ABINGTON BANCORP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429

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

For the fiscal year ended December 31, 2002

COMMISSION FILE NO. 0-16018

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

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

97 LIBBEY PARKWAY, 02189
WEYMOUTH, MASSACHUSETTS
(Address of Principal Executive Offices) (Zip Code)

(781) 682-6400
(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 June 28, 2002, as reported by the Nasdaq Stock Market, was $51,721,446.

Indicate by check mark whether registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes / / No /X/

The number of shares outstanding of the Registrant's Common Stock as of
May 10, 2003: 3,783,905 shares.

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FORWARD LOOKING STATEMENTS

When used in this Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe" or similar expressions are intended to identify "forward-looking
statements" within the meanings of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company wishes to
caution readers that all forward-looking statements are necessarily speculative
and not to place undue reliance on any such forward-looking statements, which
speak only as of the date made, and to advise readers that various risks and
uncertainties, including regional and national economic conditions, changes in
the real estate market, changes in levels of market interest rates, credit risks
of lending activities and competitive and regulatory factors, could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected. The
Company disclaims any intent or obligation to update forward-looking statements
whether in response to new information, further events or otherwise.

EXPLANATORY NOTE

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its 2002 financial results that had previously been announced and would
restate its previously issued 2001 financial statements. The revisions and
restatement are necessary to correct accounting errors related to the
acceleration of prepayments on mortgage-backed investment securities, errors in
recording payments received on various investment securities and certain
adjustments related to accruals for income and expense. See Item 14--"Controls
and Procedures."

During the internal accounting review, the Company identified a number of
accounting errors, recorded by its former controller, including underlying
prepayment assumptions used in the calculation of interest income in 2002 that
did not adequately reflect the actual prepayment rates received on a portion of
its mortgage-backed securities (MBS) portfolio and that certain payments
received on a portion of its MBS portfolio were not properly applied. It was
further determined, based upon the results of the preliminary review, that it
would be necessary to revise the Company's previously announced financial
results for 2002 and restate the Company's financial statements for 2001. The
Company engaged its independent auditor, PricewaterhouseCoopers LLP, which
replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of the year
2001. Accordingly, the 2001 financial statements contained in this Form 10-K for
the year ended December 31, 2002 have been restated. In connection with the 2001
restatement, the Company will file an amendment to its Annual Report on
Form 10-K for the fiscal year ended December 31, 2001. The re-audit of 2001
resulted in the Company's inability to file its 2002 Annual Report on Form 10-K
within the time prescribed by the SEC.

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Following is a summary of the effect of restatement on the Company's
consolidated financial statements at or for the periods reflected:

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(1) The previously reported amounts for net cash provided by (used in) operating
activities, investing activities and financing activities have been adjusted
for the effect of the restatement.

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(2) As indicated, there has been no change in the net increase in cash and cash
equivalents as a result of the restatement.

In April 2003, shortly after the Company announced its intention to restate
its financial statements, it was informed by the staff of the United States
Securities and Exchange Commission ("SEC") that the SEC is conducting an
informal inquiry with respect to certain of the matters reflected in the
announcement. The Company is cooperating fully with the inquiry.

On April 16, 2003, the Company received a letter from Nasdaq indicating that
Nasdaq had not received the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 and had commenced the standard delisting process for
companies that have delayed filing required periodic reports with the exchange.
Effective April 18, 2003, the company's trading symbol "ABBK" was listed as
"ABBKE" to denote the Company's filing delinquency. In addition, the symbol of
Abington Bancorp Capital Trust--8.25% Cumulative Trust Preferred Securities has
been changed from "ABBKP" to "APKPE." On April 21, 2003, the Company announced
that it would request a hearing before a Nasdaq Listing Qualifications Panel to
discuss the standard delisting process. Such hearing has been scheduled for
May 16, 2003. The Company believes that, upon the filing of this Annual Report
on Form 10-K for the year ended December 31, 2002, it will have satisfied the
requirements for continued Nasdaq listing.

RISKS RELATING TO ARTHUR ANDERSEN LLP

Arthur Andersen LLP previously audited the Company's financial statements at
December 31, 2001 and for the three years then ended. As previously indicated,
the Company has restated its financial statements at and for the year ended
December 31, 2001 and has revised the related Notes to Financial Statements as
appropriate. As discussed in Item 9 of this Form 10-K, the Company changed
independent accountants on July 1, 2002. The Company's financial statements as
of and for the year ended December 31, 2001, as restated, have been audited by
PricewaterhouseCoopers LLP whose report thereon is included in Item 8 of this
Annual Report on Form 10-K. Arthur Andersen LLP has not reissued its previous
report on the Company's financial statements, which previous report is included
in Item 8 hereof, nor has it furnished an updated consent with respect to the
incorporation by reference of such financial statements into the Company's
registration statements on Form S-8 and Form S-3D. Arthur Andersen LLP has not
participated in the preparation or review of this Annual Report on Form 10-K. On
June 15, 2002, Arthur Andersen LLP was convicted in Federal court of obstruction
of justice. Arthur Andersen LLP has ceased practice before the Securities and
Exchange Commission. You may have no effective remedy against Arthur Andersen
LLP in connection with any material misstatement or omission in the Company's
financial statements at and for the year ended December 31, 2000 included herein
or related disclosure, particularly in the event that Arthur Andersen LLP ceases
to exist or becomes insolvent as a result of the conviction or other proceedings
against Arthur Andersen LLP.

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").
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.

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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.

On September 13, 2002, the Company completed its acquisition of
Massachusetts Fincorp, Inc. (MAFN), the parent company of the Massachusetts
Co-operative Bank with three branches in the Greater Boston area, for $30.00 per
share in cash and stock for a total purchase price of $15.8 million. The MFAN
branches provide a natural extension of the Company's market area and provide
opportunities to expand the Company's small business and commercial lending
areas.

The Bank includes its seven wholly-owned subsidiaries; Holt Park Place
Development Corporation and Norroway Pond Development Corporation, which own
properties being marketed for sale, Abington Securities Corporation, Mass
Securities Corporation, and Mass SEC Corp. II, which invests primarily in United
States Government obligations and obligations of related agencies and equity
securities, 70 Quincy Ave. LLC which owns and operates a building in Quincy 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 parts of Plymouth, Norfolk and Suffolk Counties, in
Massachusetts; primarily Abington, Brockton, Canton, Cohasset, Dorchester,
Halifax, Hanover, Hanson, Holbrook, Hull, Kingston, Milton, Pembroke, Quincy,
Randolph and Whitman where it has banking offices, and nearby Rockland, Duxbury,
Scituate, Plympton, East Bridgewater, Plymouth, Carver, Weymouth and
Bridgewater. Additionally, the Company has mortgage lending offices in Auburn,
Brockton and Fall River.

The Company has grown from $591.2 million in assets and $364.0 million in
deposits at December 31, 1998 to $903.2 million in assets and $646.6 million in
deposits at December 31, 2002. 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, a state excess deposit insurer
(the "Depositors Insurance Fund"), for the portion of deposits in excess of that
insured by the FDIC.

In August of 1997, the Company opened, in Cohasset, the first of five de
novo supermarket branches, with the Randolph and Hanson branches opening in
April and September, 1998, respectively, Brockton in May, 1999 and Canton in
November 2000. Additionally, the Company opened the Hanover branch in July 2001
and acquired three new branches in Dorchester, Quincy and Milton as a result of
its MAFN acquisition. These branch openings are consistent with the Company's
ongoing strategy of controlled growth with a focus on retail core deposit
relationships and have enabled the Company to increase its regional presence.
Management plans to continue to explore growth opportunities through de novo
branches and acquisitions.

On April 1, 1999, the Company acquired Old Colony Mortgage Corporation
("OCM") (See Note 2 to the Consolidated Financial Statements). OCM is
headquartered in Weymouth, and has origination offices in Fall River and Auburn
Massachusetts as well as a presence in each of the

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Company's branches. This acquisition was made to expand the Company's mortgage
origination capabilities as well as to provide the Company with a greater
diversity of sources of income.

LENDING ACTIVITIES

GENERAL. Loans currently originated and purchased for the Company's own
portfolio primarily have terms to maturity or repricing of 15 years or less,
such as residential construction loans and adjustable-rate and fixed-rate
mortgages on owner-occupied residential property. See "Item 7--Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations--Liquidity and Capital Resources" for discussion of the Company's
asset-liability strategy. The Company also originates one-year, three-year and
five-year adjustable-rate mortgages on non-owner-occupied residential property
as well as commercial and commercial real estate loans. Prior to 1996,
commercial, commercial real estate and commercial construction lending had not
been a primary source of loan originations. The Company began to emphasize such
lending in the latter part of 1996. The Company anticipates a continued emphasis
in the future for these types of loan originations. The Company has stressed the
origination or purchase of shorter-term 10 to 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 its 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
$392.9 million at December 31, 2002, representing approximately 43.5% of its
total assets. The majority of the Company's loans are collateralized by real
estate and are made within Norfolk, Suffolk, and Plymouth Counties, although the
Company also purchases residential mortgage loans in other areas of the United
States. Generally, loans purchased outside of Massachusetts are well
collateralized and reflect an adequate payment history. Approximately 20% of the
Company's total loan portfolio represents owner-occupied first mortgages located
outside of Massachusetts. The state (other than Massachusetts) in which the
Company has its largest concentration of residential loans is California in
which the Company held approximately $11,300,000 of loans as of December 31,
2002. No other states had a 2.5% or greater concentration.

The Company originated $31.7 million in commercial and commercial real
estate loans, $26.6 million of home equity loans, $2.7 million of consumer loans
and $314.7 million in residential first mortgage loans during the year ended
December 31, 2002. Of the latter amount, loans aggregating $9.9 million were
retained for the Company's own portfolio, $35.6 million were held for sale at
December 31, 2002, and loans aggregating $301.8 million were sold in the
secondary market including the $22.7 million of loans held for sale at
December 31, 2001. As of December 31, 2002, loan commitments to borrowers or
potential borrowers of $111.3 million were outstanding. These commitments
included $5.0 million under existing construction loans, $82.4 million in
residential and commercial and commercial real estate loans and $23.9 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, 2002, the Company's loan servicing portfolio
amounted to $45.5 million.

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As of December 31, 2002, the outstanding balance of residential first
mortgage loans totaled $182.6 million or 49.8% of the loan portfolio.
Residential first mortgage loans purchased or originated for the Company's
portfolio are generally written in amounts up to 95% of value if the property is
owner-occupied. Borrowers with a loan-to-value ratio in excess of 80% are
generally required to carry private mortgage insurance. Adjustable-rate mortgage
loans to owner occupants of one- to four-family residential property are subject
to certain requirements and limitations under guidelines issued by the
Massachusetts Commissioner of Banks (the "Commissioner"), including limitations
on the amount and frequency of changes in interest rates.

In most cases, the Company requires the residential first mortgage loans it
originates or purchases to meet Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation standards, with an exception being made
in some cases for the size of the loan, in order to provide for the flexibility
to sell such loans if the Company chooses to do so in the secondary market.

HOME EQUITY AND SECOND MORTGAGE LOANS. The Company offers home equity
loans, which are revolving lines of credit secured by the equity in the
borrower's residence. The majority of home equity loans have interest rates that
adjust with movements in the prime lending rate although the Company does offer
fixed rate home equity loans. Home equity loans and second mortgage loans are
currently written generally in amounts from $7,500 to $100,000, but generally
not more than the difference between 80% of the appraised value of the property
and the outstanding balance of the existing first mortgage. However, home equity
loans with higher loan-to-value ratios up to 90% are available on a limited
basis provided certain underwriting criteria are met. Generally home equity
loans must have a current appraisal of the value of the mortgaged property at
origination. At December 31, 2002, the Company had in its portfolio
approximately $33.7 million of outstanding home equity and second mortgage loans
and unused commitments amounting to $23.9 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, 2002, gross
construction loans totaled $20.3 million, or 5.1% of the Company's total loan
portfolio.

Commercial real estate loans generally relate to properties which are
typically non-owner occupied, income producing such as shopping centers, small
apartment buildings and other types of commercial properties. Commercial real
estate loans are generally written for maximum terms of 10 years, and interest
rates on these loans are typically fixed for no longer than 5 years. Currently,
commercial real estate loans are generally written in amounts up to $3,500,000
and are usually made in Massachusetts counties of Plymouth, Suffolk, Norfolk,
Bristol and Barnstable. At December 31, 2002, the Company had a total of
$112.4 million of commercial real estate loans, or 27.9% of the Company's total
loan portfolio. Included in commercial real estate loans at December 31, 2002 is
$20.6 million in multi-family real estate, or 5.1% of the Company's total loan
portfolio. Loans collateralized by multi-family properties generally involve
larger principal amounts and a greater degree of risk than one-to-four family
residential mortgage loans.

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

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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, 2002, the Company had approximately
$9.6 million of commercial (non-real estate) loans outstanding which was
approximately 2.6% of the Company's total loan portfolio.

Commercial, commercial construction and commercial real estate lending,
including multi-family real estate 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.

The following table shows the Company's construction and commercial loans
(excluding commercial real estate loans) by contractual maturity or repricing
interval at December 31, 2002:

CONSUMER LOANS. The Company also makes a variety of consumer loans, such as
new and used automobile and boat loans, unsecured loans, and passbook and
stock-secured loans. Education loans are periodically sold in the secondary
market. The Company's consumer loans totaled $7.8 million at December 31, 2002,
representing 1.9% of its total loan portfolio.

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

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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 approximately 25
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 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.

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, 2002, non-performing assets were 0.2% of total assets,
compared with 0.5% and 0.08% at December 31, 2001 and 2000, respectively.

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

The recorded total investment in impaired loans was $2,024,000 and
$3,881,000 at December 31, 2002 and 2001, respectively. At December 31, 2002
there were no impaired loans that required a specific allocation of the
allowance for loan losses. Impaired loans totaling $3,432,000, at December 31,
2001 required an allocation of $2,181,000 of the allowance for loan losses. The
remaining impaired loans did not require any allocation of the reserve for loan
losses. All loans classified as impaired, are also on non-accrual.

The decrease in impaired loans is primarily related to the $2.2 million
charge-off in 2002 related to a single commercial credit that was reserved for
in 2001.

The average balance of impaired and/or non-accrual loans was approximately
$3,568,000, $704,000 and $468,000 in 2002, 2001 and 2000, respectively. The
total amount of interest income recognized on impaired loans during 2002, 2001
and 2000 was approximately $108,000, $39,000 and $70,000, respectively, which
approximated the amount of cash received for interest during that period. The
Company has no commitments to lend additional funds to borrowers whose loans
have been deemed to be impaired.

Currently, in the single family home sector, prices are stable and
properties are selling quickly. Additionally, Boston area vacancy rates on
commercial real estate properties have remained relatively low in comparison to
the early 1990's which has helped to support the market values of those
properties although these vacancy rates have begun to rise over the past year.
The Company cannot predict the impact on future provisions for loan losses that
may result from future market conditions. While the regional economy has
declined, the local residential real estate market has been strong over the past
couple of years. It is difficult to predict to what extent such economic
conditions will continue.

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

The allowance for loan losses is based on management's estimate of the
amount required to reflect the probable inherent losses in the loan portfolio,
based on circumstances known at each reporting date in accordance with Generally
Accepted Accounting Principles ("GAAP"). Management utilizes three methodologies
to determine a range of required reserves, from which a consistent process is
used to derive a reserve number. The results and recommendations from these
processes provide senior management, the Board's Loan Committee and the full
Board of Directors with independent information on loan portfolio condition.

The first method utilized is the Risk Identification Method. This method
involves the allocation of certain loss percentages against adversely classified
commercial loans, and general loss allocations against segments of the loan
portfolio that have similar attributes. Under this methodology, the credit
quality of the commercial portfolios is quantified by a corporate credit rating
system designed to parallel regulatory criteria and categories of loan risk.
Individual lenders monitor their loans to ensure

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appropriate rating assignments are made timely. Risk ratings and the quality of
the portfolio are assessed regularly by an independent Credit Review firm and
other general internal loan reviews and updates as provided by Credit Policy and
Administration personnel. Credit Review and Credit Policy and Administration
personnel conduct ongoing portfolio trend analyses and individual credit reviews
to evaluate loan risk and compliance with corporate lending policies. The level
of allowance allocable to each group of risk-rated loans is then determined by
applying a loss factor that estimates the amount of probable loss in each
category. The assigned loss factor for each risk rating is based upon
management's assessment of historical loss data, portfolio characteristics,
economic trends, overall market conditions and past experience.

Consumer and residential real estate loan quality is evaluated on the basis
of delinquency data and other credit data available due to the large number of
such loans and the relatively small size of individual credits. Allocations for
these loan categories are principally determined by applying loss factors that
represent management's estimate of inherent losses. In each category, inherent
losses are estimated based upon management's assessment of historical loss data,
portfolio characteristics, economic trends, overall market conditions and past
experience. In addition, certain loans in these categories may be individually
risk-rated if considered necessary by management.

The second method utilized is the Migration Method, which utilizes the Risk
Identification Method outlined above and then adjusts the allowance calculation
to reflect a migration of non-pass rated loans to a more adverse category. This
methodology recognizes that no risk identification system can address all
potential risks of loss at any point in time and, therefore, there is an
inherent unidentified risk of loss that may not be accurately characterized or
identified.

