ABINGTON BANCORP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429

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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

COMMISSION FILE NO. 0-16018

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ABINGTON BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-3334127
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

536 WASHINGTON STREET, 02351
ABINGTON, MASSACHUSETTS
(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 to this Form 10-K. / /

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 February 28, 2002, as reported by the Nasdaq Stock Market, was $49,739,578.

The number of shares outstanding of the Registrant's Common Stock as of
February 28, 2002: 3,184,352 shares.

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DOCUMENTS INCORPORATED BY REFERENCE

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 2002 Annual Meeting of
Stockholders of the Registrant.

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 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. The
Company disclaims any intent or obligation to update forward-looking statements
whether in response to new information, further events or otherwise.

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.

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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, Canton, Cohasset, Halifax, Hanover,
Hanson, Holbrook, Hull, Kingston, Pembroke, Randolph and Whitman where it has
banking offices, and nearby Rockland, Duxbury, Scituate, Plympton, 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 $532.0 million in assets and $324.9 million in
deposits at December 31, 1997 to $770.1 million in assets and $497.5 million in
deposits at December 31, 2001. 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 de
novo supermarket branches, with the Randolph and Hanson branches opening in
April and September, 1998, respectively, Brockton in May, 1999 and Canton in
November 2000. Additionally, the Company opened the Hanover branch in July 2001.
These branch openings are consistent with the Company's ongoing strategy of
controlled growth with a focus on retail core deposit relationships and have
enabled the Company to increase its regional presence. The Company optimally
would like to see 75% of its branches as traditional offices. Currently
supermarket branches comprise 38% of all retail offices. Management plans to
open or acquire more traditional branches in the future.

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 as well as to provide the Company with a greater diversity of
sources of income.

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 and 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 anticipates a continued emphasis
in the future for these types of loan originations. 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.")

The Company's net loan portfolio, including loans held for sale, totaled
$403.6 million at December 31, 2001, representing approximately 52.4% of its
total assets. The majority of the Company's loans are secured by real estate and
are made within Norfolk and Plymouth Counties,

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although the Company also purchases primarily residential mortgage loans in
other areas of the United States. Generally, loans purchased outside of
Massachusetts are well collateralized and reflect an adequate payment history.
Approximately 40% 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 are California, Illinois, and Michigan, in which the
Company held $21,424,000, $18,153,000, and $13,389,000, of loans, respectively,
as of December 31, 2001. No other states had a 2.5% or greater concentration.

The Company originated $37.8 million in commercial and commercial real
estate loans, $21.1 million of home equity loans, $3.3 million of consumer loans
and $200 million in residential first mortgage loans during the year ended
December 31, 2001. Of the latter amount, loans aggregating $3.0 million were
retained for the Company's own portfolio, $22.7 million were held for sale at
December 31, 2001, and loans aggregating $176.0 million were sold in the
secondary market. As of December 31, 2001, loan commitments to borrowers or
potential borrowers of $77.2 million were outstanding. These commitments
included $5.5 million under existing construction loans, $53.3 million in
residential and commercial and commercial real estate loans, $18.4 million under
existing lines of credit (including home equity loans). The Company had no
outstanding commitments to purchase residential first mortgages.

RESIDENTIAL MORTGAGE LOANS. The Company currently sells in the secondary
market most first mortgage loans originated on residential property. The Company
generally sells loans 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% per annum of the principal balance of the loans plus
all late charges. At December 31, 2001, the Company's loan servicing portfolio
amounted to $74.6 million.

As of December 31, 2001, the outstanding balance of residential first
mortgage loans totaled $275.5 million or 66.5% of the loan portfolio.
Residential first mortgage loans purchased or originated for the Company's
portfolio are generally written in amounts up to 95% of value if the property is
owner-occupied. Borrowers 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.

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 and second mortgage loans are
currently written generally 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, 2001, the Company had in its portfolio
approximately $28.3 million of outstanding home equity and second mortgage loans
and unused commitments amounting to $18.4 million.

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CONSTRUCTION, 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 term). 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, 2001, gross
construction loans totaled $17.6 million, or 4.2% 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 10 years, and interest
rates on these loans are typically fixed for no longer than 5 years. Currently,
commercial real estate loans are generally written in amounts up to $3,500,000
and are usually made in Massachusetts counties of Plymouth, Norfolk, Bristol and
Barnstable. At December 31, 2001, the Company had a total of $72.0 million of
commercial real estate loans, or 17.4% of the Company's total loan portfolio.

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, 2001, the Company had approximately $13.8 million of commercial
(non-real estate) loans outstanding which was approximately 3.3% of the
Company's total loan portfolio.

Commercial, commercial construction and commercial real estate lending
entails greater risk than residential mortgage (including residential
construction) lending to owner occupants. Compared to residential mortgage loans
to owner occupants, the repayment of these types of loans is more dependent on
the underlying business and financial condition of the borrower and/or cash
flows from leases on the subject properties and, in the case of construction
loans, the economic viability of the project, and is more susceptible to adverse
future developments. Since 1996, the Company has emphasized commercial,
commercial real estate or commercial construction lending and intends to
continue to place an emphasis on commercial, commercial construction and
commercial real estate loan originations.

CONSUMER LOANS. The Company also makes a variety of consumer loans, such as
new and used automobile and boat loans, unsecured loans, education loans, and
passbook and stock-secured loans. Education loans are periodically sold in the
secondary market. The Company's consumer loans totaled $7.4 million at
December 31, 2001, representing 1.8% of its total loan portfolio.

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COMPOSITION OF LOAN PORTFOLIO. The following table shows the composition of
the Company's loan portfolio by type of loan.

ORIGINATION AND UNDERWRITING. Residential mortgage 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 thirteen 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 and consumer loans.

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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.

The following table shows the Company's construction and commercial loans
(excluding commercial real estate loans) by scheduled maturity or repricing
interval at December 31, 2001:

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."

At December 31, 2001, non-performing assets were 0.5% of total assets,
compared with 0.08% and 0.09% at December 31, 2000 and 1999, respectively.

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The following table sets forth non-performing assets at the dates indicated:

Impaired loans totaling $3,432,000 and $94,000, at December 31, 2001 and
2000, respectively, required an allocation of $2,181,000 and $15,000,
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 increase in non-accrual loans is primarily related to 2 credits, the
most significant of which is a $3,363,000 relationship which is primarily a
commercial credit involved in the telecommunications industry.

The average balance of impaired and/or non-accrual loans was approximately
$704,000, $468,000 and $666,000 in 2001, 2000 and 1999, respectively. The total
amount of interest income recognized on impaired loans during 2001, 2000 and
1999 was approximately $39,000, $70,000, and $64,000, 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 selling quickly. 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 although these vacancy rates have begun to rise over the past year.
The Company cannot predict the impact on future provisions for possible loan
losses that may result from future market conditions. While the regional economy
has been 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.

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ALLOWANCE FOR POSSIBLE LOAN LOSSES. The following table summarizes changes
in the allowance for possible loan losses and other selected statistics for the
years indicated:

The following table summarizes the allocation of the allowance for possible
loan losses for the years indicated:

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Assessing the adequacy of the allowance for loan losses involves substantial
uncertainties and is based on management's evaluation of the amounts required to
meet possible losses in the portfolio. The Company uses three 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, 2001, 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
allowance for possible loan losses is within the range of estimated exposures
and is deemed adequate but not excessive by management. However, ultimate loan
losses may vary significantly from current estimates and future additions may be
necessary.

