Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File No. 0-16018
ABINGTON BANCORP, INC.
----------------------------------------
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-3334127
---------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
536 WASHINGTON STREET,
ABINGTON, MASSACHUSETTS 02351
---------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
(617) 982-3200
-------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act (Title of Class): Common
Stock, par value $0.10 per share
Indicate by check mark whether the Registrant (together with its predecessor in
interest) (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment 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 23, 2001, as reported by the Nasdaq Stock Market, was $41,238,651.
The number of shares outstanding of the Registrant's Common Stock as of
February 23, 2001: 3,068,352 shares.
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 2001 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.
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.
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,
Hanson, Holbrook, Hull, Kingston, Pembroke, Randolph and Whitman where it has
banking offices, and nearby Rockland, Duxbury, Scituate, Plympton, Hanover,
East Bridgewater, Plymouth, Carver, Weymouth and Bridgewater. Additionally, the
Company has mortgage lending offices in Auburn, Brockton, Fall River and
Plymouth.
The Company has grown from $487.0 million in assets and $300.5 million in
deposits at December 31, 1996 to $728.3 million in assets and $454.7 million in
deposits at December 31, 2000. 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. These branch openings are consistent with the Company's ongoing
strategy of controlled growth with a focus on retail core deposit relationships
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 March 1, 2001, the Company announced that it had acquired a leasehold
interest in a property located in Hanover, Massachusetts which will be the site
of a new traditional de novo branch expected to be opened in the third quarter
of 2001.
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.
2
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 2001 and beyond 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
$374.1 million at December 31, 2000, representing approximately 51.4% of its
total assets. The majority of the Company's loans are secured by real estate
and are made within Plymouth County, although the Company also purchases loans
in other areas of the United States. Generally, loans purchased outside of
Massachusetts are well collateralized and reflect an adequate payment history.
Approximately 37% of the Company's total loan portfolio represent
owner-occupied first mortgages located outside of Massachusetts. The six states
(other than Massachusetts) in which the Company has its largest concentrations
of residential loans were California, Illinois, Maryland, Rhode Island,
Michigan and Colorado, in which there were $24,645,000, $10,724,000,
$9,061,000, $7,993,000, $7,836,000 and $7,062,000, of loans, respectively. No
other states had a 2.5% or greater concentration.
The Company originated $36.4 million in commercial and commercial real
estate loans, $14.2 million of home equity loans, $5.4 million of consumer
loans and $87.7 million in residential first mortgage loans during the year
ended December 31, 2000. Of the latter amount, loans aggregating $17.8 million
were retained for the Company's own portfolio, of which approximately $3.6
million were held for sale at December 31, 2000, and loans aggregating $70
million were sold in the secondary market. As of December 31, 2000, loan
commitments to borrowers or potential borrowers of $49.2 million were
outstanding. These commitments included $7.6 million under existing
construction loans, $26.1 million in residential and commercial and commercial
real estate loans, $15.5 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, 2000, the Company's
loan servicing portfolio amounted to $105.3 million.
As of December 31, 2000, the outstanding balance of residential first
mortgage loans totaled $261.7 million or 67.9% 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 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
3
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, 2000, the Company had in its portfolio
approximately $27.4 million of outstanding home equity and second mortgage
loans and unused commitments amounting to $15.5 million.
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, 2000, gross
construction loans totaled $13.2 million, or 3.4% 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 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, 2000, the Company had a total of $59.9 million
of commercial real estate loans, or 15.5% of the Company's total loan
portfolio. The Company plans to maintain its emphasis on commercial real estate
lending into 2001 in an attempt to further expand the portfolio, although
commercial (business) loans as described below are preferred.
Commercial loans are generally provided to small-to-medium-sized
businesses located within the Company's market area. Commercial loans may be
structured as term loans or as revolving lines of credit. Commercial loans
generally have a repayment schedule of five years or less, with interest rates
which float in relation to the Wall Street Journal prime rate. The majority of
commercial loans are collateralized by equipment, machinery, receivables,
inventory or other corporate assets. In addition, the Bank generally obtains
personal guarantees from the principals of the borrower for virtually all of
its commercial loans. At December 31, 2000, the Company had approximately $15.9
million of commercial (non-real estate) loans outstanding. The Company is
emphasizing this type of lending as a continued key business focus in the
future.
Commercial, commercial construction and commercial real estate lending
entails greater risk than residential mortgage (including residential
construction) lending to owner occupants. Compared to residential mortgage
loans to owner occupants, the repayment of these types of loans is more
dependent on the underlying business and financial condition of the borrower
and/or cash flows from leases on the subject properties and, in the case of
construction loans, the economic viability of the project, and is more
susceptible to adverse future developments. Since 1996, the Company has
emphasized commercial, commercial real estate or commercial construction
lending and intends to continue to place an emphasis on commercial, commercial
construction and commercial real estate loan originations.
CONSUMER LOANS. The Company also makes a variety of consumer loans, such
as new and used automobile and boat loans, unsecured loans, education loans,
and passbook and stock-secured loans. Education loans are periodically sold in
the secondary market. The Company's consumer loans totaled $7.7 million at
December 31, 2000, representing 2.0% of its total loan portfolio.
4
COMPOSITION OF LOAN PORTFOLIO. The following table shows the composition
of the Company's loan portfolio by type of loan.
AT DECEMBER 31,
---------------------------------------------
2000 1999
---------------------- ----------------------
Percent Percent
to Gross to Gross
Amount Loans Amount Loans
----------- ---------- ----------- ----------
(Dollars in thousands)
Mortgage loans:
Conventional ....................... $261,702 67.9% $290,036 73.4%
Second mortgages and home
equity ............................ 27,415 7.1 23,490 6.0
Commercial real estate ............. 59,923 15.5 51,973 13.1
Construction ....................... 13,150 3.4 5,883 1.5
-------- ----- -------- -----
Total mortgage loans ............... 362,190 93.9 371,382 94.0
-------- ----- -------- -----
Less:
Due to borrowers on
incomplete loans .................. (7,598) (2,437)
Net deferred loan fees and
unearned discounts ................ (237) (381)
-------- --------
Subtotal .......................... 354,355 368,564
Commercial loans--Secured and
unsecured ......................... 15,912 4.1 16,497 4.2
Consumer loans:
Indirect automobile ................ -- -- -- --
Personal ........................... 1,280 0.3 1,243 .3
Education .......................... -- -- -- --
Passbook and stock secured ......... 6,250 1.7 5,950 1.4
Home improvement ................... 128 -- 216 .1
-------- ----- -------- -----
Total consumer loans ............... 7,658 2.0 7,409 1.8
-------- ----- -------- -----
Net deferred loan costs
(fees) ............................. 69 (59)
-------- --------
Subtotal .......................... 7,727 7,350
-------- --------
Total loans ........................ 377,994 392,411
Less allowance for loan
losses ............................ (3,856) (3,701)
-------- --------
Loans, net ......................... 374,138 388,710
-------- --------
Add (recapitulation):
Due to borrowers on
incomplete loans .................. 7,598 2,437
Net deferred loan fees and
unearned discounts ................ 168 440
Allowance for loan loss ............ 3,856 3,701
-------- --------
Loans, gross ....................... $385,760 100.0% $395,288 100.0%
======== ===== ======== =====
AT DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ---------------------
Percent Percent Percent
to Gross to Gross to Gross
Amount Loans Amount Loans Amount Loans
----------- ---------- ----------- ---------- ----------- ---------
(Dollars in thousands)
Mortgage loans:
Conventional ....................... $270,887 73.8% $249,165 74.1% $236,635 77.7%
Second mortgages and home
equity ............................ 20,339 5.5 20,392 6.1 17,368 5.7
Commercial real estate ............. 50,493 13.8 39,341 11.7 24,718 8.1
Construction ....................... 7,109 1.9 7,681 2.3 5,956 2.0
-------- ----- -------- ----- -------- -----
Total mortgage loans ............... 348,828 95.0 316,579 94.2 284,677 93.5
-------- ----- -------- ----- -------- -----
Less:
Due to borrowers on
incomplete loans .................. (2,557) (2,166) (2,758)
Net deferred loan fees and
unearned discounts ................ (626) (813) (986)
-------- -------- --------
Subtotal .......................... 345,645 313,600 280,933
Commercial loans--Secured and
unsecured ......................... 9,473 2.6 7,644 2.3 4,534 1.5
Consumer loans:
Indirect automobile ................ 158 -- 1,263 0.4 4,355 1.4
Personal ........................... 1,393 0.4 1,562 0.4 1,625 0.5
Education .......................... 62 -- 423 0.1 509 0.2
Passbook and stock secured ......... 6,951 1.9 8,323 2.5 8,416 2.8
Home improvement ................... 257 0.1 381 0.1 485 0.1
-------- ----- -------- ----- -------- -----
Total consumer loans ............... 8,821 2.4 11,952 3.5 15,390 5.1
-------- ----- -------- ----- -------- -----
Net deferred loan costs
(fees) ............................. (127) (124) (76)
-------- -------- --------
Subtotal .......................... 8,694 11,828 15,314
-------- -------- --------
Total loans ........................ 363,812 333,072 300,781
Less allowance for loan
losses ............................ (3,077) (2,280) (1,811)
-------- -------- --------
Loans, net ......................... 360,735 330,792 298,970
-------- -------- --------
Add (recapitulation):
Due to borrowers on
incomplete loans .................. 2,557 2,166 2,758
Net deferred loan fees and
unearned discounts ................ 753 937 1,062
Allowance for loan loss ............ 3,077 2,280 1,811
-------- -------- --------
Loans, gross ....................... $367,122 100.0% $336,175 100.0% $304,601 100.0%
======== ===== ======== ===== ======== =====
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 twelve 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.
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
5
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, 2000:
Within 1-5 Over 5
1 Year Years Years Total
------------ ---------- ---------- ------------
(Dollars in Thousands)
Construction, net (all fixed rate) ........... $ 5,552 $ -- $ -- $ 5,552
Commercial loans (all variable rate) ......... 15,981 -- -- 15,981
-------- ------ ------ --------
Total .................................... $ 21,553 $ -- $ -- $ 21,553
======== ====== ====== ========
Percent of total ......................... 100.0% --% --% 100.0%
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, 2000, non-performing assets were .08% of total assets,
compared with 0.09% and 0.12% at December 31, 1999 and 1998, respectively.
The following table sets forth non-performing assets at the dates
indicated:
AT DECEMBER 31,
2000 1999 1998 1997 1996
------ ------ -------- ------ ---------
(Dollars in thousands)
Loans accounted for on a non-accrual basis and/or
impaired ........................................ $549 $616 $ 681 $622 $1,028
Accruing loans past due 90 days or more as to
principal or interest ........................... 7 -- 50 91 144
---- ---- ----- ---- ------
Total non-performing loans ....................... 556 616 731 713 1,172
Real estate acquired by foreclosure and other real
estate owned .................................... -- -- -- 265 500
---- ---- ----- ---- ------
Total non-performing assets ...................... $556 $616 $ 731 $978 $1,672
==== ==== ===== ==== ======
Impaired loans totaling $94,000 and $397,000, at December 31, 2000 and
1999, respectively, required an allocation of $15,000 and $75,000,
respectively, of the allowance for possible loan losses. The remaining impaired
loans did not require any allocation of the reserve for possible loan losses.
The average balance of impaired and/or non-accrual loans was approximately
$468,000, $666,000 and $622,000 in 2000, 1999 and 1998, respectively. The total
amount of interest income recognized on impaired loans during 2000, 1999 and
1998 was approximately $70,000, $64,000, and $55,000 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. 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.
6
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:
AT DECEMBER 31,
2000 1999 1998 1997 1996
------------- ------------- ------------ ------------- -------------
(Dollars in thousands)
Balance, beginning of year ................... $ 3,701 $ 3,077 $ 2,280 $ 1,811 $ 1,433
Loans charged off:
Real estate--residential ..................... 17 11 18 100 48
Real estate--commercial ...................... -- 5 -- 20 --
Real estate--construction .................... -- -- -- -- --
Commercial ................................... -- -- -- -- --
Consumer ..................................... 267 248 206 246 247
--------- --------- -------- --------- ---------
Total loans charged-off ...................... 284 264 224 366 295
--------- --------- -------- --------- ---------
Loan recoveries:
Real estate--residential ..................... 5 4 7 5 17
Real estate--commercial ...................... 145 142 119 38 120
Real estate--construction .................... -- -- -- -- --
Commercial ................................... -- -- -- -- --
Consumer ..................................... 129 102 135 162 56
--------- --------- -------- --------- ---------
Total recoveries ............................. 279 248 261 205 193
--------- --------- -------- --------- ---------
Net charge-offs (recoveries) ................. 5 16 (37) 161 102
--------- --------- -------- --------- ---------
Provision charged to operations .............. 160 640 760 630 480
--------- --------- -------- --------- ---------
Balance, end of year ......................... $ 3,856 $ 3,701 $ 3,077 $ 2,280 $ 1,811
========= ========= ======== ========= =========
Average loans outstanding, net ............... $ 385,671 $ 368,578 $335,871 $ 304,925 $ 282,530
========= ========= ======== ========= =========
Ratio of net charge-offs (recoveries) to
average loans outstanding, net .............. .00% .00% ( .01)% .05% .04%
========= ========= ======== ========= =========
Ratio of allowance for possible loan losses to
gross loans at year end ..................... 1.02% .94% .85% .68% .60%
========= ========= ======== ========= =========
Ratio of allowance for possible loan losses to
non-performing loans ........................ 693.5% 600.8% 420.9% 319.8% 154.5%
========= ========= ======== ========= =========
The following table summarizes the allocation of the allowance for
possible loan losses for the years indicated:
At December 31,
2000 1999 1998
---------------------- ---------------------- ----------------------
Percent Percent Percent
of loans of loans of loans
in category in category in category
to gross to gross to gross
Amount Loans Amount Loans Amount Loans
-------- ------------- -------- ------------- -------- -------------
(Dollars in thousands)
Real estate--residential .......... $ 928 75.0% $ 959 79.4% $ 899 79.3%
Real estate--commercial ........... 608 15.5 590 13.1 479 13.8
Real estate--construction ......... 56 3.4 35 1.5 71 1.9
Commercial ........................ 325 4.1 341 4.2 189 2.6
Consumer .......................... 288 2.0 233 1.8 195 2.4
Unallocated ....................... 1,651 N/A 1,543 N/A 1,244 N/A
------ ----- ------ ----- ------ -----
Total ............................. $3,856 100.0% $3,701 100.0% $3,077 100.0%
====== ===== ====== ===== ====== =====
At December 31,
1997 1996
---------------------- ---------------------
Percent Percent
of loans of loans
in category in category
to gross to gross
Amount Loans Amount Loans
-------- ------------- -------- ------------
(Dollars in thousands)
Real estate--residential .......... $ 869 80.2% $ 854 83.5%
Real estate--commercial ........... 372 11.7 224 8.1
Real estate--construction ......... 77 2.3 60 1.9
Commercial ........................ 153 2.3 91 1.5
Consumer .......................... 218 3.5 200 5.0
Unallocated ....................... 591 N/A 382 N/A
------ ----- ------ -----
Total ............................. $2,280 100.0% $1,811 100.0%
====== ===== ====== =====
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
7
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, 2000, it was noted that the Specific Identification Methodology, which was
used for the compilation of the table above for consistency purposes,
demonstrates the lowest requirement. The Risk Rating/Migration methodologies
supported reserve levels at December 31, 2000. Therefore, 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 2000 was $160,000,
compared to $640,000 and $760,000 in 1999 and 1998, respectively. The primary
reason for the reduction in provisions in each year since 1998 was due to
continued low levels of net charge-off activity as well as the continued
strength of other asset quality factors that management uses to evaluate the
adequacy of loan loss reserve levels. The provision for 1998 exceeded 1997
levels reflecting the increased risk associated with the Company's emphasis of
commercial and commercial real estate lending activities as evidenced by the
increase in "watch assets" in the commercial loan portfolio during 1998.
