** **

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D. C. 20549**

** **

----

** **

**FORM 10–Q**

 

**QUARTERLY REPORTUNDER SECTION 13 OF THE SECURITIES**

**EXCHANGE ACT OF 1934**

** **

**for Quarter EndedSeptember 30, 2001**

** **

----

 

**Commission File Number 0–16018**

** **

**ABINGTON BANCORP, INC.**

(Exactname of Registrant as specified in its charter)

 

| **Massachusetts**                                               |   | **04–3334127**               |
|-----------------------------------------------------------------|--------|-----------------------------------|
| (State  or Other Jurisdiction of Incorporation or Organization) |   | (I.R.S.  Identification No.) |
|                                                            |   |                              |
| **536 Washington Street, Abington, Massachusetts**              |   | **02351**                         |
| (Address  of principal executive offices)                       |   | (Zip  Code)                       |
|                                                            |   |                              |
| **(781) 982–3200**                                         |
| (Registrant's  telephone number, including area code)           |

 

Indicate by check mark whether theRegistrant (1) has filed all reports required to be filed by Section 13 of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.   Yes   ý    No    o

 

Indicate the number of shares outstandingof each of the Registrant's classes of common stock, as of the latestpracticable date: 3,110,852 shares as of November 6, 2001.

 

 

Certain statements in this Form 10–Qconstitute "forward–looking statements" within the meaning ofSection 27A of the Securities Act and Section 21E of the Exchange Act. Further,any statements contained in this Form 10–Q that are not statements ofhistorical fact may be deemed to be forward–looking statements.  Without limiting the foregoing, the words"expect," "anticipate," "plan," "believe,""seek," "estimate," "internal" and similar wordsare intended to identify expressions that may be forward–lookingstatements. Forward–looking statements involve certain risks anduncertainties, and actual results may differ materially from those contemplatedby such statements. For example, actual results may be adversely affected bythe following possibilities: (1) competitive pressure among depositoryinstitutions may increase; (2) changes in interest rates may reduce bankinginterest margins; (3) general economic conditions and real estate values may beless favorable than contemplated; and (4) adverse legislation or regulatoryrequirements may be adopted.  Many ofsuch factors are beyond the Company's ability to control or predict. Readers ofthis Form 10–Q are accordingly cautioned not to place undue reliance onforward–looking statements. The Company disclaims any intent orobligation to update publicly any of the forward–looking statementsherein, whether in response to new information, future events or otherwise.

 

ABINGTONBANCORP, INC.

 

FORM10-Q

 

# INDEX

 
|           |                                                                                                                           |
|----------------|--------------------------------------------------------------------------------------------------------------------------------|
| Part I         | Financial Information                                                                                                          |
|           |                                                                                                                           |
| Item 1.        | Financial Statements                                                                                                           |
|           |                                                                                                                           |
|           | Consolidated Balance Sheets  as of September 30, 2001(Unaudited) and December 31, 2000                                         |
|           |                                                                                                                           |
|           | Consolidated  Statements of Operations (Unaudited) for the Three and Nine Months Ended  September 30, 2001 and 2000            |
|           |                                                                                                                           |
|           | Consolidated  Statements of Changes in Stockholders' Equity (Unaudited) for the Nine Months  Ended September 30, 2001 and 2000 |
|           |                                                                                                                           |
|           | Consolidated  Statements of Comprehensive Income (Unaudited) for the Three and Nine Months  Ended September 30, 2001 and 2000  |
|           |                                                                                                                           |
|           | Consolidated  Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30,  2001 and 2000                      |
|           |                                                                                                                           |
|           | Notes  to Unaudited Consolidated Financial Statements                                                                          |
|           |                                                                                                                           |
| Item 2.        | Management's  Discussion and Analysis of Consolidated Financial Condition and Results of  Operations                           |
|           |                                                                                                                           |
| Item 3.        | Quantitative  and Qualitative Disclosures about Market Risk                                                                    |
|           |                                                                                                                           |
| Part II        | Other Information                                                                                                              |
|           |                                                                                                                           |
| Item 1.        | Legal  Proceedings                                                                                                             |
|           |                                                                                                                           |
| Item  2.       | Change in Securities                                                                                                           |
|           |                                                                                                                           |
| Item  3.       | Defaults upon Senior  Securities                                                                                               |
|           |                                                                                                                           |
| Item  4.       | Submission  of Matters to a Vote of Security Holders                                                                           |
|           |                                                                                                                           |
| Item 5.        | Other  Information                                                                                                             |
|           |                                                                                                                           |
| Item  6.       | Exhibits and Reports  on Form 8-K                                                                                              |
|           |                                                                                                                           |
| Signature Page |
|                |                                                                                                                                |  |

 

ABINGTON BANCORP, INC.

 