The Company's provision for possible loan losses in 2001 was $1,705,000,
compared to $160,000 and $640,000 in 2000 and 1999, respectively. The primary
reason for the increase in the provision for possible loan losses in 2001 as
compared to 2000 was generally due to deterioration in 2 credits totalling
approximately $3,432,000, both of which were on non-accrual at December 31,
2001. The provision for loan losses in 2000 was lower than 1999 due to favorable
trends in the levels of watched assets, delinquency rates and overall lower
charge-off levels.

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:

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A schedule of the maturity distribution of investment securities held by the
Company, other than marketable equity securities and FHLB stock, and the related
weighted average yield, at December 31, 2001 follows:

At December 31, 2001, the Company had 9 mortgage backed securities which had
a total amortized cost of $46,588,000, 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 or a 1-, 2-, 2.5-,
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, 2001
there were no such deposits.

At December 31, 2001, the Company's outstanding certificates of deposit with
balances in excess of $100,000 are scheduled to mature as follows:

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, automated teller
machines and drive-up banking services. The Company also provides its borrowers
the opportunity to purchase life, accident and disability insurance through a
third-party insurance agency. The Company offers

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investment services (including annuities) to its customers through a third-party
broker-dealer, and its insurance agency affiliate. The third-party pays 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.

Under the Gramm-Leach-Bliley Act, effective March 11, 2000, securities
firms, insurance companies and other financial service providers that elect to
become financial holding companies may acquire or establish banks. This has not
yet resulted in significant changes to the competitive environment in which the
Company operates.

EMPLOYEES

As of December 31, 2001, the Bank had 204 full-time employees, consisting of
26 full-time officers and 178 full-time non-officers, as well as 112 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.

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ITEM 2. PROPERTIES

The following table sets forth certain information relating to real estate
owned or leased by the Company at December 31, 2001.

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.

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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.

As of February 28, 2002, the Company had approximately 758 stockholders of
record who held 3,184,352 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 1,531 beneficial owners of the Company's common stock.

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ITEM 6. SELECTED FINANCIAL DATA

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(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.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The Company's results of operations depend primarily on its net interest
income after provision for possible loan losses, its revenue from other banking
services and non-interest expenses. Net interest income depends upon the net
interest rate spread between the yield on the 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 interest-bearing 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. Net interest income is also
affected by the performance of the 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, Brockton (May) opening in 1999 and Canton opening in
November 2000. Additionally, the Company opened a new traditional branch in
Hanover in July 2001. This expansion of the Company's retail branch network is
consistent with the Company's strategy of controlled growth with a focus on core
retail deposit relationships and will enable the Company to have a greater
regional presence.

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.

17

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. The Company disclaims any intent or obligation
to update forward-looking statements whether in response to new information,
further events or otherwise.

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 3.20% and 2.89% for the years ended December 31, 2001 and 2000.

The level of non-accrual loans and other real estate owned can have an
impact on net interest income. At December 31, 2001, the Company had $3,881,000
in non-accrual loans and no other real estate owned compared to $549,000 in
non-accrual loans and no other real estate owned as of December 31, 2000.

The table on the following page presents average balances, interest income
and expense and average yields earned or rates paid on the major categories of
assets and liabilities for the years indicated.

18

- ------------------------------

(1) Includes Federal Home Loan Bank stock.

(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.

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

19

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.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND 2000

GENERAL

Net income for 2001 was $3,077,000 or $.95 per diluted share compared to net
income of $4,493,000 or $1.41 per diluted share from 2000, a net decrease of
$1,416,000 or 31.5%. The overall decrease was attributable to increases in net
realized losses on securities (corporate bond loss), provisions for possible
loan losses, cumulative effect of change in accounting for costs of sales
incentives, occupancy expenses (real estate writedowns), non-interest expenses
and salaries and benefits expense partially offset by increases in net interest
margins, customer service fees and gains on mortgages.

INTEREST AND DIVIDEND INCOME

Interest and dividend income increased $2,144,000 or 4.4% during 2001 as
compared to 2000. The increase was attributable to increases in average earnings
assets, which was partially offset by a decrease in the yield on certain of
those assets. The balance of average earning assets for 2001 was $704,574,000 as
compared to $671,345,000 in 2000, an overall increase of $33,229,000 or 4.9%.

The increase in earning assets was primarily driven by increases in
mortgage-backed investments, offset in part by decreases in investment
securities. The average balance of mortgage-backed securities was $239,381,000
for 2001 as compared to $182,432,000 for 2000, an increase of $56,949,000 or
31.2%. Investment securities average balances declined to $55,234,000 in 2001
from $80,797,000 in 2000, for decreases of $25,563,000 or 31.6%. The yield on
mortgage-backed investments was 6.62% in 2001 as compared to 6.78% for 2000. The
yield on investment securities was 7.30% in 2001 as compared to 6.92% in 2000.
The yield on investment securities in 2001 was positively influenced by two
agency issued bonds which had been purchased at a discount and were called at
the issuer's option during the year. This resulted in $221,000 of discounts
being taken into income which increased the yield on investment securities by 40
basis points. The resulting investment securities yield for 2001 excluding these
discounts was 6.90%, which was slightly below the 2000 yield on these same
investments. The

20

yields on both mortgage-backed investments and investment securities have been
primarily influenced by the rate environment which existed in 2001. From
June 1999 through July 2000, the Federal Reserve Bank raised the inter-bank
borrowing rate by 175 basis points. From January 2001 through December 2001, the
Federal Reserve Bank lowered the inter-bank borrowing rate 475 basis points
which in turn, but to a lesser degree has influenced yields on assets purchased
since the second quarter of 2001, particularly in relation to the yields
available for comparable securities a year ago.

The average balances of loans decreased slightly to $385,149,000 in 2001 as
compared to $385,671,000 in 2000, a decrease of $522,000 or .1%. The balances
declined primarily as a result of residential mortgage loans paying off more
quickly in 2001 due to historically lower interest rates available on new
mortgages which prompted customers to refinance those loans (see later
discussion regarding mortgage origination volumes and gains on sales of
mortgages). Additionally, given the historically low rates available on loans
originated or for purchase, management elected to purchase mortgage-backed
investment securities rather than loans due to generally shorter available
average lives in light of the current interest rate environment in comparison to
those historically typically available.

INTEREST EXPENSE

Interest expense for 2001 decreased $753,000 or 2.7% to $27,643,000 in 2001
from $28,396,000 in 2000, generally due to decreases in the rates paid on
non-time deposits and borrowed funds and declines in the average balances of
borrowed funds, offset in part by increases in the rates paid on time deposits
and overall increases in average deposit balances. The average balance of core
and time deposits rose to $278,481,000 and $193,418,000, respectively, in 2001
as compared to $240,673,000 and $174,785,000, respectively, in 2000, for
increases of $37,808,000 or 15.7% and $18,633,000 or 10.7%, respectively. These
increases in core and time deposits in 2001 as compared to 2000 relate to the
attractiveness of the Company's retail products and services in the marketplace
it serves as well as reflecting some of the benefits of the fallout from the "in
market" bank merger activity in mid-2000. Management 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. The average balances of borrowed funds decreased
overall to $224,347,000 in 2001 as compared to $243,359,000 in 2000, a decline
of $19,012,000 or 7.8%. This decrease in borrowings was achieved due to the
Company's success in attracting deposits over the past year.