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:
AT DECEMBER 31,
2000 1999 1998
----------- ----------- ------------
(Dollars in thousands)
Short-term investments .......................................... $ 160 $ 150 $ 143
Federal funds sold .............................................. 75 75 4,150
------- ------- --------
Total ........................................................... $ 235 225 $ 4,293
======= ======= ========
Percent of total assets ......................................... .03% .01% .73%
Investment securities:
U. S. Government and federal agency obligations, at market .... $57,506 $42,043 $ 26,629
Other bonds and obligations, at market ........................ 28,701 23,786 20,221
------- ------- --------
Subtotal ........................................................ 86,207 65,829 46,850
Marketable equity securities, at market ......................... 9,593 8,165 4,796
------- ------- --------
Total investment securities ..................................... $95,800 $73,994 $ 51,646
======= ======= ========
Percent of total assets ......................................... 13.2% 10.6% 8.7%
A schedule of the maturity distribution of investment securities held by
the Company, other than equity securities and FHLB stock, and the related
weighted average yield, at December 31, 2000 follows:
Within one After one but After five but After ten
Year within Five Years within Ten Years Years
---------------------- ---------------------- ---------------------- ---------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------
(Dollars in thousands)
U.S. Government and federal
agency obligations ......... $577 7.70% $ 2,000 6.00% $34,006 6.81% $20,616 6.94%
Other bonds and obligations ... -- -- 9,582 6.83 2,998 6.96 18,649 7.07
---- ---- ------- ---- ------- ---- ------- ----
Total ......................... $577 7.70% $11,582 6.69% $37,004 6.82% $39,265 6.98%
==== ==== ======= ==== ======= ==== ======= ====
At December 31, 2000, the Company had six mortgage backed securities and
one corporate bond which had a total amortized cost of $33,540,000, 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.
8
SOURCES OF FUNDS
GENERAL. Deposits and borrowings are the Company's primary sources of
funds for investment. The Company also derives funds from operations,
amortization and prepayments of loans and sales of assets. Deposit flows vary
significantly and are influenced by prevailing interest rates, money market
conditions, economic conditions, location of Company offices and competition.
DEPOSITS. Most of the Company's deposits are derived from customers who
work or reside in the Company's primary service area. The Company's deposits
consist of passbook savings accounts, special notice accounts, NOW accounts,
money market deposit accounts, club accounts, money market certificates,
negotiated rate certificates and term deposit certificates. The Company also
offers Individual Retirement Accounts, which currently include a one-year
variable rate account with monthly interest rate adjustments, a 2.5 year
fixed-rate account, or a 3- or 4-year fixed-rate account. In addition, the
Company currently offers non-interest NOW accounts for commercial customers and
individuals. Although in previous years the Company has solicited brokered
deposits, at December 31, 2000 there were no such deposits.
At December 31, 2000, the Company's outstanding certificates of deposit
with balances in excess of $100,000 are scheduled to mature as follows:
(In thousands)
Three months or less ............... $ 17,275
Over three to six months ........... 12,461
Over six to twelve months .......... 13,109
Over twelve months ................. --
------
$42,845
=======
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. The
Company offers investment services (including annuities) to its customers are
through a third-party broker-dealer, and its insurance agency affiliate. The
third-party paid fees to the Company based upon sales volume generated by the
Company's brokers.
SUPERVISION AND REGULATION
As an FDIC-insured, state-chartered bank, the Bank is subject to
supervision and regulation by the Commissioner and the FDIC and is subject to
periodic examination. The Company is subject to regulation and supervision of
the Federal Reserve as a bank holding company.
COMPETITION
The Company faces substantial competition both in attracting deposits and
in originating loans.
Competition in originating loans comes generally from other thrift
institutions, commercial banks, credit unions, finance companies, insurance
companies, other institutional lenders and mortgage companies. The Company
competes for loans principally on the basis of interest rates and loan fees,
the types of loans originated, service and geographic location.
In attracting deposits, the Company's primary competitors are other
savings banks, commercial banks and co-operative banks, credit unions, and
mutual funds. Other competition for deposits comes from government securities
as investments. The Company's attraction and retention of deposits depends on
its ability to provide investment opportunities that satisfy the requirements
of investors with respect to rate of return, liquidity, risk and other factors.
The Company attracts a significant amount of its deposits from the communities
in which its offices are located, and, accordingly, competition for these
deposits comes principally from other thrift institutions and commercial banks
located in the same geographic areas. The Company competes for these deposits
by attempting to offer competitive rates, convenient branch locations, and
convenient business hours and by attempting to build an active, civic-spirited
image in these communities.
Financial institutions that are not now located within the Company's
market area may find entry in the Company's market area attractive. Such entry
could have an adverse effect on the Company's growth or profitability. The
Company's potential competitors may have substantially greater financial and
other resources than the Com-
9
pany. 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 may
result in significant changes to the competitive environment in which the
Company operates.
EMPLOYEES
As of December 31, 2000, the Bank had 182 full-time employees, consisting
of 29 full-time officers and 153 full-time non-officers, as well as 114
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.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to real estate
owned or leased by the Company at December 31, 2000.
Year Owned Lease Renewal
Opened or Leased Term Option
-------- ----------- ---------- ---------
Main Office:
533 Washington St.
Abington, MA 02351 .......... 1929 Owned -- --
Branches:
Shaw's Supermarket
609 Belmont Street
Brockton, MA 02301 .......... 1999 Leased 10 years 2-5 years
319 Monponsett Street
Halifax, MA 02338 ........... 1975 Owned -- --
584 Washington St.
Whitman, MA 02382 ........... 1992 Owned -- --
157 Summer Street
Kingston, MA 02364 .......... 1995 Leased 20 years 10 years
175 Center Street
Pembroke, MA 02359 .......... 1992 Owned -- --
523 Nantasket Ave.
Hull, MA 02045 .............. 1994 Leased 15 years --
778 S. Franklin St.
Holbrook MA 02343 ........... 1995 Leased 10 years 2-5 years
Shaw's Supermarket
739 Chief Justice Cushing Way
Cohasset, MA 02025 .......... 1997 Leased 5 years 2-5 years
Shaw's Supermarket
121 Memorial Parkway
Randolph, MA 02368 .......... 1998 Leased 5 years 2-5 years
Shaw's Supermarket
430 Liberty Street
Hanson, MA 02341 ............ 1998 Leased 5 years 2-5 years
Shaw's Supermarket
75 Washington Street
Cobb's Corner
Canton, MA .................. 2000 Leased 10 years 2-5 years
10
Year Owned Lease Renewal
Opened or Leased Term Option
-------- ----------- --------- ---------
Mortgage Offices:
1115 West Chestnut Street
Suite No. 202
Brockton, MA 02301 ........... 1998 Leased 5 years --
850 Southbridge Street
Auburn, MA 01501 ............. 1996 Leased 2 years --
401 Columbia Street
Fall River, MA 02721 ......... 1996 Leased 1 month --
102-B 34 Main Street Extension
Plymouth, MA 02360 ........... 1995 Leased -- --
Executive Office
536 Washington St.
Abington, MA 02351 ........... 1989 Owned -- --
Administrative Offices:
538 Bedford St.
Abington, MA 02351 ........... 1995 Leased 2 Years 18 months
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.
11
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.
Price
Dividends
High Low Declared
---------- -------- ----------
2001 (through February 23, 2001) ......... $13.50 $11.00 $--
2000
4th quarter .............................. 11.06 8.75 .09
3rd quarter .............................. 11.19 8.75 .09
2nd quarter .............................. 9.88 8.75 .09
1st quarter .............................. 11.75 9.38 .09
1999
4th quarter .............................. 13.00 10.69 .05
3rd quarter .............................. 13.75 12.06 .05
2nd quarter .............................. 14.75 13.25 .05
1st quarter .............................. 15.13 12.75 .20
1998
4th quarter .............................. 17.00 12.00 .05
3rd quarter .............................. 19.50 12.50 .05
2nd quarter .............................. 22.75 17.50 .05
1st quarter .............................. 22.50 18.75 .15
As of February 23, 2001, the Company had approximately 781 stockholders of
record who held 3,068,352 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 1,552 beneficial owners of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
At December 31,
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except per share data)
Balance Sheet Data:
Total assets ........................................ $ 728,249 $ 696,250 $ 591,151 $ 531,986 $ 486,958
Total loans, net .................................... 374,138 388,710 360,735 330,792 298,970
Investment securities (1) ........................... 108,710 86,903 61,184 47,187 31,950
Mortgage-backed securities .......................... 194,411 161,630 129,700 126,016 131,184
Deposits ............................................ 454,747 389,692 363,953 324,934 300,445
Borrowed funds ...................................... 222,132 259,751 177,128 165,910 147,524
Preferred beneficial interest in junior subordinated
debentures, net (3) ................................ 12,086 12,010 11,934 -- --
Stockholders' equity ................................ 34,305 27,832 33,060 36,321 33,546
Book value per share (2) ............................ 11.18 8.72 9.88 9.99 8.86
12
Years Ended December 31,
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except per share data) (2)
Operating Data:
Interest and dividend income ............................ $ 48,349 $ 42,242 $ 38,442 $ 36,297 $ 34,332
Interest expense ........................................ 28,396 23,092 21,585 20,091 19,517
--------- --------- --------- --------- ---------
Net interest income ..................................... 19,953 19,150 16,857 16,206 14,815
Provision for possible loan losses ...................... 160 640 760 630 480
--------- --------- --------- --------- ---------
Net interest income after provision for possible loan
losses ................................................. 19,793 18,510 16,097 15,576 14,335
--------- --------- --------- --------- ---------
Non-interest income:
Loan servicing fees .................................... 311 365 469 558 646
Customer service fees .................................. 6,396 4,491 3,816 3,276 2,412
Gain on sales of securities ............................ 405 823 1,731 540 495
Gain on sales of loans, net ............................ 1,315 1,222 492 236 315
Net gain (loss) on sales and write-down of other
real estate owned ..................................... -- 68 43 109 67
Other .................................................. 472 404 358 267 242
--------- --------- --------- --------- ---------
Total non-interest income ............................. 8,899 7,373 6,909 4,986 4,177
--------- --------- --------- --------- ---------
Non-interest expenses ................................... 21,675 19,420 16,267 13,505 12,840
--------- --------- --------- --------- ---------
Income before income taxes .............................. 7,017 6,463 6,739 7,057 5,672
Provision for income taxes .............................. 2,524 2,314 2,368 2,679 2,139
--------- --------- --------- --------- ---------
Net income ............................................ $ 4,493 $ 4,149 $ 4,371 $ 4,378 $ 3,533
========= ========= ========= ========= =========
Basic earnings per share ................................ $ 1.46 $ 1.26 $ 1.25 $ 1.18 $ .94
========= ========= ========= ========= =========
Diluted earnings per share .............................. $ 1.41 $ 1.20 $ 1.17 $ 1.10 $ .89
========= ========= ========= ========= =========
Dividends per share (4) ................................. $ .36 $ .35 $ .30 $ .20 $ .20
========= ========= ========= ========= =========
Selected Ratios:
Return on average total assets .......................... .64% .66% .79% .87% .74%
Interest rate spread .................................... 2.89 3.15 3.13 3.29 3.14
Return on average equity ................................ 15.14 13.42 12.68 12.59 11.00
Dividend payout ratio ................................... 24.46 27.84 23.95 16.90 21.34
Average equity to average total assets .................. 4.23 4.90 6.26 6.94 6.69
(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.
13
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. This expansion of the Company's community banking business into
supermarket banking is consistent with the Company's strategy of controlled
growth with a focus on core retail deposit 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.
Forward-Looking Statements
When used in this report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe" or similar expressions are intended to identify "forward-looking
statements" within the meanings of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
The Company wishes to caution readers that all forward-looking statements
are necessarily speculative and not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various risks and uncertainties, including regional and national
economic conditions, changes in the real estate market, changes in levels of
market interest rates, credit risks of lending activities, competitive and
regulatory factors could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially from
those anticipated or projected.
Net Interest Income
Net interest income is affected by the mix and volume of assets and
liabilities, and levels of prepayment primarily on loans and mortgage-backed
investments, the movement and level of interest rates, and interest spread,
which is the difference between the average yield received on earning assets
and the average rate paid on deposits and borrowings. The Company's net
interest rate spread was 2.89% and 3.15% for the years ended December 31, 2000
and 1999.
The level of non-accrual loans and other real estate owned can have an
impact on net interest income but has been immaterial in 2000 and 1999. At
December 31, 2000, the Company had $549,000 in non-accrual loans and no other
real estate owned compared to $616,000 in non-accrual loans and no other real
estate owned as of December 31, 1999.
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.
