over the expected employment period, through
age 65. Approximately $71,000 and $71,000 was charged to compensation expense
in 1999 and 1998, respectively. Income related to the increased value of the
insurance contract of $138,000 and $101,000 was recognized as other noninterest
income in 1999 and 1998, respectively. The contract values of $3,102,000 and
$2,964,000, at December 31, 1999 and 1998, respectively, are included in Bank-
owned life insurance in the Consolidated Balance Sheet.
22. Deferred Stock Compensation Plan
- --------------------------------------------------------------------------------
In 1998, the Company adopted a Deferred Stock Compensation Plan for directors
(the "Plan") which, for those directors who elected to participate, would, in
lieu of current cash payments, defer their compensation for attendance at
various meetings of the Board of Directors until retirement or some future point
in time to be determined. Furthermore, the deferred compensation is eligible to
be paid only in shares of the Company's common stock, the units earned of which
are predetermined for a fixed 3 year period based upon the Board meeting fee
schedule which was in effect as of July 1, 1998, divided by the stock price of
the Company's common shares at the close of business on July 1, 1998. This price
was $18.75 per share. The shares when earned are placed in a Rabbi Trust (the
"Trust") which is administered by an Independent Trustee. The voting for these
shares is controlled by the Independent Trustee although for accounting purposes
the shares are reflected as treasury shares until such time as the shares are
distributed. The expense associated with this plan is based upon the market
value of the shares of stock earned on the date of the respective meeting. There
are currently 6 directors who continue to participate in the Plan. The amount of
expense associated with this plan for 1999 and 1998 was $62,000 and $36,000,
respectively, which has been reflected as salaries expense with the
corresponding liability pertaining to stock earned and not yet distributed is
reflected in stockholders' equity. A total of 100,000 shares has been registered
for the Plan. There has been a total of approximately 6,983 and 2,400 shares
earned and deferred as of December 31, 1999 and 1998, respectively.
23. 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.
44
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
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, 1999 and 1998 are represented as follows:
<TABLE>
<CAPTION>
At December 31, 1999 1998
- ---------------------------------------------------------------------------------------
(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 $ 33,722 $ 33,722 $ 19,717 $ 19,717
Securities 235,623 235,623 181,346 181,346
Loans, including held for sale, net 388,710 397,044 360,735 383,736
Mortgage servicing rights - - - -
Financial instruments liabilities:
Deposits $389,692 $390,208 $363,953 $366,011
Short-term borrowings 152,551 152,717 66,628 66,920
Long-term debt 107,200 105,019 110,500 110,058
Off-balance sheet financial
instruments:
Commitments to grant loans $ 21,727 $ 21,727 $ 11,071 $ 11,071
Commitments to sell loans 2,730 2,730 3,428 3,428
Unadvanced funds on home equity
lines of credit 13,789 13,789 11,085 11,085
Unadvanced funds on other lines of
credit 516 516 499 499
Commitments to advance funds
under construction loan agreements 2,437 2,437 2,557 2,557
Commitments to purchase loans -- -- 26,580 26,580
</TABLE>
24. Business Segments
- --------------------------------------------------------------------------------
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting operating segments of a
business enterprise. The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. Operating segments are
components of an enterprise which are evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the President and
Chief Executive Officer. Historically, the Company has identified its
reportable operating business segment as Community Banking based on products
and services provided to the customer.
The Company's community banking business segment consists of commercial banking
and retail banking. The community banking business segment derives its revenues
from a wide range of banking services, including lending activities, acceptance
of demand, saving and time deposits, investment management, mortgage lending
and sales, as well as servicing income for investors.
On April 1, 1999, the Company acquired Old Colony Mortgage (see Note 2). As of
that date management has identified Mortgage banking as a separate identifiable
segment apart from that which had been historically considered community
banking.
45
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
Non-reportable operating segments of the Company's operations which do not have
similar characteristics to the community banking or mortgage banking operations
and do not meet the quantitative thresholds requiring disclosure are included
in the Other category in the disclosure of business segments below. These non-
reportable segments include the activity of the Parent Company (Note 25) and
the Trust. Consolidation adjustments are also included in the Other category.
The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies. The
consolidation adjustments reflects certain eliminations of interest segment
revenue, cash and Parent Company investments in subsidiaries.