The blended average rate paid on deposits and borrowed funds was 4.36% in
2001 as compared to 4.69% in 2000. The overall weighted average rates paid on
borrowed funds declined to 5.77% in 2001 from 6.32% in 2000. This decrease is
reflective of actions taken by the Federal Reserve Bank in 2001. The weighted
average rates paid on deposits was 3.59% in 2001 as compared to 3.60% in 2000.
The cost of core deposits, including non-interest bearing DDAs, declined to
1.30% in 2001 from 1.39% in 2000. The cost of time deposits, however, actually
increased to 5.72% in 2001 from 5.54% in 2000 despite the declining interest
rate environment. The rates paid on time deposits increased in 2001 generally
due to intense competition on the pricing of time deposits which has existed
since the third quarter of 2000. It is anticipated given the current interest
rate environment, that the rates paid on time deposits and borrowed funds could
decline from current levels in future periods as they reach maturity. See
"Asset/Liability Management" for further discussion of the competitive market
for deposits and overall strategies for the uses of borrowed funds.

NON-INTEREST INCOME

Total non-interest income increased $870,000 or 9.8% in 2001 as compared to
2000. Customer service fees, which were $7,949,000 in 2001 as compared to
$6,396,000 in 2000 for an increase of $1,553,000 or 24.3%. These fees rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios and continued success in cross-selling customers other products and
services, debit card activity and sales of mutual funds and annuities (the
Company received regulatory

21

approval to sell insurance annuities in May 2001). The sales of mutual funds and
insurance annuities accounted for $335,000 of the aforementioned increase in
customer service fees. Loan servicing fees and gains on sales of mortgage loans
were $255,000 and $2,888,000 respectively in 2001 as compared to $311,000 and
$1,315,000, respectively, in 2000. The increase in gains on sales of mortgage
loans of $1,573,000 or 119.6% was generally due to a favorable market for
residential loan originations which existed for most of 2001 as compared to
2000. This favorable market was due to lower available mortgage rates in 2001.
It is expected that the volume of mortgage originations will likely decline in
2002 in comparison to these historically high levels in 2001. Loan servicing
fees have continued to decline as the Company has been selling loans on a
servicing released basis since 1996 and as a result, in combination with loan
payoffs this portfolio has continued to decline.

Losses on securities, net, were $1,723,000 in 2001 as compared to gains of
$405,000 in 2000, for a decrease of $2,128,000. The results for 2001 include a
writedown and subsequent loss on sale of a corporate bond of $2,618,000 in 2001.
Management made the decision to sell this bond in the fourth quarter of 2001,
which was the only investment holding which had been downgraded to below
investment grade, after considering the issuer's (Crown, Cork & Seal) financial
difficulties exacerbated by continuing asbestos litigation claims. There were
also approximately $2,122,000 in realized losses on sales of equity securities
during the year, particularly in the technology and telecommunication sectors,
as part of management's strategy to re-position the equity portfolio holdings
given current market conditions and as part of overall tax planning. These
losses were offset by gains on sales of equities during the year of $847,000 and
an additional $2,177,000 of gains on sales of mortgage-backed and investment
securities during the year. These gains on sales of mortgage-backed securities
and agency securities were generally taken on those holdings, some of which were
previously purchased at a discount, which were likely to be called or had a high
risk of being prepaid.

NON-INTEREST EXPENSE

Non-interest expenses for 2001 increased $4,030,000 or 18.6% compared to
2000. Salaries and employee benefits increased $1,499,000 or 13.6% in 2001 as
compared to 2000 primarily due to the opening of the Canton (November 2000) and
Hanover (July 2001) branches ($340,000); increases in salaries and commissions
on brokerage and annuity sales associated with higher revenues and sales volumes
($329,000); increases in salaries and commissions associated with the increases
in mortgage origination and sales volumes and related gains on sales
(approximately $212,000) and other general increases in salaries and customer
service staffing levels. These increases correspond with the Company's strategic
focus of attracting new core deposits and new customer service relationships.
Occupancy expenses were $831,000 or 26.0% higher in 2001 as compared to 2000.
This increase included approximately $635,000 of writedowns related to
management's re-valuation of some non-branch premises and real estate holdings
in the fourth quarter of 2001. Additionally, the cost for occupancy and
equipment were also influenced by the openings of the Canton (November 2000) and
Hanover (July 2001) offices the impact of which increased costs by approximately
$208,000. The Company also realized increases in the cost of utilities and snow
removal during 2001 as compared to 2000 of approximately $74,000. These
increases were partially offset by a decrease in occupancy and equipment
expenses related to the expiration of maintenance contracts associated with the
Company's prior mainframe system of approximately $177,000.

Other non-interest expenses, including Trust Preferred Securities Expense,
also increased $1,700,000 or 22.8%. This increase was attributable to increases
associated with the Company's payments to a third party service bureau (the
Company converted from an in-house mainframe system in June 2000), which have
also been influenced by higher customer volumes in 2001 as compared to 2000
(approximately $482,000), increases in marketing expenses ($420,000), increases
in costs for item processing and statement rendering which were related to
higher volumes of items processed and accounts serviced (approximately $164,000)
higher foreclosure and workout related expenses primarily

22

associated with legal and professional cost for one large credit (approximately
$206,000; see Provision for Loan Losses and Credit Quality for additional
discussion) and other general volume related and inflationary increases.

PROVISION FOR POSSIBLE LOAN LOSSES

The provision for possible loan losses was $1,705,000 for 2001 which had
increased from $160,000 in 2000, for an increase of $1,545,000 or 965.6%. This
increase in provision primarily related to two credits, both of which were on
non-accrual at December 31, 2001. The most significant of these credits was a
$3,363,000 relationship which was primarily a commercial credit involved in the
telecommunications industry. The delinquency rate and non-performing assets at
December 31, 2001 were 1.16% and $3,959,000, respectively as compared to .22%
and $556,000, respectively, at December 31,2001. Without the aforementioned
telecommunications credit, the delinquency and non-performing asset levels would
have been .30% and $518,000, respectively, which is more consistent with the
December 31, 2000 levels. The allowance for loan losses is arrived at by
management after careful consideration of various asset quality factors
including delinquency rates and trends, non-performing and "watched" asset
levels and overall historical charge-off rates by major loan type. The resulting
allowance for loan losses were 1.34% and 1.02% at December 31, 2001 and 2000,
respectively.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2001 was 35.2% as compared to
36.0% in 2000. 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.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

In December 2001, the Company elected to early adopt EITF 00-14-"Accounting
for Certain Sales Incentives." This pronouncement provided additional guidance
for the accounting for the cost of incentives given to customers to open new
deposit accounts with the Bank. Under this guidance the cost of the incentive
should be charged to earnings on the date the account is opened. This varies
from the previous methodology used by the Company which was to defer this cost
and amortize it to expense over the expected life of the deposit account
relationship. The impact of this change in accounting is reflected on a net of
tax basis as if it were applied at the beginning of the current year. The
cumulative effect of this change in accounting principle was to write off the
unamortized portion of previously capitalized incentives at January 1, 2001
totaling $298,000, net of tax. Additionally previously reported quarterly
operating results have been restated to reflect the application of the new
accounting principle in 2001. This quarterly restatement did not have a material
impact on the quarterly results (Note 25)

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

GENERAL

Net income for the year ended December 31, 2000 was $4,493,000 or $1.41 per
diluted share compared to net income of $4,149,000 or $1.20 per diluted share in
1999, a net increase of $344,000 or 8.3% on a net income basis or an increase of
$.21 or 17.5% on a per diluted share basis. The overall increase in net income
was mainly attributable to increases in net interest income and customer service
fees and decreases in the provision for possible loan losses, offset in part by
increases in non-interest expense.