14
Years Ended December 31,
2000 1999
--------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ---------- ---------- ----------- ---------- ----------
(Dollars in thousands)
Assets
Earning assets:
Federal funds sold and
short-term investments .................. $ 1,005 $ 58 5.77% $ 436 $ 32 7.34%
Bonds and obligations (2) ............... 80,797 5,591 6.92 63,607 4,237 6.66
Equity securities (1) ................... 21,440 1,031 4.81 16,859 706 4.19
Mortgage-backed investments (2) ......... 182,432 12,377 6.78 146,508 9,439 6.44
Loans (3) ............................... 385,671 29,292 7.60 368,578 27,828 7.55
-------- ------- -------- -------
Total earning assets .................. 671,345 48,349 7.20 595,988 42,242 7.09
-------- ------- -------- -------
Cash and due from banks ................. 19,171 16,414
Other assets ............................ 11,515 18,273
-------- --------
Total assets ........................... $702,031 $630,675
======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits ........................... $ 60,632 $ 484 .80% $ 51,744 $ 440 .85%
Savings deposits ....................... 126,488 2,858 2.26 115,726 2,545 2.20
Time deposits .......................... 174,785 9,675 5.54 164,254 8,404 5.12
-------- ------- -------- -------
Total interest-bearing deposits ....... 361,905 13,017 3.60 331,724 11,389 3.43
Short-term borrowings ................... 105,813 6,572 6.21 96,005 4,943 5.15
Long-term debt .......................... 137,546 8,807 6.40 113,905 6,760 5.93
-------- ------- -------- -------
Total interest-bearing liabilities..... 605,264 28,396 4.69 541,634 23,092 4.26
------- -------
Non-interest-bearing deposits ........... 53,553 44,338
-------- --------
Total deposits and
borrowed funds ....................... 658,817 4.31 585,972 3.94
Other liabilities ....................... 13,538 13,795
-------- --------
Total liabilities ....................... 672,355 599,767
Stockholders' equity .................... 29,676 30,908
-------- --------
Total liabilities and
stockholders' equity ................. $702,031 $630,675
======== ========
Net interest income ...................... $19,953 $19,150
======= =======
Interest rate spread (4) ................. 2.89% 3.15%
==== ====
Net yield on earning assets (5) .......... 2.97% 3.21%
==== ====
Years Ended December 31,
1998
---------------------------------
Average Yield/
Balance Interest Rate
----------- ---------- ----------
(Dollars in thousands)
Assets
Earning assets:
Federal funds sold and
short-term investments .................. $ 2,059 $ 114 5.55%
Bonds and obligations (2) ............... 43,034 3,027 7.03
Equity securities (1) ................... 13,758 627 4.56
Mortgage-backed investments (2) ......... 126,031 8,393 6.66
Loans (3) ............................... 335,871 26,281 7.82
-------- -------
Total earning assets ................... 520,753 38,442 7.38
-------- -------
Cash and due from banks ................. 12,407
Other assets ............................ 17,435
--------
Total assets ........................... $550,595
========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits ........................... $ 43,938 $ 652 1.48%
Savings deposits ....................... 102,022 2,281 2.24
Time deposits .......................... 157,858 8,818 5.59
-------- -------
Total interest-bearing deposits ....... 303,818 11,751 3.87
Short-term borrowings ................... 42,039 2,279 5.42
Long-term debt .......................... 125,521 7,555 6.02
-------- -------
Total interest-bearing liabilities..... 471,378 21,585 4.58
-------
Non-interest-bearing deposits ........... 37,080
--------
Total deposits and
borrowed funds ....................... 508,458 4.25
Other liabilities ....................... 7,656
--------
Total liabilities ....................... 516,114
Stockholders' equity .................... 34,481
--------
Total liabilities and
stockholders' equity ................. $550,595
========
Net interest income ...................... $16,857
=======
Interest rate spread (4) ................. 3.13%
====
Net yield on earning assets (5) .......... 3.24%
====
(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.
15
Rate/Volume Analysis
The following table presents, for the periods indicated, the changes in
interest income and in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.
Years Ended December 31, 2000 vs 1999 1999 vs 1998
- ------------------------------------- -------------------------------- ------------------------------
(Dollars in thousands) Increase (decrease) Increase (decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
-------- ------- --------- --------- --------- ---------
Interest and dividend income:
Loans .............................. $1,297 $ 167 $1,464 $2,493 $ (946) $1,547
Bonds and obligations .............. 1,184 170 1,354 1,378 (168) 1,210
Equity securities .................. 210 115 325 133 (54) 79
Mortgage-backed securities ......... 2,415 523 2,938 1,327 (281) 1,046
Federal funds sold and
short-term investments ............ 34 (8) 26 (111) 29 (82)
------ ------- ------ ------ -------- ------
Total interest and
dividend income .................. 5,140 967 6,107 5,220 (1,420) 3,800
------ ------- ------ ------ -------- ------
Interest expense:
NOW deposits ....................... 72 (28) 44 101 (313) (212)
Savings deposits ................... 242 71 313 302 (38) 264
Time deposits ...................... 543 728 1,271 348 (762) (414)
Short-term borrowings .............. 539 1,090 1,629 2,784 (121) 2,663
Long-term debt ..................... 1,483 564 2,047 (691) (103) (794)
------ ------- ------ ------ -------- ------
Total interest expense ............ 2,879 2,425 5,304 2,844 (1,337) 1,507
------ ------- ------ ------ -------- ------
Net interest income ................. $2,261 $(1,458) $ 803 $2,376 $ (83) $2,293
====== ======= ====== ====== ======== ======
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.
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.
16
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 strategically acquired generally AAA-rated,
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
increases 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 recent "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 has been beneficial to
the Company as well as many other community banks in the region. The Company
will continue to closely manage its cost of deposits by continuing to seek
methods of acquiring new core deposits and maintaining its current core deposits
while prudently adding time deposits at reasonable rates in comparison to local
markets and other funding alternatives, including borrowings. The average
balances of borrowed funds increased overall during 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 the past year.
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 is reflective of the net cumulative
effect of actions taken by the Federal Reserve between July 1999 and August of
2000 to increase the inter-bank borrowing rate by 175 basis points. In January
2001, the Federal Reserve reduced the interbank borrowing rate by 100 basis
points in response to a perceived economic slowdown with many economists
speculating further reductions. Such reductions, if sustained, should have the
effect of decreasing the cost of borrowed funds (short-term and maturing
long-term) and time deposits. 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 has 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 is generally reflective of the expanded
capacity and actual residential mortgage originations and sales as the result
of Old Colony Mortgage which was 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.
17
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 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 is 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. However,
ultimate loan losses may vary significantly from current estimates and
increased provisions in future periods may be necessary.
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.
Comparison of the Years Ended December 31, 1999 and 1998
General
Net income for the year ended December 31, 1999 was $4,149,000 or $1.20
per diluted share compared to a net income of $4,371,000 or $1.17 per diluted
share in 1998, a net decrease of $222,000 or 5.1%. Earnings on a per diluted
share basis increased in 1999 over 1998 as a result of the Company's repurchase
of shares under current buy back plans. The overall decline in net income was
mainly attributable to lower gains on sales of securities and increases in
non-interest expenses, including salaries expense and trust preferred
securities, offset in part by increases in net interest income, customer
service fees and gains on sales of mortgages.
Interest and Dividend Income
Interest and dividend income increased $3,800,000 or 9.9% during 1999, as
compared to 1998. The increase was attributable to increases in earning assets
offset in part by reductions in the yield earned on those assets. The balance
of average earning assets for 1999 was approximately $595,988,000 as compared
to $520,753,000 in 1998, an overall increase of $75,235,000 or 14.4%. The
increase in earning assets was in part due to increases in average loan
balances which were $368,578,000 for 1999, as compared to $335,871,000 in 1998,
an increase of $32,707,000 or 9.7%. This increase was generally caused by
larger volumes of commercial loan originations in 1998 and into 1999 as well as
higher residential loan balances which were the result of the steady volume of
loan originations and purchases throughout 1998 and into 1999. See "Liquidity
and Capital Resources" and "Asset/Liability Management" for further discussion
of the Company's investment strategies.
The average yield earned on loans decreased in 1999 as compared to 1998
primarily due to the effect of higher prepayments on higher yielding
residential loans and lower rates earned on newer originations or purchases.
The
18
yield on loans for 1999 was 7.55% as compared to 7.82% in 1998. Loan yields in
1999 were affected by consistently high levels of prepayment activity
experienced throughout 1998 into 1999 on higher yielding residential loans
which were in turn replaced by lower yielding loans as a result of market
conditions in 1998 and 1999 as compared to loans which were originated prior to
1997. Yields on loans were positively affected by growth in the Company's
commercial loan portfolio (including commercial real estate and construction
loans) which has grown to approximately $71,400,000 at December 31, 1999 from
$63,700,000 at December 31, 1998, an increase of $7,700,000 or 12.1%.
Commercial loans typically carry a higher yield than residential mortgages.
Average balances of mortgage-backed investments and bond investments were
$146,508,000 and $63,607,000, respectively, for 1999 as compared to
$126,031,000 and $43,034,000, respectively, in 1998. These balances, when
combined, increased $41,050,000 or 24.3%. The yield on mortgage-backed
investments and bond investments declined to 6.44% and 6.66% respectively in
1999, as compared to 6.66% and 7.03%, respectively in 1998. As with loan
yields, these yields were adversely affected by general rate declines and
prepayments on higher yielding securities over the previous two years.
Also, the yield on bond investments decreased generally due to some of the
Company's higher yielding bonds being called by the issuers with proceeds being
reinvested at lower rates.
Interest Expense
Interest expense for 1999 increased $1,507,000 or 7.0% compared to 1998,
generally due to increases in the average balances of deposits and borrowed
funds, which was partially offset by decreases in the rates paid on deposit and
borrowed funds. The average balance of core and time deposits rose to
$211,808,000 and $164,254,000, respectively, for 1999 as compared to
$183,040,000 and $157,858,000, respectively, in 1998, for increases of 15.7% and
4.1%, respectively. The average balances of borrowed funds increased overall,
during 1999 as compared to 1998, to $209,910,000 from $167,560,000, an increase
of 25.3%. This increase generally related to the funding of asset growth. The
blended weighted average rate paid on interest-bearing deposits and borrowed
funds was 4.26% for 1999 as compared to 4.58% in 1998. The weighted average
rates paid on deposits was 3.03% for 1999 as compared to 3.45% in 1998. The
overall cost of deposits has declined in 1999 as compared to 1998, generally due
to the continued success of promotional efforts to attract core deposits (NOW
accounts, demand deposits, savings and money markets), which typically have a
lower cost of funds than time deposits and borrowings. The overall weighted
average rates paid on borrowed funds decreased to approximately 5.58% for 1999
from 5.87% in 1998. This decrease represents the renewal of certain borrowings
which came due in 1998 at lower rates than they had been obtained for
previously. The decrease in the cost of borrowed money is consistent with the
cumulative effect of the Federal Reserve's actions taken in the second half of
1998 to reduce the inter-bank borrowing rate by 75 basis points partially offset
by the actions taken by the Federal Reserve in 1999 to increase that same rate
by 75 basis points. See "Asset/Liability Management" for further discussion of
the competitive market for deposits and overall strategies for uses of borrowed
funds.
Non-Interest Income
Total non-interest income increased $464,000 or 6.7% in 1999 in comparison
to 1998. Customer service fees, which were $4,491,000 for 1999 as compared to
$3,816,000 for 1998, for an increase of $675,000 or 17.7%, rose primarily due
to growth in deposit accounts, primarily NOW and checking accounts. Loan
servicing fees and gains on sales of mortgage loans were $365,000 and
$1,222,000, respectively, for 1999 as compared to $469,000 and $492,000,
respectively, in 1998, a combined increase of $626,000 or 65.1%. The increase
in gains on sales was generally reflective of the Company's acquisition of Old
Colony Mortgage and also the favorable consumer rates for residential loans for
the first nine months of 1999 which resulted in increased saleable loan
production compared to the same period in 1998. As the Company has been selling
loans generally on a servicing released basis since 1996, the portfolio of
loans serviced for others has declined which has caused the continued drop in
loan servicing income.
Gains on sales of securities were $823,000 for 1999 as compared to
$1,731,000 for 1998 for a decrease of $908,000 or 52.5%. While the equity
markets remained relatively strong for 1999, management elected to sell fewer
holdings.
Non-Interest Expenses
Non-interest expenses for 1999 increased $3,154,000 or 19.4% compared to
1998. Salaries and employee benefits increased 17.9% or $1,404,000 primarily
due to the acquisition of Old Colony Mortgage (approximately $884,000), and
increases in supermarket branch staff (approximately $347,000). The increases
in supermarket staffing were the result of more supermarket branches being open
during 1999 than compared to the same period in
19
1998. The branches primarily affecting this difference, with their opening
dates in parenthesis, were Randolph (April 1998), Hanson (September 1998) and
Brockton (May 1999). These increases correspond with the Company's strategic
focus of attracting core deposits and new customer relationships. The increase
in salaries and benefits expense, excluding Old Colony Mortgage and the
supermarket branches, was approximately $173,000 or 2.5%. Occupancy expenses
increased $698,000 or 26.1% primarily due to the acquisition of Old Colony
Mortgage (approximately $94,000), the effect of increasing the number of
supermarket branches (approximately $217,000), and increases in other capital
and technology expenditures. Other non-interest expenses, including trust
preferred expenses, also increased $1,052,000 or 18.3% for 1999 in comparison
to 1998. Of this amount, approximately $534,000 of the aforementioned increases
relates to expenses related to guaranteed preferred beneficial interests in
junior subordinated debentures ("Trust Preferred Securities") which were issued
in June 1998, and approximately $306,000 related to the Old Colony Mortgage
operation and an additional $152,000 related to increases in the number of
supermarket branches.
Provision for Possible Loan Losses
The provision for possible loan losses was reduced to $640,000 for 1999
from $760,000 in 1998, a decline of $120,000 or 15.8%. The primary reason for
the reduction in provisions in 1999 vs. 1998 was due to the recovery of
approximately $90,000 on a previously charged-off commercial real estate loan
as well as the continued strength of other asset quality factors that
management uses to evaluate the adequacy of loan loss reserve levels.
Provision for Income Taxes
The Company's effective income tax rate for 1999 was 35.8% compared to
35.1% for 1998. The lower effective tax rate in comparison to statutory rates
for both periods is reflective of income earned by certain non-bank
subsidiaries which are taxed, for state tax purposes, at lower rates.