CONSOLIDATED BALANCESHEETS

 
|                                                                                                                               |   | **(Unaudited)**            |    |              |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|---------|-------------------|--------|
|                                                                                                                               |   | **September  30,**         |    | **December  31,** |   |
|                                                                                                                               |   | **2001**                   |    | **2000**          |   |
|                                                                                                                               |   | **(Dollars in thousands)** |    |
| ASSETS                                                                                                                             |   |                       |    |              |   |
|                                                                                                                               |   |                       |    |              |   |
| Cash and due from  banks                                                                                                           |   | $                          | 29,812  |              | $      | 27,374 |   |
| Short-term investments                                                                                                             |   | 13,646                     |    | 235               |   |
|                                                                                                                               |   |                       |    |              |   |
| Total  cash and cash equivalents                                                                                                   |   | 43,458                     |    | 27,609            |   |
|                                                                                                                               |   |                       |    |              |   |
| Loans held for sale                                                                                                                |   | 9,331                      |    | 3,617             |   |
| Securities available  for sale - at fair value                                                                                     |   | 287,825                    |    | 290,211           |   |
| Loans                                                                                                                              |   | 419,746                    |    | 374,377           |   |
| Less:                                                                                                                              |   |                       |    |              |   |
| Allowance  for possible loan losses                                                                                                |   | (4,653                     | )       | (3,856            | )      |
| Loans,  net                                                                                                                        |   | 415,093                    |    | 370,521           |   |
|                                                                                                                               |   |                       |    |              |   |
| Federal Home Loan Bank  stock, at cost                                                                                             |   | 12,910                     |    | 12,910            |   |
| Banking premises and  equipment, net                                                                                               |   | 9,577                      |    | 9,481             |   |
| Other real estate  owned, net                                                                                                      |   | 355                        |    | -                 |   |
| Intangible assets                                                                                                                  |   | 2,371                      |    | 2,710             |   |
| Bank-owned life  insurance – contract value                                                                                   |   | 3,637                      |    | 3,511             |   |
| Other assets                                                                                                                       |   | 7,073                      |    | 7,679             |   |
|                                                                                                                               |   | $                          | 791,630 |              | $      | 728,249 |   |
|                                                                                                                               |   |                       |    |              |   |
| LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                              |   |                       |    |              |   |
|                                                                                                                               |   |                       |    |              |   |
| Deposits                                                                                                                           |   | $                          | 486,906 |              | $      | 454,747 |   |
| Short-term borrowings                                                                                                              |   | 8,260                      |    | 49,565            |   |
| Long-term debt                                                                                                                     |   | 209,500                    |    | 172,567           |   |
| Accrued taxes and  expenses                                                                                                        |   | 6,271                      |    | 3,582             |   |
| Other liabilities                                                                                                                  |   | 26,769                     |    | 1,397             |   |
| Total  liabilities                                                                                                                 |   | 737,706                    |    | 681,858           |   |
| Guaranteed preferred beneficial interests in the Company’s junior subordinated debentures                                     |   | 12,143                     |    | 12,086            |   |
|                                                                                                                               |   |                       |    |              |   |
| Commitments and  contingencies                                                                                                     |   |                       |    |              |   |
|                                                                                                                               |   |                       |    |              |   |
| Stockholders' equity:                                                                                                              |   |                       |    |              |   |
| Serial  preferred stock, $.10 par value, 3,000,000 shares authorized; none issued.                                                 |   | -                          |    | -                 |   |
| Common  stock, $.10 par value, 12,000,000 shares authorized; 4,917,452 and 4,874,952  shares issued in 2001 and 2000, respectively |   | 492                        |    | 488               |   |
| Additional  paid-in capital                                                                                                        |   | 23,017                     |    | 22,915            |   |
| Retained  earnings                                                                                                                 |   | 32,452                     |    | 29,570            |   |
|                                                                                                                               |   | 55,961                     |    | 52,973            |   |
| Treasury  stock – 1,806,600 shares in 2001 and 2000, at cost                                                                  |   | (17,584                    | )       | (17,584           | )      |
| Compensation  plans                                                                                                                |   | 116                        |    | 111               |   |
| Other  accumulated comprehensive income -                                                                                          |   |                       |    |              |   |
| Net  unrealized gain (loss) on available for sale securities, net of taxes                                                         |   | 3,288                      |    | (1,195            | )      |
| Total  stockholders' equity                                                                                                        |   | 41,781                     |    | 34,305            |   |
|                                                                                                                               |   | $                          | 791,630 |              | $      | 728,249 |   |
|                                                                                                                                    |        |                            |         |                   |        |  |  |  |  |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

ABINGTONBANCORP, INC.

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 

(Unaudited)

 
| ** **                                                     |   | **Three  Months Ended**                   |       | **Nine  Months Ended** |       |
|----------------------------------------------------------------|--------|-------------------------------------------|------------|------------------------|------------|
|                                                           |   | **September 30**                          |       | **September 30**       |       |
|                                                           |   | **2001**                                  | ** ** | **2000**               | ** ** | **2001** |   | **2000** |   |
|                                                           |   | **(In thousands, except per share data)** |       |
| Interest  and dividend income:                                 |   |                                      |       |                   |       |   |   |   |   |
| Interest  and fees on loans                                    |   | $                                         | 7,488      |                   | $          | 7,332 |   | $ | 21,895 |   | $ | 21,998 |   |
| Interest  on mortgage-backed investments                       |   | 4,298                                     |       | 3,227                  |       | 11,927 |   | 9,050 |   |
| Interest  on bonds and obligations                             |   | 858                                       |       | 1,489                  |       | 3,528 |   | 4,032 |   |
| Dividend  income                                               |   | 221                                       |       | 272                    |       | 777 |   | 740 |   |
| Interest  on short-term investments                            |   | 19                                        |       | 16                     |       | 49 |   | 43 |   |
| Total  interest and dividend income                            |   | 12,884                                    |       | 12,336                 |       | 38,176 |   | 35,853 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Interest  expense:                                             |   |                                      |       |                   |       |   |   |   |   |
| Interest  on deposits                                          |   | 3,588                                     |       | 3,307                  |       | 11,207 |   | 9,407 |   |
| Interest  on short-term borrowings                             |   | 266                                       |       | 1,459                  |       | 1,158 |   | 5,550 |   |
| Interest  on long-term debt                                    |   | 3,031                                     |       | 2,623                  |       | 8,792 |   | 6,001 |   |
| Total  interest expense                                        |   | 6,885                                     |       | 7,389                  |       | 21,157 |   | 20,958 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Net  interest income                                           |   | 5,999                                     |       | 4,947                  |       | 17,019 |   | 14,895 |   |
| Provision  for possible loan losses                            |   | 510                                       |       | -                      |       | 840 |   | 60 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Net  interest income, after provision for possible loan losses |   | 5,489                                     |       | 4,947                  |       | 16,179 |   | 14,835 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Non-interest  income:                                          |   |                                      |       |                   |       |   |   |   |   |
| Loan  servicing fees                                           |   | 59                                        |       | 80                     |       | 203 |   | 239 |   |
| Customer  service fees                                         |   | 1,963                                     |       | 1,739                  |       | 5,635 |   | 4,475 |   |
| Gain  (loss) on securities, net                                |   | 16                                        |       | 99                     |       | (47 | ) | 402 |   |
| Gain  on sales of mortgage loans, net                          |   | 642                                       |       | 336                    |       | 2,006 |   | 878 |   |
| Gain  on sales and write-down of  other real estate owned, net |   | -                                         |       | -                      |       | - |   | - |   |
| Other                                                          |   | 72                                        |       | 127                    |       | 312 |   | 357 |   |
| Total  non-interest income                                     |   | 2,752                                     |       | 2,381                  |       | 8,109 |   | 6,351 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Non-interest  expense:                                         |   |                                      |       |                   |       |   |   |   |   |
| Salaries  and employee benefits                                |   | 3,082                                     |       | 2,926                  |       | 9,389 |   | 8,033 |   |
| Occupancy  and equipment expenses                              |   | 826                                       |       | 718                    |       | 2,515 |   | 2,392 |   |
| Trust  preferred securities expense                            |   | 280                                       |       | 280                    |       | 840 |   | 840 |   |
| Other  non-interest expenses                                   |   | 2,059                                     |       | 1,592                  |       | 5,559 |   | 4,579 |   |
| Total  non-interest expense                                    |   | 6,247                                     |       | 5,516                  |       | 18,303 |   | 15,844 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Income  before provision for income taxes                      |   | 1,994                                     |       | 1,812                  |       | 5,985 |   | 5,342 |   |
| Provision  for income taxes                                    |   | 755                                       |       | 632                    |       | 2,170 |   | 1,887 |   |
| Net  income                                                    |   | $                                         | 1,239      |                   | $          | 1,180 |   | $ | 3,815 |   | $ | 3,455 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Earnings  per share                                            |   |                                      |       |                   |       |   |   |   |   |
| Basic  -                                                       |   |                                      |       |                   |       |   |   |   |   |
| Net  income per share                                          |   | $                                         | .40        |                   | $          | .39 |   | $ | 1.23 |   | $ | 1.13 |   |
| Weighted  average common shares                                |   | 3,111,000                                 |       | 3,055,000              |       | 3,099,000 |   | 3,068,000 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Diluted  -                                                     |   |                                      |       |                   |       |   |   |   |   |
| Net  income per share                                          |   | $                                         | .38        |                   | $          | .37 |   | $ | 1.18 |   | $ | 1.08 |   |
| Weighted  average common shares and share equivalents          |   | 3,262,000                                 |       | 3,167,000              |       | 3,235,000 |   | 3,191,000 |   |
|                                                           |   |                                      |       |                   |       |   |   |   |   |
| Dividends  per share                                           |   | $                                         | .10        |                   | $          | .09 |   | $ | .30 |   | $ | .27 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