23

INTEREST AND DIVIDEND INCOME

Interest and dividend income increased $6,107,000 or 14.5% during 2000, as
compared to 1999. The increase was attributable to increases in earning assets
and, to a lesser degree, increases in the yield earned on those assets. The
balance of average earning assets for 2000 was approximately $671,345,000 as
compared to $595,988,000 in 1999, an overall increase of $75,357,000 or 12.6%.
The increase in earning assets was, in part, due to increases in average loan
balances which were $385,671,000 for 2000, as compared to $368,578,000 for 1999,
an increase of $17,093,000 or 4.6%. This increase in balances was generally
caused by larger volumes of commercial loan originations in 1999 and into 2000
as well as higher residential loan balances which were the result of loan
originations/ purchases throughout 1999 and into 2000. See "Liquidity and
Capital Resources" and "Asset/Liability Management" for further discussion of
the Company's loan purchasing and investment strategies.

The average yield earned on loans increased slightly to 7.60% for 2000 from
7.55% for 1999. Loan yields in 2000 were affected by increases in the yields on
loans originated/purchased in the second half of 1999 and into 2000. Yields on
loans were also positively affected by growth in the Company's commercial loan
portfolio (including commercial real estate and construction) which grew to
approximately $81,200,000 at December 31, 2000 from $71,400,000 at December 31,
1999, an increase of $9,800,000 or 13.7%. Commercial loans typically carry a
higher yield than residential mortgages.

Average balances of mortgage-backed investments and bond investment
securities were $182,432,000 and $80,797,000, respectively, for 2000 as compared
to $146,508,000 and $63,607,000, respectively, for the corresponding period in
1999. These balances, when combined, increased $53,114,000 or 25.3%. The yields
on mortgage-backed investments and bond investment securities rose to 6.78% and
6.92%, respectively, in 2000, from 6.44% and 6.66%, respectively, in 1999. This
was generally due to the acquisition of higher yielding securities over the past
year. During 2000, management has acquired mortgage-backed and investment
securities in lieu of aggressively purchasing residential loans in order to
provide the Company with better overall yields without sacrificing credit
quality. These investments were also deemed by management to be a better fit for
the balance sheet for asset-liability purposes.

INTEREST EXPENSE

Interest expense for 2000 increased $5,304,000 or 23.0% compared to 1999,
generally due to increases in the average balances of deposits and borrowed
funds as well as the rates paid on time deposits and borrowed funds. The average
balance of core and time deposits rose to $240,673,000 and $174,785,000,
respectively, for 2000 as compared to $211,808,000 and $164,254,000,
respectively, in 1999, for increases of 13.6% and 6.4%, respectively. The
increase noted for 2000 as compared to 1999 relates to the attractiveness of the
Company's retail products and services in the marketplace it serves as well as
reflecting some of the fallout from "in market" bank merger activity which
displaced many customers who sought an alternative to their prior banking
relationship primarily in the first half of 2000. This was beneficial to the
Company as well as many other community banks in the region. The Company has
continued 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 2000 as compared to 1999, to
$243,359,000 from $209,910,000, an increase of 15.9%. These increased borrowings
were used to fund earning asset growth over 2000.

The blended weighted average rate paid on interest-bearing deposits and
borrowed funds was 4.69% for 2000 as compared to 4.26% in 1999. The overall
weighted average rates paid on borrowed funds increased to approximately 6.32%
in 2000 from 5.58% in 1999. This increase was reflective of the net cumulative
effect of actions taken by the Federal Reserve between July 1999 and August of
2000 to

24

increase the inter-bank borrowing rate by 175 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. The weighted average rates paid on interest-bearing
deposits was 3.60% in 2000 as compared to 3.43% in 1999. The overall cost of
deposits increased primarily due to market competition for time deposits. The
level of competitive rates for time deposits in 2000 was consistent with the
desire of many banks in the marketplace to attract new customers in a period of
significant consumer disruption (see earlier discussion of in-market bank merger
activity). The Company's cost of time deposits rose to 5.54% in 2000 from 5.12%
in 1999. The overall impact on the cost of deposits was mitigated by the
Company's continued success in attracting core deposits (DDAs, NOWs, savings and
money markets) through its retail and promotional efforts during the year
despite overall increases in economic rates and other competitive factors.

NON-INTEREST INCOME

Total non-interest income increased $1,526,000 or 20.7% in 2000 in
comparison to 1999. Customer service fees, which were $6,396,000 in 2000 as
compared to $4,491,000 for 1999, for an increase of $1,905,000 or 42.4%, rose
primarily due to growth in deposit accounts, primarily NOW and checking account
portfolios. Also, in May 2000, the Company was granted regulatory approval to
sell insurance annuities. This and other brokerage related activities accounted
for approximately $802,000 of the aforementioned increase in customer service
fees. Loan servicing fees and gains on sales of mortgage loans were $311,000 and
$1,315,000, respectively, in 2000 as compared to $365,000 and $1,222,000,
respectively, in 1999, a combined increase of $39,000 or 2.5%. The increase in
loan gains for 2000 as compared to 1999 was generally reflective of the expanded
capacity and actual residential mortgage originations and sales as the result of
Old Colony Mortgage which were included in the consolidated results of
operations for 12 months in 2000 as compared to 9 months in 1999. 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.

Gains on sales of securities were $405,000 in 2000 as compared to $823,000
in 1999 for a decrease of $418,000 or 50.8%. The decrease in gains on securities
in 2000 is reflective of management's decision to sell fewer securities for
gains in 2000 as compared to 1999.

NON-INTEREST EXPENSES

Non-interest expenses for 2000 increased $2,255,000 or 11.6% compared to
1999. Included in this increase in 2000 was approximately $220,000 of
non-capitalizable, identifiable and quantifiable non-recurring expenses which
related to the Company's conversion of its computer systems from an in-house
mainframe to a third party service bureau. This expense was spread across
various categories and is noted in the analyses below. Salaries and employee
benefits increased 19.3% or $1,786,000 primarily due to the acquisition of Old
Colony Mortgage in April 1999 (approximately $143,000); increases related to
branches opened (Brockton in May 1999 and Canton November 2000) (approximately
$97,000); the conversion of computer systems to an outside service bureau
($33,000); increases in commissions (particularly commissions on insurance
sales) and estimates related to various other incentive compensation accruals
($400,000) and other general increases in salaries, commissions paid and
customer service related staff levels. These increases correspond with the
Company's strategic focus of attracting core deposits and new customer
relationships. Management also believes that a portion of the salaries expense
increase, not previously specifically identified, is attributable to
post-conversion activity which has had a temporary impact on increasing overtime
hours worked and overall staffing levels. Additionally, these increases are net
of a curtailment gain of $155,000 which was the result of management's decision
to freeze (October 31, 2000) and terminate (December 31, 2000) its pension plan.
This was recorded as a reduction in salaries and benefits expense in the fourth
quarter

25

of 2000. Occupancy expenses decreased $176,000 or 5.2% primarily due to the
expiration of maintenance contracts on the Company's prior mainframe system.
These decreases are net of the effect of increases relating to the acquisition
of Old Colony Mortgage (approximately $52,000), the Canton and Brockton branches
as previously noted (approximately $33,000) and the system conversion ($17,000).
Other non-interest expenses, including trust preferred expenses, also increased
$645,000 or 9.5% for 2000 in comparison to 1999. The aforementioned increases
relates to the acquisition of Old Colony Mortgage ($74,000), the Brockton and
Canton branches ($56,000), the systems conversion ($170,000) and service
contracts on new computer system ($340,000) in 2000 in addition to other
inflationary and volume related increases.