Additionally, the overall effective tax rate is influenced by the proportion of
income generated by non-bank subsidiaries. In 1998, a greater portion of income
was generated through non-bank subsidiaries as compared to 1999.
Asset/Liability Management
The objective of asset/liability management is to ensure that liquidity,
capital and market risk are prudently managed. Asset/liability management is
governed by policies reviewed and approved annually by the Company's Board of
Directors (Board). The Board delegates responsibility for asset/liability
management to the corporate Asset/Liability Management Committee (ALCO). ALCO
sets strategic directives that guide the day-to-day asset/liability management
activities of the Company. ALCO also reviews and approves all major funding,
capital and market risk-management programs. ALCO is comprised of members of
management and executive management of the Company and the Bank.
Interest rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term time horizons. The primary objective
of interest rate risk management is to control this risk within limits approved
by the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company attempts to control interest rate
risk by identifying potential exposures and developing tactical plans to
address such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a
more simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales and, in some cases, hedge strategies are also considered in the
evaluation and management of interest rate risk exposures.
The Company uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a 1 to 5 year time horizon.
Simulation analysis involves projecting future interest income and expense from
the Company's assets, liabilities, and off-balance sheet positions under
various interest rate scenarios.
The Company's limits on interest rate risk specify that if interest rates
were to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. The
following table reflects the Company's estimated exposure, as a percentage of
estimated net interest income for the next 12 months, which does not materially
differ from the impact on net income, on the above basis:
Rate Change Estimated Exposure as a
(Basis Points) % of Net Interest Income
- ---------------- -------------------------
+200 3.73%
-200 0.17%
20
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 57.5% of the average interest earning assets in 2000. 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 become
more active in pursuing wholesale opportunities to purchase loans. During 2000,
1999 and 1998, the Company acquired approximately $0, $73,000,000 and
$95,600,000, 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 two years.
Management estimates that over 60% of its earning assets at December 31, 1997
have paid off by December 31, 2000 and were replaced with similar assets at
generally lower yields. 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, 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 $222,132,000 at December 31, 2000 compared to $259,751,000 at December
31, 1999. These borrowings are primarily comprised of FHLB of Boston advances
and have primarily funded residential loan originations and purchases as well
as mortgage-backed investments and investment securities. Additionally, as of
December 31, 1999, approximately $18 million of the Company's borrowings were
used to acquire cash as part of the Company's Year 2000 contingency plans.
Nearly all of this amount was paid off in early January 2000 as the majority of
the cash was returned to the Federal Reserve.
21
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, 2000. 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.
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.
22
Repricing/Maturity Interval
At December 31, 2000 0-6 Mos. 6-12 Mos. 1-2 Yrs.
- ---------------------------------------- ------------- -------------- --------------
(Dollars in thousands)
Assets subject to interest rate
adjustment:
Short-term investments ................ $ 235 $ -- $ --
Bonds and obligations ................. 57,200 2,995 10,985
Mortgage-backed
investments ........................... 32,593 24,546 23,753
Mortgage loans subject to rate
review ................................ 28,350 23,094 18,251
Fixed rate mortgage loans ............. 53,268 14,670 25,726
Commercial and other loans
contractual maturity ................. 14,739 3,149 1,756
---------- ---------- ----------
Total ................................ 186,385 68,454 80,471
---------- ---------- ----------
Liabilities subject to interest
rate adjustment:
Money market deposit
accounts .............................. 15,502 -- --
Savings deposits - term
certificates .......................... 72,478 40,698 55,117
Other savings accounts ................ 187,238 -- --
Borrowed funds ........................ 98,632 5,000 74,000
---------- ---------- ----------
Total ................................ 373,850 45,698 129,117
---------- ---------- ----------
Guaranteed preferred beneficial
interest in junior
subordinated debentures ............... -- -- --
---------- ---------- ----------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities ................. (187,465) 22,756 (48,646)
---------- ---------- ----------
Cumulative excess (deficiency)
of rate sensitive assets over
rate sensitive liabilities (1) ........ $ (187,465) $ (164,709) $ (213,355)
---------- ---------- ----------
Rate sensitive assets as a
percent of rate sensitive
liabilities (cumulative) .............. 49.9% 60.7% 61.1%
Repricing/Maturity Interval
At December 31, 2000 2-3 Yrs. 3-5 Yrs. Over 5 Yrs. Total
- ---------------------------------------- -------------- ------------- ------------- -----------
(Dollars in thousands)
Assets subject to interest rate
adjustment:
Short-term investments ................ $ -- $ -- $ -- $ 235
Bonds and obligations ................. 10,545 4,659 2,044 88,428
Mortgage-backed
investments ........................... 20,465 30,834 62,325 194,516
Mortgage loans subject to rate
review ................................ 42,553 9,138 3,106 124,492
Fixed rate mortgage loans ............. 21,671 31,633 82,895 229,863
Commercial and other loans
contractual maturity ................. 1,364 2,120 511 23,639
---------- --------- --------- ---------
Total ................................ 96,598 78,384 150,881 661,173
---------- --------- --------- ---------
Liabilities subject to interest
rate adjustment:
Money market deposit
accounts .............................. -- -- -- 15,502
Savings deposits - term
certificates .......................... 6,226 13,300 2,163 189,982
Other savings accounts ................ -- -- -- 187,238
Borrowed funds ........................ 10,000 5,000 29,500 222,132
---------- --------- --------- ---------
Total ................................ 16,226 18,300 31,663 614,854
---------- --------- --------- ---------
Guaranteed preferred beneficial
interest in junior
subordinated debentures ............... -- -- 12,086 12,086
---------- --------- --------- ---------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities ................. 80,372 60,084 107,132 34,233
---------- --------- --------- ---------
Cumulative excess (deficiency)
of rate sensitive assets over
rate sensitive liabilities (1) ........ $ (132,983) $ (72,899) $ 34,233
---------- --------- ---------
Rate sensitive assets as a
percent of rate sensitive
liabilities (cumulative) .............. 76.5% 87.5% 105.5%
(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.
23
Liquidity and Capital Resources
Payments and prepayments on the Company's loan and mortgage-backed
investment portfolios, sales of fixed rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Company's primary sources of liquidity. The Company is also a voluntary member
of the FHLB of Boston and, as such, is entitled to borrow an amount up to the
value of its qualified collateral that has not been pledged to outside sources.
Qualified collateral generally consists of residential first mortgage loans,
securities issued, insured or guaranteed by the U.S. Government or its
agencies, and funds on deposit at the FHLB of Boston. Short-term advances may
be used for any sound business purpose, while long-term advances may be used
only for the purpose of providing funds to finance housing. At December 31,
2000, the Company had approximately $195,000,000 in unused borrowing capacity
that is contingent upon the purchase of additional FHLB of Boston stock. Use of
this borrowing capacity is also impacted by capital adequacy considerations.
The Company's short-term borrowing position consists primarily of FHLB of
Boston advances with original maturities of approximately 1 to 3 months. The
Company utilizes borrowed funds as a primary vehicle to manage interest rate
risk, due to the ability to easily extend or shorten maturities as needed. This
enables the Company to adjust its cash needs to the increased prepayment
activity in its loan and mortgage-backed investment portfolios, as well as to
quickly extend maturities when the need to further balance the Company's GAP
position arises.
The Company regularly monitors its asset quality to determine the level of
its loan loss reserves through periodic credit reviews by members of the
Company's Management Credit Committee. The Management Credit Committee, which
reports to the Executive Committee of the Company's Board of Directors, also
works on the collection of non-accrual loans and disposition of real estate
acquired by foreclosure. The allowance for possible loan losses is determined
by the Management Credit Committee after consideration of several key factors
including, without limitation potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, levels of potential problem
loans, which generally have varying degrees of loan collateral and repayment
issues, on the watched asset reports. Workout approach and financial condition
of borrowers are also key considerations to the evaluation of non-performing
loans.
Non-performing assets were $556,000 at December 31, 2000, compared to
$616,000 at December 31, 1999, a decrease of $60,000 or 9.7%. The Company's
percentage of delinquent loans to total loans was .22% at December 31, 2000, as
compared to .28% at December 31, 1999. 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 some degree
of 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, 2000, the Company had outstanding commitments to
originate, purchase and sell residential mortgage loans in the secondary market
amounting to $14,056,000, $0 and $3,617,000, respectively. The Company also has
outstanding commitments to grant advances under existing home equity lines of
credit amounting to $15,480,000. Unadvanced commitments under outstanding
commercial and construction loans totaled $19,627,000 as of December 31, 2000.
The Company believes it has adequate sources of liquidity to fund these
commitments.
The Company's total stockholders' equity was $34,305,000 or 4.7% of total
assets at December 31, 2000, compared with $27,832,000 or 4.0% of total assets
at December 31, 1999. The increase in total stockholders' equity of
approximately $6,473,000 or 23.3% primarily resulted from decreases in the
unrealized loss on the market value of available for sale securities, net of
taxes and earnings of the Company. Stock repurchases and 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, 2000,
approximately $11,833,000 of these securities was included in Tier 1 capital.
Bank regulatory authorities have established a capital measurement tool
called "Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 2000, the Company's Tier 1 leverage capital
ratio was approximately 6.13%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At December 31, 2000, the Company's Tier 1 and total
risk-based capital ratios were approximately 11.08% and 12.14%, 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, 2000.
24
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.
Proposed Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company's adoption of this
Statement as of January 1, 2001 did not have a material impact on the Company's
financial position or results of operation.
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 Company has not yet qualified the impact of adopting
SFAS No. 140 on its consolidated financial statements; however, the Company
does not expect that the adoption of this statement will have a material impact
on its consolidated financial position or results or operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See Management Discussion and Analysis--Asset/Liability Management.
25
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
January 11, 2001
26
Consolidated Balance Sheets
December 31,
2000 1999
------------ ------------
(Dollars in thousands)
ASSETS
Cash and due from banks (Note 18) .................................. $ 27,374 $ 33,497
Short-term investments ............................................. 235 225
--------- ---------
Total cash and cash equivalents ................................... 27,609 33,722
--------- ---------
Loans held for sale (Notes 1 and 6) ................................ 3,617 2,730
Securities (Notes 1, 5, 9 and 10):
Available for sale - at fair value ................................. 290,211 235,623
Loans (Notes 1, 6, 9 and 10) ....................................... 374,377 389,681
Less: Allowance for possible loan losses .......................... (3,856) (3,701)
--------- ---------
Loans, net ...................................................... 370,521 385,980
--------- ---------
Federal Home Loan Bank stock, at cost .............................. 12,910 12,910
Banking premises and equipment, net (Note 7) ....................... 9,481 9,037
Other real estate owned, net (Note 6) .............................. -- --
Intangible assets (Notes 1, 2 and 3) ............................... 2,710 3,161
Bank-owned life insurance - contract value (Note 20) ............... 3,511 3,348
Deferred tax asset, net (Note 11) .................................. 1,412 4,146
Other assets ....................................................... 6,267 5,593
--------- ---------
$ 728,249 $ 696,250
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8) .................................................. $ 454,747 $ 389,692
Short-term borrowings (Note 9) ..................................... 49,565 152,551
Long-term debt (Note 10) ........................................... 172,567 107,200
Accrued taxes and expenses (Notes 11 and 14) ....................... 3,582 2,552
Other liabilities .................................................. 1,397 4,413
--------- ---------
Total liabilities ................................................. 681,858 656,408
--------- ---------
Guaranteed preferred beneficial interests in the Company's junior
subordinated debentures (Note 3) .................................. 12,086 12,010
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 4, 5, 13, 16, 17 and 19): ..............