ABINGTONBANCORP, INC.

 

CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

(Unaudited)

 
|                                                                        |   |                                      |       |           |   |         |   |         |   | **Net**        |   |           |   |      |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------------|------------|----------------|--------|--------------|--------|--------------|--------|----------------|--------|----------------|--------|-----------|--------|
|                                                                        |   |                                      |       |           |   |         |   |         |   | **Unrealized** |   |           |   |      |   |
|                                                                        |   |                                      |       |           |   |         |   |         |   | **Gain**       |   |           |   |      |   |
|                                                                        |   |                                      |       |           |   |         |   |         |   | **(Loss)  on** |   |           |   |      |   |
|                                                                        |   |                                      |       | **Additional** |   |         |   |         |   | **Available**  |   |           |   |      |   |
|                                                                        |   | **Common**                                |       | **Paid-in**    |   | **Retained** |   | **Treasury** |   | **for  Sale**  |   | **Compensa-**  |   |      |   |
|                                                                        |   | **Stock**                                 |       | **Capital**    |   | **Earnings** |   | **Stock**    |   | **Securities** |   | **tion Plans** |   | **Total** |   |
|                                                                        |   | **(In thousands, except per share data)** | ** ** |
| Balance  at December 31, 2000                                               |   | $                                         | 488        |           | $      | 22,915       |   | $            | 29,570 |           | $      | (17,584        | )      | $         | (1,195 | ) | $ | 111 |   | $ | 34,305 |   |
| Net  income                                                                 |   | -                                         |       | -              |   | 3,815        |   | -            |   | -              |   | -              |   | 3,815     |   |
| Issuance  of stock                                                          |   | 4                                         |       | 102            |   | -            |   | -            |   | -              |   | -              |   | 106       |   |
| Change  in obligation related to directors’ deferred stock plan        |   | -                                         |       | -              |   | -            |   | -            |   | -              |   | 5              |   | 5         |   |
| Increase  in unrealized gain on available for sale securities, net of taxes |   | -                                         |       | -              |   | -            |   | -            |   | 4,483          |   | -              |   | 4,483     |   |
| Repurchase  of common stock                                                 |   | -                                         |       | -              |   | -            |   | -            |   | -              |   | -              |   | -         |   |
| Dividends  declared ($.30 per share)                                        |   | -                                         |       | -              |   | (933         | )      | -            |   | -              |   | -              |   | (933      | )      |
| Balance  at September 30, 2001                                              |   | $                                         | 492        |           | $      | 23,017       |   | $            | 32,452 |           | $      | (17,584        | )      | $         | 3,288  |   | $ | 116 |   | $ | 41,781 |   |
| Balance  at December 31, 1999                                               |   | $                                         | 483        |           | $      | 22,610       |   | $            | 26,176 |           | $      | (15,885        | )      | $         | (5,581 | ) | $ | 29 |   | $ | 27,832 |   |
| Net  income                                                                 |   | -                                         |       | -              |   | 3,455        |   | -            |   | -              |   | -              |   | 3,455     |   |
| Change  in obligation related to directors’ deferred stock plan        |   | -                                         |       | -              |   | -            |   | -            |   | -              |   | 22             |   | 22        |   |
| Amortization  of unearned compensation – ESOP                          |   | -                                         |       | 49             |   | -            |   | -            |   | -              |   | 61             |   | 110       |   |
| Decrease  in unrealized loss on available for sale securities, net of taxes |   | -                                         |       | -              |   | -            |   | -            |   | 3,587          |   | -              |   | 3,587     |   |
| Issuance  of stock                                                          |   | 4                                         |       | 156            |   | -            |   | -            |   | -              |   | -              |   | 160       |   |
| Repurchase  of common stock                                                 |   | -                                         |       | -              |   | -            |   | (1,699       | )      | -              |   | -              |   | (1,699    | )      |
| Dividends  declared ($.27 per share)                                        |   | -                                         |       | -              |   | (820         | )      | -            |   | -              |   | -              |   | (820      | )      |
| Balance  at September 30, 2000                                              |   | $                                         | 487        |           | $      | 22,815       |   | $            | 28,811 |           | $      | (17,584        | )      | $         | (1,994 | ) | $ | 112 |   | $ | 32,647 |   |
|                                                                             |        |                                           |            |                |        |              |        |              |        |                |        |                |        |           |        |  |  |  |  |  |  |  |  |  |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