The third method utilized is the Specific Identification Method. This method
entails the assignment of reserve amounts to individual adversely-classified
loans based on a specific impairment review of such loans. Under this method,
loans are selected for evaluation based on the internal risk rating or
non-accrual status of the loan. Additionally, general loss allocations are made
against segments of the loan portfolio that have similar attributes.

From these three methodologies, management calculates a range of estimated
required reserves and then determines an appropriate reserve amount within this
range. There are three components to the allowance for loan losses: 1) specific
reserves for loans considered to be impaired or for other loans for which
management considers a specific reserve to be necessary; 2) allocated reserves
based upon management's formula-based process for assessing the adequacy of the
allowance for loan losses; and 3) a non-specific unallocated allowance
considered necessary by management based on its assessment of other qualitative
factors.

The allowance for loan losses is increased by provisions charged against
current earnings. Loan losses are charged against the allowance when management
believes that the collectibility of the loan principal is unlikely. Recoveries
on loans previously charged off are credited to the allowance. Management
believes that the allowance for loan losses is adequate. While management uses
available information to assess probable losses on loans, future additions to
the allowance may be necessary based on increases in non-performing loans,
changes in economic conditions, or for other reasons. Any future additions to
the allowance would be recognized in the period in which they were determined to
be necessary. In addition, various regulatory agencies periodically review the
Company's allowance for loan losses as an integral part of their examination
process. Such agencies may require the Company to recognize additions to the
allowance based on judgements different from those of management.

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The following table summarizes the allowance for loan losses for the years
indicated and the percentage of loans by category to total loans and loans held
for sale:

During 2002, the allowance for loan loss allocated to commercial loans
decreased by $1.9 million. This decrease is generally attributable to a
commercial loan relationship within the telecommunications industry, a portion
of which had a specific allocation of reserves that was charged-off during the
fourth quarter of 2002. The total relationship was $3.3 million with a specific
reserve allocation of $1,740,000 and has been on non-accrual since 2001. The
amount allocated to commercial real estate loans increased by $1 million in 2001
and in 2002 is at $2.0 million. This increase was consistent with the general
loan growth in that portfolio. The economic uncertainty in 2002, continuing into
2003 warrants the conservative allocation to commercial real estate. During
2002, the amount allocated to the consumer and residential real estate
portfolios remained consistent with prior year allocations which was consistent
with the percentage of the total loan portfolio comprised of those assets (54.3%
and 1.9% for residential real estate and consumer loans as a percentage of total
loans, respectively in 2002 as compared to 66.5% and 1.8% for the corresponding
balance by portfolio in 2001). The risk factors used for determining the level
of potential loan losses in these categories for 2002 also remained consistent
with the prior year.

The "unallocated" component is the portion of the allowance considered
necessary by management based on its assessment of industry trends, the impact
of the local and regional economy on the Company's borrowers and certain risk
attributes that may not have been adequately captured in the specific risk
classifications used to determine allocations in the Company's analysis of the
allowance for loan loss. The unallocated component of the reserve was reduced in
2001 as compared to prior years in conjunction with management's re-assessment
of the risk identified in the commercial real estate portfolio which resulted in
an increased allocation of reserves to that portion of the portfolio from that
which was previously classified as unallocated. Management determined, based on
its review of all components of the Company's loan portfolio, economic data,
industry trends, and other factors, that the remaining unallocated portion of
the allowance for loan loss was adequate at December 31, 2002.

Notwithstanding the foregoing analytical allocations, the entire allowance
for loan losses is available to absorb charge-offs in any category of loans.

The Company's provision for loan losses in 2002 was $225,000, compared to
$1,705,000 and $160,000 in 2001 and 2000, respectively. The provision for loan
losses in 2002 was lower than 2001 due to favorable trends in the levels of
watched assets and delinquency rates. The primary reason for the increase in the
provision for loan losses in 2001 as compared to 2000 was generally due to
deterioration in 2 credits totalling approximately $3,432,000, both of which
were on non-accrual at December 31, 2001.

14

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:

A schedule of the maturity distribution of investment securities held by the
Company, other than mortgage-backed securities and FHLB stock, and the related
weighted average yield, at December 31, 2002 follows:

At December 31, 2002, the Company had one mortgage-backed security that had
a total amortized cost of $6,487,000, which was in excess of ten percent of
stockholders' equity, and was not an obligation of the U. S. Government, federal
agencies, or government sponsored agencies.

SOURCES OF FUNDS

GENERAL. Deposits and borrowings are the Company's primary sources of funds
for investment. The Company also derives funds from operations, amortization and
prepayments of loans and sales of assets. Deposit flows vary significantly and
are influenced by prevailing interest rates, money market conditions, economic
conditions, location of Company offices and competition.

15

DEPOSITS. Most of the Company's deposits are derived from customers who
work or reside in the Company's primary service area. The Company's deposits
consist of passbook savings accounts, special notice accounts, NOW accounts,
money market deposit accounts, club accounts, money market certificates,
negotiated rate certificates and term deposit certificates. The Company also
offers Individual Retirement Accounts, which currently include a one-year
variable rate account with monthly interest rate adjustments or a 1-, 2-, 2.5-,
3- or 4-year fixed-rate account. Although in previous years the Company has
solicited brokered deposits, at December 31, 2002 there were no such deposits.

At December 31, 2002, the Company's outstanding certificates of deposit with
balances in excess of $100,000 are scheduled to mature as follows:

OTHER ACTIVITIES

SAVINGS BANK LIFE INSURANCE. The Company sells savings bank life insurance
as an agent but not as an issuer and receives a commission on the sale.

OTHER. The Company also offers safe deposit box services, automated teller
machines and drive-up banking services. The Company also provides its borrowers
the opportunity to purchase life, accident and disability insurance through a
third-party insurance agency. The Company offers investment services (including
annuities) to its customers through a third-party broker-dealer, and its
insurance agency affiliate. The third-party pays fees to the Company based upon
sales volume generated by the brokers who are employed at the Company.

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,

16

convenient branch locations, and convenient business hours and by attempting to
build an active, civic-spirited image in these communities.

Financial institutions that are not now located within the Company's market
area may find entry in the Company's market area attractive. Such entry could
have an adverse effect on the Company's growth or profitability. The Company's
potential competitors may have substantially greater financial and other
resources than the Company. In addition, increased competition for deposits has
had an impact on the rates which the Company pays on certificates of deposit.

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

EMPLOYEES

As of December 31, 2002, the Bank had 248 full-time employees, consisting of
34 full-time officers and 214 full-time non-officers, as well as 115 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.

ADDITIONAL AVAILABLE INFORMATION

Our principal internet address is www.abingtonsavingsonline.com. Our web
site provides a hyperlink to a third-party web site through which our annual,
quarterly and current reports, and amendments to those reports, are available
free of charge. We believe these reports are made available as soon as
reasonably practicable after we electronically file them with, or furnish them
to, the SEC. We do not maintain or provide any information directly to the
third-party web site, and we do not check its accuracy. Copies of these reports
can also be obtained from the SEC's web site at www.sec.gov.

ITEM 2. PROPERTIES

At December 31, 2002, the Company conducted business from a centralized,
administrative, operations and banking office at Weymouth Woods Corporate
Center, 97 Libbey Parkway, Weymouth, Massachusetts under a long-term lease
agreement. The main banking office is in Abington, Massachusetts, and there are
10 other banking offices, 5 Shaw's supermarket banking offices, and 3 mortgage
offices located all in Massachusetts. The Company's properties are either owned
or leased and the net book value of properties and leasehold improvements was
$9.6 million at December 31, 2002. The Company believes that all of its
facilities are in good condition and are adequate for the Company's present
operations.

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.

17

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 "ABBKE".

On April 16, 2003, the Company received a letter from Nasdaq indicating that
Nasdaq had not received the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 and had commenced the standard delisting process for
companies that have delayed filing required periodic reports with the exchange.
Effective April 18, 2003, the company's trading symbol "ABBK" was listed as
"ABBKE" to denote the Company's filing delinquency. In addition, the symbol of
Abington Bancorp Capital Trust--8.25% Cumulative Trust Preferred Securities has
been changed from "ABBKP" to "APKPE." On April 21, 2003, the Company announced
that it would request a hearing before a Nasdaq Listing Qualifications Panel to
discuss the standard delisting process. Such hearing has been scheduled for
May 16, 2003. The Company believes that, upon the filing of this Annual Report
on Form 10-K for the year ended December 31, 2002, it will have satisfied the
requirements for continued Nasdaq listing.

The table below sets forth the range of high and low sales prices for the
stock of the Company for the quarters indicated. Market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.

As of May 5, 2003, the Company had approximately 833 stockholders of record
who held 3,783,905 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 1,833 beneficial owners of the Company's common stock.

18

ITEM 6. SELECTED FINANCIAL DATA

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

(1) Includes Federal Home Loan Bank stock.

(2) In June 1998, the Company issued $12.6 million of guaranteed preferred
beneficial interests in junior subordinated debentures.

(3) Includes $.10 and $.15 per share special dividends declared in March 1998
and 1999, respectively.

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

GENERAL

As previously indicated in the Explanatory Note commencing on page 2 of this
Annual Report on Form 10-K, the Company has restated its financial statements at
and for the year ended December 31, 2001. The Company's restated financial
statements are included in Item 8 hereof. The restatement is necessary to
correct accounting errors related to (a) the acceleration of prepayments on
mortgage-backed securities, (b) the recording of payments received on various
investment securities and (c) certain adjustments related to accruals for income
and expense. The following discussion has been revised to reflect the
adjustments to the Company's 2001 financial statements. For additional
information on the restatement, see also Note 27 of the "Notes to Consolidated
Financial Statements" included in Item 8 hereof.

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.

On September 13, 2002 the Company completed the acquisition of Massachusetts
Fincorp, Inc. (MAFN), the parent company of The Massachusetts Co-operative Bank
with three branches in the Greater Boston area. The transaction was accounted
for under the purchase method of accounting. Accordingly, the consolidated
assets and liabilities of MAFN are included in the Company's consolidated
balance sheet at December 31, 2002 and the results of MAFN's operations have
been included in the consolidated financial statements since September 14, 2002.
The Company recorded goodwill of $4.2 million and other intangible assets of
$4.2 million in connection with the acquisition.

20

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its 2002 financial results that had previously been announced and would
restate its previously issued 2001 financial statements. The revisions and
restatement are necessary to correct accounting errors related to the
acceleration of prepayments on mortgage-backed investment securities, errors in
recording payments received on various investment securities and certain
adjustments related to accruals for income and expense. See Item 14--"Controls
and Procedures."

The Company engaged its independent auditor, PricewaterhouseCoopers LLP,
which replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of the
year 2001. Accordingly, the 2001 financial statements contained in this
Form 10-K for the year ended December 31, 2002 have been restated and the
discussion below reflects such restatement of the Company's 2001 financial
statements.

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. See "Forward-Looking
Statements" preceding Part I.

The Company wishes to caution readers that all forward-looking statements
are necessarily speculative and not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various risks and uncertainties, including regional and national
economic conditions, changes in the real estate market, changes in levels of
market interest rates, credit risks of lending activities, competitive and
regulatory factors could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially from
those anticipated or projected. The Company disclaims any intent or obligation
to update forward-looking statements whether in response to new information,
further events or otherwise.

CRITICAL ACCOUNTING POLICIES

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

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses which is
established through a charge to the provision for loan losses is based on
management's evaluation of the level of the allowance required in relation to
the estimated loss exposure in the loan portfolio. Management regularly
evaluates it for adequacy by taking into consideration, among other factors,
such as local industry trends, management's ongoing review of individual loans,
trends in levels of watched or criticized assets,

21

an evaluation of results of examinations by regulatory authorities and analyses
of historical trends in chargeoffs and delinquencies. The use of different
estimates or assumptions could produce different provisions for loan losses.
Refer to the discussion of ALLOWANCE FOR LOAN LOSSES in the Business Section for
a detailed description of management's estimation process and methodology
related to the allowance for loan losses.

VALUATION OF ACQUIRED ASSETS AND LIABILITIES. The Company is required to
record assets acquired and liabilities assumed at their fair value which is an
estimate determined by the use of internal or other valuation techniques. These
valuation estimates result in goodwill and other intangible assets. Goodwill is
subject to ongoing periodic impairment tests and is evaluated using various fair
value techniques.

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

MORTGAGE BACKED SECURITIES (MBSS). Mortgage Backed Securities are
investment grade securities backed by pools of mortgages of differing
maturities. MBSs are purchased with associated premiums and/or discounts based
on market conditions on the date of purchase. The premiums and discounts on
these investments are amortized into interest income on a level yield basis. In
periods of falling market interest rates, accelerated loan prepayment speeds
require an acceleration of the premium amortization or discount accretion for
these mortgage backed securities. The Company utilizes market based consensus
prepayment assumptions to record the current period premium amortization and
discount accretion.

INTEREST INCOME RECOGNITION. Interest on loans is included in income as
earned based upon interest rates applied to unpaid principal. Interest is not
accrued on loans 90 days or more past due unless they are adequately secured and
in the process of collection or on other loans when management believes
collection is doubtful. All loans considered impaired are nonaccruing. Interest
on nonaccruing loans is recognized as payments are received when the ultimate
collectibility of interest is no longer considered doubtful. When a loan is
placed on nonaccrual status, all interest previously accrued is reversed against
current-period interest income, therefore an increase in loans on nonaccrual
status could have an adverse impact on interest income recognized in future
periods.

TAX ESTIMATES. The Company accounts for income taxes by deferring income
taxes based on estimated future tax effects of differences between the tax and
book basis of assets and liabilities considering the provisions of enacted tax
laws. These differences result in deferred tax assets and liabilities, which are
included in the Company's Consolidated balance sheets. The Company must also
assess the likelihood that any deferred tax assets will be recovered from future
taxable income and establish a valuation allowance for those assets determined
to not likely be recoverable. Management judgment is required in determining the
amount and timing of recognition of the resulting deferred tax assets and
liabilities, including projections of future taxable income. Although the
Company has determined a valuation allowance is not required for all deferred
tax assets, there is no guarantee that these assets are recognizable.

22

INTEREST RATE ENVIRONMENT

The volatile interest rate environment which has existed since January 1,
2001 through December 31, 2002 has had a significant impact on the pricing of
the Company's assets and liabilities.

Many of the Company's earning assets are comprised of residential mortgages,
directly through loans and indirectly through mortgage-backed securities. These
mortgage-related assets, which comprise roughly 61.9% or $520,740,000 of total
earning assets as of December 31, 2002 and 70.4% or $514,763,000 of total
average earning assets as of December 31, 2001 are generally priced off of the
3, 5 and 10-year treasury rate at the time of purchase or origination (for the
typical maturities that the Company prefers for its own earning assets).

The Company's deposit pricing is driven by market competition as noted in
"Liquidity and Capital Resources." The trends in deposit pricing over the past
two years have not been as volatile as the stages in the Federal Reserve's
inter-bank borrowing rates noted earlier; however, they have generally been on a
consistent downward trend over this period.

The Company's borrowings, which are primarily with the FHLB, are generally
LIBOR-based and generally vary in terms ranging from overnight to three years in
original maturities. While LIBOR changes over the past two years were not
exactly the same as the Federal Reserve inter-bank borrowing rate, the trend in
these rates and the pricing of the Company's borrowings were consistent with the
relative movements in those rates.

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 2.87% and 2.59% for the years ended December 31, 2002 and 2001.

The level of non-accrual loans and other real estate owned can have an
impact on net interest income. At December 31, 2002, the Company had $2,024,000
in non-accrual loans and no other real estate owned compared to $3,881,000 in
non-accrual loans and no other real estate owned as of December 31, 2001.

23

The table below 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.

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

(1) Includes Federal Home Loan Bank stock.

(2) Includes investments available for sale at amortized cost.

(3) Non-accrual loans net of reserve for 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.

24

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.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND 2001

GENERAL

Net income for 2002 was $6,174,000 or $1.76 per diluted share compared to
net income of $2,032,000 or $.63 per diluted share from 2001, a net increase of
$4,142,000 or 204%. The overall increase was attributable to decreases in net
realized losses on securities (corporate bond loss in 2001) and provisions for
possible loan losses, coupled with increases in net interest margins, customer
service fees and gains on sales of mortgages partially offset by accretion of
discounts on mortgage backed securities and increased salaries and benefits
expense.

INTEREST AND DIVIDEND INCOME

Interest and dividend income for 2002 was $45,526,000 compared to
$48,929,000 for 2001, a decrease of $3,403,000 or 7.0%. The decrease was
attributable to a decrease in yields on earning assets partially offset by an
increase in average earning assets. The balance of average earning assets for
2002 was $766,634,000 as compared to $704,574,000 in 2001, an overall increase
of $62,060,000 or 8.8%.

The increase in earning assets was primarily driven by increases in
mortgage-backed investments and short-term investments, offset in part by
decreases in loans and investment securities. The average balance of
mortgage-backed securities was $310,920,000 for 2002 as compared to $239,381,000
for 2001, an increase of $71,539,000 or 29.9%. Investment securities average
balances declined to $47,700,000 in 2002 from $55,234,000 in 2001, for a
decrease of $7,534,000 or 13.6%. The yield on mortgage-backed investments was
5.57% in 2002 as compared to 6.29% for 2001. The yield on investment securities
was 4.15% in 2002 as compared to 7.30% in 2001. The yield on investment
securities in 2001 was positively influenced by two agency issued bonds which
had been purchased at a discount and were called at the

25

issuer's option during the year. This resulted in $221,000 of discounts being
taken into income which increased the yield on investment securities by 40 basis
points. The resulting investment securities yield for 2001 excluding these
discounts was 6.90%. The yields on both mortgage-backed investments and
investment securities have been primarily influenced by the rate environment
which existed in 2002 and 2001. From June 1999 through July 2000, the Federal
Reserve raised the inter-bank borrowing rate by 175 basis points. From January
2001 through December 2002, the Federal Reserve lowered the inter-bank borrowing
rate 525 basis points which in turn, but to a lesser degree, has influenced
yields on assets purchased since the second quarter of 2001, particularly in
relation to the yields available for comparable assets in the previous year.