Serial preferred stock, $.10 par value, 3,000,000 shares authorized;
none issued ....................................................... -- --
Common stock, $.10 par value, 12,000,000 shares
authorized; 4,875,000 shares issued in 2000
and 4,834,000 shares issued in 1999 .............................. 488 483
Additional paid-in capital ......................................... 22,915 22,610
Retained earnings .................................................. 29,570 26,176
--------- ---------
52,973 49,269
Treasury stock - 1,807,000 and 1,641,000 shares
in 2000 and 1999, at cost ......................................... (17,584) (15,885)
Compensation plans ................................................. 111 29
Net unrealized loss on available for sale
securities, net of taxes .......................................... (1,195) (5,581)
--------- ---------
Total stockholders' equity ........................................ 34,305 27,832
--------- ---------
$ 728,249 $ 696,250
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
27
Consolidated Statements of Operations
December 31,
2000 1999 1998
------------ ------------ ------------
(Dollars in thousands, except per share data)
Interest and dividend income:
Interest and fees on loans (Notes 1 and 6) ................... $ 29,292 $ 27,828 $ 26,281
Interest on mortgage-backed investments ...................... 12,377 9,439 8,393
Interest on bonds and obligations ............................ 5,591 4,237 3,027
Dividend income .............................................. 1,031 706 627
Interest on short-term investments ........................... 58 32 114
---------- ---------- ----------
Total interest and dividend income .......................... 48,349 42,242 38,442
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 8) ................................ 13,017 11,389 11,751
Interest on short-term borrowings (Note 9) ................... 6,572 4,943 2,279
Interest on long-term debt (Note 10) ......................... 8,807 6,760 7,555
---------- ---------- ----------
Total interest expense ...................................... 28,396 23,092 21,585
---------- ---------- ----------
Net interest income ........................................... 19,953 19,150 16,857
Provision for possible loan losses (Note 6) ................... 160 640 760
---------- ---------- ----------
Net interest income after provisions for
possible loan losses ......................................... 19,793 18,510 16,097
---------- ---------- ----------
Non-interest income:
Loan servicing fees (Note 6) ................................. 311 365 469
Customer service fees ........................................ 6,396 4,491 3,816
Gain on sales of securities, net ............................. 405 823 1,731
Gain on sales of mortgage loans, net ......................... 1,315 1,222 492
Net gain on sales and write-down of other
real estate owned ........................................... -- 68 43
Other (Note 20) .............................................. 472 404 358
---------- ---------- ----------
Total non-interest income ................................... 8,899 7,373 6,909
---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits (Notes 12, 14 and 17) ......... 11,022 9,236 7,832
Occupancy and equipment expenses (Notes 7 and 12) ............ 3,201 3,377 2,679
Trust preferred securities expense (Note 3) .................. 1,120 1,120 586
Other non-interest expenses (Note 15) ........................ 6,332 5,687 5,170
---------- ---------- ----------
Total non-interest expense .................................. 21,675 19,420 16,267
---------- ---------- ----------
Income before income taxes .................................... 7,017 6,463 6,739
Provision for income taxes (Note 11) .......................... 2,524 2,314 2,368
---------- ---------- ----------
Net income .................................................... $ 4,493 $ 4,149 $ 4,371
========== ========== ==========
Earnings per share (Note 1):
Basic -
Net income per share ........................................ $ 1.46 $ 1.26 $ 1.25
========== ========== ==========
Weighted average common shares ............................... 3,068,000 3,285,000 3,491,000
========== ========== ==========
Diluted -
Net income per share ........................................ $ 1.41 $ 1.20 $ 1.17
========== ========== ==========
Weighted average common shares
and share equivalents ....................................... 3,186,000 3,460,000 3,722,000
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
28
Consolidated Statements of Changes in Stockholders' Equity
Net
Unrealized
Gain (Loss)
Additional on Available
Common Paid-in Retained Treasury for Sale Compensation
(Dollars in thousands except per share data) Stock Capital Earnings Stock Securities Plans Total
- ---------------------------------------------- -------- ------------ ----------- ------------ ------------- ------------- ----------
Balance at December 31, 1997 $468 $21,094 $ 19,858 $ (5,931) $ 1,063 $ (231) $ 36,321
Net income ................................... -- -- 4,371 -- -- -- 4,371
Issuance of stock ............................ 12 656 -- -- -- -- 668
Amortization of unearned
compensation - ESOP ......................... -- 80 -- -- -- 81 161
Obligation related to directors'
deferred stock plan ......................... -- -- -- -- -- 36 36
Dividends declared ($.30 per share)........... -- -- (1,047) -- -- -- (1,047)
Repurchase of common stock ................... -- -- -- (7,352) -- -- (7,352)
Effect of reclassification of securities
from held for investment to
available for sale, net of taxes ............ -- -- -- -- 245 -- 245
Change in market value on available
for sale securities, net of taxes ........... -- -- -- -- (343) -- (343)
---- ------- -------- --------- -------- ------ --------
Balance at December 31, 1998 ................. $480 $21,830 $ 23,182 $ (13,283) $ 965 $ (114) $ 33,060
Net income ................................... -- -- 4,149 -- -- -- 4,149
Issuance of stock ............................ 3 691 -- -- -- -- 694
Amortization of unearned
compensation - ESOP ......................... -- 89 -- -- -- 81 170
Obligation related to directors'
deferred stock plan ......................... -- -- -- -- -- 62 62
Dividends declared ($.35 per share)........... -- -- (1,155) -- -- -- (1,155)
Repurchase of common stock ................... -- -- -- (2,602) -- -- (2,602)
Change in market value on available
for sale securities, net of taxes ........... -- -- -- -- (6,546) -- (6,546)
---- ------- -------- --------- -------- ------ --------
Balance at December 31, 1999 ................. $483 $22,610 $ 26,176 $ (15,885) $ (5,581) $ 29 $ 27,832
Net income ................................... -- -- 4,493 -- -- -- 4,493
Issuance of stock ............................ 5 255 -- -- -- -- 260
Amortization of unearned
compensation - ESOP ......................... -- 50 -- -- -- 68 118
Obligation related to directors'
deferred stock plan ......................... -- -- -- -- -- 14 14
Dividends declared ($.36 per share)........... -- -- (1,099) -- -- -- (1,099)
Repurchase of common stock ................... -- -- -- (1,699) -- -- (1,699)
Change in market value on available
for sale securities, net of taxes ........... -- -- -- -- 4,386 -- 4,386
---- ------- -------- --------- -------- ------ --------
Balance at December 31, 2000 ................. $488 $22,915 $ 29,570 $ (17,584) $ (1,195) $ 111 $ 34,305
The accompanying notes are an integral part of these consolidated financial
statements.
29
Consolidated Statements of Comprehensive Income
Years Ended December 31,
2000 1999 1998
--------- ----------- ---------
(Dollars in thousands)
Net income, as reported ....................................... $4,493 $ 4,149 $4,371
Unrealized gains (losses) on securities, net of taxes ......... 4,649 (6,011) 782
Less: Reclassification adjustment for securities gains
included in net income, net of taxes ......................... 263 535 1,125
------ -------- ------
Comprehensive income (loss) before transfers
of held for investment securities ............................ 8,879 (2,397) 4,028
Add: Net unrealized gains on securities transferred
from held for investment to available for sale, net of
taxes ........................................................ -- -- 245
------ -------- ------
Comprehensive income (loss) ................................... $8,879 $ (2,397) $4,273
====== ======== ======
The accompanying notes are an integral part of these consolidated financial
statements.
30
Consolidated Statements of Cash Flows
Years Ended December 31,
2000 1999 1998
------------- ------------- -------------
(Dollars in thousands)
Cash flows from operating activities:
Net income ................................................. $ 4,493 $ 4,149 $ 4,371
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses ........................ 160 640 760
Net gain on sales and write-down of other real estate
owned and investment in limited partnership ............. -- (68) (43)
Amortization, accretion and depreciation, net ............. 1,761 1,855 1,800
Provision (benefit) for (prepaid) deferred taxes .......... (257) (225) (66)
Gain on sales of securities, net .......................... (405) (823) (1,731)
Gain on sales of mortgage loans, net ...................... (1,315) (1,222) (492)
Loans originated for sale in the secondary market ......... (69,907) (94,000) (34,481)
Proceeds from sales of loans .............................. 70,335 95,171 32,404
Other, net ................................................ (2,737) 2,144 (3,505)
---------- ---------- ----------
Net cash (used in) provided by operating activities ......... 2,128 7,621 (983)
---------- ---------- ----------
Cash flows from investing activities:
Net cash paid for Old Colony acquisition ................... -- (1,113) --
Purchase of held for investment securities ................. -- -- (2,844)
Proceeds from principal payments received and
redemptions of held for investment securities ............. -- -- 5,562
Proceeds from sales of available for sale securities ....... 4,839 7,102 74,624
Proceeds from principal payments on and maturities of
available for sale securities ............................. 24,387 35,424 49,979
Purchase of available for sale securities .................. (75,815) (106,742) (142,019)
Loans originated/purchased (paid), net ..................... 15,299 (24,992) (28,134)
Purchase of FHLB stock ..................................... -- (3,372) (1,387)
Purchase of banking premises and equipment ................. (1,966) (2,091) (3,269)
Proceeds from sales of other real estate owned ............. -- 68 308
---------- ---------- ----------
Net cash used in investing activities ....................... (33,256) (95,716) (47,180)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits ................................... 65,055 25,739 39,019
Net increase (decrease) in borrowings with maturities
of 3 months or less ....................................... (107,986) 107,719 (14,282)
Proceeds from issuance of short-term borrowings with
maturities in excess of 3 months .......................... 10,000 10,000 45,000
Principal payments on short-term borrowings with
maturities in excess of 3 months .......................... (5,000) (35,000) (20,000)
Proceeds from issuance of long-term debt ................... 101,717 66,700 50,000
Principal payments on long-term debt ....................... (36,350) (70,000) (49,500)
Net proceeds on issuance of guaranteed preferred
beneficial interests in junior subordinated debentures..... -- -- 11,915
Payment of cash dividends .................................. (982) (1,150) (1,062)
Purchase of treasury stock ................................. (1,699) (2,602) (7,352)
Proceeds from the exercise of stock options ................ 260 694 667
---------- ---------- ----------
Net cash provided by financing activities ................... 25,015 102,100 54,405
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ........ (6,113) 14,005 6,242
Cash and cash equivalents at beginning of year .............. 33,722 19,717 13,475
---------- ---------- ----------
Cash and cash equivalents at end of year .................... $ 27,609 $ 33,722 $ 19,717
========== ========== ==========
31
Years Ended December 31,
2000 1999 1998
---------- ------------ ----------
(Dollars in thousands)
Supplemental cash flow information:
Interest paid on deposits ............................. $ 13,013 $ 11,419 $11,718
Interest paid on borrowed funds ....................... 14,964 11,907 9,807
Income taxes paid ..................................... 2,365 1,517 3,154
Transfers of loans to other real estate owned ......... -- -- --
Transfers of securities to available for sale
from held for investment ............................. -- -- 61,232
Acquisition:
Liabilities assumed .................................. -- 3,370 --
Less: assets purchased ............................... -- 3,688 --
Premium paid ......................................... -- 795 --
-------- -------- -------
Net cash paid ........................................ $ -- $ (1,113) $ --
======== ======== =======
The accompanying notes are an integral part of these consolidated statements.
32
Notes to Consolidated Financial Statements
December 31, 2000
1. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Abington
Bancorp, Inc. (the "Company") (a Massachusetts corporation) and its
wholly-owned subsidiaries, Abington Savings Bank (the "Bank") and Abington
Bancorp Capital Trust (See Note 3). The Bank also includes its wholly-owned
subsidiaries, Holt Park Place Development Corporation and Norroway Pond
Development Corporation, each typically owning properties being marketed for
sale, Abington Securities Corporation, which invests primarily in obligations
of the United States Government and its agencies and equity securities and Old
Colony Mortgage which originates and sells loans to investors on a servicing
released basis (See Note 2).
Abington Bancorp, Inc. was reestablished as the Bank's holding company on
January 31, 1997. Previously, the Company's predecessor, also known as Abington
Bancorp, Inc., had served as the Bank's holding company from February 1988
until its dissolution in December 1992. The Company's primary business is
serving as the holding company of the Bank. All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Operating results in the future could vary from the amounts derived
from management's estimates and assumptions.
Reclassifications
Certain amounts in the 1999 and 1998 consolidated financial statements
have been reclassified to conform to the 2000 presentation.
Cash Equivalents
Cash equivalents include amounts due from banks, short-term investments
with original maturities of less than 3 months and federal funds sold on a
daily basis.
Securities
Investment securities are classified in 1 of 3 categories and are
accounted for as follows:
o Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held for investment" securities and
reported at amortized cost.
o Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings.
o Debt and equity securities not classified as either held for investment
or trading are classified as "available for sale" and reported at fair
value with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholders' equity, net of
applicable income tax effects.
The Company had no securities classified as trading securities or held for
investment at December 31, 2000 and 1999.
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.
Gains and losses on the disposition of securities are computed using the
specific identification method. Unrealized losses which are deemed to be other
than temporary declines in value are charged to operations.
33
As of June 30, 1998, the Company elected to transfer the balance of its
securities classified as held for investment to available for sale in
accordance with the guidelines set forth by Statement of Financial Accounting
Standards (SFAS) No. 115. This decision was made by the Board of Directors and
management of the Company after a review of its policies and practices of
accounting for investments in light of recent economic changes and given
potential opportunities from an asset/liability management perspective. At the
time of transfer there had been no sales or transfers of securities which would
otherwise necessitate this broad reclassification. However, the
reclassification was made as of June 30, 1998 to more accurately reflect the
Company's change in intention with respect to securities previously classified
as held for investment.
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, 2000, approximately 37%
represents owner-occupied first mortgages located outside of Massachusetts,
throughout the United States. In this purchased loan portfolio, the Company
owns approximately $24,645,000, $10,724,000, $9,061,000, $7,993,000, $7,836,000
and $7,062,000 of loans collateralized by residential properties located in
California, Illinois, Maryland, Rhode Island, Michigan and Colorado,
respectively. No other concentration in any other states, except for
Massachusetts, exceeds 2.5% of total residential mortgage loans.
Loan origination and commitment fees and certain direct loan origination
costs, as defined, are deferred and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the loans.
Unearned discounts are amortized under the interest method over the term of the
related loans. All other interest on loans is recognized on a simple interest
basis.
Interest on loans is generally not accrued when the principal or interest
on the loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for possible loan losses is based on management's evaluation
of the level of the allowance required in relation to the estimated loss
exposure in the loan portfolio. Procedures employed in considering the
allowance requirements include, among other factors, management's ongoing
review of individual loans, trends in levels of watched or criticized assets,
an evaluation of results of examinations by regulatory authorities and analyses
of historical trends in charge-offs and delinquencies. Loans are charged-off to
the allowance for loan losses when, in the opinion of management, such loans
are deemed to be uncollectible. The allowance is an estimate, and ultimate
losses may vary from current estimates. As adjustments become necessary, they
are reported in earnings during the periods in which they become known.
The allowance for possible loan losses as of December 31, 2000 is based on
management's estimate of the amount required to absorb losses in the loan
portfolio based on known current circumstances including real estate market
conditions. Additionally, management assesses the risk of increased, inherent
but unidentified losses which are believed to exist based on evaluation of
watched asset report trends and migration analysis, the results of which are
reflected in current reserves. However, uncertainty exists as to future trends
in the local economy and real estate market. If there is significant
deterioration in the local economy the Company would expect increases in
non-performing loans requiring additional provisions for loan losses and
increased lost interest income on non-accrual loans.
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 nonaccrual, loans
past due over 90 days and still accruing, restructured troubled debt and
certain internally adversely classified loans constitute the portfolio of
impaired loans.
34
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.
Investment in Real Estate Limited Partnership
The Company has an investment in a real estate limited partnership which
has been accounted for on the cost recovery method and has been substantially
written-off as of December 31, 1998. The carrying value of related deferred tax
assets is periodically evaluated by management as to its expected future
recoverability and write-downs are recorded once an impairment in value is
identified and quantified.
Intangible Assets
Core deposit intangibles are being amortized on a straight-line basis over
their estimated lives of 7 to 10 years. Goodwill is being amortized on a
straight-line basis over 7 to 15 years. The carrying value of these assets is
periodically evaluated by management as to their expected future
recoverability. To date no write-downs have been recognized.
Income Taxes
Tax assets and liabilities are reflected at currently enacted income tax
rates. As changes in tax laws and rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Earnings Per Share
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 Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either as asset or
liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recorded currently in income unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains or losses to offset related results of the hedged
item in the statement of income and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133, as amended by SFAS No. 137, Deferral of
35
the Effective Date of FASB Statement No. 133, and SFAS No. 138, An Amendment of
Statement 133, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
As of December 31, 2000, the Bank had commitments outstanding to fund
mortgage loans, which will be sold to third parties subsequent to origination
as required under contracts. These commitments to fund mortgage loans and the
agreements to subsequently sell such loans to third parties qualify as
derivative instruments under SFAS No. 133. However, recognition of these
derivative instruments upon the adoption of SFAS No. 133 did not have a
material impact on the Company's financial position or results of operations.