ABINGTONBANCORP, INC.

 

CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME

 

(Unaudited)

 
|                                                                                                                      |   | **Three  Months Ended** |       | **Nine  Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                                                                                                      |   | **September 30,**       | ** ** | **September 30,**      |   |
|                                                                                                                      |   | **2001**                |       | **2000**               |   | **2001** |   | **2000** |   |
| **(Dollars in thousands)**                                                                                                |   |                    |       |                   |   |   |   |   |   |
| Net income, as reported                                                                                                   |   | $                       | 1,239      |                   | $      | 1,180 |   | $ | 3,815 |   | $ | 3,455 |   |
| Change in unrealized gains/(losses) on available for sale securities,  net of taxes                                       |   | 4,877                   |       | 2,646                  |   | 4,452 |   | 3,848 |   |
| Less: Reclassification adjustment for  available for sale securities gains/(losses) included in net income, net of  taxes |   | 10                      |       | 64                     |   | (31 | ) | 261 |   |
| Comprehensive income                                                                                                      |   | $                       | 6,106      |                   | $      | 3,762 |   | $ | 8,298 |   | $ | 7,042 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

ABINGTONBANCORP, INC.

 

CONSOLIDATED STATEMENTSOF CASH FLOWS

 

(Unaudited)

 
|                                                                                             |   | **Nine  Months Ended** |       |
|--------------------------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                                             |   | **September 30,**      |       |
|                                                                                             |   | **2001**               | ** ** | **2000** |   |
|                                                                                             |   | **(In thousands)**     |       |
| Cash  flows from operating activities:                                                           |   |                   |       |   |   |
| Net  income                                                                                      |   | $                      | 3,815      |   | $ | 3,455 |   |
| Adjustments to reconcile net  income to net cash provided by (used) in operating activities      |   |                   |       |   |   |
|                                                                                             |   |                   |       |   |   |
| Provision  for possible loan losses                                                              |   | 840                    |       | 60 |   |
| (Gain)  loss on sales and write-down of other real estate owned, net                             |   | -                      |       | - |   |
|                                                                                             |   |                   |       |   |   |
| Amortization,  accretion and depreciation, net                                                   |   | 1,254                  |       | 1,388 |   |
| (Gain)  loss on securities, net                                                                  |   | 47                     |       | (402 | ) |
| Loans  originated for sale in the secondary market                                               |   | (126,264               | )          | (48,975 | ) |
| Proceeds  from sales of loans                                                                    |   | 122,556                |       | 46,045 |   |
| Gain  on sales of mortgage loans, net                                                            |   | (2,006                 | )          | (878 | ) |
| Other,  net                                                                                      |   | 25,528                 |       | (2,030 | ) |
| Net  cash provided by (used in) operating activities                                             |   | $                      | 25,770     |   | $ | (1,337 | ) |
|                                                                                             |   |                   |       |   |   |
| Cash  flows from investing activities:                                                           |   |                   |       |   |   |
| Proceeds  from sales of available for sale securities                                            |   | 95,140                 |       | 4,613 |   |
|                                                                                             |   |                   |       |   |   |
| Proceeds  from principal payments on and maturities of available for sale securities             |   | 82,674                 |       | 16,297 |   |
| Purchase  of available for sale securities                                                       |   | (167,634               | )          | (58,212 | ) |
| Loans  (originated/purchased) paid, net                                                          |   | (45,767                | )          | 10,194 |   |
| Purchases  of FHLB stock                                                                         |   | -                      |       | - |   |
| Purchase  of banking premises and equipment and improvements to other real estate owned          |   | $                      | (1,325     | ) | $ | (1,621 | )  |
| Proceeds  from sales of other real estate owned                                                  |   | -                      |       | - |   |
| Net  cash provided by (used in) investing activities                                             |   | (36,912                | )          | (28,729 | ) |
| Cash  flows from financing activities:                                                           |   |                   |       |   |   |
| Net  increase in deposits                                                                        |   | 32,159                 |       | 47,377 |   |
| Net  increase (decrease) in borrowings with original maturities of three months or  less         |   | (31,305                | )          | (61,972 | ) |
| Proceeds  from short-term borrowings with original maturities in excess of three months          |   | -                      |       | - |   |
| Principal  payments on short-term borrowings with original maturities in excess of three  months |   | (10,000                | )          | (5,000 | ) |
| Proceeds  from issuance of long-term debt                                                        |   | 75,000                 |       | 66,717 |   |
| Principal  payments on long term debt                                                            |   | (38,067                | )          | (18,000 | ) |
| Proceeds  from exercise of stock options                                                         |   | 106                    |       | 152 |   |
| Purchase  of treasury stock                                                                      |   | -                      |       | (1,699 | ) |
| Cash  paid for dividends                                                                         |   | (902                   | )          | (778 | ) |
| Net  cash provided by (used in) financing activities                                             |   | 26,991                 |       | 26,797 |   |
| Net  increase (decrease) in cash and cash equivalents                                            |   | 15,849                 |       | (3,269 | ) |
| Cash  and cash equivalents at beginning of period                                                |   | 27,609                 |       | 33,722 |   |
| Cash and cash equivalents at  end of period                                                      |   | $                      | 43,458     |   | $ | 30,453 |   |
|                                                                                             |   |                   |       |   |   |
| Supplemental  cash flow information:                                                             |   |                   |       |   |   |
| Interest paid on deposits                                                                        |   | $                      | 11,206     |   | $ | 9,407 |   |
| Interest  paid on borrowed funds                                                                 |   | 9,984                  |       | 11,117 |   |
| Income  taxes paid                                                                               |   | 2,173                  |       | 1,934 |   |
| Transfers  of loans to other real estate owned, net                                              |   | 355                    |       | - |   |
|                                                                                                  |        |                        |            |  |  |  |  |  |  |  |  |  |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

ABINGTONBANCORP, INC.