The Company's MBS portfolio was purchased at market prices that produced
discounts and premiums from par. At December 31, 2002 and 2001 the Company had a
net purchased premium on MBS of approximately $900,000 and $213,000,
respectively. During 2002, the Company purchased approximately $214,375,000 of
MBS and paid a net premium of approximately $2,017,000 for these securities. In
addition, in connection with the acquisition of Massachusetts Fincorp, Inc.
(MAFN), the Company acquired an additional premium of approximately $370,000.
Borrowers taking advantage of interest rates at 40 year lows started prepaying
mortgages at an accelerated pace, thus shortening the schedule for amortizing
the premiums paid for these investments. As a result, the Company recorded
premium amortization of approximately $1.7 million during 2002 which negatively
impacted the yield on this portfolio.

The average balances of loans decreased to $368,122,000 in 2002 as compared
to $385,149,000 in 2001, a decrease of $17,027,000 or 4.4%. The balances
declined primarily as a result of residential mortgage loans paying off more
quickly in 2002 due to historically lower interest rates available on new
mortgages which prompted customers to refinance those loans (see later
discussion regarding mortgage origination volumes and gains on sales of
mortgages). Additionally, given the historically low rates available on loans
originated or for purchase, management elected to purchase mortgage-backed
investment securities rather than loans due to generally shorter available
average lives in light of the current interest rate environment in comparison to
those historically typically available.

INTEREST EXPENSE

Interest expense for 2002 decreased $6,548,000 or 23.7% to $21,095,000 in
2002 from $27,643,000 in 2001, generally due to decreases in the rates paid on
deposits and borrowed funds and declines in the average balances of borrowed
funds and time deposits, offset in part by increases in average core deposit
balances. The average balance of core and time deposits was $390,513,000 and
$167,759,000, respectively, in 2002 as compared to $278,481,000 and
$193,418,000, respectively, in 2001, for an increase of $112,032,000 or 40.2% in
core deposits and for a decrease of $25,659,000 or 13.3% in time deposits,
respectively. These increases in core deposits in 2002 as compared to 2001
relate to the attractiveness of the Company's retail products and services in
the marketplace it serves as well as reflecting the low interest rate
environment causing a shift to short-term investments. Management will continue
to closely manage its cost of deposits by continuing to seek methods of
acquiring new core deposits and maintaining its current core deposits while
prudently adding time deposits at reasonable rates. The average balances of
borrowed funds decreased overall to $203,360,000 in 2002 as compared to
$224,347,000 in 2001, a decline of $20,987,000 or 9.4%. This decrease in
borrowings was achieved due to the Company's success in attracting deposits over
the past year.

The blended average rate paid on deposits and borrowed funds was 3.07% in
2002 as compared to 4.36% in 2001. The overall weighted average rates paid on
borrowed funds declined to 5.06% in 2002 from 5.77% in 2001. This decrease is
reflective of actions taken by the Federal Reserve Bank in 2001 and 2002. The
weighted average rates paid on deposits was 2.24% in 2002 as compared to 3.59%
in 2001. The cost of core deposits, including non-interest bearing DDAs,
declined to 1.12% in 2002 from 1.30% in 2001. The cost of time deposits
decreased to 3.84% in 2002 from 5.72% in 2001. The rates

26

paid on time deposits decreased significantly in 2002 as the falling interest
rate environment of the last two years has impacted the pricing of maturing time
deposits in 2002 and also due to greater concentration of core deposits in
relation to total deposits in 2002 as compared to 2001. See "Asset/ Liability
Management" for further discussion of the competitive market for deposits and
overall strategies for the uses of borrowed funds.

NON-INTEREST INCOME

Total non-interest income for 2002 was $13,751,000 compared to $9,769,000
for 2001 an increase of $3,982,000 or 40.8%. Customer service fees were
$8,679,000 in 2002 as compared to $7,949,000 in 2001 for an increase of $730,000
or 9.2%. These fees rose primarily due to growth in deposit accounts, primarily
NOW and checking account portfolios and continued success in cross-selling
customers other products and services, debit card activity and sales of mutual
funds and annuities (the Company received regulatory approval to sell insurance
annuities in May 2001). The sales of mutual funds and insurance annuities
accounted for $190,000 of the aforementioned increase in customer service fees.
Loan servicing fees and gains on sales of mortgage loans were $225,000 and
$4,338,000, respectively, in 2002 as compared to $255,000 and $2,888,000,
respectively, in 2001. The increase in gains on sales of mortgage loans of
$1,450,000 or 50.2% was due to an even more favorable market for residential
loan originations in 2002 as compared to 2001. This favorable market was due to
mortgage rates falling to historical lows in 2002. It is expected that the
volume of mortgage originations will likely decline in 2003 in comparison to
these historically high levels in 2002. Loan servicing fees have continued to
decline as the Company has been selling loans on a servicing released basis
since 1996 and as a result, in combination with loan payoffs this portfolio has
continued to decline.

Losses on securities, net, were $157,000 in 2002 as compared to $1,723,000
in 2001, for a decrease of $1,566,000. The net loss for the year ended
December 31, 2002 was the result of $495,000 in losses on the sale of the equity
portfolio offset by $338,000 in gains on the sale of the Company's corporate
bond portfolio. At December 31, 2002, the Company had no marketable equity
securities or corporate bonds in its investment portfolio.

NON-INTEREST EXPENSE

Non-interest expense for 2002 was $27,967,000 compared to $25,747,000 for
2001 an increase of $2,220,000 or 8.6%. Salaries and employee benefits increased
$2,342,000 or 18.8% in 2002 as compared to 2001. Approximately $1,000,000 of the
increase is attributable to increased production volumes and revenues for
mortgage banking as well as increased performance and profit related incentives.
The acquisition of MAFN accounts for approximately $800,000 of the increase, the
opening of the Hanover branch (July 2001) accounts for approximately $200,000 of
the increase, approximately $629,000 relates to net staff additions and merit
raises and $250,000 relates to increases in employee benefits such as group
health insurance. These increases were offset by the one-time favorable impact
of $376,000 that resulted from the Company's settlement of its previously
terminated pension plan.

Occupancy and equipment expense decreased $163,000 or 4.0% in 2002 as
compared to 2001. The results in 2001 include a writedown on real estate
holdings of $635,000. Excluding this writedown, occupancy and equipment expense
increased $472,000 related primarily to the lease and operating expenses
associated with the Company's new corporate headquarters. Other non-interest
expense including Trust Preferred Securities Expense only increased $73,000 or
0.9% in 2002 as compared to 2001. This increase reflects increases in item
processing and other EDP services offset by the change in accounting for
goodwill as required by SFAS No. 142 "Goodwill and Other Intangible Assets,"
which went into effect as of January 1, 2002. (See Note 17 "Goodwill and Other
Intangibles")

27

PROVISION FOR LOAN LOSSES

The provision for loan losses was $225,000 for 2002 a decrease of $1,480,000
or 86.8% from $1,705,000 in 2001. This decrease in provision primarily related
to two credits, both of which were on non-accrual at December 31, 2001 and
provided for in 2001. The most significant of these credits was a $3,363,000
relationship which was primarily a commercial credit involved in the
telecommunications industry. The delinquency rate and non-performing assets at
December 31, 2002 were .62% and $2,031,000, respectively as compared to 1.16%
and $3,959,000, respectively, at December 31, 2001. Without the aforementioned
telecommunications credit, the delinquency and non-performing asset levels would
have been .30% and $518,000, respectively, in 2001. The credit was charged off
in 2002 and as a result is not included in the 2002 delinquency and
non-performing asset levels. The allowance for loan losses is arrived at by
management after careful consideration of various asset quality factors
including delinquency rates and trends, non-performing and "watched" asset
levels and overall historical charge-off rates by major loan type. The allowance
for loan losses was 1.05% and 1.32% of gross loans at December 31, 2002 and
2001, respectively.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2002 was 38.2% as compared to
35.3% in 2001. 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, 2001 AND 2000

GENERAL

Net income for 2001 was $2,032,000 or $.63 per diluted share compared to net
income of $4,493,000 or $1.41 per diluted share from 2000, a net decrease of
$2,461,000 or 54.8%. The overall decrease was attributable to increases in net
realized losses on securities (corporate bond loss), provisions for possible
loan losses, cumulative effect of change in accounting for costs of sales
incentives, occupancy expenses (real estate writedowns), salaries and benefits
expenses and other non-interest expense partially offset by increases in net
interest margins, customer service fees and gains on mortgages.

INTEREST AND DIVIDEND INCOME

Interest and dividend income increased $580,000 or 1.2% during 2001 as
compared to 2000. The increase was attributable to increases in average earning
assets, which was partially offset by a decrease in the yield on certain of
those assets. The balance of average earning assets for 2001 was $704,574,000 as
compared to $671,345,000 in 2000, an overall increase of $33,229,000 or 4.9%.

The increase in earning assets was primarily driven by increases in
mortgage-backed investments, offset in part by decreases in investment
securities. The average balance of mortgage-backed securities was $239,381,000
for 2001 as compared to $182,432,000 for 2000, an increase of $56,949,000 or
31.2%. Investment securities average balances declined to $55,234,000 in 2001
from $80,797,000 in 2000, for decreases of $25,563,000 or 31.6%. The yield on
mortgage-backed investments was 6.29% in 2001 as compared to 6.78% for 2000. The
yield on investment securities was 7.30% in 2001 as compared to 6.92% in 2000.
The yield on investment securities in 2001 was positively influenced by two
agency issued bonds which had been purchased at a discount and were called at
the issuer's option during the year. This resulted in $221,000 of discounts
being taken into income which increased the yield on investment securities by 40
basis points. The resulting investment securities yield for 2001 excluding these
discounts was 6.90%, which was slightly below the 2000 yield on these same
investments. The yields on both mortgage-backed investments and investment
securities have been primarily influenced by the rate environment which existed
in 2001.

28

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

INTEREST EXPENSE

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

The blended average rate paid on deposits and borrowed funds was 4.36% in
2001 as compared to 4.69% in 2000. The overall weighted average rates paid on
borrowed funds declined to 5.77% in 2001 from 6.32% in 2000. This decrease is
reflective of actions taken by the Federal Reserve in 2001. The weighted average
rates paid on deposits was 3.59% in 2001 as compared to 3.60% in 2000. The cost
of core deposits, including non-interest bearing DDAs, declined to 1.30% in 2001
from 1.39% in 2000. The cost of time deposits, however, actually increased to
5.72% in 2001 from 5.54% in 2000 despite the declining interest rate
environment. The rates paid on time deposits increased in 2001 generally due to
intense competition on the pricing of time deposits which existed since the
third quarter of 2000.

NON-INTEREST INCOME

Total non-interest income increased $870,000 or 9.8% in 2001 as compared to
2000. Customer service fees were $7,949,000 in 2001 as compared to $6,396,000 in
2000 for an increase of $1,553,000 or 24.3%. These fees rose primarily due to
growth in deposit accounts, primarily NOW and checking account portfolios and
continued success in cross-selling customers other products and services, debit
card activity and sales of mutual funds and annuities (the Company received
regulatory approval to sell insurance annuities in May 2001). The sales of
mutual funds and insurance annuities accounted for $335,000 of the
aforementioned increase in customer service fees. Loan servicing fees and gains
on sales of mortgage loans were $255,000 and $2,888,000 respectively in 2001 as
compared to $311,000 and $1,315,000, respectively, in 2000. The increase in
gains on sales of mortgage loans of $1,573,000 or 119.6% was generally due to a
favorable market for residential loan originations which existed for most of
2001 as compared to 2000. This favorable market was due to lower available
mortgage rates in 2001. Loan servicing fees have continued to decline as the
Company has been selling loans on a servicing released basis since 1996 and as a
result, in combination with loan payoffs this portfolio has continued to
decline.

Losses on securities, net, were $1,723,000 in 2001 as compared to gains of
$405,000 in 2000, for a decrease of $2,128,000. The results for 2001 include a
writedown and subsequent loss on sale of a corporate bond of $2,618,000 in 2001.
Management made the decision to sell this bond in the fourth

29

quarter of 2001, which was the only investment holding which had been downgraded
to below investment grade, after considering the issuer's (Crown, Cork & Seal)
financial difficulties exacerbated by continuing asbestos litigation claims.
There were also approximately $2,122,000 in realized losses on sales of equity
securities during the year, particularly in the technology and telecommunication
sectors, as part of management's strategy to re-position the equity portfolio
holdings given current market conditions and as part of overall tax planning.
These losses were offset by gains on sales of equities during the year of
$847,000 and an additional $2,177,000 of gains on sales of mortgage-backed and
investment securities during the year. These gains on sales of mortgage-backed
securities and agency securities were generally taken on those holdings, some of
which were previously purchased at a discount, which were likely to be called or
had a high risk of being prepaid.

NON-INTEREST EXPENSE

Non-interest expenses for 2001 increased $4,072,000 or 18.8% compared to
2000. Salaries and employee benefits increased $1,412,000 or 12.8% in 2001 as
compared to 2000 primarily due to the opening of the Canton (November 2000) and
Hanover (July 2001) branches ($340,000); increases in salaries and commissions
on brokerage and annuity sales associated with higher revenues and sales volumes
($329,000); increases in salaries and commissions associated with the increases
in mortgage origination and sales volumes and related gains on sales
(approximately $212,000) and other general increases in salaries and customer
service staffing levels. Occupancy expenses were $831,000 or 26.0% higher in
2001 as compared to 2000. This increase included approximately $635,000 of
writedowns related to management's re-valuation of some non-branch premises and
real estate holdings in the fourth quarter of 2001. Additionally, the cost for
occupancy and equipment were also influenced by the openings of the Canton
(November 2000) and Hanover (July 2001) offices the impact of which increased
costs by approximately $208,000. The Company also realized increases in the cost
of utilities and snow removal during 2001 as compared to 2000 of approximately
$74,000. These increases were partially offset by a decrease in occupancy and
equipment expenses related to the expiration of maintenance contracts associated
with the Company's prior mainframe system of approximately $177,000.

Other non-interest expenses, including Trust Preferred Securities Expense,
also increased $1,829,000 or 24.5%. This increase was attributable to increases
associated with the Company's payments to a third party service bureau (the
Company converted from an in-house mainframe system in June 2000), which have
also been influenced by higher customer volumes in 2001 as compared to 2000
(approximately $482,000), increases in marketing expenses ($420,000), increases
in costs for item processing and statement rendering which were related to
higher volumes of items processed and accounts serviced (approximately $164,000)
higher foreclosure and workout related expenses primarily associated with legal
and professional cost for one large credit (approximately $206,000; see
Provision for Loan Losses and Credit Quality for additional discussion) and
other general volume related and inflationary increases.

PROVISION FOR LOAN LOSSES

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

30

consideration of various asset quality factors including delinquency rates and
trends, non-performing and "watched" asset levels and overall historical
charge-off rates by major loan type. The allowance for loan losses was 1.32% and
1.02% of gross loans at December 31, 2001 and 2000, respectively.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2001 was 35.3% as compared to
36.0% in 2000. The lower effective tax rate in comparison to statutory rates for
both periods is reflective of income earned by certain non-bank subsidiaries
which are taxed, for state tax purposes, at lower rates.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

In December 2001, the Company elected to early adopt EITF 00-14-"Accounting
for Certain Sales Incentives." This pronouncement provided additional guidance
for the accounting for the cost of incentives given to customers to open new
deposit accounts with the Bank. Under this guidance the cost of the incentive
should be charged to earnings on the date the account is opened. This varies
from the previous methodology used by the Company which was to defer this cost
and amortize it to expense over the expected life of the deposit account
relationship. The impact of this change in accounting is reflected on a net of
tax basis as if it were applied at the beginning of the current year. The
cumulative effect of this change in accounting principle was to write off the
unamortized portion of previously capitalized incentives at January 1, 2001
totaling $298,000, net of tax. Additionally previously reported quarterly
operating results have been restated to reflect the application of the new
accounting principle in 2001. This quarterly restatement did not have a material
impact on the quarterly results (Note 27)

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

31

decline by less than 10%. Given the unusually low rate environment at
December 31, 2002, the Company assumed a 100 basis point decline in interest
rates rather than the 200 basis point used at December 31, 2001. The following
table reflects the Company's estimated exposure, as a percentage of estimated
net interest income for the next 12 months, which does not materially differ
from the impact on net income, on the above basis:

Interest rate gap analysis provides a static view of the maturity and
repricing characteristics of the on-balance sheet and off-balance sheet
positions. The interest rate gap analysis is prepared by scheduling all assets,
liabilities and off-balance sheet positions according to scheduled repricing or
maturity. Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.

The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Generally, residential mortgage
loans currently originated by the Company are sold in the secondary market.
Residential mortgage loans that the Company currently originates, from time to
time, or purchases for the Company's own portfolio are primarily 1-year, 3-year,
5-year and 7-year adjustable rate mortgages and shorter term (generally 15-year
or seasoned 30-year) fixed rate mortgages.