PROVISION FOR POSSIBLE LOAN LOSSES

The provision for possible loan losses for 2000 was $160,000 as compared to
$640,000 in 1999. The lower levels of provision were generally attributable to
continued strength and improvements in other asset quality factors, such as
delinquency, charge offs, non-performing and "watched" assets that management
uses to measure and evaluate the adequacy of loan loss reserve levels. The
resulting level of loan loss reserves were approximately 1.02% of period end
loans at December 31, 2000 as compared to .95% at December 31, 1999.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2000 was 36.0% compared to 35.8%
in 1999. 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.

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.

26

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:

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 54.7% of the average interest earning assets in 2001. 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 historically has been and expects to remain
active in pursuing wholesale opportunities to purchase loans. During 2001, 2000
and 1999, the Company acquired approximately $79,700,000, $0, and $73,000,000,
respectively, of residential first mortgages which are serviced by others.

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 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 earning 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 three years.
This has contributed to the continued downward trend in asset yields in 1998 and
1999. This effect was offset in part by the acquisition/origination of loans and
investments at higher yields in 2000, due to the rising interest rate
environment which existed. Management does anticipate, however, given the early
market trends and interest rate forecasts by economists, that prepayment
activity and declining asset yield trends may develop in 2001.

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,

27

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
$201,549,000 at December 31, 2001 compared to $222,132,000 at December 31, 2000.
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.

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, 2001. 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 residential 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.

28

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.

- --------------------------

(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.

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

29

sound business purpose, while long-term advances may be used only for the
purpose of providing funds to finance housing. At December 31, 2001, the Company
had approximately $234,000,000 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 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 $3,959,000 at December 31, 2001, compared to
$556,000 at December 31, 2000, an increase of $3,403,000 or 612%. The Company's
percentage of delinquent loans to total loans was 1.16% at December 31, 2001, as
compared to .22% at December 31, 2000. The non-performing asset and delinquency
statistics noted above as of December 31, 2001 were adversely impacted by a
single commercial loan relationship and an associated residential mortgage with
total balances of approximately $3,363,000. If this relationship were excluded,
the non-performing assets and delinquency ratios would have been $518,000 and
.30%, respectively, which were more in line with the comparable results at
December 31, 2000. Management believes that while delinquency rates and
non-performing assets remain at relatively low levels, these factors are at
historic lows, and at some point in the future a continued economic slowdown
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, 2001, the Company had outstanding commitments to originate,
purchase and sell residential mortgage loans in the secondary market amounting
to $41,833,000, $0 and $22,705,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $18,437,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $16,964,000 as of December 31, 2001.
The Company believes it has adequate sources of liquidity to fund these
commitments.

The Company's total stockholders' equity was $39,151,000 or 5.1% of total
assets at December 31, 2001, compared with $34,305,000 or 4.7% of total assets
at December 31, 2000. The increase in total stockholders' equity of
approximately $4,846,000 or 14.1% primarily resulted from increases in the
unrealized gain on the market value of available for sale securities, net of
taxes and earnings of the Company. Dividends paid partially offset the effect of
these increases.

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, 2001,
all of these securities were 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, 2001, the Company's Tier 1 leverage capital
ratio was approximately 6.16%. 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

30

December 31, 2001, the Company's Tier 1 and total risk-based capital ratios were
approximately 11.54% and 12.82%, 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, 2001.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND LESS LIQUID ASSETS

In connection with its operating activities, the Company enters into certain
contractual obligations, as well as commitments to fund loans. The Company's
future cash payments associated with its contractual obligations pursuant to its
long-term debt and operating lease obligations as of December 31, 2001 are
summarized below:

- ------------------------

(1) See Notes 9 and 10 to the consolidated financial statements.

(2) See Note 12 to the consolidated financial statements.

The Company's commitments associated with funding loans as of December 31,
2001 are summarized below. Since commitments may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements:

- ------------------------

(1) See Note 12 to the consolidated financial statements.

The table above does not include commitments to extend credit for consumer
loans or other commercial lines of credit in the amount of $26,794,000. Such
commitments arise from agreements with customers for unused lines of credit on
certain home equity loans or business lines of credit secured generally by all
business assets, provided there is no violation of conditions established in the
related agreement. These commitments, substantially all of which the Company can
terminate at any time and which do not necessarily represent future cash
requirements, are periodically reviewed based on account usage and customer
creditworthiness (see Note 6 to the consolidated financial statements).

At December 31, 2001, certain assets of the Company, such as real property,
equipment and leasehold improvements, totaling $8,784,000 and intangibles of
$2,259,000 were illiquid although real property, if accepted by the FHLB, could
be used to secure additional borrowings at approximately 50% of the lesser of
the book or market value.

31

IMPACT OF INFLATION

The Consolidated Financial Statements of the Company and related Financial
Data presented herein have been prepared in accordance with accounting
principles generally accepted in the United States 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.

In September 2000, the FASB issued SFAS No. 140, ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. This
Statement replaces SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, and rescinds SFAS Statement
No. 127, DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF FASB STATEMENT
NO. 125. SFAS No. 140 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and is effective
for recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of SFAS No. 140 did not have a material impact
on the Company's consolidated financial position or results or operations.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of the Company's financial condition
are based on the consolidated financial statements which are prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of such financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, management evaluates its estimates,
including those related to the allowance for possible loan losses and other than
temporary impairment of investments. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis in
making judgments about the carrying values of assets that are not readily
apparent from other sources. Actual results could differ from the amount derived
from management's estimates and assumptions under different assumptions or
conditions.

Management believes the following critical accounting policies represent the
more significant estimates and assumptions used in the preparation of the
consolidated financial statements. The allowance for possible loan losses which
is established through a charge to the provision 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. Management
believes the allowance for possible loan losses is a significant estimate and
therefore regularly evaluates it for adequacy by taking into consideration,
among other factors, such as local industry trends, 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 chargeoffs and delinquencies. The use of different
estimates or assumptions could produce different provisions for possible loan
losses. Refer to the discussion of ALLOWANCE FOR POSSIBLE LOAN LOSSES in the
Business Section for a detailed description of management's estimation process
and methodology related to the allowance for possible loan losses. Management
records an investment impairment charge at the point it believes an investment
has experienced a decline in value that is other than temporary. In determining
whether an other than

32

temporary impairment has occurred, management reviews information about the
underlying investment that is publicly available, analysts reports, applicable
industry data and other pertinent information. The investment is written down to
its current market value at the time the impairment is deemed to have occurred.
Future adverse changes in market conditions, continued poor operating results of
underlying investments or other factors could result in further losses that may
not be reflected in an investment's current carrying value, possibly requiring
an additional impairment charge in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management Discussion and Analysis--Asset/Liability Management.

33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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, 2001 and 2000, 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, 2001. 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 auditing standards generally
accepted in the United States. 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, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

As explained in Note 1 to the financial statements, effective January 1,
2001, the Company changed its method of accounting for the cost of incentives
given to new customers.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts

January 14, 2002

34

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.

35

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.

36

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.

37

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of these consolidated financial
statements.