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 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
December15, 2000. The Company has not yet qualified the impact of adopting SFAS
No. 140 on its consolidated financial statements; however, the Company does not
expect that the adoption of this statement will have a material impact on its
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, 2029. Distributions, including those
accrued and accumulated, and amortization expense totaling $1,120,000,
$1,120,000 and $586,000, for 2000, 1999 and 1998, respectively, relating to
these trust preferred securities is reflected as minority interest in
non-interest expense.
36
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, 2000,
that the Company and the Bank met all capital adequacy requirements to which
they are subject. As of December 31, 2000, the most recent notification from
the FDIC categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the institution's
category. To be considered well-capitalized under the regulatory framework for
prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier
1 risk-based, and total risk-based capital ratios as set forth in the table
below.
Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
---------- ----------- ---------- ---------- ---------- -----------
(Dollars in thousands)
As of December 31, 2000:
Company
Total capital (to risk-weighted assets) .......... $48,882 12.14% $32,212 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) ......... $44,623 11.08% $16,106 4.00% N/A N/A
Tier 1 capital (to ending assets) ................ $44,623 6.13% $29,130 4.00% N/A N/A
Bank
Total capital (to risk-weighted assets) .......... $47,929 11.95% $32,086 8.00% $40,125 10.00%
Tier 1 capital (to risk-weighted assets) ......... $44,073 10.98% $16,043 4.00% $24,075 6.00%
Total capital (to ending assets) ................. $44,073 6.06% $29,091 4.00% $36,342 5.00%
As of December 31, 1999:
Company
Total capital (to risk-weighted assets) .......... $46,354 12.24% $30,304 8.00% N/A N/A
Tier 1 capital (to risk-weighted assets) ......... $41,389 10.93% $15,152 4.00% N/A N/A
Tier 1 capital (to ending assets) ................ $41,389 5.94% $27,871 4.00% N/A N/A
Bank
Total capital (to risk-weighted assets) .......... $42,040 11.22% $29,981 8.00% $37,477 10.00%
Tier 1 capital (to risk-weighted assets) ......... $38,339 10.23% $14,990 4.00% $22,486 6.00%
Total capital (to ending assets) ................. $38,339 5.50% $27,883 4.00% $34,854 5.00%
37
5. Securities
The amortized cost and fair value of securities classified as available
for sale at December 31, 2000 and 1999 are as follows:
2000 1999
------------------------------------------------- -------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
At December 31, Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ -----------
(Dollars in thousands)
Investment securities:
U.S. Government
obligations .............. $ 577 $ 10 $ -- $ 587 $ 616 $ -- $ 18 $ 598
Federal agency obligations 56,622 575 278 56,919 43,815 4 2,374 41,445
Other bonds and
obligations .............. 31,229 336 2,864 28,701 25,658 6 1,878 23,786
-------- ------ ------ -------- -------- ------ ------- --------
Total investment
securities .............. 88,428 921 3,142 86,207 70,089 10 4,270 65,829
-------- ------ ------ -------- -------- ------ ------- --------
Marketable equity
securities ............... 9,257 1,963 1,627 9,593 7,292 1,458 585 8,165
Mortgage-backed securities:
Federal Home Loan
Mortgage Corporation ..... 19,164 148 180 19,132 11,607 8 476 11,139
Federal National
Mortgage Association ..... 78,967 726 472 79,221 54,045 148 1,437 52,756
Government National
Mortgage Association ..... 27,167 119 250 27,036 29,791 33 924 28,900
Other ..................... 69,218 786 982 69,022 72,100 14 3,280 68,834
-------- ------ ------ -------- -------- ------ ------- --------
Total mortgage-backed
securities .............. 194,516 1,779 1,884 194,411 167,543 203 6,117 161,629
-------- ------ ------ -------- -------- ------ ------- --------
$292,201 $4,663 $6,653 $290,211 $244,924 $1,671 $10,972 $235,623
======== ====== ====== ======== ======== ====== ======= ========
The amortized cost and fair value of investments and mortgage-backed
securities, respectively, at December 31, 2000 by contractual maturity follows.
Expected maturities or cash flows from securities will differ from contractual
maturities because the issuer may have the right to call or repay obligations
with or without call or prepayment penalties. Projected payments and
prepayments for mortgage-backed securities have not been considered for
purposes of this presentation.
Investment Securities Amortized Cost % to Total Fair Value
- ---------------------------------- ---------------- ------------ -----------
(Dollars in thousands)
Within 1 year .................... $ 577 .7% $ 587
Over 1 year to 5 years ........... 11,582 13.1 11,676
Over 5 years to 10 years ......... 37,004 41.8 37,073
Over 10 years .................... 39,265 44.4 36,871
------- ----- -------
$88,428 100.0% $86,207
======= ===== =======
Mortgage-Backed Securities Available for Sale
- ---------------------------------- -------------------------
Amortized Fair
Cost Value
(Dollars in thousands) ----------- -----------
Within 1 year .................... $ -- $ --
Over 1 year to 5 years ........... 223 224
Over 5 years to 10 years ......... 22,650 22,916
Over 10 years .................... 171,643 171,271
-------- --------
$194,516 $194,411
======== ========
38
Gross gains on sales of marketable equity securities were $400,000,
$825,000 and $1,591,000, for 2000, 1999 and 1998, respectively. There were
losses of $118,000 on sales of equity securities in 1998. There were no losses
on sales of equity securities in 2000 or 1999.
Gross gains on sales of investment securities were $5,000, $0 and $12,000
for 2000, 1999 and 1998, respectively. Gross losses on sales of investment
securities were $0, $2,000 and $0 for 2000, 1999 and 1998, respectively.
Proceeds from sales of mortgage-backed investments classified as available
for sale during 2000, 1999 and 1998, were $0, $1,456,000 and $58,011,000,
respectively. Gross gains of $0, $0 and $324,000 in 2000, 1999 and 1998,
respectively, were realized on those sales. Gross losses of $0, $0 and $78,000
were realized in 2000, 1999 and 1998, respectively.
A U.S. agency obligation security with a carrying value of $1,070,000 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.
6. Loans
A summary of the loan portfolio follows:
December 31,
2000 1999
----------- -----------
(Dollars in thousands)
Mortgage loans:
Residential ....................................... $261,702 $290,036
Second mortgages and home equity .................. 27,415 23,490
Construction ...................................... 13,150 5,883
Commercial ........................................ 59,923 51,973
-------- --------
362,190 371,382
Less: Due to borrowers on incomplete loans ......... (7,598) (2,437)
Net deferred loan fees ........................... (237) (381)
-------- --------
Total mortgage loans ............................. 354,355 368,564
Commercial loans:
Secured and unsecured ............................. 15,912 16,497
Net deferred loan (fees) costs .................... 69 (59)
-------- --------
Total commercial loans ........................... 15,981 16,438
Other loans:
Personal .......................................... 1,280 1,243
Passbook and other secured ........................ 6,250 5,950
Home improvement .................................. 128 216
-------- --------
Total other loans ................................ 7,658 7,409
-------- --------
Total loans ........................................ 377,994 392,411
Less: allowance for possible loan losses ........... (3,856) (3,701)
-------- --------
Loans and loans held for sale, net ................. $374,138 $388,710
======== ========
Included in residential mortgages at December 31, 2000 and 1999, are
approximately $3,617,000 and $2,730,000, respectively, of loans held for sale.
At December 31, 2000 and 1999, 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
$105,298,000 and $121,407,000 at December 31, 2000 and 1999, 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 $304,000 at December 31, 2000, and $1,171,000
at December 31, 1999. During the year ended December 31, 2000, total principal
additions were $9,000 and total principal reductions were $876,000.
39
The following analysis summarizes the Company's non-performing assets at
December 31, 2000 and 1999.
December 31,
2000 1999
------ -------
(Dollars in
thousands)
Impaired loans and/or loans accounted for on a non-accrual basis ......... $549 $616
Accruing loans past due 90 days or more as to principal or interest ...... 7 --
---- ----
Total non-performing loans ............................................. 556 616
Other real estate owned, net ............................................. -- --
---- ----
Total non-performing assets ............................................ $556 $616
==== ====
Impaired loans totaling $94,000 and $397,000 at December 31, 2000 and
1999, respectively, required an allocation of $15,000 and $75,000,
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 $468,000, $666,000 and $622,000
in 2000, 1999 and 1998, respectively. The total amount of interest income
recognized on impaired loans during 2000, 1999 and 1998 was approximately
$70,000, $64,000 and $55,000, 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:
Years Ended December 31,
2000 1999
--------- ---------
(Dollars in thousands)
Balance at beginning of year ......... $3,701 $3,077
Provision ............................ 160 640
Recoveries ........................... 279 248
------ ------
4,140 3,965
Loans charged-off .................... (284) (264)
------ ------
Balance at end of year ............... $3,856 $3,701
====== ======
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:
December 31,
2000 1999 Estimated Useful Lives
------------ ------------ -----------------------
(Dollars in thousands)
Land ................................. $ 1,971 $ 1,971
Buildings and improvements ........... 6,787 6,347 10-25 years
Leasehold improvements ............... 1,077 1,018 10-15 years
Equipment ............................ 12,267 10,800 3-10 years
--------- ---------
22,102 20,136
Less accumulated depreciation ......... (12,621) (11,099)
--------- ---------
$ 9,481 $ 9,037
========= =========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
amounted to $1,522,000, $1,422,000 and $1,235,000, respectively.
40
8. Deposits
A summary of deposit balances, by type, is as follows:
December 31,
2000 1999
---------- ----------
(Dollars in thousands)
Non-interest NOW ............................ $ 62,025 $ 45,277
NOW ......................................... 67,246 54,102
Other savings ............................... 119,992 101,832
Money market deposits ....................... 15,502 19,199
-------- --------
Total non-certificate accounts ............. 264,765 220,410
Term certificate accounts ................... 147,137 133,563
Term certificates greater than $100 ......... 42,845 35,719
-------- --------
Total certificate accounts .................. 189,982 169,282
-------- --------
Total deposits ............................. $454,747 $389,692
======== ========
A summary of certificate accounts by maturity is as follows:
December 31,
2000 1999
---------------------------- ---------------------------
Weighted Weighted
Amount Average Rate Amount Average Rate
(Dollars in thousands) ----------- -------------- ----------- -------------
Within 1 year ................... $113,176 5.86% $133,323 5.14%
Over 1 year to 3 years .......... 61,343 6.44 29,098 5.15
Over 3 years to 5 years ......... 15,463 6.14 6,872 5.13
-------- --------
$189,982 6.07% $169,282 5.14%
======== ========
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:
Years Ended December 31,
2000 1999 1998
------------- ------------- ------------
(Dollars in thousands)
Maximum amount outstanding during the year ............ $ 147,996 $ 158,757 $ 83,778
Average month-end balance outstanding during the
year ................................................. $ 105,813 $ 96,005 $ 42,039
Average interest rate during the year ................. 6.21% 5.15% 5.42%
Unused line of credit at FHLB ......................... $ 9,733 $ 9,733 $ 9,733
Amount outstanding at end of year ..................... $ 49,565 $ 152,551 $ 66,628
Weighted average interest rate at end of year ......... 6.24% 5.29% 5.09%
41
10. Long-Term Debt
A summary of long-tern debt, consisting of FHLB advances with an original
maturity of greater than 1 year, is as follows:
Maturity Date Interest Rate December 31, 2000 December 31, 1999
- ------------------------------- --------------- ------------------- ------------------
(Dollars in thousands)
March 6, 2000 ................. 6.51 $ -- $ 4,000
March 20, 2000 ................ 6.61 -- 5,000
April 11, 2000 ................ 6.82 -- 4,000
September 14, 2000 ............ 5.15 -- 5,000
October 20, 2000 .............. 6.21 -- 5,000
December 4, 2000 .............. 5.51 -- 5,000
December 20, 2000 ............. 5.74 -- 3,350
March 6, 2001 ................. 6.66 4,000 4,000
March 19, 2001 ................ 5.44 5,000 5,000
March 19, 2001 ................ 6.77 5,000 5,000
March 19, 2001 ................ 6.51 2,717 --
April 11, 2001 ................ 6.98 4,000 4,000
May 14, 2001 .................. 6.74 4,000 4,000
June 20, 2001 ................. 6.70 5,000 --
June 22, 2001 ................. 5.86 3,350 3,350
September 17, 2001 ............ 6.15 5,000 5,000
March 4, 2002 ................. 6.14 4,000 4,000
May 24, 2002* ................. 6.78 16,000 16,000
June 27, 2002 ................. 7.12 50,000 --
October 15, 2002 .............. 6.56 20,000 --
December 5, 2003** ............ 6.01 10,000 --
August 30, 2004*** ............ 5.79 5,000 5,000
November 8, 2004**** .......... 5.58 -- 5,000
November 1, 2009+ ............. 5.54 5,000 5,000
November 9, 2009++ ............ 5.57 10,000 10,000
March 22, 2010+++ ............. 6.12 5,000 --
April 12, 2010++++ ............ 5.99 4,000 --
December 6, 2010+++++ ......... 5.43 5,000 --
December 9, 2017 .............. 5.66 500 500
-------- --------
$172,567 $107,200
======== ========
* Variable rate advance with quarterly resets; with prepayment option at reset without penalty
** Option advance; callable quarterly at FHLB option commencing December 5, 2001
*** Option advance; callable quarterly at FHLB option commencing August 30, 2001
**** Option advance; callable quarterly at FHLB option commencing November 8, 2000
+ Option advance; callable quarterly at FHLB option commencing February 1, 2001
++ Option advance; callable quarterly at FHLB option commencing November 9, 2001
+++ Option advance; callable quarterly at FHLB option commencing March 21, 2001
++++ Option advance; callable quarterly at FHLB option commencing April 12, 2001
+++++ Option advance; callable quarterly at FHLB option commencing June 5, 2001
42
11. Income Taxes
The provision (benefit) for income taxes consists of the following:
Years Ended December 31,
2000 1999 1998
--------- --------- ---------
(Dollars in thousands)
Current:
Federal .......... $2,598 $2,373 $2,325
State ............ 183 166 109
------ ------ ------
2,781 2,539 2,434
Deferred (Prepaid):
Federal .......... (191) (129) (49)
State ............ (66) (96) (17)
------ ------ ------
(257) (225) (66)
------ ------ ------
Total ............. $2,524 $2,314 $2,368
====== ====== ======
The reason for the differences between the effective tax rates and the
statutory tax rate are summarized as follows:
Years Ended December 31,
2000 1999 1998
---------- ---------- ----------
Statutory rate .................................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit ............. 1.1 1.1 .9
Amortization of non-deductible goodwill ......... 1.1 1.1 .6
Other, net ...................................... (.2) (.4) (.4)
---- ---- ----
36.0% 35.8% 35.1%
==== ==== ====
The components of net deferred taxes as recorded as of December 31, 2000
and 1999 are as follows (assets/(liabilities)):
December 31,
2000 1999
----------- -----------
(Dollars in thousands)
Loan loss reserves ................................................... $ 1,552 $ 1,462
Depreciation ......................................................... 521 308
Accrued pension ...................................................... 211 175
Equity in partnership losses ......................................... (1,672) (1,519)
Core deposit intangible/goodwill ..................................... (96) (122)
Other, net ........................................................... 81 122
-------- --------
597 426
Deferred tax assets applicable to net unrealized losses on securities 815 3,720
-------- --------
Net deferred tax assets .............................................. $ 1,412 $ 4,146
======== ========
In August of 1996, Congress passed the Small Business Job Protection Act
of 1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions for
income tax purposes. Thrift institutions 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, 2000, 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.