Business Segments
<TABLE>
<CAPTION>
Reconciliation to Community Mortgage
Consolidated Financial Information Banking Banking Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
December 31, 1999:
Securities $235,623 $ - $ - $ - $235,623
Net loans 388,701 3,265 - (3,256) 388,710
Net assets 692,733 4,831 40,399 (41,753) 696,250
Total deposits 394,665 - - (4,973) 389,692
Total borrowings 259,751 3,256 - (3,256) 259,751
Total liabilities $660,673 3,407 557 (8,229) $656,408
Total interest income $ 42,219 $ 218 $ 92 $ (287) $ 42,242
Total interest expense 23,172 207 - (287) 23,092
Net interest income 19,047 11 92 - 19,150
Provisions for possible loan losses 640 - - - 640
Total non-interest income 6,387 1,200 - (214) 7,373
Total non-interest expense 16,850 1,281 1,289 - 19,420
Net income $ 5,150 $ (76) $ (788) $ (137) $ 4,149
December 31, 1998:
Securities $181,346 $ - $ - $ - $181,346
Net loans 360,735 - - - 360,735
Net assets 591,011 - 45,769 (45,629) 591,151
Total deposits 371,506 - - (7,553) 363,953
Total borrowings 177,128 - - - 177,128
Total liabilities $552,935 $ - $ 775 $ (7,553) $546,157
Total interest income $ 38,442 $ - $ 84 $ (84) $ 38,442
Total interest expense 21,669 - - (84) 21,585
Net interest income 16,773 - 84 - 16,857
Provisions for possible loan losses 760 - - - 760
Total non-interest income 6,909 - - - 6,909
Total non-interest expense 15,328 - 939 - 16,267
Net income $ 5,032 $ - $ (661) $ - $ 4,371
December 31, 1997:
Securities $165,052 $ - $ - $ - $165,052
Net loans 330,792 - - - 330,792
Net assets 531,770 - 37,167 (36,951) 531,986
Total deposits 326,120 - - (1,186) 324,934
Total borrowings 165,910 - - - 165,910
Total liabilities $496,006 $ - $ 845 $ (1,186) $495,665
Total interest income $ 36,297 $ - $ 13 $ (13) $ 36,297
Total interest expense 20,104 - - (13) 20,091
Net interest income 16,193 - 13 - 16,206
Provisions for possible loan losses 630 - - - 630
Total non-interest income 4,986 - - - 4,986
Total non-interest expense 13,198 - 307 - 13,505
Net income $ 4,600 $ - $ (222) $ - $ 4,378
</TABLE>
46
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
25. Parent Company Financial Statements - Abington Bancorp, Inc.
(Parent Company Only)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance Sheets December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
Assets:
Cash and cash equivalents $ 4,479 $ 7,553
Investment in subsidiaries 32,494 38,467
Other assets 3,817 140
------- -------
Total assets $40,790 $46,160
======= =======
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses and other liabilities $ 557 $ 775
Junior subordinated deferrable interest debentures 12,401 12,325
------- -------
Total liabilities 12,958 13,100
------- -------
Total stockholders' equity 27,832 33,060
------- -------
Total liabilities and stockholders' equity $40,790 $46,160
======= =======
</TABLE>
47
---
1 9 9 9 A N N U A L R E P O R T
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Twelve Months Twelve Months Eleven Months
Statements of Income December 31, 1999 December 31, 1998 December 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Operating Income:
Dividends from subsidiaries $ - $2,500 $4,000
Interest income 124 102 13
-------- ------ ------
Total operating income 124 2,602 4,013
Operating expenses 170 223 307
Interest expense 1,152 716 -
-------- ------ ------
Income before income taxes and equity in
undistributed earnings of subsidiaries (1,198) 1,663 3,706
Income tax benefit (410) (278) (85)
-------- ------ ------
Income (loss) before equity in undistributed
earnings of subsidiaries (788) 1,941 3,791
Equity in undistributed earnings of Bank
subsidiaries 4,937 2,430 233
-------- ------ ------
Net income $ 4,149 $4,371 $4,024
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Twelve Months Eleven Months
Statements of Cash Flows December 31, 1999 December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 4,149 $ 4,371 $ 4,024
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries (4,937) (2,430) (233)
Other, net 772 (466) 60
-------- -------- --------
Net cash provided by operating activities (16) 1,475 3,851
Cash flows from investing activities:
Net cash used in investing activities - - -
Cash flows from financing activities:
Proceeds from issuance of treasury and
common stock 694 656 71
Proceeds from issuance of junior
subordinated deferrable interest
debentures 12,650 -
Dividends on common stock (1,150) (1,062) (559)
Repurchase of common stock (2,602) (7,352) (2,228)
-------- -------- --------
Net cash provided by (used in)
financing activities (3,058) 4,892 (2,716)
Net increase in cash and cash equivalents (3,074) 6,367 1,135
Cash and cash equivalents at beginning of year 7,553 1,186 51
-------- -------- --------
Cash and cash equivalents at end of year $ 4,479 $ 7,553 $ 1,186