38

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated statements.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001

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). The Company's primary business is serving as the holding company of the
Bank. 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. The most significant estimates
include those used in determining the allowance for possible loan losses and
other than temporary impairment of investment securities.

RECLASSIFICATIONS

Certain amounts in the 2000 and 1999 consolidated financial statements have
been reclassified to conform to the 2001 presentation.

CASH EQUIVALENTS

Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than 3 months and federal funds sold on a daily
basis.

SECURITIES

Investment securities are classified in 1 of 3 categories and are accounted
for as follows:

- Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held for investment" securities and
reported at amortized cost.

- Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings.

- Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at 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, 2001 and 2000.

40

Mortgage-backed investments are reduced by principal payments with discounts
and premiums being recognized in income by the interest method over the expected
maturity of the investments.

Management records an investment impairment charge at the point it believes
an investment has experienced a decline in value that is other than temporary.
In determining whether an other than temporary impairment has occurred,
management reviews information about the underlying investment that is publicly
available, analysts reports, applicable industry data and other pertinent
information. The investment is written down to its current market value at the
time the impairment is deemed to have occurred. Future adverse changes in market
conditions, continued poor operating results of underlying investments or other
factors could result in further losses that may not be reflected in an
investment's current carrying value, possibly requiring an additional impairment
charge in the future.

Gains and losses on the disposition of securities are computed using the
average cost method. Unrealized losses which are deemed to be other than
temporary declines in value are charged to operations.

LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES

The Company grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio consists of mortgage loans in the
southeastern Massachusetts area. The ability of the Company's debtors to honor
their contracts is generally dependent upon the stability of real estate market
and the general economic conditions in the Company's market area.

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.

Of the total loan portfolio at December 31, 2001, approximately 40%
represents owner-occupied first mortgages located outside of Massachusetts,
throughout the United States. In this purchased loan portfolio, the Company owns
approximately $21,424,000, $18,153,000 and $13,389,000 of loans collateralized
by residential properties located in California, Illinois and Michigan,
respectively. No other concentration in any other states, except for
Massachusetts, exceeds 2.5% of total loans.

Loan origination and commitment fees and certain direct loan origination
costs, as defined, are deferred and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the loans.
Unearned discounts are amortized under the interest method over the term of the
related loans. All other interest on loans is recognized on a simple interest
basis.

Interest on loans is generally not accrued when the principal or interest on
the loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.

The allowance for possible loan losses related to loans that are identified
as impaired is based on discounted cash flows using the loan's effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. The Company has determined that commercial and commercial real
estate loans recognized by the Company as non-accrual, loans past due over
90 days and still accruing, restructured troubled debt and certain internally
adversely classified loans constitute the portfolio of impaired loans.

41

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, local industry trends, 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, 2001 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 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.

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.

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.

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 are reported
at the lower of the carrying amount or fair value less cost to sell.

In 2001, management developed a plan to dispose of certain real estate which
was being used by the Company for non-branch purposes. As such the Company
recorded a writedown of $635,000 to reflect this real estate at its estimated
fair market value which is included in occupancy and equipment expenses in the
accompanying Consolidated Statement of Operations.

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.

42

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business combinations initiated after June 30, 2001, be accounted for using
the purchase method of accounting. This has eliminated the pooling of interest
method as an option for accounting for mergers and acquisitions. SFAS No. 142
provides guidance for the accounting for goodwill. Under the new guidance,
goodwill can no longer be amortized over its estimated useful life. Rather,
goodwill will be subject to at least an annual assessment for impairment by
applying a fair-value based test. SFAS No. 142 does not amend the rules
governing the detection of identifiable intangibles with definite lives and the
rules which provide guidance on their amortization and valuation.

This pronouncement will be effective immediately for any new goodwill
acquired after June 30, 2001 and will apply to goodwill acquired prior to
June 30, 2001 as of January 1, 2002. At December 31, 2001, the Company's
intangible assets are comprised of goodwill in the amount of $1,666,000 and core
deposit intangibles of $593,000. It is anticipated that the adoption of SFAS
No. 142 will result in reductions in goodwill amortization expense which will
have an after-tax impact on net income of approximately $240,000 in 2002.

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

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 16 for stock options).

STOCK BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), as interpreted by Financial Accounting
Standards Board Interpretaton No. 44, and related interpretations in accounting
for its stock-based compensation plans (Note 16). Accordingly, no accounting
recognition is given to options granted at fair market value until they are
exercised. Upon exercise, net proceeds, including tax benefits realized, if any,
are credited to equity.

ACCOUNTING FOR CERTAIN INCENTIVES

In December 2001, the Company elected to early adopt EITF Issue
No. 00-14-"Accounting for Certain Sales Incentives." This pronouncement provided
additional guidance for the accounting for the cost of incentives given to
customers to open new deposit accounts with the Bank. Under this guidance, the
cost of the incentive should be charged to earnings on the date the account is
opened. This varies from the previous methodology used by the Company which was
to defer this cost and amortize it to expense over the expected life of the
deposit account relationship. The impact of this change in accounting is
reflected on a net of tax basis as if it were applied at the beginning of the
current year. The cumulative effect of this change in accounting principle was
to write off the unamortized portion of previously capitalized incentives at
January 1, 2001 totaling $298,000, net of tax. Additionally, previously reported
quarterly operating results have been restated to reflect the application of the
new accounting principle in 2001. This quarterly restatement did not have a
material impact on the quarterly results (Note 25).

43

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," and rescinds SFAS
Statement No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 140 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement was effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and was effective
for recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of this statement did not have a material impact
on the Company's consolidated financial position or results or operations.

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. 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 separately presented
in 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 limited to approximately 25% of such capital. 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 in the
consolidated balance sheet.

The 8.25% trust preferred securities pay quarterly distributions which
commenced in September 1998. The Trust issued 1,265,000 preferred shares ($10
per share liquidation value) at a total cost of approximately $735,000 which was
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 are
scheduled to mature on June 30,

44

2029. Distributions, including those accrued and accumulated, and amortization
expense totaling $1,120,000 for 2001, 2000 and 1999 relating to these trust
preferred securities is reflected in the statement of operations in non-interest
expense.

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 the 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 assets (as defined). Management believes as of December 31, 2001,
that the Company and the Bank met all capital adequacy requirements to which
they are subject. As of December 31, 2001, 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

45

minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios
as set forth in the table below.

46

5. SECURITIES

The amortized cost and fair value of securities classified as available for
sale at December 31, 2001 and 2000 are as follows:

The amortized cost and fair value of investments and mortgage-backed
securities, respectively, at December 31, 2001 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

47

with or without call or prepayment penalties. Projected payments and prepayments
for mortgage-backed securities have not been considered for purposes of this
presentation.

Gross gains on sales of marketable equity securities were $847,000, $400,000
and $825,000, for 2001, 2000 and 1999, respectively. There were losses of
$2,122,000 on sales of equity securities in 2001. There were no losses on sales
of equity securities in 2000 or 1999.

Gross gains on sales of investment securities were $536,000, $5,000 and $0
for 2001, 2000 and 1999, respectively. Gross losses on sales of investment
securities were $2,618,000, $0 and $2,000 for 2001, 2000 and 1999, respectively.

Proceeds from sales of mortgage-backed investments classified as available
for sale during 2001, 2000 and 1999, were $98,595,000, $0 and $1,456,000,
respectively. Gross gains of $1,641,000 were realized on those sales in 2001.
There were no gains on sales of mortgage-backed investments in 2000 and 1999,
respectively. Gross losses of $7,000 were realized in 2001. There were no losses
on sales of mortgage-backed investments in 2000 and 1999.