The Company also emphasizes loans with terms to maturity or repricing of
5 years or less, such as certain commercial mortgages, business loans,
residential construction loans and home equity loans.

Management desires to expand its interest earning asset base in future
periods primarily through growth in the Company's loan portfolio. Loans
comprised approximately 48.0% of the average interest earning assets in 2002. In
the future, the Company intends to continue to be competitive in the residential
mortgage market but plans to place greater emphasis on home equity and
commercial loans. The Company also historically has been and expects to remain
active in pursuing wholesale opportunities to purchase loans. During 2002, 2001,
and 2000, the Company acquired approximately $10,800,000, $79,700,000 and $0,
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.

Management believes current interest rates to be at the lower end of the
interest rate cycle. As a result, management has been very selective in the
types and terms of loans and investments that are put on the Company's balance
sheet. As a result, the Company has shifted its investment strategy during the
fourth quarter of 2001 and throughout 2002 toward investment securities with
average lives closer to 2 to 4 years in order to put the Company in a more
favorable environment as rates eventually rise. Most of the Company's
residential loan production has been sold in the secondary market as part of
this strategy.

32

During 2002, the Company continued to experience high levels of prepayment
activity in its mortgage-related assets (residential mortgages and
mortgage-backed securities) which comprise approximately 61% of the Company's
balance sheet as of December 31, 2002.

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 will continue to evaluate future funding
strategies and alternatives and 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
$178,015,000 at December 31, 2002 compared to $201,549,000 at December 31, 2001.
These borrowings are primarily comprised of FHLB of Boston advances and have
primarily funded residential loan originations and purchases as well as
mortgage-backed investments and investment securities.

Also, the Company obtained funding in June 1998 through the issuance of
Trust Preferred Securities which carry a higher interest rate than similar FHLB
borrowings but at the same time are included as capital, without diluting
earnings per share, and are tax deductible. See "Liquidity and Capital
Resources" for further discussion.

The following table sets forth maturity and repricing information relating
to interest sensitive assets and liabilities at December 31, 2002. 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 types of accounts
is anticipated to be maintained over time.

33

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

(1) Cumulative as to the amounts previously repriced or matured. Assets held for
sale are reflected in the period in which sales are expected to take place.
Securities classified as available for sale are shown at repricing/ maturity
intervals as if they are to be held to maturity as there is no definitive
plan of disposition. They are also shown at amortized cost.

LIQUIDITY AND CAPITAL RESOURCES

Payments and prepayments on the Company's loan and mortgage-backed
investment portfolios, sales of fixed rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Company's primary sources of liquidity. The Company is also a voluntary member
of the FHLB of Boston and, as such, is entitled to borrow an amount up to the
value of its qualified collateral that has not been pledged to outside sources.
Qualified collateral generally consists of residential first mortgage loans,
securities issued, insured or guaranteed by the U.S. Government or its agencies,
and funds on deposit at the FHLB of Boston. Short-term advances may be used for
any sound business purpose, while long-term advances may be used only for the
purpose of providing funds to finance housing. At December 31, 2002, the Company
had approximately $300,000,000 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.

34

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 Loan 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 $2,031,000 at December 31, 2002, compared to
$3,959,000 at December 31, 2001, a decrease of $1,928,000 or 49%. The Company's
percentage of delinquent loans to total loans was .62% at December 31, 2002, as
compared to 1.16% at December 31, 2001. The non-performing asset and delinquency
statistics noted above as of December 31, 2001 were adversely impacted by a
single commercial loan relationship and an associated residential mortgage with
total balances of approximately $3,363,000. If this relationship were excluded,
the non-performing assets and delinquency ratios would have been $518,000 and
..30%, respectively. Management believes that while delinquency rates and
non-performing assets remain at relatively low levels, these factors are at
historic lows, and at some point in the future a continued economic slowdown
would likely result in future increases in problem assets and ultimately loan
loss provisions. Management continues to monitor the overall economic
environment and its potential effects on future credit quality on an ongoing
basis.

The Company's total stockholders' equity was $57,780,000 or 6.4% of total
assets at December 31, 2002, compared with $38,219,000 or 5.0% of total assets
at December 31, 2001. The increase in total stockholders' equity of
approximately $19,561,000 or 51.2% primarily resulted from the MAFN acquisition,
increases in the unrealized gain on the market value of available for sale
securities, net of taxes and earnings of the Company. Dividends paid partially
offset the effect of these increases.

The Company issued $12,650,000 of 8.25% Trust Preferred Securities in
June 1998. Under current regulatory guidelines, trust preferred securities are
allowed to represent up to approximately 25% of the Company's Tier 1 capital
with any excess amounts available as Tier 2 capital. As of December 31, 2002,
all of these securities were included in Tier 1 capital.

Bank regulatory authorities have established a capital measurement tool
called "Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 2002, the Company's Tier 1 leverage capital
ratio was approximately 6.00%. 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, 2002, the Company's Tier 1 and total
risk-based capital ratios were approximately 12.74% and 13.73%, 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, 2002.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND LESS LIQUID ASSETS

In connection with its operating activities, the Company enters into certain
contractual obligations, as well as commitments to fund loans. The Company's
future cash payments associated with its

35

contractual obligations pursuant to its long-term debt and operating lease
obligations as of December 31, 2002 are summarized below:

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

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

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

The Company's commitments associated with funding loans as of December 31,
2002 are summarized below. Since commitments may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements:

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

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

The table above does not include commitments to extend credit for consumer
loans or other commercial lines of credit in the amount of $34,009,000. Such
commitments arise from agreements with customers for unused lines of credit on
certain home equity loans or business lines of credit secured generally by all
business assets, provided there is no violation of conditions established in the
related agreement. These commitments, substantially all of which the Company can
terminate at any time and which do not necessarily represent future cash
requirements, are periodically reviewed based on account usage and customer
creditworthiness (see Note 6 to the consolidated financial statements).

At December 31, 2002, certain assets of the Company, such as real property,
equipment and leasehold improvements, totaling $13,364,000 and intangibles of
$10,383,000 were illiquid, although real property, if accepted by the FHLB,
could be used to secure additional borrowings at approximately 50% of the lesser
of the book or market value.

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.

36

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
does not apply to goodwill or intangible assets that are not being amortized and
certain other long-lived assets. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations--Reporting Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends Accounting Research Bulletin (ARB) No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 with early adoption encouraged. The Company adopted SFAS
No. 144 on January 1, 2002; it did not have a material impact on the Company's
Consolidated Financial Statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 among other things, addresses financial accounting
and reporting of gains and losses from extinguishment of debt. SFAS No. 145
requires gains and losses resulting from the extinquishment of debt to be
classified as extraordinary items only if they meet the criteria in APB Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This Statement rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," and amends
SFAS No. 13, "Accounting for Leases." SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with early application encouraged. The Company
does not believe the adoption of this Statement will have a material impact on
the Company's financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities. The
statement supersedes Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company does not
believe the adoption of this Statement will have a material impact on the
Company's financial position or results of operations.

In October 2002, the FASB issued SFAS 147, Acquisitions of Certain Financial
Institutions, which provides guidance on the accounting for the acquisition of a
financial institution and supersedes the specialized accounting guidance
provided in SFAS 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions. SFAS 147 became effective upon issuance and requires companies to
cease amortization of unidentified intangible assets associated with certain
branch acquisitions and reclassify these assets to goodwill. SFAS 147 also
modifies SFAS 144 to include in its scope long-term customer-relationship
intangible assets and thus subject those intangible assets to the same
measurement provisions required for other long-lived assets.

The provisions of SFAS 147 are effective for acquisitions for which the date
of acquisition is on or after October 1, 2002 and the guidance for the
impairment of long-term customer relationship intangible assets is effective
October 1, 2002. The Company did not have any unidentified intangible assets
that required reclassification to goodwill and there were no adjustments
required for impairment based on management's assessment of intangible assets
and goodwill.

37

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies the requirements of SFAS 5, Accounting for Contingencies, relating to
guarantees. In general, FIN 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on changes in an underlying that is related to an asset,
liability, or equity security of the guaranteed party. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of
this interpretation, including, among others, guarantees relating to employee
compensation, residual value guarantees under capital lease arrangements,
commercial letters of credit, loan commitments, subordinated interests in an
SPE, and guarantees of a company's own future performance. Other guarantees are
subject to the disclosure requirements of FIN 45 but not to the recognition
provisions and include, among others, a guarantee accounted for as a derivative
instrument under SFAS 133, a parent's guarantee of debt owed to a third party by
its subsidiary or vice versa, and a guarantee which is based on performance not
price. The disclosure requirements of FIN 45 are effective for the Company as of
December 31, 2002, and require disclosure of the nature of the guarantee, the
maximum potential amount of future payments that the guarantor could be required
to make under the guarantee, and the current amount of the liability, if any,
for the guarantor's obligations under the guarantee. The recognition
requirements of FIN 45 are to be applied prospectively to guarantees issued or
modified after December 31, 2002. Significant guarantees that have been entered
into by the Company are disclosed in Note 12. The Company does not expect the
requirements of FIN 45 to have a material impact on results of operations,
financial position, or liquidity.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." SFAS No. 148 amends No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based methods of accounting
for stock-based employee compensation. Companies are able to eliminate a
"ramp-up" effect that the SFAS No. 123 transition rule creates in the year of
adoption. Companies can choose to elect a method that will provide for
comparability amongst years reported. In addition, this Statement amends the
disclosure requirement of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the fair value based method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition amendments to SFAS No. 123 are
effective for financial statements for fiscal years ending after December 15,
2002. Should the Company consider the adoption of fair value based compensation
of stock options, the potential impact to the Company of adopting such
accounting can be seen in Note 1 to Consolidated Financial Statements included
in Item 8 hereof.

In January 2003, the FASB issued FASB Interpretation no. 46 (FIN 46),
Consolidation of Variable Interest entities. The objective of FIN 46 is to
provide guidance on how to identify a variable interest entity (VIE) and
determine when the assets, liabilities, noncontrolling interests, results of
operations of a VIE need to be included in a company's consolidated financial
statements. The provisions of FIN 46 became effective upon issuance. As of
December 31, 2002 the Company had no variable interest entities.

In April, 2003, the Financial Accounting Standards Board issued SFAS
No. 149, "Amendment of Statement 133 on Derivative and Hedging Activities." This
Statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain contracts that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15,

38

2003. The Company has not completed an analysis to determine the potential
impact of this statement, but does not believe that it will have a material
impact on the Company's financial position or results of operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION--"Asset/Liability Management."

39

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Abington Bancorp, Inc.:

In our opinion, the accompanying consolidated balance sheets at December 31,
2002 and 2001 and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and of cash flows for the years
then ended present fairly, in all material respects, the financial position of
Abington Bancorp, Inc. and its subsidiaries (the "Corporation") as of
December 31, 2002 and 2001, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. The
financial statements of the Corporation for the year ended December 31, 2000,
prior to the revisions discussed in Notes 1 and 17, were audited by other
independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in
their report dated January 14, 2002.

As discussed in Note 1 to the financial statements, effective January 1, 2001
the Corporation changed its method of accounting for the cost of incentives
given to new customers. As also discussed in Note 1, the Corporation changed its
method of accounting for goodwill and other intangible assets effective
January 1, 2002.

As discussed in Note 26 to the financial statements, the Corporation has
restated its financial statements as of December 31, 2001 and for the year then
ended, previously audited by other independent accountants who have ceased
operations.

As discussed above, the financial statements of the Corporation for the year
ended December 31, 2000 were audited by other independent accountants who have
ceased operations. As discussed in Notes 1 and 17 to the financial statements,
these financial statements have been revised to include the transitional
disclosures required by SFAS No. 142, which was adopted by the Corporation as of
January 1, 2002. We audited the transitional disclosures discussed in Notes 1
and 17. In our opinion, the transitional disclosures for 2000 discussed in Notes
1 and 17 are appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2000 financial statements of the Corporation other
than with respect to such disclosures and, accordingly, we do not express an
opinion or any other form of assurance on the 2000 financial statements taken as
a whole.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 14, 2003

40

THIS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IS A COPY OF A
PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP ("ANDERSEN") REPORT AND HAS NOT BEEN
REISSUED BY ANDERSEN. THE INCLUSION OF THIS PREVIOUSLY ISSUED ANDERSEN REPORT IS
MADE PURSUANT TO RULE 2.02(E) OF REGULATION S-X. NOTE THAT THIS PREVIOUSLY
ISSUED ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN FISCAL YEARS WHICH ARE NOT
REQUIRED TO BE PRESENTED, AND HAVE NOT BEEN PRESENTED, IN THE CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ABINGTON BANCORP, INC.:

We have audited the accompanying consolidated balance sheets of Abington
Bancorp, Inc. (a Massachusetts corporation) and subsidiaries ("the Company") as
of December 31, 2001 and 2000, and the related consolidated statements of
operations, changes in stockholders' equity, comprehensive income and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Abington Bancorp, Inc. and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

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

Arthur Andersen LLP
Boston, Massachusetts
January 14, 2002

SUBSEQUENT TO THE DATE OF THIS REPORT, THE CORPORATION'S CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 2001 AND THE RELATED CONSOLIDATED STATEMENTS OF
INCOME, CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME, AND CASH FLOWS
FOR THE YEAR THEN ENDED WERE RESTATED BY THE COMPANY. THE RESTATED 2001
FINANCIAL STATEMENTS WERE AUDITED BY PRICEWATERHOUSECOOPERS LLP WHOSE REPORT
APPEARS ON PAGE 40 OF THIS ANNUAL REPORT ON FORM 10-K. SEE EXPLANATORY NOTE
PRECEDING ITEM 1 AND NOTE 26 OF THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN ITEM 8 OF THIS ANNUAL REPORT ON FORM 10-K FOR A DISCUSSION OF THE
RESTATEMENT. CERTAIN CHANGES ALSO HAVE BEEN MADE TO THE ORIGINAL NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES WITH RESPECT TO 2000 TO
INCLUDE THE TRANSITIONAL DISCLOSURE REQUIRED BY SFAS NO. 142, WITH RESPECT TO
WHICH ARTHUR ANDERSEN LLP DID NOT AUDIT THE CHANGES.

41

ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

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

42

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

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

43

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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

44

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

45

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

46

ABINGTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002

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,
Abington Securities Corporation, Mass Securities Corporation and Mass SEC
Corp. II, which invest primarily in obligations of the United States Government
and its agencies and equity securities, Old Colony Mortgage which originates and
sells loans to investors on a servicing released basis (See Note 2), 70 Quincy
Ave. LLC, which owns and operates a building in Quincy, which is also used as a
bank branch; and Holt Park Place Development Corporation and Norroway Pond
Development Corporation, each typically owning properties being marketed for
sale. The Company's primary business is serving as the holding company of the
Bank. All significant intercompany balances and transactions have been
eliminated in consolidation.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Operating results in the future could vary from the amounts derived
from management's estimates and assumptions. The most significant estimates
include those used in determining the allowance for loan losses and other than
temporary impairment of investment securities.

RESTATEMENT AND RECLASSIFICATIONS

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its 2002 financial results that had previously been announced and would
restate its previously issued 2001 financial statements. The revisions and
restatement are necessary to correct accounting errors related to the
acceleration of prepayments on mortgage-backed investment securities, errors in
recording payments received on various investment securities and certain
adjustments related to accruals for income and expense.

During the internal accounting review, the Company identified a number of
accounting errors recorded by its former controller, including underlying
prepayment assumptions used in the calculation of interest income in 2002 that
did not adequately reflect the actual prepayment rates received on a portion of
its mortgage-backed securities (MBS) portfolio, and that certain payments
received on a portion of its MBS portfolio were not properly applied. It was
further determined, based upon the results of the preliminary review, that it
would be necessary to revise the Company's previously announced financial
results for 2002 and restate the Company's financial statements for 2001. The
Company engaged its independent auditor, PricewaterhouseCoopers LLP, which
replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of the year
2001. Accordingly, the financial statements as of and for the year ended
December 31, 2001 have been restated to reflect the results of the 2001
re-audit.

Certain amounts in the 2001 and 2000 consolidated financial statements have
been reclassified to conform to the 2002 presentation.

47

CASH EQUIVALENTS

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

SECURITIES

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

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

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

- Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at fair value
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity, net of applicable income tax
effects.

The Company had no securities classified as trading securities or held for
investment at December 31, 2002 and 2001.

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

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

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

LOANS AND ALLOWANCE FOR 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, 2002, approximately 20%
represents owner-occupied first mortgages located outside of Massachusetts,
throughout the United States. In this purchased loan portfolio, the Company owns
approximately $11,300,000 of loans collateralized by residential properties

48

located in California. No other concentration in any other states, except for
Massachusetts, exceeds 2.5% of total loans.

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

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

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

The allowance for 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. Factors considered in determining the allowance requirements
include, among other factors, local industry trends, management's ongoing review
of individual loans, trends in levels of watched or criticized assets, an
evaluation of results of examinations by regulatory authorities and analyses of
historical trends in charge-offs and delinquencies. Loans are charged-off to the
allowance for loan losses when, in the opinion of management, such loans are
deemed to be uncollectible. The allowance is an estimate, and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in earnings during the periods in which they become known.

The allowance for loan losses as of December 31, 2002 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 inherent but
unidentified losses which are believed to exist based on evaluation of watched
asset report trends and analysis, the results of which are reflected in current
reserves. However, uncertainty exists as to future trends in the local economy
and real estate market. If there is significant deterioration in the local
economy the Company would expect increases in non-performing loans requiring
additional provisions for loan losses and increased lost interest income on
non-accrual loans.