 

NOTESTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

September30, 2001

 

A)           SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statementsinclude the accounts of Abington Bancorp, Inc. (the "Company") (aMassachusetts corporation) and its wholly–owned subsidiaries, AbingtonSavings Bank (the "Bank") and Abington Bancorp Capital Trust. TheBank also includes its wholly–owned subsidiaries Abington SecuritiesCorporation, which invests primarily in obligations of the United StatesGovernment and its agencies and equity securities, Old Colony MortgageCorporation, which originates and sells residential mortgages to investors on aservicing released basis, and Holt Park Place Development Corporation and NorrowayPond Development Corporation, each typically owning properties being marketedfor sale.

 

The accompanying consolidated financialstatements as of September 30, 2001 and for the three and.nine month periodsended September 30, 2001 and 2000 have been prepared by the Company withoutaudit, and reflect all adjustments (consisting of normal recurring adjustments)which, in the opinion of management, are necessary to reflect a fair statementof the results of the interim periods presented.  Certain information and footnote disclosures normally included inthe annual consolidated financial statements which are prepared in accordancewith accounting principles generally accepted in the United States have beencondensed or omitted.  Accordingly, theCompany believes that although the disclosures are adequate to make theinformation presented not misleading, these consolidated financial statementsshould be read in conjunction with the footnotes contained in the Company'sconsolidated financial statements as of and for the year ended December 31,2000, which are included in the Company's Annual Report on Form 10-K.  Interim results are not necessarilyindicative of results to be expected for the entire year. All significant intercompanybalances and transactions have been eliminated in consolidation.

 

B)            DIVIDENDDECLARATION

 

TheBoard of Directors of Abington Bancorp, Inc. declared a cash dividend of $.10per share to holders of its common stock in October, 2001. This dividend waspayable on October 23, 2001 to stockholders of record as of the close ofbusiness on October 9, 2001.

 

C)            StockRepurchase Program

 

On March 27, 1997, the Company announcedthat its Board of Directors had authorized the Company to repurchase up to 10%(375,000 shares) of its currently outstanding common stock from time to time atprevailing market prices.  On February24, 1998, the Company announced that its Board of Directors had authorized theCompany to repurchase an additional 10% (347,000) of its outstanding commonstock, as adjusted for amounts remaining to be repurchased under the March 1997plan.  On March 25, 1999, the Board ofDirectors authorized the Company to repurchase an additional 10% (320,000) ofits outstanding common stock, as adjusted for amounts remaining to be purchasedunder the previously authorized plans. The Board delegated to the discretion of the Company's senior managementthe authority to determine the timing of the repurchase program's commencement,subsequent purchases and the prices at which the repurchases will be made.

 

As of November 6, 2001, the Company hadrepurchased 932,600 shares of its common stock under these plans at a totalcost of approximately $13,882,000.

 

D)            Earningsper Share

 

The primary difference between basic andfully diluted average common shares outstanding for the periods presentedrelates to options issued to officers and directors which are notanti-dilutive.  The calculation ofcommon stock equivalents for fully diluted per share computations excludesoptions which have an exercise price in excess of the average closing price ofthe Company’s stock for the period presented. At September 30, 2001, based on the closing price of the Company’s stockof $13.45, there were approximately 188,500 options with exercise prices of$13.50 - $20.75 which would not be considered dilutive for purposes of earningsper share.

 

###### E)            BusinessSegments

 
| **September 30, 2001:**              |   |          |    |         |   |      |   |            |   |      |   |
|--------------------------------------|--------|---------------|---------|--------------|--------|-----------|--------|-----------------|--------|-----------|--------|
| **(Dollars in thousands)**           |   |          |    |         |   |      |   |            |   |      |   |
|                                 |   | **Community** |    | **Mortgage** |   |      |   |            |   |      |   |
|                                 |   | **Banking**   |    | **Banking**  |   | **Other** |   | **Elimination** |   | **Total** |   |
| Securities                           |   | $             | 287,825 |         | $      | -         |   | $               | -      |      | $      | - |   | $ | 287,825 |   |
| Net loans and loans held for  sale   |   | 424,383       |    | 9,492        |   | -         |   | (9,451          | )      | 424,424   |   |
| Total assets                         |   | 792,234       |    | 11,600       |   | 51,397    |   | (63,601         | )      | 791,630   |   |
| Total deposits                       |   | 489,314       |    | -            |   | -         |   | (2,408          | )      | 486,906   |   |
| Total borrowings                     |   | 217,760       |    | 9,451        |   | -         |   | (9,451          | )      | 217,760   |   |
| Total liabilities                    |   | 739,496       |    | 9,893        |   | 175       |   | (11,858         | )      | 737,706   |   |
|                                 |   |          |    |         |   |      |   |            |   |      |   |
| Three months ended                   |   |          |    |         |   |      |   |            |   |      |   |
|                                 |   |          |    |         |   |      |   |            |   |      |   |
| Total interest income                |   | $             | 12,873  |         | $      | 143       |   | $               | 2      |      | $      | (134 | ) | $ | 12,884 |   |
| Total interest expense               |   | 6,909         |    | 110          |   | -         |   | (134            | )      | 6,885     |   |
| Net interest income                  |   | 5,964         |    | 33           |   | 2         |   | -               |   | 5,999     |   |
| Provisions for possible loan  losses |   | 510           |    | -            |   | -         |   | -               |   | 510       |   |
| Total non–interest income       |   | 2,109         |    | 653          |   | -         |   | (10             | )      | 2,752     |   |
| Total non–interest  expense     |   | 5,492         |    | 475          |   | 280       |   | -               |   | 6,247     |   |
| Net income (loss)                    |   | 1,318         |    | 114          |   | (186      | )      | (7              | )      | 1,239     |   |
|                                 |   |          |    |         |   |      |   |            |   |      |   |
| Nine months ended                    |   |          |    |         |   |      |   |            |   |      |   |
|                                 |   |          |    |         |   |      |   |            |   |      |   |
| Total interest income                |   | $             | 38,192  |         | $      | 454       |   | $               | 14     |      | $      | (484 | ) | $ | 38,176 |   |
| Total interest expense               |   | 21,231        |    | 410          |   | -         |   | (484            | )      | 21,157    |   |
| Net interest income                  |   | 16,961        |    | 44           |   | 14        |   | -               |   | 17,019    |   |
| Provisions for possible loan  losses |   | 840           |    | -            |   | -         |   | -               |   | 840       |   |
| Total non–interest  income      |   | 6,102         |    | 2,017        |   | -         |   | (10             | )      | 8,109     |   |
| Total non–interest  expense     |   | 16,032        |    | 1,431        |   | 840       |   | -               |   | 18,303    |   |
| Net income (loss)                    |   | 4,029         |    | 340          |   | (547      | )      | (7              | )      | 3,815     |   |