======== ======== ========
</TABLE>
48
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A B I N G T O N B A N C O R P
<PAGE>
Notes to Consolidated Financial Statements
26. Quarterly Data (Unaudited)
- --------------------------------------------------------------------------------
Operating results on a quarterly basis for the years ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
(Dollars and outstanding shares in thousands, except per share data)
Fourth Third Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
---------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income $ 11,220 $ 10,821 $ 10,237 $ 9,964 $ 9,912 $ 9,666 $ 9,482
Interest expense 6,361 5,971 5,469 5,291 5,413 5,354 5,471
-------- -------- -------- ------- ------- ------- -------
Net interest income 4,859 4,850 4,768 4,673 4,499 4,312 4,011
Provision for possible loan losses 190 190 70 190 190 190 190
-------- -------- -------- ------- ------- ------- -------
Net interest income, after provision
for possible loan losses 4,669 4,660 4,698 4,483 4,309 4,122 3,821
Non-interest income 2,033 1,903 1,958 1,479 1,754 1,700 1,962
Non-interest expenses 5,199 4,961 4,961 4,299 4,499 4,184 3,979
-------- -------- -------- ------- ------- ------- -------
Income before income taxes 1,503 1,602 1,695 1,663 1,564 1,638 1,804
Provision for income taxes 530 569 613 602 548 573 650
-------- -------- -------- ------- ------- ------- -------
Net income $ 973 $ 1,033 $ 1,082 $ 1,061 $ 1,016 $ 1,065 $ 1,154
======== ======== ======== ======= ======= ======= =======
Basic earnings per share $ .30 $ .32 $ .33 $ .32 $ .30 $ .31 $ .32
======== ======== ======== ======= ======= ======= =======
Diluted earnings per share $ .29 $ .30 $ .31 $ .30 $ .29 $ .29 $ .30
======== ======== ======== ======= ======= ======= =======
Weighted average common
shares outstanding 3,245 3,277 3,272 3,347 3,347 3,470 3,560
======== ======== ======== ======= ======= ======= =======
Weighted average common
shares and share equivalents
outstanding 3,339 3,441 3,464 3,537 3,545 3,687 3,803
======== ======== ======== ======= ======= ======= =======
<CAPTION>
Years Ended December 31, 1998
- ------------------------------------------------
First
Quarter
--------
<S> <C>
Interest and dividend income $ 9,382
Interest expense 5,347
-------
Net interest income 4,035
Provision for possible loan losses 190
-------
Net interest income, after provision
for possible loan losses 3,845
Non-interest income 1,493
Non-interest expenses 3,605
-------
Income before income taxes 1,733
Provision for income taxes 597
-------
Net income $ 1,136
=======
Basic earnings per share $ .32
=======
Diluted earnings per share $ .30
=======
Weighted average common
shares outstanding 3,586
=======
Weighted average common
shares and share equivalents
outstanding 3,852
=======
</TABLE>
49
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Stockholder Information
Stock Market Data
The common stock of the Company is currently listed on the Nasdaq Stock Market
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 Price Low Dividends Declared
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
1st quarter (through March 3, 2000) 11 3/4 9 5/8 $ --
1999
4th quarter 13 10 11/16 $ .05
3rd quarter 13 3/4 12 1/16 $ .05
2nd quarter 14 3/4 13 1/4 $ .05
1st quarter 15 1/8 12 3/4 $ .20
1998
4th quarter 17 12 $ .05
3rd quarter 19 1/2 12 1/2 $ .05
2nd quarter 22 3/4 17 1/2 $ .05
1st quarter 22 1/2 18 3/4 $ .15
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
</TABLE>
As of March 3, 2000, the Company had approximately 779 stockholders of record
who held 3,027,300 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 1,296 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, 1999 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,
Chief Financial Officer and Treasurer
Abington Bancorp, Inc.
50
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A B I N G T O N B A N C O R P
<PAGE>
<TABLE>
<S> <C> <C>
bank directors & officers
Directors Executive Officers
James P. McDonough(1) James P. McDonough(3)
President and CEO President & CEO
Abington Bancorp, Inc.
President and CEO Kevin M. Tierney, Sr.(3)
Abington Savings Bank Executive Vice President
Bruce G. Atwood(1) Mario A. Berlinghieri
Vice President Operations Senior Vice President - Credit and Administration
Hyer Industries, Inc.
Robert M. Lallo(3)
William F. Borhek Senior Vice President - Treasurer & CFO
President
William F. Borhek Associates Jack B. Meehl, Jr.
Senior Vice President - Business Banking
Ralph B. Carver, Jr.(2)
Owner and Operator John R. Sylva
Transport Properties Trust Senior Vice President - Consumer Banking
Joel S. Geller(1) Lewis J. Paragona(3)
Partner Vice President - Corporate Affairs and Clerk of
Wein-Gel Associates Abington Bancorp, Inc.