OTHER REAL ESTATE OWNED

Real estate acquired by foreclosure and acquired by deed in lieu of
foreclosure is classified as other real estate owned and initially recorded at
the lower of cost or fair value less estimated selling costs. In the event
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.

49

BANKING PREMISES AND EQUIPMENT

Land is carried at cost. Buildings, leasehold improvements and equipment are
carried at cost less accumulated depreciation computed on the straight-line
method over the estimated useful lives of the assets, or the terms of the
leases, if shorter. The cost of maintenance and repairs are expensed as
incurred; major expenditures for betterments are capitalized and depreciated.

The management of the Company reviews long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If impairment is deemed to exist, long-lived assets are reported
at the lower of the carrying amount or fair value less cost to sell.

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

GOODWILL AND OTHER INTANGIBLE ASSETS

On January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other
Intangible Assets." Under the provisions on SFAS No. 142 goodwill can no longer
be amortized over its estimated useful life, but rather must be subject to an
annual assessment for impairment by applying a fair-value based test. The
Company's other intangible assets have finite lives and are amortized on a
straight-line basis over their estimated lives of 7 to 10 years. There were no
adjustments required for impairment based upon management's analysis as of
December 31, 2002.

Upon the adoption of SFAS 142 the Company ceased amortizing its goodwill.
The pro forma effect of adoption of SFAS 142 to the 2001 and 2000 results is
shown in Note 17.

On October 1, 2002, the Financial Accounting Standards Board ("FASB")
released SFAS No. 147, "Acquisitions of Certain Financial Institutions." The
statement allows financial institutions that have certain unidentifiable
intangible assets that arose from business combinations where the fair value of
liabilities assumed exceeded the fair value of assets acquired (or SFAS No. 72,
assets) to reclassify these assets to goodwill as of the later of the date of
acquisition or the application date of SFAS No. 142, January 1, 2002. SFAS 147
also modifies SFAS 144 to include in its scope long-term customer-relationship
intangible assets and thus subject those intangible assets to the same
measurement provisions required for other long-lived assets.

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.

STOCK BASED COMPENSATION

The Company accounts for stock options under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," under which no compensation expense is recognized when the stock
options are granted.

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure," ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based methods of
accounting for stock-based employee compensation. In addition, SFAS No. 148

50

amends the disclosure requirements of SFAS No. 123 to require more prominent
disclosure about the method of accounting for stock based compensation and the
effect of the method on reported results.

The Company continues to follow the intrinsic value method of accounting as
prescribed by APB No. 25. The following table presents the effects on net income
and earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation.

ACCOUNTING FOR CERTAIN INCENTIVES

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

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
does not apply to goodwill or intangible assets that are not being amortized and
certain other long-lived assets. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations--Reporting Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends Accounting Research Bulletin (ARB) No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for

51

financial statements issued for fiscal years beginning after December 15, 2001
with early adoption encouraged. The Company adopted SFAS No. 144 on January 1,
2002; it did not have a material impact on the Company's Consolidated Financial
Statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 among other things, addresses financial accounting
and reporting of gains and losses from extinguishment of debt. SFAS No. 145
requires gains and losses resulting from the extinquishment of debt to be
classified as extraordinary items only if they meet the criteria in APB Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This Statement rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," and amends
SFAS No. 13, "Accounting for Leases." SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with early application encouraged. The Company
does not believe the adoption of this Statement will have a material impact on
the Company's financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities. The
statement supersedes Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company does not
believe the adoption of this Statement will have a material impact on the
Company's financial position or results of operations.

In October 2002, the FASB issued SFAS 147, Acquisitions of Certain Financial
Institutions, which provides guidance on the accounting for the acquisition of a
financial institution and supersedes the specialized accounting guidance
provided in SFAS 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions. SFAS 147 became effective upon issuance and requires companies to
cease amortization of unidentified intangible assets associated with certain
branch acquisitions and reclassify these assets to goodwill. SFAS 147 also
modifies SFAS 144 to include in its scope long-term customer-relationship
intangible assets and thus subject those intangible assets to the same
measurement provisions required for other long-lived assets.

The provisions of SFAS 147 are effective for acquisitions for which the date
of acquisition is on or after October 1, 2002 and the guidance for the
impairment of long-term customer relationship intangible assets is effective
October 1, 2002. The Company did not have any unidentified intangible assets
that required reclassification to goodwill and there were no adjustments
required for impairment based on management's assessment of intangible assets
and goodwill.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies the requirements of SFAS 5, Accounting for Contingencies, relating to
guarantees. In general, FIN 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on changes in an underlying that is related to an asset,
liability, or equity security of the guaranteed party. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of
this interpretation, including, among others, guarantees relating to employee
compensation, residual value guarantees under capital lease arrangements,
commercial letters of credit, loan commitments, subordinated interests in an
SPE, and guarantees of a

52

company's own future performance. Other guarantees are subject to the disclosure
requirements of FIN 45 but not to the recognition provisions and include, among
others, a guarantee accounted for as a derivative instrument under SFAS 133, a
parent's guarantee of debt owed to a third party by its subsidiary or vice
versa, and a guarantee which is based on performance not price. The disclosure
requirements of FIN 45 are effective for the Company as of December 31, 2002,
and require disclosure of the nature of the guarantee, the maximum potential
amount of future payments that the guarantor could be required to make under the
guarantee, and the current amount of the liability, if any, for the guarantor's
obligations under the guarantee. The recognition requirements of FIN 45 are to
be applied prospectively to guarantees issued or modified after December 31,
2002. Significant guarantees that have been entered into by the Company are
disclosed in Note 12. The Company does not expect the requirements of FIN 45 to
have a material impact on results of operations, financial position, or
liquidity.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." SFAS No. 148 amends No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based methods of accounting
for stock-based employee compensation. Companies are able to eliminate a
"ramp-up" effect that the SFAS No. 123 transition rule creates in the year of
adoption. Companies can choose to elect a method that will provide for
comparability amongst years reported. In addition, this Statement amends the
disclosure requirement of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the fair value based method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition amendments to SFAS No. 123 are
effective for financial statements for fiscal years ending after December 15,
2002. Should the Company consider the adoption of fair value based compensation
of stock options, the potential impact to the Company of adopting such
accounting can be seen in Note 1 to Consolidated Financial Statements included
in Item 8 hereof.

In January 2003, the FASB issued FASB Interpretation no. 46 (FIN 46),
Consolidation of Variable Interest entities. The objective of FIN 46 is to
provide guidance on how to identify a variable interest entity (VIE) and
determine when the assets, liabilities, noncontrolling interests, results of
operations of a VIE need to be included in a company's consolidated financial
statements. The provisions of FIN 46 became effective upon issuance. As of
December 31, 2002 the Company had no variable interest entities.

In April, 2003, the Financial Accounting Standards Board issued
SFAS No. 149, "Amendment of Statement 133 on Derivative and Hedging Activities."
This Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain contracts that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003. The
Company has not completed an analysis to determine the potential impact of this
statement, but does not believe that it will have a material impact on the
Company's financial position or results of operation.

2. ACQUISITIONS

On September 13, 2002 the Company completed the acquisition of Massachusetts
Fincorp, Inc. (MAFN), the parent company of The Massachusetts Co-operative Bank
with three branches in the Greater Boston area. The transaction was accounted
for under the purchase method of accounting. Accordingly, the consolidated
assets and liabilities of MAFN are included in the Company's consolidated
balance sheet and the results of MAFN's operations have been included in the
consolidated financial statements since September 14, 2002. The Company recorded
goodwill of $4.2 million and other intangible assets of $4.2 million in
connection with the acquisition.

53

Approximately 510,500 shares of Company stock were issued and the majority of
previously outstanding options to purchase the stock of MAFN were converted to
80,145 options to acquire shares of the Company's common stock at prices ranging
from $7.13 to $8.84.

The following table summarizes the allocation of purchase price to assets
and liabilities acquired on September 13, 2002:

Following is supplemental information, reflecting selected pro forma results
as if the acquisition had been consummated as of January 1, 2001 (in thousands,
except EPS):

Total revenue includes net interest income and noninterest income.

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

54

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). Total issuance costs 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 10 years. Distributions, including those accrued and
accumulated, and amortization expense totaling $1,120,000 for 2002, 2001, and
2000 relating to these trust preferred securities is reflected in the statement
of operations in non-interest expense.

The maturity date of the trust preferred securities 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.

55

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, 2002,
that the Company and the Bank met all capital adequacy requirements to which
they are subject. As of December 31, 2002, 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.

56

5. SECURITIES

The amortized cost and fair value of securities classified as available for
sale at December 31, 2002 and 2001 are as follows:

The amortized cost and fair value of investments and mortgage-backed
securities, respectively, at December 31, 2002 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.

57

Gross gains on sales of marketable equity securities were $216,000,
$847,000, and $400,000 for 2002, 2001 and 2000, respectively. There were losses
of $710,000 and $2,122,000 on sales of equity securities in 2002 and 2001,
respectively. There were no losses on sales of equity securities in 2000.

Gross gains on sales of investment securities were $447,000, $536,000 and
$5,000 for 2002, 2001 and 2000, respectively. Gross losses on sales of
investment securities were $110,000 and $2,618,000 for 2002 and 2001,
respectively. There were no losses on sales of investment securities in 2000.

There were no sales of mortgage-backed investments classified as available
for sale during 2002 and 2000. Proceeds from sales of mortgage-backed
investments classified as available for sale during 2001 were $98,595,000. Gross
gains of $1,641,000 were realized and gross losses of $7,000 were realized on
those sales in 2001.

A U.S. agency obligation security with a carrying value of $1,000,000 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.

At December 31, 2002 securities with a carrying value of $11,226,000 were
pledged as collateral on retail repurchase agreements.

6. LOANS

A summary of the loan portfolio follows:

The above table includes $1,851,000 at December 31, 2002 of unamortized
purchase premium related to loans acquired from MAFN.

58

At December 31, 2002 and 2001, the Company also held approximately
$35,629,000 and $22,705,000, respectively, of loans held for sale. At
December 31, 2002 and 2001, the estimated market values of loans held for sale
was in excess of their carrying value. In addition, the Company was servicing
mortgage loans sold under non-recourse agreements amounting to approximately
$45,517,000 and $74,605,000 at December 31, 2002 and 2001, 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 $306,000 at December 31, 2002, and $294,000 at
December 31, 2001. During the year ended December 31, 2002, total principal
additions were $36,000 and total principal reductions were $24,000.

Additionally, all conforming residential mortgage loans (first-lien) and
also first mortgages on residential property with four or more units (considered
in commercial real estate above for financial reporting purposes) are considered
collateral for FHLB borrowings as part of the blanket collateral agreement as
further described in Note 9. These loans totaled approximately $238,076,000 and
$280,402,000, at December 31, 2002 and 2001, respectively.

The following analysis summarizes the Company's non-performing assets at
December 31, 2002 and 2001:

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:

Depreciation expense for the years ended December 31, 2002, 2001 and 2000
amounted to $1,644,000, $2,274,000 and $1,522,000, respectively.

8. DEPOSITS

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

60

A summary of certificate accounts by maturity is as follows:

Term certificate accounts include $355,000 of unamortized purchase premium
at December 31, 2002.

9. SHORT-TERM BORROWINGS

Short-term borrowings consist of retail purchase agreements and Federal Home
Loan Bank (FHLB) advances with original maturities of 1 year or less. The retail
repurchase agreements are collaterized by securities. 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:

61

10. LONG-TERM DEBT

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

62

11. INCOME TAXES

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

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

The components of net deferred taxes as recorded as of December 31, 2002 and
2001 are as follows (assets/(liabilities)):

63

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 was to suspend the Bank's bad debt
reserve for income tax purposes as of its base year (October 31, 1988). Any bad
debt reserve in excess of the base year amount is subject to recapture over a
6 year time period. The suspended (i.e., base year) amount is subject to
recapture upon the occurrence of certain events, such as complete or partial
redemption of the Bank's stock or if the Bank ceases to qualify as a bank for
income tax purposes.

At December 31, 2001, the Bank's surplus includes approximately $1,960,000
of bad debt deductions for which income taxes have not been provided. As the
Bank does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.

12. COMMITMENTS AND CONTINGENCIES

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

LITIGATION

The Company is a defendant in various legal claims incident to its business,
none of which is believed by management, based on the advice of legal counsel,
to be material to the consolidated financial statements.

SPECIAL TERMINATION AGREEMENTS

The Company has entered into Special Termination Agreements with five
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

64

commitments and conditional obligations as it does for financial instruments
reflected on the balance sheet. Financial instruments which represent credit
risk at December 31, 2002 and 2001 are as follows:

65

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.

Standby letters of credit are conditional commitments that guarantee the
performance of a customer to a third party. The letters of credit are primarily
issued to support borrowing arrangements and have expiration dates within one
year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The letters of
credit are generally secured.

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, 2002:

Certain leases also contain renewal options (up to 10 years) and real estate
tax escalation clauses. Rent expense for the years ended December 31, 2002, 2001
and 2000 amounted to approximately $1,107,000, $640,000 and $520,000,
respectively.

13. STOCKHOLDERS' EQUITY

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

Subsequent qualifying deposit increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution in an amount equal to their current adjusted liquidation
account balances to the extent that the funds are available.

Federal and state banking regulations place certain restrictions on
dividends paid and loans or advances made by the Company. The total amount of
dividends which may be paid at any date is generally limited to the undivided
profits of the Company. Undivided profits (or retained earnings) at the Company
totaled $35,106,000 at December 31, 2002. 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)

66

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.

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

The Company settled the remaining obligations of the terminated pension plan
in the first quarter of 2002. This resulted in a gain on settlement of $376,000
(approximately $244,000 net of applicable taxes) which is netted against
salaries and benefits expense. As a result of the decision to freeze and
terminate the Pension Plan, the Company recognized a curtailment gain of
approximately $155,000 in 2000 which was classified with salaries and benefit
expense in the Consolidated Statement of Operations. A partial termination gain
of approximately $81,000, net of tax, was recorded in 2001.

As part of the redesign of retirement benefits, the Bank added, effective in
January 2001, a 3% automatic contribution to the 401(k) plan for all employees,
even for employees who do not separately contribute to that plan. Such
contribution is being made for all eligible participants based on their W-2
compensation. The expense for the year ended December 31, 2002 and 2001 was
$602,000 and $497,000, respectively.

67

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

The Bank has adopted a management incentive plan whereby designated officers
and supervisors are eligible to receive a bonus, proportionate to their
respective salary, if the Bank meets or exceeds

68

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 2002, 2001 and 2000 was approximately
$430,000, $220,000 and $426,000, respectively.

15. OTHER NON-INTEREST EXPENSE

Other non-interest expense consisted of the following:

16. EARNINGS PER SHARE

Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock that share in the
earnings of the entity. The calculation of common stock equivalents for fully
diluted per share computations excludes options that have an exercise price in
excess of the average closing price of the Company's stock for the period
presented. The following table shows the computation of average common share and
common share equivalents for the purposes of earnings per share calculations:

As result of the acquisition of MAFN, approximately 510,500 shares of
Company common stock were issued and the majority of previously outstanding
options to purchase the stock of MAFN were converted, using the formula
presented in the merger agreement, to 80,145 options to acquire shares of the
Company common stock at prices ranging from $7.13 to $8.84. These shares and
share equivalents were included in the calculations shown above on a weighted
average basis commencing September 13, 2002. The total common shares
outstanding, excluding share equivalents on a fully diluted basis, at
December 31, 2002 were approximately 3,746,000.

69

17. GOODWILL AND OTHER INTANGIBLES

Upon the adoption of SFAS 142 on January 1, 2002 the Company ceased
amortizing its goodwill, which decreased non-interest expense and increased net
income in 2002 as compared to 2001 and 2000. The following table shows the pro
forma effects of applying SFAS 142 to the 2001 and 2000 periods.

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

(2) Net of tax.

At December 31, 2002, the Company's intangible assets are comprised of
goodwill in the amount of $5,768,000 and core deposit intangibles of $4,615,000.
Amortization on finite-lived intangibles amounted to $317,000, $177,000 and
$177,000 for the years 2002, 2001 and 2000, respectively. Estimated amortization
expense for the year ended December 31, 2003 is $600,000, for the year ended
December 31, 2004 is $560,000 and for each of the years ending December 31,
2005, 2006, and 2007 is $500,000.

The changes in the carrying amount of goodwill for the year ended
December 31, 2002 are as follows (in thousands):

18. 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

70

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.

Included in the above tables are 80,145 shares with a weighted average
exercise price of $7.38 that were issued in conjunction the MAFN acquisition.

The Company accounts for stock options under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," under which no compensation expense is recognized when the stock
options are granted.

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure," ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based methods of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent
disclosure about the method of accounting for stock based compensation and the
effect of the method on reported results. The Company continues to follow the
intrinsic value method of accounting as prescribed by APB No. 25.

Had compensation cost for awards in 2002, 2001, and 2000 under the Bank's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the

71

method set forth under SFAS No. 123, the effect on the Bank's net income and
earnings per share would have been as follows:

The initial impact of applying SFAS No. 123 on pro forma net income may not
be indicative of future amounts when the method prescribed by SFAS No. 123 will
apply to all outstanding awards because compensation expense for options granted
prior to January 1, 1995 is not reflected in the pro forma amounts above.