43
12. Commitments and Contingencies
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements.
Litigation
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, 2000 and 1999 are as
follows:
At December 31,
2000 1999
---------- ---------
(Dollars in thousands)
Contract amount of:
Commitments to grant loans .......................... $18,609 $21,727
Commitments to sell loans ........................... 3,617 2,730
Unadvanced funds on home equity lines of credit ..... 15,480 13,789
Unadvanced funds on other lines of credit ........... 7,476 516
Commitments to advance funds under
construction loan agreements ....................... 7,598 2,437
Commitments to purchase loans ....................... -- --
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, 2000:
Year Amount
- ---------------------- ---------
(Dollars in thousands)
2001 ................. $ 563
2002 ................. 452
2003 ................. 370
2004 ................. 375
2005 ................. 391
Thereafter ........... 1,703
------
$3,854
======
Certain leases also contain renewal options (up to 10 years) and real
estate tax escalation clauses. Rent expense for the years ended December 31,
2000, 1999 and 1998 amounted to approximately $520,000, $475,000 and $338,000,
respectively.
44
13. Stockholders' Equity
At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit.
Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible account holder will be entitled to receive a
distribution in an amount equal to their current adjusted liquidation account
balances to the extent that 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 at the Company totaled $29,570,000 at
December 31, 2000. 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 administered by
SBERA based on the same eligibility requirements through December 31, 2000. The
Company had no obligation to contribute to this plan (See later discussion of
the Company's redesign of employee benefits).
Net periodic pension expense for the plan years ended October 31, 2000,
1999 and 1998, consisted of the following:
Years Ended December 31,
2000 1999
----------- -----------
(Dollars in thousands)
Benefit obligation at beginning of year ................. $ 3,366 $ 3,501
Service cost ............................................ 399 353
Interest cost ........................................... 262 224
Actuarial loss (gain) ................................... 90 (498)
Benefits paid ........................................... (232) (214)
Plan amendments ......................................... 1,126 --
Plan curtailments ....................................... (1,281) --
-------- --------
Benefit obligation at end of year ...................... $ 3,730 $ 3,366
======== ========
Accumulated benefit obligation .......................... $ 3,730 $ 2,458
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year ......... $ 4,344 $ 3,652
Actuarial return on plan assets ........................ 424 731
Contributions .......................................... -- 175
Benefits paid .......................................... (232) (214)
-------- --------
Fair value of plan assets at end of year .............. $ 4,536 $ 4,344
======== ========
Funding status:
Transition liability/(asset) ........................... $ (66) $ (73)
Deferred loss/(gain) ................................... (1,255) (1,342)
Accrued expense ........................................ 515 437
-------- --------
Net amount recognized ................................. $ (806) $ (978)
======== ========
45
Years Ended December 31,
2000 1999 1998
----------- ----------- -----------
(Dollars in thousands)
Components of net periodic benefit cost:
Service cost ............................... $ 399 $ 353 $ 350
Interest cost .............................. 261 224 215
Expected return on plan assets ............. (369) (310) (278)
Amortization of prior service cost ......... (7) (7) (6)
Recognized net actuarial gain .............. (51) (26) (23)
Recognized curtailment gain ................ (155) -- --
----- ----- -----
Net periodic benefit cost ................. $ 78 $ 234 $ 258
===== ===== =====
Weighted average assumptions:
Discount rate .............................. 6.75% 6.75% 7.00%
Expected return on plan assets ............. 8.50% 8.50% 8.50%
Rate of compensation increase .............. 4.50% 5.00% 5.50%
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 has
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.
As a result of the decision to freeze and terminate the Pension Plan, the
Company recognized a curtailment gain of approximately $155,000 which was
classified with salaries and benefit expense in the consolidated statement of
operations.
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 2000, 1999 and 1998 was approximately $426,000, $340,000 and
$204,000, respectively.
15. Other Non-Interest Expense
Other non-interest expense consisted of the following:
Years Ended December 31,
2000 1999 1998
--------- --------- ---------
(Dollars in thousands)
Professional services .......................................... $1,454 $1,600 $1,317
EDP contract services, item processing and statement
rendering ..................................................... 763 423 395
Marketing ...................................................... 883 833 874
Deposit insurance .............................................. 70 68 65
Real estate in foreclosure and other real estate owned ......... 18 27 56
Amortization of intangible assets .............................. 451 422 495
Other .......................................................... 2,693 2,314 1,968
------ ------ ------
$6,332 $5,687 $5,170
====== ====== ======
Professional services include amounts paid for legal services, audits and
regulatory examinations.
46
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.
Years Ended December 31, 2000
- -------------------------------- ---------------------------------
Number of Weighted Avg.
Options Exercise Price
---------------- ----------------
Outstanding at beginning
of year ....................... 440,983 $ 9.66
Granted ........................ 104,500 10.93
Exercised ...................... (40,500) 3.86
Canceled ....................... (26,583) 13.74
------- ------
Outstanding at end of
year .......................... 478,400 $ 8.18
======= ======
Exercisable at end of
year .......................... 359,400 $ 8.21
======= ======
Option price per share ......... $ 1.50-$20.75
Weighted average fair
value of options
granted during
the year ...................... $4.39
Years Ended December 31, 1999 1998
- -------------------------------- --------------------------------- --------------------------------
Number of Weighted Avg. Number of Weighted Avg.
Options Exercise Price Options Exercise Price
---------------- ---------------- ---------------- ---------------
Outstanding at beginning
of year ....................... 371,400 $ 7.80 430,024 $ 5.59
Granted ........................ 113,083 13.79 85,000 19.02
Exercised ...................... (38,500) 3.14 (119,624) 5.58
Canceled ....................... (5,000) 14.88 (24,000) 19.00
------- ------ -------- ------
Outstanding at end of
year .......................... 440,983 $ 9.66 371,400 $ 7.80
======= ====== ======== ======
Exercisable at end of
year .......................... 289,344 $ 6.42 309,050 $ 5.53
======= ====== ======== ======
Option price per share ......... $ 1.50-$20.75 $ 1.50-$20.75
Weighted average fair
value of options
granted during
the year ...................... $5.10 $6.39
In conjunction with the Company's aforementioned Stock Option Plans, the
Company adopted a Long Term Performance Incentive Plan to encourage executive
management and members of the Board of Directors to build long-term shareholder
value. The plan was a 3 year program which provided a mechanism for granting
options under the Company's Stock Option Plan. Options to purchase
approximately 59,500, 48,000 and 60,000 shares of common stock in 2000, 1999
and 1998, 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, 2000, based on the closing price of the Company's stock of
$11.06, there were approximately 265,500 option shares which had exercise
prices ranging from $11.20 to $20.75 which would not be 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 2000, 1999 and 1998 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:
2000 1999 1998
----------- ----------- -----------
(Dollars in thousands, except in share amounts)
Net income:
As reported .................................... $ 4,493 $ 4,149 $ 4,371
Pro forma ...................................... 4,137 3,954 4,213
Earnings per share:
As reported -
Basic ......................................... 1.46 1.26 1.25
Diluted ....................................... 1.41 1.20 1.17
Pro forma -
Basic ......................................... 1.35 1.20 1.21
Diluted ....................................... 1.30 1.14 1.13
47
The initial impact of applying SFAS No. 123 on pro forma net income may
not be indicative of future amounts when the method prescribed by SFAS No. 123
will apply to all outstanding awards because compensation expense for options
granted prior to January 1, 1995 is not reflected in the pro forma amounts
above.
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model using the following weighted-average
assumptions:
2000 1999 1998
----------- ----------- -----------
Expected volatility .............. 40.00% 32.62% 21.10%
Risk-free interest rate .......... 6.69% 5.38% 5.75%
Terms of options ................. 7.0 yrs. 7.0 yrs. 7.0 yrs.
Expected dividend yield .......... 2.70% 1.80% 1.20%
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. The loan was secured by the
unallocated shares acquired by the ESOP. In November 2000, the loan was repaid
in full.
The Company's ESOP expense for the years ended December 31, 2000, 1999 and
1998 amounted to $118,000, $170,000 and $161,000, respectively.
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, 1999 and 1998, the
impact of the stock price market value in excess of original cost increased the
Company's ESOP expense by $50,000, $89,000 and $80,000, 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, 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.
18. Restriction on Cash and Due from Banks
At December 31, 2000 and 1999, cash and due from banks included $7,416,000
and $6,162,000, 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 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 February 23, 2001, the Company had repurchased 932,600 shares of its
common stock under these plans at a total cost of approximately $13,882,000.
48
20. Supplemental Executive Retirement Program
The Company has a supplemental executive retirement plan for an officer.
Under this arrangement, the individual is entitled to receive monthly benefits
for approximately 18 years in amounts specified in the contract. Benefits
commence upon retirement date which is deemed to be the age of sixty-five. If
death occurs during employment with the Company, the individual designated as
beneficiary will receive a distribution equal to 3 times the annual salary of
the executive, as determined under the plan. The officer vests in the rights
under the supplemental retirement plan ratably over a 5 year period, which
entitles this individual to the vested portion of the amount accrued by the
Company under the plan. This right is only exercisable in the event the
executive terminates employment from the Company prior to retirement age. In
March 1998, the Company also purchased a single life annuity insurance policy.
The contract was purchased at a cost of $2,863,184. The cash surrender value is
earning a rate of return, with a guaranteed minimum rate of 4%. In addition, the
Company has entered into a split dollar agreement with the executive, which
requires that any death benefit be shared between the Company and the designated
beneficiary, based on a predetermined schedule. The amounts due to the
beneficiary under the Plan are reduced to the extent death benefits under the
insurance contract are remitted to such beneficiary. The obligation under the
plan is being accrued over the expected employment period, through age 65.
Approximately $105,000, $71,000 and $71,000 was charged to compensation expense
in 2000, 1999 and 1998, respectively. Income related to the increased value of
the insurance contract of $152,000, $138,000 and $101,000 was recognized as
other non-interest income in 2000, 1999 and 1998, respectively. The contract
values of $3,254,000 and $3,102,000, at December 31, 2000 and 1999,
respectively, are included in Bank-owned life insurance in the Consolidated
Balance Sheet.
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 of which are predetermined for a fixed 3 year period
based upon the Board meeting fee schedule which was in effect as of July 1,
1998, divided by the stock price of the Company's common shares at the close of
business on July 1, 1998. This price was $18.75 per share. The shares when
earned are placed in a Rabbi Trust (the "Trust") which is administered by an
independent trustee. The voting for these shares is controlled by the
independent trustee although for accounting purposes the shares are reflected
as treasury shares until such time as the shares are distributed. The expense
associated with this plan is based upon the market value of the shares of stock
earned on the date of the respective meeting. There are currently no directors
who continue to participate in the Plan. The amount of expense associated with
this plan for 2000, 1999 and 1998 was $14,000, $62,000 and $36,000,
respectively, which has been reflected as salaries expense with the
corresponding liability pertaining to stock earned and not yet distributed is
reflected in stockholders' equity. A total of 100,000 shares has been
registered for the Plan. There has been a total of approximately 8,700, 7,000
and 2,400 shares earned and deferred as of December 31, 2000, 1999 and 1998,
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.
49
Deposit Liabilities
The fair value of non-certificate deposit accounts is the amount payable
on demand at the reporting date. The fair value of fixed maturity certificates
of deposit is estimated by discounting the anticipated future cash payments
using the rates currently offered for deposits of similar remaining maturities.
Short-term and Long-term Borrowings
The fair value of borrowings was determined by discounting the anticipated
future cash payments by using the rates currently available to the Company for
debt with similar terms and remaining maturities.
Commitments to Extend Credit/Sell Loans
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of customers. For
fixed rate loan commitments and obligations to deliver fixed rate loans, fair
value also considers the difference between committed rates and current levels
of interest rates.
Values not Determined
SFAS No. 107 excludes certain financial instruments from its disclosure
requirements including, among others, real estate included in banking premises
and equipment, the intangible value of the Bank's portfolio of loans serviced
(both for itself and for others) and related servicing network and the
intangible value inherent in the Bank's deposit relationships (i.e., core
deposits). Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Bank.
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 2000 and 1999 are represented as follows:
At December 31, 2000 1999
- --------------- -------------------------- --------------------------
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
(Dollars in thousands) ------------- ---------- ------------- ----------
Financial instrument assets:
Cash and cash equivalents ............................... $ 27,609 $ 27,609 $ 33,722 $ 33,722
Securities .............................................. 290,211 290,211 235,623 235,623
Loans, including held for sale, net ..................... 374,138 392,421 388,710 397,044
Mortgage servicing rights ............................... -- -- -- --
Financial instruments liabilities:
Deposits ................................................ $454,747 $459,904 $389,692 $390,208
Short-term borrowings ................................... 49,565 49,730 152,551 152,717
Long-term debt .......................................... 172,567 172,822 107,200 105,019
Off-balance sheet financial instruments:
Commitments to grant loans .............................. $ 18,609 $ 18,609 $ 21,727 $ 21,727
Commitments to sell loans ............................... 3,617 3,617 2,730 2,730
Unadvanced funds on home equity lines of credit ......... 15,480 15,480 13,789 13,789
Unadvanced funds on other lines of credit ............... 7,476 7,476 516 516
Commitments to advance funds under construction
loan agreements ........................................ 7,598 7,598 2,437 2,437
Commitments to purchase loans ........................... -- -- -- --
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.