A U.S. agency obligation security with a carrying value of $1,031,000 was
pledged to collateralize treasury, tax and loan obligations.

All agency and mortgage-backed securities also serve as collateral for FHLB
borrowings as part of a blanket collateral agreement as further described in
Note 9.

48

6. LOANS

A summary of the loan portfolio follows:

Included in residential mortgages at December 31, 2001 and 2000, are
approximately $22,705,000 and $3,617,000, respectively, of loans held for sale.
At December 31, 2001 and 2000, 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 $74,605,000
and $105,298,000 at December 31, 2001 and 2000, 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 $240,000 at December 31, 2001, and $304,000 at
December 31, 2000. During the year ended December 31, 2001, total principal
additions were $5,000 and total principal reductions were $69,000.

49

The following analysis summarizes the Company's non-performing assets at
December 31, 2001 and 2000:

Impaired loans totaling $3,432,000 and $94,000 at December 31, 2001 and
2000, respectively, required an allocation of $2,181,000 and $15,000,
respectively, of the allowance for possible loan losses. The remaining impaired
or non-accrual loans did not require any allocation of the allowance for
possible loan losses. The average balance of impaired loans and loans accounted
for on a non-accrual basis, was approximately $704,000, $468,000 and $666,000 in
2001, 2000 and 1999, respectively. The total amount of interest income
recognized on impaired loans during 2001, 2000 and 1999 was approximately
$39,000, $70,000 and $64,000, 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:

7. BANKING PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives is as follows:

50

Depreciation expense for the years ended December 31, 2001, 2000 and 1999
amounted to $2,274,000, $1,522,000 and $1,422,000, respectively.

8. DEPOSITS

A summary of deposit balances, by type, is as follows:

A summary of certificate accounts by maturity is as follows:

9. 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:

51

10. LONG-TERM DEBT

A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than 1 year, is as follows:

52

11. INCOME TAXES

The provision (benefit) for income taxes, including the tax effect of change
in accounting principle in 2001, consists of the following:

The reason for the differences between the statutory tax rates and the
effective tax rate are summarized as follows:

The components of net deferred taxes as recorded as of December 31, 2001 and
2000 are as follows (assets/(liabilities)):

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

53

calculating bad debt deductions for income tax purposes. Thrift institutions are
now viewed as commercial banks for income tax purposes.

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, 2001, the Bank's surplus includes approximately $1,960,000
of bad debt deductions for which income taxes have not been provided. As the
Bank does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.

12. COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements
as discussed below.

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, 2001 and 2000 are as
follows:

54

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, future minimum
rent commitments for the next 5 years and thereafter are as follows at
December 31, 2001:

Certain leases also contain renewal options (up to 10 years) and real estate
tax escalation clauses. Rent expense for the years ended December 31, 2001, 2000
and 1999 amounted to approximately $640,000, $520,000 and $475,000,
respectively.

13. STOCKHOLDERS' EQUITY

At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit.

Subsequent qualifying deposit 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 which may be paid at any date is generally limited to the undivided
profits of the Company. Undivided profits (or retained earnings) at the Company
totaled $31,403,000 at December 31, 2001. Additionally, future dividends, if
any, will depend on the earnings of the Company and its subsidiaries, its need
for funds, its financial condition, and other factors, including applicable
government regulations. (See Note 4)

14. EMPLOYEE BENEFIT PLAN

Through October 31, 2000, the Company provided basic pension benefits for
eligible employees through the Savings Bank's Employees Retirement Associations
("SBERA") Pension Plan (the "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
became a participant in the pension plan. All participants were fully vested
after being credited with 3 years of service or at age 62, if earlier. Employees
were also able to participate in a contributory plan

55

administered by SBERA based on the same eligibility requirements through
December 31, 2000. The Company had no obligation to contribute to this plan.

As part of a program to redesign the Company's employee retirement benefits,
the Board of Directors voted October 10, 2000 to freeze the Company's Pension
Plan effective as of October 31, 2000 and terminate the Pension Plan effective
on December 31, 2000. In connection therewith, the Company amended the Pension
Plan to improve the benefit formula for current employees and permit payment of
lump sums from the Pension Plan.

Assets of the Pension Plan, after considering the impact of amendments,
asset returns and other associated administrative expenses are expected to be
adequate to be able to satisfy the obligations of the Pension Plan, as amended.
Any residual excess will be refunded to the Company subject to excise and income
taxes.

As part of the redesign of retirement benefits, the Bank added, effective in
January 2001, a 3% automatic contribution to the 401(k) plan for all employees
even for employees who do not separately contribute to that plan. Such
contribution is being made for all eligible participants based on their W-2
compensation. The expense for the year ended December 31, 2001 was $497.

As a result of the decision to freeze and terminate the Pension Plan, the
Company recognized a curtailment gain of approximately $155,000 in 2000 which
was classified with salaries and benefit expense in the Consolidated Statement
of Operations.

56

Net periodic pension expense for the plan years ended October 31, 2001, 2000
and 1999, consisted of the following:

The Bank has adopted a management incentive 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 this plan is reviewed on
an annual basis by the Board of Directors. The incentive bonus expense in 2001,
2000 and 1999 was approximately $220,000, $426,000 and $340,000, respectively.

57

15. OTHER NON-INTEREST EXPENSE

Other non-interest expense consisted of the following:

16. STOCK OPTION PLAN

The Company has several Qualified and Nonqualified Stock Options Incentive
Plans (the "Stock Option Plans") which provide for the granting of options to
certain officers, employees and non-employee directors of the Company. Options
granted under the Stock Option Plans have exercise prices which equal the fair
market value at the date of grant. They become exercisable based upon grant,
change-in-control of the Company or after the market price of the Common Stock
exceeds 120-140% of the exercise price for periods ranging from 5 to 180 days,
depending upon the qualifications set for each issuance at the time of the
grant. All options granted become fully vested no later than the end of the
ninth year.

In conjunction with the Company's aforementioned Stock Option Plans, the
Company adopted a Long Term Performance Incentive Plan in 1999 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 0, 59,500 and 48,000 shares of common stock for performance in
2001, 2000 and 1999, 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.

At December 31, 2001, based on the closing price of the Company's stock of
$15.14, there were approximately 81,500 option shares which had exercise prices
ranging from $15.21 to $20.75 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 2001, 2000 and 1999 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:

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.

59

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:

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

17. 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 generally
will be invested in common stock) or common stock. Benefits may be paid in
shares of common stock or in cash, subject to the employees' right to demand
shares.

In November 1993, the Company loaned the ESOP $570,000 to acquire additional
shares for participants on the open market. The loan was to be repaid over
7 years with principal and interest (at a rate equal to 85% of the prevailing
prime rate) payable quarterly. In November 2000, the loan was repaid in full.

In the event that the stock price of the Company had fluctuated 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 was affected either adversely (if increasing stock price) or
favorably (decreasing stock price). During 2000 and 1999, the impact of the
stock price market value in excess of original cost increased the Company's ESOP
expense by $50,000 and $89,000, respectively, in addition to normal amortization
expense associated with the participant's earn out of the shares allocated.