The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:

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

In conjunction with the Company's aforementioned Stock Option Plans, the
Company adopted a Long Term Performance Incentive Plan in 1999 to encourage
executive management and members of the Board of Directors to build long-term
shareholder value. The plan was a 3 year program which provided a mechanism for
granting options under the Company's Stock Option Plan. Options to purchase
approximately 0, 59,500 and 48,000 shares of common stock for performance in
2001, 2000 and 1999, respectively, were granted to members of the Board of
Directors and certain principal officers. All options granted under this plan
are included in the preceding table. The options are granted based on
achievement of strategic goals.

19. 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.

72

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

In the event that the stock price of the Company had fluctuated at the point
that shares vest with participants from the cost of shares acquired by the ESOP
(at prices which range from $5.63 to $6.13 per share), the Company's statement
of operations was affected either adversely (if increasing stock price) or
favorably (decreasing stock price). During 2000 and 1999, the impact of the
stock price market value in excess of original cost increased the Company's ESOP
expense by $50,000 and $89,000, respectively, in addition to normal amortization
expense associated with the participant's earn out of the shares allocated.

Management and the Board of Directors revised its methodology for funding
the ESOP commencing in 2001. The Board of Directors may grant annual cash
contributions to the ESOP, based on set financial performance criteria, which
will in turn be used to acquire the Company's common stock for immediate
allocation to participants. The amounts contributed, if any, will be based on
the accomplishment of financial and strategic goals.

The Company recorded no ESOP expense for the years ended December 31, 2002
and 2001 and $118,000 for the year ended December 31, 2000.

20. RESTRICTION ON CASH AND DUE FROM BANKS

At December 31, 2002 and 2001, cash and due from banks included $12,675,000
and $9,764,000, respectively, to satisfy the reserve requirements of the Federal
Reserve Bank.

21. STOCK REPURCHASE PROGRAM

On January 28, 2003, the Company announced that it plans to purchase shares
of its common stock on the open market and in negotiated purchases in the amount
of approximately $800,000. Any stock purchased will be acquired by the Abington
Savings Bank Employee Stock Ownership Plan and the Abington Savings Bank
Charitable Foundation and are separate from the Bank's ongoing stock buybacks
under the March 25, 1999 plan.

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. There are approximately 109,000 shares of stock available for purchases
as of December 31, 2002 under the plans.

As of December 31, 2002, the Company had repurchased 932,600 shares of its
common stock under these plans at a total cost of approximately $13,882,000.

22. SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM

The Company has a non-cash supplemental executive retirement plan for an
officer. Under this arrangement, the individual (or his beneficiary) is entitled
to receive monthly retirement benefits for life, or a minimum of twenty years,
whichever is longer, in amounts specified in the contract. Benefits

73

commence upon retirement date which is deemed to be the age of sixty-five. If
death occurs during employment with the Company, the individual designated as
beneficiary will receive a distribution in two components, the first of which is
an amount equal to 3 times the annual salary of the officer, as determined under
the plan and the second of which is the aggregate of all accruals made by the
Company with respect to the benefit up to the end of the preceding fiscal year.
If the officer retires or terminates his employment (other than for cause) prior
to age 60, he will receive a percentage of the benefit he would otherwise
receive. In March 1998, the Company also purchased a single life annuity
insurance policy. The contract was purchased at a cost of $2,863,184. The cash
surrender value is earning a rate of return, with a guaranteed minimum rate of
4%. In addition, the Company has entered into a split dollar agreement with the
officer, which requires that any death benefit be shared between the Company and
the designated beneficiary, based on a predetermined schedule. The amounts due
to the beneficiary as death benefits under the Plan are reduced to the extent
death benefits under the insurance contract are remitted to such beneficiary.
The obligation under the plan is being accrued over the expected employment
period, through age 65. Approximately $147,000, $153,000, and $105,000 was
charged to compensation expense in 2002, 2001 and 2000, respectively. Income
related to the increased value of the insurance contract of $167,000, $161,000
and $152,000 was recognized as other non-interest income in 2002, 2001 and 2000,
respectively. The contract values of $3,581,000 and $3,415,000, at December 31,
2002 and 2001, respectively, are reflected as Bank-owned life
insurance--contract value in the Consolidated Balance Sheet.

Additionally, in 2001 the Company established cash funded supplemental
executive retirement plans for two other officers. The officers vest in the
rights to these assets and accumulated earnings on the later of two years from
the date of the agreement and five years from the date the officer commenced
employment. The expense related to these cash funding arrangements was
approximately $57,000 in 2002 and 2001.

23. DEFERRED STOCK COMPENSATION PLAN

In 1998, the Company adopted a Deferred Stock Compensation Plan for
directors (the "Plan") which, for those directors who elected to participate,
would, in lieu of current cash payments, defer their compensation for attendance
at various meetings of the Board of Directors until retirement or some future
point in time to be determined. Furthermore, the deferred compensation is
eligible to be paid only in shares of the Company's common stock, the units
earned which are predetermined for a fixed 3 year period based upon the Board
meeting fee schedule which was in effect as of July 1, 1998, divided by the
stock price of the Company's common shares at the close of business on July 1,
1998. This price was $18.75 per share. On July 1, 2001, the price was changed as
required by the Plan to $15.75 effective through July 1, 2004. The shares when
earned are placed in a Rabbi Trust (the "Trust") which is administered by an
independent trustee. The voting for these shares is controlled by the
independent trustee although for accounting purposes the shares are reflected as
treasury shares until such time as the shares are distributed. The expense
associated with this plan is based upon the market value of the shares of stock
earned on the date of the respective meeting. There are currently no directors
who continue to participate in the Plan other than for dividends on accumulated
balances. The amount of expense associated with this plan for 2002, 2001 and
2000 was $3,500, $9,000 and $14,000, 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
9,600, 8,800 and 8,700 shares earned and deferred as of December 31, 2002, 2001
and 2000, respectively.

24. 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

74

derived from discounted cash flows or broker quotes cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.

CASH, FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS

For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.

INVESTMENT SECURITIES, ASSETS HELD FOR SALE AND MORTGAGE-BACKED INVESTMENTS

For investment securities, assets held for sale (typically loans) and
mortgage-backed investments, fair values are based on quoted market prices or
dealer quotes.

LOANS

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

DEPOSIT LIABILITIES

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

SHORT-TERM AND LONG-TERM BORROWINGS

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

COMMITMENTS TO EXTEND CREDIT/SELL LOANS

The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of customers. For fixed rate loan
commitments and obligations to deliver fixed rate loans, fair value also
considers the difference between committed rates and current levels of interest
rates. These commitments, particularly when rates are fixed, are for short-terms
and therefore there is not a material difference between the fixed rates and
market rates for these instruments. Therefore, the market value as shown is the
same as the material amount of those estimates.

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 loan servicing for its own portfolio and
for those serviced for others (these loans were made and/or sold prior to the
emergence of SFAS No. 122 as amended by SFAS No. 125 and SFAS No. 140) 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.

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The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 2002 and 2001 are represented as follows:

25. 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 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 and Mortgage Banking based on products and
services provided to the customer.

The Company's community banking business segment consists of commercial
banking and retail banking. The community banking business segment derives its
revenues from a wide range of banking services, including lending activities,
acceptance of demand, saving and time deposits, investment management, mortgage
lending and sales, as well as servicing income for investors.

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 26) and the Trust. Consolidation adjustments are also included in the
Other category.

76

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 reflect certain eliminations of interest, segment
revenue, cash and Parent Company investments in subsidiaries.

BUSINESS SEGMENTS

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26. RESTATEMENT

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its 2002 financial results that had previously been announced and would
restate its previously issued 2001 financial statements. The revisions and
restatement are necessary to correct accounting errors related to the
acceleration of prepayments on mortgage-backed investment securities, errors in
recording payments received on various investment securities and certain
adjustments related to accruals for income and expense.

During the internal accounting review, the Company identified a number of
accounting errors, including underlying prepayment assumptions used in the
calculation of interest income in 2002 that did not adequately reflect the
actual prepayment rates received on a portion of its mortgage-backed securities
(MBS) portfolio and that certain payments received on a portion of its MBS
portfolio were not properly applied. It was further determined, based upon the
results of the preliminary review, that it would be necessary to revise the
Company's previously announced financial results for 2002 and restate the
Company's financial statements for 2001. The Company engaged its independent
auditor, PricewaterhouseCoopers LLP, which replaced Arthur Andersen LLP in
mid-2002, to undertake a re-audit of the year 2001. Accordingly, the 2001
financial statements and related notes contained herein have been revised.

78

Following is a summary of the effect of restatement on the Company's
consolidated financial statements at or for the periods reflected:

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

(a) The previously reported amounts for net cash provided by (used in) operating
activities, investing activities and financing activities have been adjusted
for the effect of the restatement.

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(b) As indicated, there has been no change in the net increase in cash and cash
equivalents as a result of the restatement.

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

BALANCE SHEETS

STATEMENTS OF INCOME

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STATEMENTS OF CASH FLOWS

81

28. QUARTERLY DATA (UNAUDITED)

Operating results on a quarterly basis for the year ended December 31, 2002
and restated operating results for the year ended December 31, 2001 are as
follows:

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

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

(b) Net gains on sales of securities totaled $416,000 in the fourth quarter of
2001.

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

(d) Includes non-recurring acquisition related charge of $330,000 and
approximately $1.1 million increase attributable to increased mortgage
company commissions and performance related incentives.

(e) Includes a $413,000 gain on the settlement of the pension program.

(f) Includes impairment charge related to an investment in a corporate bond of
$2.6 million.

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ANNUAL REPORT ON FORM 10-K

A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission, is
available to stockholders without charge upon written request to:

Investor Relations
Abington Bancorp, Inc.
Weymouth Woods Corporate Center
97 Libbey Parkway
Weymouth, MA 02189

INQUIRIES

James K. Hunt
Executive Vice President,
Chief Financial Officer and Treasurer
Abington Bancorp, Inc.

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

Effective July 1, 2002 Abington Bancorp, Inc. (the "Company") dismissed
Arthur Andersen LLP ("Arthur Andersen") as the Company's independent public
accountants. On that date, the Company appointed PricewaterhouseCoopers LLP as
independent auditors. These actions were recommended by the Company's Audit
Committee and approved by the Board of Directors of the Company.

Arthur Andersen's reports on the Company's consolidated financial statements
for the Company's fiscal years ended 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.

During the Company's two most recent fiscal years and any interim periods
preceding the dismissal of Arthur Andersen, there were no disagreements between
the Company and Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Arthur Andersen, would
have caused it to make a reference to the subject matter of the disagreement(s)
in connection with its report.

During the Company's two most recent fiscal years and any interim periods
preceding the dismissal of Arthur Andersen, there have been no reportable events
of the type required to be disclosed by Item 304(a)(1)(v) of Regulation S-K.

The Company provided Arthur Andersen with a copy of the foregoing
disclosures. See the 8-K filed with the SEC on July 1, 2002.

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PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

INFORMATION REGARDING NOMINEES AND DIRECTORS

The following table sets forth certain information as of April 30, 2003
regarding the current Directors and the nominees for Director of the Company:

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

* Includes (where applicable) service as a trustee of the Bank prior to its
conversion from mutual to stock form in 1986 (the "Conversion") and as
director of the Bank from the date of the Conversion to the establishment of
the Company as the holding company of the Bank on January 31, 1997. All
Directors of the Company are also Directors of the Bank.

** Nominees for Director.

The principal occupation and business experience during at least the last
five years of each current Director and nominee is as follows:

BRUCE G. ATWOOD has been Vice President-Operations and Treasurer of Hyer
Industries, Inc., a manufacturer of industrial scales, since 1978.

WILLIAM F. BORHEK has been President of Wm. F. Borhek Insurance
Agency, Inc., a general insurance agency, since 1964.

ANN M. CARTER has been Executive Vice President and Chief Operating Officer
of The Rasky/ Baerlein Group, a Boston-based full-service communication firm,
since 1997. From 1994 until 1997, she was Senior Vice President and Director of
Client Service. Prior to joining The Rasky/Baerlein Group in 1994, she was a
Vice President at Winthrop Financial Associates, a real estate investment and
management company, for ten years.

JOEL S. GELLER has been a partner in Wein-Gell Associates, an investment
firm, since 1969. Until February 2000, he was the owner-manager and a director
of Abington Liquors Corp., a retail liquor store.

PAUL C. GREEN was the President, Chief Executive Officer and Chairman of the
Board of Massachusetts Fincorp, Inc. from its formation in 1998 and of The
Massachusetts Co-operative Bank from 1991 until, in each case, the bank and the
company were acquired by the Company in 2002.

84

RODNEY D. HENRIKSON has been Treasurer of Henrikson Realty Corp., a real
estate company, since 1974 and President since 1997. He was Treasurer of
Henrikson's Dairy, Inc., a food processing and distribution company, from 1974
through 1984 and President from 1984 through 1986.

A. STANLEY LITTLEFIELD is an attorney in private practice in Abington,
Massachusetts. He was formerly District Attorney of Plymouth County.

JAMES P. MCDONOUGH has been President and Chief Executive Officer of the
Company since its incorporation on October 15, 1996. Mr. McDonough has also
served as President and Chief Executive Officer of the Bank since August 1991.
Previously, he served as President and Chief Operating Officer of the Bank from
November 1990 to August 1991 and Senior Vice President-Lending of the Bank from
December 1987 to November 1990. Mr. McDonough was also Vice President-Regional
Manager of GEM Mortgage Corporation of North America from 1983 to 1987.
Mr. McDonough is a graduate of Massasoit Community College and Boston State
College.

JOHN P. O'HEARN, JR. is Executive Vice President and Director of Meredith &
Grew, Inc., a real estate firm, where he has been employed since 1962.

GORDON N. SANDERSON has been retired since 1991. From 1970 to 1991, he was
Vice President-Sales of B & W Press, Inc., a specialty printing company.

LAURA J. SEN is a consultant. She was Executive Vice President, Merchandise
for BJ's Wholesale Club from 1997 to February 2003. She was Vice President,
Logistics from 1989 to 1993 and Senior Vice President, General Merchandise from
1993 to 1997.

WAYNE P. SMITH is Treasurer and a director of Suburban Enterprises Inc.,
Abington, Massachusetts, a sales and marketing firm.

JEFFREY S. STONE has served as the President and Chief Executive Officer of
Tweeter, Inc. since January 2000 and as Chief Operating Officer from 1990 to
2000. He has served as a Director of Tweeter since 1990. From 1987 to 1990,
Mr. Stone served as the Executive Vice President of Bread & Circus, a specialty
natural foods supermarket chain, and from 1983 to 1987 as Vice President of
Human Resources and Training for Scandinavian Design, a specialty furniture
retailer.

EXECUTIVE OFFICERS

The names and ages of all executive officers of the Company and the Bank as
of April 30, 2003 and the principal occupation and business experience during at
least the last five years for each are set forth below:

JAMES P. MCDONOUGH. For biographical information concerning Mr. McDonough,
see "Election of Directors--Information Regarding Directors and Nominees" above.

KEVIN M. TIERNEY, SR. has been Vice President of the Company since
June 1999, Executive Vice President of the Bank since November 1998 and Chief
Operating Officer of the Bank since May 2000. Prior to November 1998, he served
as Executive Vice President/General Manager for the Consumer Network Services
Division of Electronic Data Services, Inc., overseeing all operations for the
Division from October 1997 to November 1998. From 1986 to October 1997,
Mr. Tierney served as a Senior Vice President of Retail Banking and Operations
for Salem Five Cents Savings Bank. Prior to that, from 1983 to 1986, he served
as Regional Business Manager for the Electronic Financial Services Division of
Automatic Data Processing. Mr. Tierney is 44 years old.

JAMES K. HUNT has been Chief Financial Officer and Treasurer of the Company
and Bank since April 15, 2003. From October 2002 to January 2003 he served as
interim Chief Financial Officer at Eastern Bank. From 2000 to 2002 he was
Executive Vice President, Chief Financial Officer and Treasurer of People's
Bancshares, Inc. and People's Savings Bank of Brockton. Mr. Hunt was Executive
Vice President, Chief Financial Officer and Treasurer at UST Corp. and USTrust
in Boston, MA from

85

1994 to 2000. Mr. Hunt is a graduate of Husson College, Bangor, ME with a B.S.
degree in Accounting. Mr. Hunt is 59 years old.

JACK B. MEEHL, JR. has been Senior Vice President, Business Banking Division
of the Bank since February 2000. Mr. Meehl served as Senior Vice President and
Area Manager for Small Business Services at Fleet National Bank from 1992 to
1999. From 1971 to 1992 he held various positions at Bank of New England
including Vice President and Team Leader of the Community Lending and Commercial
Real Estate Lending Groups. Mr. Meehl is a graduate of Curry College with a B.S.
degree in Economics. Mr. Meehl is 53 years old.

W. CLEVELAND COGSWELL has been Senior Vice President, Consumer Banking of
the Bank since March 2003. From 1990 to 2001, he served as Sales Director for
Fleet Small Business Division and Sales Director for BankBoston Retail Banking.
Mr. Cogswell holds a B.A. from the University of New Hampshire and is 46 years
old.

All executive officers of the Company and the Bank hold office until the
first meeting of the Board of Directors following the annual meeting of
stockholders or special meeting in lieu thereof and until their successors are
chosen and qualified, unless a shorter term is specified in the vote appointing
them. Officers may generally be removed from office by vote of two-thirds of the
Board of Directors.