 

 
| **September 30, 2000**               |   |          |    |         |   |      |   |            |   |      |       |
|--------------------------------------|--------|---------------|---------|--------------|--------|-----------|--------|-----------------|--------|-----------|------------|
| **(Dollars in thousands)**           |   |          |    |         |   |      |   |            |   |      |       |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
|                                 |   | **Community** |    | **Mortgage** |   |      |   |            |   |      | ** ** |
|                                 |   | **Banking**   |    | **Banking**  |   | **Other** |   | **Elimination** |   | **Total** | ** ** |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
| Securities                           |   | $             | 277,772 |         | $      | -         |   | $               | -      |      | $          | - |   | $ | 277,772 |   |
| Net loans and loans held for sale    |   | 382,194       |    | 6,538        |   | -         |   | (6,466          | )      | 382,266   |       |
| Total assets                         |   | 740,714       |    | 7,965        |   | 47,254    |   | (67,515         | )      | 728,418   |       |
| Total deposits                       |   | 438,997       |    | -            |   | -         |   | (1,928          | )      | 437,069   |       |
| Total borrowings                     |   | 241,495       |    | 6,466        |   | -         |   | (6,466          | )      | 241,495   |       |
| Total liabilities                    |   | 685,492       |    | 6,605        |   | -         |   | (8,394          | )      | 683,703   |       |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
| Three months ended                   |   |          |    |         |   |      |   |            |   |      |       |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
| Total interest income                |   | $             | 12,354  |         | $      | 74        |   | $               | 13     |      | $          | (105 | ) | $ | 12,336 |   |
| Total interest expense               |   | 7,419         |    | 75           |   | -         |   | (105            | )      | 7,389     |       |
| Net interest income                  |   | 4,935         |    | (1           | )      | 13        |   | -               |   | 4,947     |       |
| Provisions for possible loan  losses |   | -             |    | -            |   | -         |   | -               |   | -         |       |
| Total non–interest  income      |   | 2,045         |    | 367          |   | -         |   | (31             | )      | 2,381     |       |
| Total non–interest  expense     |   | 4,824         |    | 370          |   | 322       |   | -               |   | 5,516     |       |
| Net income (loss)                    |   | 1,412         |    | (10          | )      | (202      | )      | (20             | )      | 1,180     |       |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
| Nine months ended                    |   |          |    |         |   |      |   |            |   |      |       |
|                                 |   |          |    |         |   |      |   |            |   |      |       |
| Total interest income                |   | $             | 35,883  |         | $      | 234       |   | $               | 51     |      | $          | (315 | ) | $ | 35,853 |   |
| Total interest expense               |   | 21,054        |    | 219          |   | -         |   | (315            | )      | 20,958    |       |
| Net interest income                  |   | 14,829        |    | 15           |   | 51        |   | -               |   | 14,895    |       |
| Provisions for possible loan  losses |   | 60            |    | -            |   | -         |   | -               |   | 60        |       |
| Total non–interest  income      |   | 5,473         |    | 1,068        |   | -         |   | (190            | )      | 6,351     |       |
| Total non–interest  expense     |   | 13,753        |    | 1,141        |   | 950       |   | -               |   | 15,844    |       |
| Net income (loss)                    |   | 4,235         |    | (64          | )      | (591      | )      | (125            | )      | 3,455     |       |

 

F)            Pension Plan Curtailment

 

Aspart of a program to redesign the Company's employee retirement benefits, theBoard of Directors voted October 10, 2000 to freeze the Company's Pension Planeffective as of October 31, 2000 and terminate the Pension Plan effective onDecember 31, 2000.  In connectiontherewith, the Company has amended the Pension Plan to improve the benefitformula for current employees and permit payment of lump sums from the PensionPlan.

 

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

 

Aspart of the redesign of retirement benefits, the Bank added, effective inJanuary 2001, a 3% automatic contribution to the 401(k) plan for allemployees.  Even for employees who donot separately contribute to that plan, such contribution is being made for alleligible participants based on their W-2 compensation as well as a matchingcontribution of 50% of the participant’s pre-tax contribution, up to 6% intotal.

 

The excess assets of thePlan, as estimated on October 31, 2001 were approximately $1 million.