Rodney Henrikson(1) 3: Officer of Bancorp
corporate information Treasurer and Director
Henrikson Realty Corp.
Corporate Office
Abington Bancorp, Inc. A. Stanley Littlefield
536 Washington Street Attorney
Abington, MA 02351 Private Practice
(781) 982-3200
Jay Timothy Noonan(2)
Independent Public Accountants Manager
Arthur Andersen LLP J.P. Noonan Trans., Inc.
225 Franklin Street
Boston, MA 02110 Gordon N. Sanderson(2)
(617) 330-4000 Retired
Legal Counsel James J. Slattery
Foley, Hoag & Eliot LLP President
One Post Office Square J.H. Slattery Insurance
Boston, MA 02109 Agency, Inc.
(617) 832-1000
Wayne P. Smith(1)
Transfer Agent and Registrar Treasurer and Director
Registrar & Transfer Company Suburban Enterprises, Inc.
10 Commerce Drive
Cranford, NJ 07016-3572 1: Member of Executive Committee
(800) 368-5948 2: Member of Audit Committee
</TABLE>
51
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1 9 9 9 A N N U A L R E P O R T
<PAGE>
Corporate Profile. Abington Bancorp, Inc. (the "Company") is a one-bank holding
company that 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 in Abington, Brockton, Cohasset,
Halifax, Hanson, Holbrook, Hull, Kingston, Pembroke, Randolph, and Whitman where
it has banking offices, and nearby Bridgewater, East Bridgewater, Carver,
Duxbury, Hanover, Plymouth, Plympton, Rockland and Weymouth. In 1999, the Bank
purchased Old Colony Mortgage Corporation, a mortgage company headquartered in
Brockton that also has offices in Plymouth, Fall River and Auburn. Old Colony
Mortgage operates as a subsidiary of Abington Savings Bank.
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.
ABINGTON BANCORP
52
<PAGE>
Abington Savings Bank
& Old Colony Mortgage
LOCATIONS
AUBURN
Old Colony Mortgage
850 Southbridge St.
ABINGTON 533
Washington St.
BROCKTON
Shaw's Supermarket
609 Belmont St.
Old Colony Mortgage
1115 West Chestnut St.
COHASSET
Shaw's Supermarket
Route 3A
FALL RIVER
Old Colony Mortgage
401 Columbia St.
HALIFAX 319
Monponsett St.
HANSON
Shaw's Supermarket
Route 58 / Route 14
HOLBROOK
778 South Franklin St.
HULL
523 Nantasket Ave.
KINGSTON
157 Summer St.
PEMBROKE
175 Center St.
PLYMOUTH
Old Colony Mortgage
34 Main St. Ext.
RANDOLPH
Shaw's Supermarket
121 Memorial Pkwy.
WHITMAN
584 Washington St.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF ABINGTON BANCORP, INC.
Abington Bancorp, Inc. has two subsidiaries. Abington Savings Bank (the
"Bank"), is a wholly owned subsidiary which is a Massachusetts-chartered savings
bank. Abington Bancorp Capital Trust is a Delaware business trust whose sole
purpose is to issue capital securities. The Bank has four wholly-owned
subsidiaries, Holt Park Place Development Corporation, Norroway Pond Development
Corporation, Old Colony Mortgage Corporation which are 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>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Abington Bancorp, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 10, 2000 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,
Registration Statement on Form S-8, File No. 333-34987 and Registration
Statement on Form S-8, File No. 333-66227.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 225
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 235,623
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 392,411
<ALLOWANCE> (3,701)
<TOTAL-ASSETS> 696,250
<DEPOSITS> 389,692
<SHORT-TERM> 152,551
<LIABILITIES-OTHER> 6,965
<LONG-TERM> 107,200
12,010
0
<COMMON> 483
<OTHER-SE> 27,349
<TOTAL-LIABILITIES-AND-EQUITY> 696,250
<INTEREST-LOAN> 27,828
<INTEREST-INVEST> 14,382
<INTEREST-OTHER> 32
<INTEREST-TOTAL> 42,242
<INTEREST-DEPOSIT> 11,389
<INTEREST-EXPENSE> 23,092
<INTEREST-INCOME-NET> 19,150
<LOAN-LOSSES> 640
<SECURITIES-GAINS> 823
<EXPENSE-OTHER> 19,420
<INCOME-PRETAX> 6,463
<INCOME-PRE-EXTRAORDINARY> 6,463
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,149
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 7.09
<LOANS-NON> 616
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,077
<CHARGE-OFFS> 264
<RECOVERIES> 248
<ALLOWANCE-CLOSE> 3,701
<ALLOWANCE-DOMESTIC> 2,158
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,543
</TABLE>