COMPENSATION OF DIRECTORS

During the year ended December 31, 2002, Directors received $600 for each
Bank Board meeting that they attended and an annual fee of $8,000. Effective
January 1, 2003, these fees were increased to $875 for each Bank Board meeting
attended and an annual fee of $9,000. During 2002, members of the Executive
Committee and the Loan Committee received an annual fee of $7,000 for service on
each committee, members of the Compensation Committee and the Audit Committee
received an annual fee of $5,000 for service on each committee and members of
all other committees received $600 for each committee meeting that they attended
during the year. Effective January 1, 2003, committee members receive an annual
fee of $8,000 for their service on all committees of which they are members.
Members of the Board who are employees of the Bank or the Company do not receive
these fees. Generally, the Company's Board of Directors meets immediately prior
to or after a Bank Board meeting. In such instances, Directors do not receive
additional fees for attendance at meetings of the Company's Board. Otherwise,
the Directors of the Company receive the same fees they receive for attendance
at a Bank Board meeting.

In October 2002, the Company adopted a Former Director Advisory Board
Service Plan that replaces the Transition and Retirement Plan for Directors
adopted in 2000 and creates a Former Director Advisory Board ("Advisory Board").
Directors who served on the Board of Directors for at least 15 years are
eligible to serve on the Advisory Board. Active members of the Advisory Board
receive annual compensation equal to the Director's Fee Income (as defined
below) for up to eight years if they served on the Board for 20 or more years
and for up to four years if they served on the Board for at least 15, but less
than 20, years. However, payments under the Plan terminate when the Director
attains the age of 78, except for Directors serving on the Board at the time the
Plan was adopted who retire not later than December 30, 2003. Fee Income is
defined in the Plan as the average per-person compensation paid to all Directors
in the calendar year prior to the calendar year in which the Director retired,
except that for non-grandfathered Directors who retire after the age of 70, Fee
Income is defined in the Plan as the average per-person compensation paid to all
Directors in the calendar year prior to the retiring Director's attaining the
age of 70.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934

During 2002, the Company was subject to Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of

86

ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater-than-10% stockholders are required by Securities
and Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.

Based solely on its review of the copies of Forms 3, 4 and 5 furnished to
the Company during and with respect to 2002, or written representations that no
Forms 5 were required, the Company believes that all Section 16(a) filing
requirements applicable to the Company's and the Bank's officers, Directors and
greater-than-10% beneficial owners were complied with during 2002.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Company
and the Bank with respect to the Chief Executive Officer and the Company's and
the Bank's most highly compensated officers other than the Chief Executive
Officer and whose annual compensation exceeded $100,000 for fiscal 2002.

SUMMARY COMPENSATION TABLE

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

(1) Includes life insurance premiums of $2,429, $592, $410, $762 and $267 for
Messrs. McDonough, Tierney, Lallo and Meehl and Ms. Mulligan, respectively;
allocation of shares of Company Common Stock under the Bank's Employee Stock
Ownership Plan (the "ESOP"), the dollar value of which was $8,414, $7,796,
$5,459 and $6,175 for Messrs. McDonough, Tierney, Lallo and Meehl,
respectively; and the Company's contribution to the 401(k) accounts of
Messrs. McDonough, Tierney, Lallo and Meehl and Ms. Mulligan in the amounts
of $11,500, $10,225, $7,691, $7,682 and $6,133, respectively. For
Messrs. Tierney and Lallo, includes $42,000 and $15,000, respectively,
contributed by the Bank to a Trust for providing them with a supplemental
retirement benefit. See "Supplemental Executive Retirement Agreements."
Because

87

Mr. McDonough's supplemental executive retirement agreement provides for a
defined benefit, does not include amounts accrued by the Bank with respect
to the agreement, but does include the economic value of term life insurance
purchased in connection with his agreement. See "Supplemental Executive
Retirement Agreements."

(2) Represents gross salary prior to deduction for employee's voluntary 401(k)
contribution.

(3) Bonuses are reported for the year they were earned, even if paid in the
subsequent year.

(4) Perquisites and other personal benefits paid to each officer included in the
Summary Compensation Table in each instance aggregated less than 10% of the
total annual salary and bonus set forth in the columns entitled "Salary" and
"Bonus" for each officer, and accordingly, are omitted from the table as
permitted by the rules of the Securities and Exchange Commission.

(5) Mr. Lallo was Chief Financial Officer and Treasurer of the Company and
Executive Vice President, Treasurer and Chief Financial Officer of the Bank
through April 14, 2003.

(6) Mr. Meehl joined the Company in February 2000.

(7) Ms. Mulligan was Senior Vice President-Consumer Banking Division of the Bank
from September 2000 through December 4, 2002.

OPTION GRANTS. No options were granted to any of the executive officers
named in the Summary Compensation Table for the fiscal year ended December 31,
2002.

OPTION EXERCISES. The following Fiscal Year-End Option Table sets forth
certain information regarding stock options exercised during the fiscal year
ended December 31, 2002 and stock options held as of December 31, 2002 by the
executive officers named in the Summary Compensation Table.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

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

(1) Value is based on the last sales price of the Company Common Stock of
$20.905 on December 31, 2002, as reported by The Nasdaq Stock Market
National Market System, less the applicable option exercise price. These
values have not been and may never be realized. Actual gains, if any, on
exercise will depend on the value of the Company Common Stock on the date of
the sale of the shares underlying the options.

(2) Value is based on the last sales price of the Company Common Stock on the
date of exercise, less the applicable option exercise price.

COMPENSATION COMMITTEE REPORT

The Compensation Committee (re-named the Compensation and Organization
Committee in 2003) of the Board is currently composed of three Directors,
Messrs. Atwood and Smith and Ms. Sen. The Committee administers the Company's
stock option plans and is charged with the responsibility of reviewing and
approving executive officers' compensation. The following describes the
compensation programs in effect during fiscal 2002.

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COMPENSATION POLICY

The Company's compensation policies are designed to pay executives an annual
salary that is industry competitive and an annual bonus that is based both on
the performance of the Company (as compared to its annual business plan) and on
individual goals established for each of the executives for the fiscal year. The
Company also has longer term incentives based on stock options. All three
components of compensation are reviewed by the Committee to ensure salaries
remain competitive, bonuses reward performance and stock options provide
continued incentives.

Salaries for executive officers are based on the duties and responsibilities
of the position held by the executive compared with executive officers of other
companies in the industry. Salaries are reviewed and established annually.
Various industry salary surveys are reviewed in establishing the new
compensation. The Chief Executive Officer prepares a performance review,
including an assessment of prior-year performance, for each executive officer,
then communicates this information to the Compensation Committee. Based on this
information and its performance review of the Chief Executive Officer, which is
based on its assessment of the degree to which the Chief Executive Officer
accomplished pre-established strategic and financial goals, the Compensation
Committee makes recommendations to the Board of Directors, which establishes
annual executive salaries for the next year.

Executive officers and key management employees of the Company and the Bank
participate in the Company's Management Incentive Compensation Program (the
"Bonus Plan"). Payments under the Bonus Plan are contingent on the Company
meeting its strategic and operational objectives for the fiscal year. Bonuses
may be awarded for the achievement of the Company's financial performance goals
and an individual participant's objectives. Bonus awards are determined by a
defined formula; factors considered in this formula include financial
performance of the Company, return on equity and evaluation of achievement of
strategic and/or operational goals and unit profitability. Based on the extent
to which the Company achieves those objectives, participants, depending on the
Bonus Plan group, may receive from 15% to 40% of base salary. The Committee
reviews both individual and Company goals annually. However, the Board of
Directors has final authority with respect to all bonus awards. Approximately
30.1% of the Company's compensation to executives of the Company and the Bank in
fiscal 2002 was in the form of bonuses.

On March 27, 1997, the Board of Directors of the Company adopted a Long Term
Performance Incentive Plan (the "LTIP") as an incentive for executive management
and members of the Board of Directors to build long-term shareholder value. The
LTIP replaces a similar plan previously adopted by the Bank. The LTIP provides a
mechanism for granting options under the Company's option plan. The LTIP was
amended in February 2000 to provide that options granted under the LTIP on or
after the date of amendment are fully vested on the date of grant. Options
granted prior to amendment of the LTIP become exercisable after the fair market
value per share of the Common Stock exceeds 120% of the exercise price for a
period of 30 consecutive business days, upon the ninth anniversary of the date
of grant or upon a change of control of the Company.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. McDonough's salary, bonus and stock options are determined by the
Compensation Committee substantially in accordance with the policies described
above relating to all executives of the Company.

COMPENSATION COMMITTEE

Bruce G. Atwood, Chairman
Laura J. Sen
Wayne P. Smith

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Bruce G. Atwood, Ralph B. Carver, Jr., A. Stanley Littlefield and Laura J.
Sen served on the Compensation Committee during all or part of fiscal 2002.
Persons serving on the Compensation Committee had no relationships with the
Company other than their relationship to the Company as Directors entitled to
the receipt of standard compensation as Directors and members of certain
committees of the Board and their relationship to the Company as stockholders,
except as described below under "Certain Transactions with Management of the
Company and Others." No person serving on the Compensation Committee or on the
Board of Directors of the Company is an executive officer of another entity for
which an executive officer of the Company or the Bank serves on the Board of
Directors or on that entity's compensation committee.

90

PERFORMANCE GRAPH

The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index (the S&P 500
Index) and a published industry index (the Keefe, Bruyette & Woods New England
Bank Index) for each of the most recent five fiscal years. The cumulative
stockholder return for shares of Common Stock and each of the indices is
calculated assuming that $100 was invested on December 31, 1997. The performance
of the indices is shown on a total return (dividends reinvested) basis. The
graph lines merely connect year-end dates and do not reflect fluctuations
between those dates.

[LOGO]

401(K) PLAN

The Bank has a defined contribution plan pursuant to Section 401(k) of the
Internal Revenue Code for the benefit of its employees, including officers.
Subject to certain eligibility requirements, the 401(k) plan permits each
participant to defer up to 75% of such participant's annual salary up to a
maximum annual amount ($11,000 in calendar year 2002). The Bank contributes to
the account of each eligible plan participant an amount equal to 3% of the plan
participant's annual compensation and matches 50% of the first 6% of annual
salary contributed by a participant.

RETIREMENT PLAN

The Board of Directors of the Bank voted to terminate the Bank's Savings
Banks Employees Retirement Association Pension Plan, a qualified, tax-exempt
defined benefit plan, effective on or about December 31, 2000. In connection
with the termination of the Plan, the Bank's Board of Directors also voted to
cease the accrual of pension benefits, effective October 31, 2000.

As a result of the termination of the Plan, eligible employees were offered
a single sum settlement equal to the value of their benefits under the Plan. In
addition, a portion of the surplus of the Plan has been used to enhance benefits
of eligible employees. Eligible employees who did not roll over these benefits
into other pension vehicles are subject to significant tax penalties.
Distributions were made in

91

February 2002. The following are settlements and enhancements for the executive
officers named in the Summary Compensation Table.

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

(1) Neither Mr. Meehl nor Ms. Mulligan was eligible to participate in the Plan
prior to its termination.

TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

The Company and the Bank have entered into special termination agreements
with Messrs. McDonough, Tierney, Lallo and Meehl.

The Agreements provide for severance payments if the officer's employment
with the Company or the Bank is terminated within three years following a change
in control of the Company (as defined in the agreements) under certain
circumstances, including either (1) termination of the officer's employment by
the Company or the Bank for any reason other than death, deliberate dishonesty
with respect to the Company or any subsidiary or affiliate thereof or conviction
of a crime involving moral turpitude, or (2) resignation by the officer
subsequent to the occurrence of any of the following events: (a) a reduction in
compensation, (b) a significant change in the officer's authority or
responsibility, (c) a reasonable determination by the officer that he is unable
to exercise his prior authority or responsibility as a result of such change in
control or (d) the failure by the Company or the Bank to continue any material
compensation, incentive, bonus or benefit plan (or provide an appropriate
substitute plan) or the failure by the Company or the Bank to continue the
officer's participation therein on a basis not materially less favorable as
existed at the time of the change of control. In such event, the officer would
receive a lump sum payment equal to approximately three times the officer's
average annual compensation (including bonuses) over the five years prior to the
change in control.

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS

The Bank has entered into a new supplemental executive retirement agreement
with James P. McDonough dated as of August 23, 2001 and a related split dollar
agreement for the purpose of providing a supplemental retirement benefit to
Mr. McDonough. The Bank has established a trust for the purpose of holding funds
contributed by the Bank to fund this benefit.

The agreement provides that Mr. McDonough will be entitled to receive at age
65 an annual supplemental retirement benefit (payable in equal monthly
installments during Mr. McDonough's life or for a minimum of 20 years)
calculated by (x) multiplying (i) 65% times (ii) Mr. McDonough's final average
compensation (as defined in the agreement) and by (y) subtracting from such
result the following: (i) one half of the annual amount payable to
Mr. McDonough as a primary social security retirement benefit at age 65,
(ii) the annual pension payable to Mr. McDonough from defined benefit pension
plans at age 65, as if such pension were paid as a single-life annuity and
(iii) the annual annuity equivalent (as defined in the agreement) for any
defined contribution plans maintained by the Bank or the Company during
Mr. McDonough's employment.

If Mr. McDonough's employment with the Bank is terminated other than for
cause (as defined in the agreement) prior to his attaining the age of 65,
Mr. McDonough is entitled to receive, at age 65, a lesser benefit.

92

If Mr. McDonough dies prior to age 65 while he is employed by the Bank or
the Company, in lieu of the benefit provided under his supplemental executive
retirement agreement, his designated beneficiary is entitled to a benefit equal
to three times Mr. McDonough's final average compensation plus the aggregate
amount of all accruals made by the Bank or the Company with respect to the
benefit up to the end of the then-preceding year.

If within three years following a change in control (as defined in the
agreement) Mr. McDonough's employment is terminated for other than cause or
death or Mr. McDonough resigns following the failure of the Board of Directors
to elect him to the office of President and Chief Executive Officer or his
salary, benefits or scope of responsibility are reduced, Mr. McDonough is
entitled to receive the benefit to which he would have been entitled had he
resigned at age 65. If Mr. McDonough dies before age 65, his designated
beneficiary is entitled to receive a benefit equal to three times
Mr. McDonough's final compensation for the three calendar years (out of his
final five calendar years of employment with the Bank) during which his
compensation was the highest plus an amount equal to the accruals previously
made by the Bank or the Company with respect to the SERP benefit.

The Bank has entered into a supplemental executive retirement agreement with
each of Kevin M. Tierney, Sr. and Robert M. Lallo, dated as of July 26, 2001,
for the purpose of providing a supplemental retirement benefit to the
executives. Pursuant to each of the agreements, the Bank will make an annual
contribution to a trust during the term of the executive's employment with the
Bank. The executive becomes fully vested in the funds contributed to the trust
(including the investment proceeds thereon) on the date that is the later to
occur of (i) two years from the date of the agreement or (ii) five years from
the date the executive commenced employment with the Bank. In addition, the
executive becomes fully vested upon (i) termination of the executive's
employment by him for good reason (as defined in the agreements), (ii) the
executive's death, (iii) termination of the executive's employment by the Bank
without cause (as defined in the agreements), or (iv) a change in control. Upon
a change in control, the Bank will make an irrevocable contribution to the trust
in an amount equal to three times the amount of the Bank's annual contribution
to the trust. the Bank's obligation to make an annual contribution ceases when
the executive reaches the age of 65 or if his employment terminates for any
reason. Upon termination of the executive's employment, he is entitled to
receive, at age 65, the funds contributed to the trust and the investment
proceeds thereon, provided the executive is vested in the benefit. The Bank's
annual contribution for Mr. Tierney is $42,000 and for Mr. Lallo $15,000.

EMPLOYEE STOCK OWNERSHIP PLAN

The Bank established an Employee Stock Ownership Plan (the "ESOP"),
effective as of November 1, 1985. As amended, employees age 18 or older who have
completed at least 500 hours of service with the Bank in a six-month period
beginning with the employee's date of employment or any anniversary thereof are
eligible to participate in the ESOP. Notwithstanding the foregoing, each person
who is an employee shall be eligible to participate in the ESOP as of the first
day of the plan year during which he shall have attained the age of 18 and
completed at least twelve months of service with the Bank during which he shall
have completed at least 1,000 hours of service.

The ESOP is funded by contributions made in cash or stock. Cash
contributions will generally be invested in Common Stock of the Company and
stock contributions will be made in Common Stock of the Company. Benefits may be
paid in shares of Common Stock or in cash, subject to the participant's right to
require payment in shares.

In November 1993, the ESOP entered into a loan agreement with the Bank
pursuant to which the ESOP borrowed $570,000 to purchase 94,256 shares of the
Company Common Stock. The loan was repaid during 2000 and al shares have been
allocated to the accounts of participants. Commencing in 2001, the Board of
Directors may approve annual cash contributions to the ESOP, which will be used

93

to purchase shares of Company Common Stock on the open market for immediate
allocation to participants. The amount of any such cash contributions will be
based on the Company's accomplishment of financial and strategic goals. For the
plan year ended December 31, 2002, a cash contribution in the amount of $450,000
was made to the ESOP, which has thus far been used to purchase 7,500 shares of
Common Stock, none of which shares have been allocated to participants for the
plan year ended December 31, 2002.

Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of compensation (including bonuses).
As of January 1, 2002, benefits become 20% vested after one year of eligible
service with an additional 20% becoming vested each year thereafter. Non-vested
benefits that are forfeited are reallocated among remaining participants in the
same manner as contributions. Benefits are payable upon retirement, death,
disability or separation from service with the Bank. Dividends paid by the
Company on allocated shares of Common Stock held in the ESOP may be paid
directly to the participants in cash. the Bank's contributions to the ESOP are
not fixed so future benefits payable under the ESOP cannot be estimated.