Management and the Board of Directors revised its methodology for funding
the ESOP commencing in 2001. The Board of Directors may grant annual cash
contributions to the ESOP, based on set financial performance criteria, which
will in turn be used to acquire the Company's common stock for immediate
allocation to participants. The amounts contributed, if any, will be based on
the accomplishment of financial and strategic goals. There were no contributions
made in 2001.

The Company's ESOP expense for the years ended December 31, 2001, 2000 and
1999 amounted to $0, $118,000 and $170,000, respectively.

18. RESTRICTION ON CASH AND DUE FROM BANKS

At December 31, 2001 and 2000, cash and due from banks included $9,764,000
and $7,416,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.

19. STOCK REPURCHASE PROGRAM

On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its then
outstanding common stock from time to time at prevailing market prices. On
February 24, 1998, the Company announced that its Board of

60

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.

As of December 31, 2001, the Company had repurchased 932,600 shares of its
common stock under these plans at a total cost of approximately $13,882,000.

20. SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM

The Company has a non-cash supplemental executive retirement plan for an
officer. Under this arrangement, the individual (or his beneficiary) is entitled
to receive monthly retirement benefits for life, or a minimum of twenty years,
whichever is longer, 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 with the Company, the individual designated as
beneficiary will receive a distribution in two components, the first of which is
an amount equal to 3 times the annual salary of the officer, as determined under
the plan and the second of which is the aggregate of all accruals made by the
Company with respect to the benefit up to the end of the preceding fiscal year.
If the officer retires or terminates his employment (other than for cause) prior
to age 60, he will receive a percentage of the benefit he would otherwise
receive. 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
officer, 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 as death benefits 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 $116,000, $105,000, and $71,000 was
charged to compensation expense in 2001, 2000 and 1999, respectively. Income
related to the increased value of the insurance contract of $161,000, $152,000
and $138,000 was recognized as other non-interest income in 2001, 2000 and 1999,
respectively. The contract values of $3,415,000 and $3,254,000, at December 31,
2001 and 2000, respectively, are reflected as Bank-owned life
insurance--contract value in the Consolidated Balance Sheet.

Additionally, in 2001 the Company established cash funded supplemental
executive retirement plans for 2 other officers. The officers vest in the rights
to these assets and accumulated earnings on the later of two years from the date
of the agreement and five years from the date the officer commenced employment.
The expense related to these cash funding arrangements was approximately $60,000
in 2001.

21. 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 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. On July 1, 2001, the price was changed as
required by the Plan to $15.75 effective through July 1, 2004. The shares when
earned are placed in a Rabbi Trust (the "Trust")

61

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 no directors who continue to participate in the Plan other than
for dividends on accumulated balances. The amount of expense associated with
this plan for 2001, 2000 and 1999 was $9,000, $14,000 and $62,000, 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 8,800, 8,700 and 7,000 shares earned and deferred
as of December 31, 2001, 2000 and 1999, respectively.

22. 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 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 consumer loans, fair value is estimated using the quoted market
prices for securities backed by similar loans adjusted for differences in loan
characteristics or dealer quotes. The fair value of other types of loans was
estimated by discounting anticipated future cash flows using current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.

DEPOSIT LIABILITIES

The fair value of non-certificate deposit accounts is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the anticipated future cash payments using
the rates currently offered for deposits of similar remaining maturities.

SHORT-TERM AND LONG-TERM BORROWINGS

The fair value of borrowings was determined by discounting the anticipated
future cash payments by using the rates currently available to the Company for
debt with similar terms and remaining maturities.

COMMITMENTS TO EXTEND CREDIT/SELL LOANS

The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of customers. For fixed rate loan
commitments and obligations to deliver fixed rate loans, fair value also
considers the difference between committed rates and current levels of interest
rates.

62

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, 2001 and 2000 are represented as follows:

63

23. 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.

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 24) 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.

64

BUSINESS SEGMENTS

65

24. PARENT COMPANY FINANCIAL STATEMENTS--ABINGTON BANCORP, INC.
(PARENT COMPANY ONLY)

BALANCE SHEETS

STATEMENTS OF INCOME

66

STATEMENTS OF CASH FLOWS

67

25. QUARTERLY DATA (UNAUDITED)

Operating results on a quarterly basis for the years ended December 31, 2001
and 2000 are as follows:

- ------------------------------

(a) Provisions for loan losses primarily related to continued deterioration in 2
key credits during 2001. Both of these credits are on non-accrual at
December 31, 2001 and are specificially reserved for as noted in Note 6.

(b) Net losses on sales of securities totaled $1,676,000 in the fourth quarter
of 2001, which included the loss on sale of a corporate bond of
$2.2 million.

(c) Includes a charge of $635,000 due to a writedown of a real estate holding to
its fair market value during the fourth quarter of 2001 (Note 1).

68

ANNUAL REPORT ON FORM 10-K

A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 as filed with the Securities and 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
Executive Vice President,
Chief Financial Officer and Treasurer
Abington Bancorp, Inc.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

69

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 2002 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 2002 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 2002 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 2002 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.

3) Exhibits

70

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 September 27, 2000
among the Company, the Bank and Cynthia A. Mulligan,
incorporated by reference to the Company's quarterly report
on Form 10-Q for the third quarter of 2000, filed on
November 15, 2000.
*10.4(a) Amended and Restated Special Termination Agreement dated as
of January 31, 1997 among the Company, the Bank and Mario A.
Berlinghieri incorporated by reference to the Company's
Annual Report for the year ended December 31, 1996 on
Form 10-K filed on March 31, 1997.
(b) Amendment to Amended and Restated Special Termination
Agreement, dated as of July 1, 1997 among the Company, the
Bank and Mario A. Berlinghieri, incorporated by reference to
the Company's quarterly report on Form 10-Q for the second
quarter of 1997, filed on August 13, 1997.
(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 incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, filed on March 28, 2000.
*10.7 Revised Long Term Performance Incentive Plan dated January
2000 incorporated by reference to the Company's Annual
Report for the year ended December 31, 1999 on Form 10-K
filed on March 28, 2000.
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.

71

*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.
*10.13 Supplemental Executive Retirement Agreement between the Bank
and James P. McDonough dated as of August 23, 2001,
incorporated by reference to the Company's quarterly report
on Form 10-Q for the third quarter of 2001, filed on
November 13, 2001.
*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, incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, filed on March 28, 2000.
*10.16 Abington Bancorp, Inc. 2000 Incentive and Nonqualified Stock
Option Plan, incorporated by reference herein to Appendix A
to the Company's proxy statement relating to its annual
meeting held on May 16, 2000, filed with the Commission on
April 13, 2000.
*10.17 Abington Bancorp, Inc. Board of Directors Transition and
Retirement Plan, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
2000, filed on August 11, 2000.
*10.18 Defined Contribution Supplemental Executive Retirement
Agreement between the Bank and Kevin M. Tierney, Sr. dated
July 26, 2001, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
2001, filed on August 10, 2001.
*10.19 Defined Contribution Supplemental Executive Retirement
Agreement between the Bank and Robert M. Lallo dated
July 26, 2001, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
2001, filed on August 10, 2001.
11.1 A statement regarding the computation of earnings per share
is included in Item 8 of this Report.
21.1 Subsidiaries of the Company incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999, filed on March 28, 2000.
23.1 Consent of Accountants.
24.1 Power of Attorney is included on signature page

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K on December 14, 2001, reporting on
the Company's sale of a corporate bond investment at a loss of $2.2 million.

* Management contract or compensatory plan or arrangement.

72

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 18, 2002 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,
with 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.