50
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.
51
Business Segments
Reconciliation to Community Mortgage
Consolidated Financial Information Banking Banking Other Eliminations Consolidated
- --------------------------------------------- ----------- --------- ---------- -------------- -------------
(Dollars in thousands)
December 31, 2000:
Securities, at market ...................... $290,211 $ -- $ -- $ -- $290,211
Net loans and loans held for sale .......... 374,108 3,617 -- (3,587) 374,138
Total assets ............................... 728,422 5,085 48,231 (53,489) 728,249
Total deposits ............................. 456,609 -- -- (1,862) 454,747
Total borrowings ........................... 222,132 3,587 -- (3,587) 222,132
Total liabilities .......................... $683,589 $3,718 $ -- $ (5,449) $681,858
Total interest income ...................... $ 48,386 $ 341 $ 61 $ (439) $ 48,349
Total interest expense ..................... 28,519 316 -- (439) 28,396
Net interest income ........................ 19,867 25 61 -- 19,953
Provision for possible loan losses ......... 160 -- -- -- 160
Total non-interest income .................. 7,585 1,507 -- (193) 8,899
Total non-interest expense ................. 18,887 1,549 1,239 -- 21,675
Net income (loss) .......................... $ 5,451 $ (57) $ (775) $ (126) $ 4,493
December 31, 1999:
Securities, at market ...................... $235,623 $ -- $ -- $ -- $235,623
Net loans and loans held for sale .......... 388,701 3,265 -- (3,256) 388,710
Total assets ............................... 692,733 4,831 40,399 (41,753) 696,250
Total deposits ............................. 394,665 -- -- (4,973) 389,692
Total borrowings ........................... 259,751 3,256 -- (3,256) 259,751
Total liabilities .......................... $660,673 3,407 557 (8,229) $656,408
Total interest income ...................... $ 42,219 $ 218 $ 92 $ (287) $ 42,242
Total interest expense ..................... 23,172 207 -- (287) 23,092
Net interest income ........................ 19,047 11 92 -- 19,150
Provision for possible loan losses ......... 640 -- -- -- 640
Total non-interest income .................. 6,387 1,200 -- (214) 7,373
Total non-interest expense ................. 16,850 1,281 1,289 -- 19,420
Net income (loss) .......................... $ 5,150 $ (76) $ (788) $ (137) $ 4,149
December 31, 1998:
Securities, at market ...................... $181,346 $ -- $ -- $ -- $181,346
Net loans and loans held for sale .......... 360,735 -- -- -- 360,735
Total assets ............................... 591,011 -- 45,769 (45,629) 591,151
Total deposits ............................. 371,506 -- -- (7,553) 363,953
Total borrowings ........................... 177,128 -- -- -- 177,128
Total liabilities .......................... $552,935 $ -- $ 775 $ (7,553) $546,157
Total interest income ...................... $ 38,442 $ -- $ 84 $ (84) $ 38,442
Total interest expense ..................... 21,669 -- -- (84) 21,585
Net interest income ........................ 16,773 -- 84 -- 16,857
Provision for possible loan losses ......... 760 -- -- -- 760
Total non-interest income .................. 6,909 -- -- -- 6,909
Total non-interest expense ................. 15,328 -- 939 -- 16,267
Net income (loss) .......................... $ 5,032 $ -- $ (661) $ -- $ 4,371
52
24. Parent Company Financial Statements - Abington Bancorp, Inc.
(Parent Company Only)
December 31,
Balance Sheets 2000 1999
- -------------- --------- ---------
(Dollars in thousands)
Assets:
Cash and cash equivalents ................................... $ 1,167 $ 4,479
Investment in subsidiaries .................................. 45,181 32,494
Other assets ................................................ 805 3,817
------- -------
Total assets .............................................. $47,153 $40,790
======= =======
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses and other liabilities ..................... $ 371 $ 557
Junior subordinated deferrable interest debentures ......... 12,477 12,401
------- -------
Total liabilities ......................................... 12,848 12,958
------- -------
Total stockholders' equity ................................... 34,305 27,832
------- -------
Total liabilities and stockholders' equity ................ $47,153 $40,790
======= =======
Years Ended December 31,
Statements of Income 2000 1999 1998
- -------------------- ----------- ----------- ---------
(Dollars in thousands)
Operating Income:
Dividends from subsidiaries ............................. $ -- $ -- $2,500
Interest income ......................................... 93 124 102
-------- -------- ------
Total operating income 93 124 2,602
Operating expenses ...................................... 119 170 223
Interest expense ........................................ 1,152 1,152 716
-------- -------- ------
Income (loss) before income taxes and equity in
undistributed earnings of subsidiaries .................. (1,178) (1,198) 1,663
Income tax benefit ....................................... (403) (410) (278)
-------- -------- ------
Income (loss) before equity in undistributed earnings of
subsidiaries ............................................ (775) (788) 1,941
Equity in undistributed earnings of subsidiaries ......... 5,268 4,937 2,430
-------- -------- ------
Net income ............................................... $ 4,493 $ 4,149 $4,371
======== ======== ======
53
Years Ended December 31,
Statements of Cash Flows 2000 1999 1998
- ------------------------ ----------- ----------- -----------
(Dollars in thousands)
Cash flows from operating activities:
Net income .................................................. $ 4,493 $ 4,149 $ 4,371
Adjustments to reconcile net income to
net cash from operating activities:
Equity in undistributed earnings of
subsidiaries ............................................... (5,268) (4,937) (2,430)
Other, net .................................................. (116) 772 (466)
-------- -------- --------
Net cash provided by (used in) operating activities........ (891) (16) 1,475
Cash flows from investing activities:
Net cash used in investing activities ..................... -- -- --
Cash flows from financing activities:
Proceeds from issuance of common stock ...................... 260 694 656
Proceeds from issuance of junior
subordinated deferrable interest
debentures ................................................. -- 12,650
Dividends on common stock ................................... (982) (1,150) (1,062)
Repurchase of common stock .................................. (1,699) (2,602) (7,352)
-------- -------- --------
Net cash provided by (used in)
financing activities ..................................... (2,421) (3,058) 4,892
Net increase (decrease) in cash and cash equivalents ......... (3,312) (3,074) 6,367
Cash and cash equivalents at beginning of year ............... 4,479 7,553 1,186
-------- -------- --------
Cash and cash equivalents at end of year ..................... $ 1,167 $ 4,479 $ 7,553
======== ======== ========
54
25. Quarterly Data (Unaudited)
Operating results on a quarterly basis for the years ended December 31,
2000 and 1999 are as follows:
Years Ended December 31,
2000
----------------------------------------------------
(Dollars and outstanding shares in thousands, except
per share data)
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
Interest and dividend income .......... $ 12,496 $ 12,336 $ 11,952 $ 11,565
Interest expense ...................... 7,438 7,389 6,940 6,629
-------- -------- -------- --------
Net interest income ................... 5,058 4,947 5,012 4,936
Provision for possible loan losses .... 100 -- 60 --
-------- -------- -------- --------
Net interest income, after
provision for possible loan
losses ............................... 4,958 4,947 4,952 4,936
Non-interest income ................... 2,548 2,381 2,173 1,797
Non-interest expenses ................. 5,831 5,516 5,345 4,983
-------- -------- -------- --------
Income before income taxes ............ 1,675 1,812 1,780 1,750
Provision for income taxes ............ 637 632 638 617
-------- -------- -------- --------
Net income ............................ $ 1,038 $ 1,180 $ 1,142 $ 1,133
======== ======== ======== ========
Basic earnings per share .............. $ .34 $ .39 $ .38 $ .36
======== ======== ======== ========
Diluted earnings per share ............ $ .33 $ .37 $ .36 $ .35
======== ======== ======== ========
Weighted average common
shares outstanding ................... 3,067 3,055 3,038 3,112
======== ======== ======== ========
Weighted average common
shares and share equivalents
outstanding .......................... 3,172 3,167 3,158 3,249
======== ======== ======== ========
Years Ended December 31,
1999
----------------------------------------------------
(Dollars and outstanding shares in thousands, except
per share data)
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ------------ ------------ -----------
Interest and dividend income .......... $ 11,220 $ 10,821 $ 10,237 $ 9,964
Interest expense ...................... 6,361 5,971 5,469 5,291
-------- -------- -------- -------
Net interest income ................... 4,859 4,850 4,768 4,673
Provision for possible loan losses .... 190 190 70 190
-------- -------- -------- -------
Net interest income, after
provision for possible loan
losses ............................... 4,669 4,660 4,698 4,483
Non-interest income ................... 2,033 1,903 1,958 1,479
Non-interest expenses ................. 5,199 4,961 4,961 4,299
-------- -------- -------- -------
Income before income taxes ............ 1,503 1,602 1,695 1,663
Provision for income taxes ............ 530 569 613 602
-------- -------- -------- -------
Net income ............................ $ 973 $ 1,033 $ 1,082 $ 1,061
======== ======== ======== =======
Basic earnings per share .............. $ .30 $ .32 $ .33 $ .32
======== ======== ======== =======
Diluted earnings per share ............ $ .29 $ .30 $ .31 $ .30
======== ======== ======== =======
Weighted average common
shares outstanding ................... 3,245 3,277 3,272 3,347
======== ======== ======== =======
Weighted average common
shares and share equivalents
outstanding .......................... 3,339 3,441 3,464 3,537
======== ======== ======== =======
55
Stockholder Information
Stock Market Data
The common stock of the Company is currently listed on the Nasdaq Stock
Market under the symbol "ABBK." The table below sets forth the range of high
and low sales prices for the stock for the quarters indicated. Market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
Price High Price Low Dividends Declared
------------ ----------- -------------------
2001
1st quarter (through February 23, 2001) $ 13.50 $ 11.00 $ --
2000
4th quarter 11.06 8.75 $ .09
3rd quarter 11.13 8.75 $ .09
2nd quarter 9.88 8.75 $ .09
1st quarter 11.75 9.38 $ .09
1999
4th quarter 13.00 10.69 $ .05
3rd quarter 13.75 12.06 $ .05
2nd quarter 14.75 13.25 $ .05
1st quarter 15.13 12.75 $ .20
1998
4th quarter 17.00 12.00 $ .05
3rd quarter 19.50 12.50 $ .05
2nd quarter 22.75 17.50 $ .05
1st quarter 22.50 18.75 $ .15
As of February 23, 2001, the Company had approximately 781 stockholders of
record who held 3,068,352 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 such persons are included, the Company believes
there are approximately 1,552 beneficial owners of common stock.
Annual Report on Form 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 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.
56
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 2001 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 2001 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 2001 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 2001 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
2.1 Plan of Reorganization and Acquisition dated as of October 15, 1996 between the
Company and Abington Savings Bank incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January 13, 1997.
3.1 Articles of Organization of the Company incorporated by reference to the Company's
Registration Statement on Form 8-A, effective January 13, 1997.
3.2 By-Laws of the Company, incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the first quarter of 2000, filed on May 12, 2000.
4.1 Specimen stock certificate for the Company's Common Stock incorporated by reference
to the Company's Registration Statement on Form 8-A, effective January 31, 1997.
4.2 Form of Indenture between Abington Bancorp, Inc. and State Street Bank and Trust
Company incorporated by reference to Exhibit 4.1 of the Registration Statement on Form
S-2 of the Company and Abington Bancorp Capital Trust, filed on May 12, 1998.
4.3 Form of Junior Subordinated Debenture incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-2 of the Company and Abington Bancorp Capital
Trust, filed on May 12, 1998.
4.4 Form of Amended and Restated Trust Agreement by and among the Company, State
Street Bank and Trust Company, Wilmington Trust Company and the Administrative
Trustees of the Trust incorporated by reference to Exhibit 4.4 of the Registration
Statement on Form S-2 of the Company and Abington Bancorp Capital Trust, filed on
May 12, 1998.
4.5 Form of Preferred Securities Guarantee Agreement by and between the Company and
State Street Bank and Trust Company incorporated by reference to Exhibit 4.6 of the
Registration Statement on Form S-2 of the Company and Abington Bancorp Capital
Trust, filed on May 12, 1998.
57
*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.
*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.
58
*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 March 26, 1998, incorporated by reference to the Company's
quarterly report on Form 10-Q for the first quarter of 1998, filed on May 8, 1998.
*10.14 Deferred Stock Compensation Plan for Directors, effective July 1, 1998 incorporated
by reference to Appendix A to the Company's proxy statement (schedule 14A) for its
1998 Annual Meeting, filed with the Commission on April 13, 1998.
*10.15 Special Termination Agreement dated as of February 7, 2000 among the Company, the
Bank and Jack B. Meehl, 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.
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 no reports on Form 8-K during the fourth quarter of
2000.
- ------------
* Management contract or compensatory plan or arrangement.
59
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 16, 2001
By: /s/ James P. McDonough
---------------------------------
James P. McDonough
President and Chief Executive Officer
60
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.
NAME TITLE DATE
- ---- ----- ----
/s/ James P. McDonough
- -------------------------- President and Chief Executive Officer; Director
James P. McDonough (Principal Executive Officer) March 16, 2001
/s/ Robert M. Lallo
- -------------------------- Chief Financial Officer & Treasurer
Robert M. Lallo (Principal Financial Officer) March 16, 2001
/s/ Bruce G. Atwood
- --------------------------
Bruce G. Atwood Director March 16, 2001
/s/ William F. Borhek
- --------------------------
William F. Borhek Director March 16, 2001
/s/ Ralph B. Carver, Jr.
- --------------------------
Ralph B. Carver, Jr. Director March 16, 2001
/s/ Joel S. Geller
- --------------------------
Joel S. Geller Director March 16, 2001
/s/ Rodney D. Henrikson
- --------------------------
Rodney D. Henrikson Director March 16, 2001
/s/ A. Stanley Littlefield
- --------------------------
A. Stanley Littlefield Director March 16, 2001
/s/ Gordon N. Sanderson
- --------------------------
Gordon N. Sanderson Director March 16, 2001
/s/ Laura J. Sen
- --------------------------
Laura J. Sen Director March 16, 2001
/s/ James J. Slattery
- --------------------------
James J. Slattery Director March 16, 2001
/s/ Wayne P. Smith
- --------------------------
Wayne P. Smith Director March 16, 2001
61