 

G)            Adoption of SFAS No. 141 and 142

 

InJune 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated afterJune 30, 2001, to be accounted for using the purchase method ofaccounting.  This has eliminated thepooling of interest method as an option for accounting for mergers and acquisitions.  SFAS No. 142 provides guidance for theaccounting for goodwill.  Under the newguidance, goodwill can no longer be amortized over its estimated usefullife.  Rather, goodwill will be subjectto at least an annual assessment for impairment by applying a fair-value basedtest. SFAS No. 142 does not amend nor affect the rules governing the detectionof identifiable intangibles with definite lives and the rules which provideguidance on their amortization and valuation.

 

Thispronouncement will be effective immediately for any new goodwill acquired afterJune 30, 2001 and will apply to goodwill acquired prior to June 30, 2001 as ofJanuary 1, 2002.  As of September 30,2001, the Company’s intangible assets are comprised of goodwill in the amountof $1,739,000 and core deposit intangibles of $632,000.  It is anticipated that the adoption of SFASNo. 142 will result in reductions in goodwill amortization expense which willhave an after-tax impact on net income of approximately $240,000.

 

MANAGEMENT'SDISCUSSION AND ANALYSIS OF

CONSOLIDATEDFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GENERAL

 

The Company's results of operationsdepend primarily on its net interest income after provision for possible loanlosses, its revenue from other banking services and non–interestexpenses.  The Company's net interestincome depends upon the net interest rate spread between the yield on theCompany's loan and investment portfolios and the cost of funds, consistingprimarily of interest expense on deposits and Federal Home Loan Bank advances.  The interest rate spread is affected by thematch between the maturities or repricing intervals of the Company's assets andliabilities, the mix and composition of interest sensitive assets andliabilities, economic factors influencing general interest rates, loan prepaymentspeeds, loan demand and savings flows, as well as the effect of competition fordeposits and loans.  The Company's netinterest income is also affected by the performance of its loan portfolio,amortization or accretion of premiums or discounts on purchased loans andmortgage-backed securities, and the level of non–earning assets.  Revenues from loan fees and other bankingservices depend upon the volume of new transactions and the market level ofprices for competitive products and services. Non-interest expenses depend upon the efficiency of the Company'sinternal operations and general market and economic conditions.

 

NET INTEREST INCOME

 

Net interest income is affected by themix and volume of assets and liabilities, the movement and level of interestrates and interest spread, which is the difference between the average yieldreceived on earning assets and the average rate paid on deposits andborrowings. The Company's net interest rate spread was 3.28% and 3.17% for thequarter and nine months ended September 30, 2001, respectively and 2.88% and2.94% for both the quarter and nine months ended September 30, 2000,respectively.  The interest rate spreadwas positively affected in the aforementioned periods in 2001 as compared tothe corresponding periods in 2000 generally due to a steeper yield curve whichhas resulted in costs of funding dropping at a faster rate than availableyields on earnings assets.  Please seelater discussion in “Management’s Discussion and Analysis” for more detailedexplanations of the interest rate environment.

 

The level of nonaccrual (impaired) loansand other real estate owned can have an impact on net interest income butbalances in these categories have generally been immaterial in 2001 and2000.  At September 30, 2001, theCompany had $589,000 in non-accrual loans, and $355,000 in other real estateowned, compared to $549,000 in non-accrual loans and no other real estate ownedas of December 31, 2000 and $280,000 in non-accrual loans and no other realestate owned as of September 30, 2000.

 

MANAGEMENT'SDISCUSSION AND ANALYSIS

 

The table below presents the components of interestincome and expense for the major categories of assets and liabilities for theperiods indicated.

 
|                                     |   | **Three  Months Ended** |   | **Nine  Months Ended** |       |
|------------------------------------------|--------|-------------------------|--------|------------------------|------------|
|                                     |   | **September  30**       |   | **September  30**      |       |
|                                     |   | **2001**                |   | **2000**               | ** ** | **2001** | ** ** | **2000** |   |
| Interest  and dividend income:           |   |                    |   |                   |       |   |   |   |   |
| Interest  and fees on loans              |   | $                       | 7,488  |                   | $          | 7,332 |   | $ | 21,895 |   | $ | 21,988 |   |
| Interest  on mortgage-backed investments |   | 4,298                   |   | 3,227                  |       | 11,927 |   | 9,050 |   |
| Interest  on bonds and obligations       |   | 858                     |   | 1,489                  |       | 3,528 |   | 4,032 |   |
| Dividend  income                         |   | 221                     |   | 272                    |       | 777 |   | 740 |   |
| Interest  on short-term investments      |   | 19                      |   | 16                     |       | 49 |   | 43 |   |
| Total  interest and dividend income      |   | $                       | 12,884 |                   | $          | 12,336 |   | $ | 38,176 |   | $ | 35,853 |   |
|                                     |   |                    |   |                   |       |   |   |   |   |
| Interest  expense:                       |   |                    |   |                   |       |   |   |   |   |
| Interest  on deposits                    |   | $                       | 3,588  |                   | $          | 3,307 |   | $ | 11,207 |   | $ | 9,407 |   |
| Interest  on short-term borrowings       |   | 266                     |   | 1,459                  |       | 1,158 |   | 5,550 |   |
| Interest  on long-term debt              |   | 3,031                   |   | 2,623                  |       | 8,792 |   | 6,001 |   |
| Total  interest expense                  |   | 6,885                   |   | 7,389                  |       | 21,157 |   | 20,958 |   |
|                                     |   |                    |   |                   |       |   |   |   |   |
| Net  interest income                     |   | $                       | 5,999  |                   | $          | 4,947 |   | $ | 17,019 |   | $ | 14,895 |   |

 