The ESOP is administered by a Committee, consisting of three Bank employees.
A Bank employee serves as the trustee of the ESOP. Under the ESOP, the Committee
is required to solicit instructions from the participants with respect to voting
shares that have been allocated to such participants, and is required to follow
such instructions in directing the trustee to vote such allocated shares. Upon
the direction of the Committee, the trustee also exercises numerous other powers
including the right to sell or otherwise dispose of Common Stock held by the
ESOP.

EQUITY COMPENSATION PLANS

The following table sets forth certain information as of December 31, 2002
regarding securities authorized for issuance under the Company's equity
compensation plans. As of December 31, 2002, all of the Company's equity
compensation plans were approved by the Company's stockholders.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of April 30, 2003
regarding each person known by the Company to own beneficially more than 5% of
the Company Common Stock, each Director and nominee for Director of the Company,
each executive officer named in the Summary Compensation Table and all Directors
and executive officers of the Company as a group.

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

* Nominee for Director

(1) Except as otherwise noted, all persons and entities have sole voting and
investment power over their shares. All amounts shown in this column
include shares obtainable upon exercise of stock options exercisable within
60 days of the date of this table.

(2) Calculated based on outstanding shares of the Company Common Stock as of
April 30, 2003.

(3) Based upon information provided to the Company on March 27, 2001, Dennis E.
Barry owns 159,000 shares as to which he has sole voting and dispositive
power and based upon information provided to the Company in March 2003,
Joseph L. Barry, Jr. owns 100,000 shares as to which he has sole voting and
dispositive power.

(4) Based on a Schedule 13G filed with the SEC on February 13, 2003 jointly by
Banc Fund IV L.P., Bank Fund V L.P. and Banc Fund VI L.P. The Schedule 13G
shows that Banc Fund IV L.P. has sole voting and dispositive power with
respect to 90,600 shares; Banc Fund V L.P. has sole voting

95

and dispositive power with respect to 104,568 shares; and Banc Fund VI L.P.
has sole voting and dispositive power with respect to 63,800 shares.

(5) Includes 70,000 shares subject to currently exercisable options, 15,263
shares held in his self-directed IRA, 128,304 shares owned jointly with his
wife and 2,528 shares owned by his wife in a self-directed IRA. Also
includes 578 shares held by Mr. McDonough as custodian for one of his two
children and 578 shares held by his wife as custodian for one of their two
children (1,156 shares total). Mr. McDonough disclaims beneficial ownership
of the shares owned directly by his wife. Also includes 14,911 shares held
by the ESOP as to which Mr. McDonough has the power to direct the voting.
Does not include 10,000 shares subject to options which by their terms are
not exercisable until the fair market value (as defined in the option
agreement) is at least $24.90 per share for a period of 30 consecutive
business days.

(6) Includes 7,500 shares subject to currently exercisable options, 2,000
shares owned jointly with his mother, 23,000 shares owned jointly with his
wife, 3,568 shares owned directly by his wife, 1,688 shares owned by his
son, 2,228 shares owned by his daughter, and 113,026 shares owned by a
partnership in which Mr. Geller is a partner. Also includes 1,861 shares
which have been accrued under the Company Deferred Stock Compensation Plan
for Directors. Mr. Geller disclaims beneficial ownership of the 3,568
shares owned directly by his wife and the shares owned by his son and
daughter. Does not include 2,000 shares subject to options which are not
exercisable until the fair market value (as defined in the option
agreement) of the Company Common Stock is at least $24.90 for a period of
30 consecutive business days.

(7) Includes 12,000 shares subject to currently exercisable options, 11,500
shares owned jointly with his wife, 21,374 shares owned by his wife and
1,549 shares accrued under the Company Deferred Stock Compensation Plan for
Directors. Does not include 2,000 shares subject to options which are not
exercisable until the fair market value (as defined in the option
agreement) of the Company Common Stock is at least $24.90 for a period of
30 consecutive business days.

(8) Includes 4,970 shares subject to currently exercisable options, 1,000
shares owned jointly with his wife and 28,625 shares held in his
self-directed IRA. Also includes 84 shares held by his wife as custodian
for each of their two children (168 shares total).

(9) Includes 34,500 shares subject to currently exercisable options, 1,804
shares held in his self-directed IRA and 8,080 shares owned jointly with
his wife. Also includes 3,265 shares held by the ESOP as to which
Mr. Lallo has the power to direct voting. Does not include 7,000 shares
subject to options which by their terms are not exercisable until the fair
market value (as defined in the option agreement) is at least $24.90 per
share for a period of 30 consecutive business days.

(10) Includes 12,000 shares subject to currently exercisable options and 34,086
shares owned through a Realty Trust. Does not include 2,000 shares subject
to options which are not exercisable until the fair market value (as
defined in the option agreement) of the Company Common Stock is at least
$24.90 for a period of 30 consecutive business days.

(11) Includes 12,000 shares subject to currently exercisable options, 11,856
shares owned by his wife and 16,763 shares owned by a Trust of which
Mr. Atwood is Trustee. Also includes 2,061 shares accrued under the Company
Deferred Stock Compensation Plan for Directors. Mr. Atwood disclaims
beneficial ownership of the shares owned by his wife. Does not include
2,000 shares subject to options which are not exercisable until the fair
market value (as defined in the option agreement) of the Company Common
Stock is at least $24.90 for a period of 30 consecutive business days.

(12) Includes 39,500 shares subject to currently exercisable options and 1,105
shares held by the ESOP as to which Mr. Tierney has the power to direct
voting.

(13) Includes 9,000 shares subject to currently exercisable options, 21,492
shares owned jointly with his wife and 2,371 shares owned directly by his
wife. Also includes 1,135 shares accrued under the

96

Company Deferred Stock Compensation Plan for Directors. Mr. Borhek
disclaims beneficial ownership of the shares owned directly by his wife.
Does not include 2,000 shares subject to options which are not exercisable
until the fair market value (as defined in the option agreement) of the
Company Common Stock is at least $24.90 for a period of 30 consecutive
business days.

(14) Includes 9,000 shares subject to currently exercisable options, 5,489
shares in a corporation of which Mr. Henrikson is an officer, director and
stockholder. Also includes 1,904 shares held in his self-directed IRA and
1,904 shares held by his wife in a self-directed IRA. Does not include
2,000 shares subject to options which are not exercisable until the fair
market value (as defined in the option agreement) of the Company Common
Stock is at least $24.90 for a period of 30 consecutive business days.

(15) Includes 2,646 shares subject to currently exercisable options and 26,621
shares owned jointly with his wife.

(16) Includes 12,000 shares subject to currently exercisable options and 12,500
shares owned jointly with his wife. Does not include 2,000 shares subject
to options which are not exercisable until the fair market value (as
defined in the option agreement) of the Company Common Stock is at least
$24.90 for a period of 30 consecutive business days.

(17) Includes 16,400 shares subject to currently exercisable options and 41
shares held by the ESOP as to which Mr. Meehl has the power to direct
voting.

(18) Includes 10,000 shares subject to currently exercisable options, 2,300
shares held in her self-directed IRA and 100 shares owned jointly with her
spouse.

(19) Includes 10,000 shares subject to currently exercisable options and 700
shares owned jointly with her spouse.

(20) Includes 10,000 shares subject to currently exercisable options.

(21) Includes 394 shares held in her self-directed IRA and 676 shares owned by
her spouse in a self-directed IRA.

(22) Includes 271,516 shares obtainable by exercise of currently exercisable
options held by all directors and executive officers as a group. Also
includes 19,322 shares held by the ESOP as to which executive officers of
the Company have the power to direct the voting. Does not include 31,000
shares subject to options which by their terms are not exercisable until
the fair market value (as defined in the relevant option agreements) of the
Company Common Stock is at least $24.90 per share for a period of 30
consecutive business days.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS WITH MANAGEMENT OF THE COMPANY AND OTHERS

Certain of the Directors and officers of the Company and the Bank are at
present, as in the past, customers of the Bank and have loans with the Bank in
the ordinary course of business. Certain of the directors of the Company and the
Bank also are at present, as in the past, directors, officers or stockholders of
corporations, trustees of trusts or members of partnerships which are customers
of the Bank and which have loans with the Bank in the ordinary course of
business. Such loan transactions with directors and officers of the Company and
the Bank and with such corporations, trusts and partnerships were on terms,
including interest rates and collateral, substantially the same as those
prevailing at the time for comparable transactions with other persons and did
not involve more than normal risk of collectibility or present other features
unfavorable to the Bank.

ITEM 14. CONTROLS AND PROCEDURES

In March, 2003, the Company strengthened its accounting function with the
addition of a new corporate controller. The former controller was initially
retained on staff. In the process of closing the

97

books for the month of February, the new controller discovered some facts which
led her to conclude that certain accounting errors had been recorded by the
former controller which impacted historical financial results. The errors
initially identified were related to misapplied cash payments on mortgagebacked
securities(MBS), inaccurate amortization of premiums on MBS, accrued interest
receivable overstatements on MBS, and suspense accounts activity.

Management promptly notified the Audit Committee and its outside auditors,
PricewaterhouseCoopers LLP, of the errors identified, initiated a comprehensive
review of the accounting records to determine the extent and magnitude of the
accounting errors, and withheld the filing of its Form 10-K for the year ended
December 31, 2002 pending the results of this review. Subsequent review
identified an additional error related to interest accruals on mortgage loans,
and this error was deemed material to the Company's 2001 financial statements as
well as to the first three quarters of 2002. As a result, the Company engaged
PricewaterhouseCoopers LLP (which had replaced Arthur Andersen LLP as the
Company's independent auditor in mid-2002) to undertake a re-audit of the year
ended December 31, 2001.

The Company's management believes that PricewaterhouseCoopers LLP will
conclude that certain material weaknesses existed for the year ended
December 31, 2002 under standards established by the American Institute of
Certified Public Accountants ("AICPA") with regard to the effectiveness of the
Company's internal control environment.

Following the discovery of these accounting errors, the Company initiated a
number of improvements in its disclosure controls and procedures as well as its
internal controls. Most of these improvements were designed to reduce the
opportunity for human error, which was the primary cause of each of the
identified errors. For example, management has implemented several changes in
the process of recording transactions and related recordkeeping in those areas
where the errors occurred, including: (a) automation of investment portfolio
accounting (previously processed on a manual basis), (b) improved reconcilement
procedures and yield analyses, (c) the utilization of third party resources and
advisory services and, (d) additional training and oversight of personnel within
the accounting division. In addition, the Company has reatined the services of a
new Chief Financial Officer and has further supplemented its accounting staff
with the addition of a senior accounting officer. Both of these individuals have
significant experience in bank accounting matters and internal controls.

After implementing these improvements to the Company's internal controls,
and under the supervision and with the participation of the Company's
management, including James P. McDonough, its Chief Executive Officer, and James
K. Hunt, its Chief Financial Officer, the Company evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures
(which evaluation was within 90 days before filing this report). Based on this
evaluation, Mr. McDonough and Mr. Hunt concluded that, as of the date of their
most-recent evaluation, the Company's disclosure controls and procedures were
effective.

Since the date of the evaluation described in the preceding paragraph, there
have been no significant changes in the Company's internal accounting controls
or in other factors that could significantly affect those controls. Before the
most recent evaluation was conducted, however, the Company did make changes to
improve its internal accounting controls, as discussed above.

Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer.

98

PART IV

ITEM 15. 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

99

*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.
10.9 Dividend Reinvestment and Stock Purchase Plan is
incorporated by reference herein to the Company's
Registration Statement on Form S-3, effective January 31,
1997.
*10.10 Abington Bancorp, Inc. 1997 Incentive and Nonqualified Stock
Option Plan, incorporated by reference herein to Appendix A
to the Company's proxy statement relating to its special
meeting in lieu of annual meeting held on June 17, 1997,
filed with the Commission on April 29, 1997.
*10.11(a) Special Termination Agreement dated as of July 1, 1997 among
the Company, the Bank and Robert M. Lallo, incorporated by
reference to the Company's quarterly report on Form 10-Q for
the second quarter of 1997, filed on August 13, 1997.
(b) Amendment No. 1 to Special Termination Agreement, dated
April 16, 1998, by and among the Company, the Bank and
Robert M. Lallo, incorporated by reference to the Company's
quarterly report on Form 10-Q for the first quarter of 1998,
filed on May 8, 1998.
*10.12 Merger Severance Benefit Program dated as of August 28,
1997, incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the third quarter of 1997, filed on
November 15, 1997.
*10.13 Supplemental Executive Retirement Agreement between the Bank
and James P. McDonough dated as of August 23, 2001,
incorporated by reference to the Company's quarterly report
on Form 10-Q for the third quarter of 2001, filed on
November 13, 2001.
*10.14 Deferred Stock Compensation Plan for Directors, effective
July 1, 1998 incorporated by reference to Appendix A to the
Company's proxy statement (schedule 14A) for its 1998 Annual
Meeting, filed with the Commission on April 13, 1998.
*10.15 Special Termination Agreement dated as of February 7, 2000
among the Company, the Bank and Jack B. Meehl, incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, filed on March 28, 2000.
*10.16 Abington Bancorp, Inc. 2000 Incentive and Nonqualified Stock
Option Plan, incorporated by reference herein to Appendix A
to the Company's proxy statement relating to its annual
meeting held on May 16, 2000, filed with the Commission on
April 13, 2000.
*10.17 Abington Bancorp, Inc. Former Director Advisory Board
Service Plan, incorporated by reference to the Company's
quarterly report on Form 10-Q for the third quarter of 2002,
filed on November 14, 2002.
*10.18 Defined Contribution Supplemental Executive Retirement
Agreement between the Bank and Kevin M. Tierney, Sr. dated
July 26, 2001, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
2001, filed on August 10, 2001.
*10.19 Defined Contribution Supplemental Executive Retirement
Agreement between the Bank and Robert M. Lallo dated
July 26, 2001, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of
2001, filed on August 10, 2001.
*10.20 Payments Agreement dated as of April 10, 2002 by and among
the Company, Massachusetts Fincorp, Inc. and The
Massachusetts Co-operative Bank and Paul C. Green,
incorporated by reference to the Company's Registration
Statement on Form S-4 filed on May 31, 2002.
*10.21 Payments Agreement dated as of April 10, 2002 by and among
the Company, Massachusetts Fincorp, Inc. and The
Massachusetts Co-operative Bank and Anthony A. Paciulli,
incorporated by reference to the Company's Registration
Statement on Form S-4 filed on May 31, 2002.
*10.22 Consulting Agreement dated as of April 10, 2002 between the
Company and Paul C. Green, incorporated by reference to the
Company's Registration Statement on Form S-4 filed on
May 31, 2002.
*10.23 Employment Agreement dated as of April 10, 2002 by and
between the Bank and Anthony A. Paciulli, incorporated by
reference to the Company's Registration Statement on
Form S-4 filed on May 31, 2002.

100

**10.24 Lease for office space located at Weymouth Woods Corporate
Center 97 Libbey Industrial Parkway, Weymouth, Massachusetts
("lease"), used for the Bank's principal and administrative
offices dated March 29, 2002 incorporated by reference to
the Company's quarterly report on Form 10-Q for the second
quarter of 2002, filed on August 14, 2002.
*10.26 Special Termination Agreement dated as of October 24, 2002
by and between the Bank and Julie Jenkins, incorporated by
reference to the Company's quarterly report on Form 10-Q
for the third quarter of 2002 filed on November 14, 2002.
11.1 A statement regarding the computation of earnings per share
is included in Item 8, Note 16, 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 PricewaterhouseCoopers.
24.1 Power of Attorney is included on signature page.
99.1 Certifications required by Section 906 of the Sarbanes-Oxley
Act of 2002.

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

* Management contract or compensatory plan or arrangement.

** Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K on December 31, 2002 announcing the
retirement of Ralph B. Carver, Jr. as a director of the Company and the Bank,
effective January 2, 2003.

The Company filed a report on Form 8-K on December 20, 2002 announcing an
$0.11 per share dividend.

The Company filed a report on Form 8-K on December 4, 2002 announcing the
resignation of Cynthia Mulligan, Senior Vice President--Consumer Banking
Division.

The Company filed an amended report on Form 8-K/A on November 15, 2002,
amending the report on Form 8-K filed on September 16, 2002 relating to the
consummation of the Company's acquisition of Massachusetts Fincorp, Inc. The
purpose of the amendment was to file certain financial statements and pro forma
financial information.

101

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: May 13, 2003 By: /s/ JAMES P. MCDONOUGH
-----------------------------------------
James P. McDonough
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints James P. McDonough, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Form 10-K, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
which he may deem necessary or advisable to be done in connection with this
Form 10-K, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any substitute may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf of the Registrant and in the capacities and on the dates indicated.

102

103

CERTIFICATIONS

I, James P. McDonough certify that:

1. I have reviewed this annual report on Form 10-K of Abington Bancorp, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

a) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 13, 2003 /s/ JAMES P. MCDONOUGH
---------------------------------------------
James P. McDonough
Chairman and Chief Executive Officer

104

I, James K. Hunt certify that:

1. I have reviewed this annual report on Form 10-K of Abington Bancorp, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

a) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 13, 2003 /s/ JAMES K. HUNT
---------------------------------------------
James K. Hunt
Chief Financial Officer and Treasurer

105