Abreakdown of the components of the Company's net interest-rate spread is asfollows:

 
|                                                      |   | **Three Months Ended** |       | **Nine  Months Ended** |       |
|-----------------------------------------------------------|--------|------------------------|------------|------------------------|------------|
|                                                      |   | **September  30**      |       | **September  30**      |       |
|                                                      |   | **2001**               |       | **2000**               | ** ** | **2001** | ** ** | **2000** |   |
|                                                      |   |                   | ** ** | **(In  thousands)**    | ** ** |   | ** ** |
| Weighted  average yield earned on:                        |   |                   |       |                   |       |   |   |   |   |
| Loans                                                     |   | 7.74                   | %          | 7.73                   | %          | 7.73 | % | 7.65 | % |
| Mortgage-backed  investments                              |   | 6.48                   |       | 6.89                   |       | 6.64 |   | 6.69 |   |
| Bonds  and obligations                                    |   | 6.80                   |       | 7.01                   |       | 7.30 |   | 6.91 |   |
| Marketable  and other equity securities                   |   | 4.60                   |       | 4.95                   |       | 4.85 |   | 4.65 |   |
|                                                      |   |                   |       |                   |       |   |   |   |   |
| Weighted  average yield earned on interest-earning assets |   | 7.13                   |       | 7.31                   |       | 7.23 |   | 7.20 |   |
|                                                      |   |                   |       |                   |       |   |   |   |   |
| Weighted  average rate paid on:                           |   |                   |       |                   |       |   |   |   |   |
| NOW  and non-interest NOW deposits                        |   | .29                    |       | .42                    |       | .35 |   | .43 |   |
| Savings  deposits                                         |   | 2.22                   |       | 2.27                   |       | 2.20 |   | 2.25 |   |
| Time  deposits                                            |   | 5.61                   |       | 5.67                   |       | 5.84 |   | 5.38 |   |
| Total  deposits                                           |   | 3.02                   |       | 3.15                   |       | 3.20 |   | 3.07 |   |
| Short-term  borrowings                                    |   | 3.58                   |       | 6.70                   |       | 4.67 |   | 6.10 |   |
| Long-term  debt                                           |   | 5.77                   |       | 6.56                   |       | 6.00 |   | 6.34 |   |
|                                                      |   |                   |       |                   |       |   |   |   |   |
| Weighted  average rate paid on deposits and borrowings    |   | 3.85                   |       | 4.43                   |       | 4.06 |   | 4.26 |   |
|                                                      |   |                   |       |                   |       |   |   |   |   |
| Net  interest-rate spread                                 |   | 3.28                   | %          | 2.88                   | %          | 3.17 | % | 2.94 | % |

 

RATE/VOLUME ANALYSIS

 

The following tables present, for theperiods indicated, the change in interest income and the change in interestexpense attributable to the change in interest rates and the change in thevolume of earning assets and interest–bearing liabilities. The changeattributable to both volume and rate has been allocated proportionately to thechange due to volume and the change due to rate.

 
|                                |   | **Three  Months Ended September 30**                                                      |       |
|-------------------------------------|--------|-------------------------------------------------------------------------------------------|------------|
|                                |   | **2001       vs.       2000** |       |
|                                |   | **Increase (decrease)**                                                                   |       |
|                                |   | **Due to**                                                                                |       |
|                                |   | **Volume**                                                                                |       | **Rate** |   | **Total** |   |
|                                |   | **(In  thousands)**                                                                       | ** ** |
| Interest  and dividend income:      |   |                                                                                      |       |   |   |   |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Loans                               |   | $                                                                                         | 151        |   | $ | 5 |   | $ | 156 |   |
| Mortgage-backed  investments        |   | 1,407                                                                                     |       | (336 | ) | 1,071 |   |
| Bonds  and obligations              |   | (644                                                                                      | )          | 13 |   | (631 | ) |
| Equity  securities                  |   | (45                                                                                       | )          | (6 | ) | (51 | ) |
| Short-term  investments             |   | 23                                                                                        |       | (20 | ) | 3 |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Total  interest and dividend income |   | 892                                                                                       |       | (344 | ) | 548 |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Interest  expense:                  |   |                                                                                      |       |   |   |   |   |
| NOW deposits                        |   | 34                                                                                        |       | (60 | ) | (26 | ) |
| Savings deposits                    |   | 131                                                                                       |       | (23 | ) | 108 |   |
| Time deposits                       |   | 242                                                                                       |       | (43 | ) | 199 |   |
| Short-term  borrowings              |   | (1,015                                                                                    | )          | (178 | ) | (1,193 | ) |
| Long-term  debt                     |   | 949                                                                                       |       | (541 | ) | 408 |   |
| Total interest expense              |   | 341                                                                                       |       | (845 | ) | (504 | ) |
|                                |   |                                                                                      |       |   |   |   |   |
| Net interest income                 |   | $                                                                                         | 551        |   | $ | 501 |   | $ | 1,052 |   |

 

 
|                                |   | **Nine  Months Ended June 30**                                                            |       |
|-------------------------------------|--------|-------------------------------------------------------------------------------------------|------------|
|                                |   | **2001       vs.       2000** |       |
|                                |   | **Increase  (decrease)**                                                                  |       |
|                                |   | **Due  to**                                                                               |       |
|                                |   | **Volume**                                                                                |       | **Rate** | ** ** | **Total** |   |
|                                |   | **(In thousands)**                                                                        | ** ** |
| Interest  and dividend income:      |   |                                                                                      |       |   |   |   |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Loans                               |   | $                                                                                         | (361       | ) | $ | 268 |   | $ | (93 | ) |
| Mortgage-backed  investments        |   | 2,961                                                                                     |       | (84 | ) | 2,877 |   |
| Bonds  and obligations              |   | (813                                                                                      | )          | 309 |   | (504 | ) |
| Equity  securities                  |   | 6                                                                                         |       | 31 |   | 37 |   |
| Short-term  investments             |   | 15                                                                                        |       | (9 | ) | 6 |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Total  interest and dividend income |   | 1,808                                                                                     |       | 515 |   | 2,323 |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Interest  expense:                  |   |                                                                                      |       |   |   |   |   |
| NOW  deposits                       |   | 61                                                                                        |       | (79 | ) | (18 | ) |
| Savings  deposits                   |   | 307                                                                                       |       | (59 | ) | 248 |   |
| Time  deposits                      |   | 1,051                                                                                     |       | 519 |   | 1,570 |   |
| Short-term  borrowings              |   | (3,537                                                                                    | )          | (855 | ) | (4,392 | ) |
| Long-term  debt                     |   | 3,191                                                                                     |       | (400 | ) | 2,791 |   |
| Total  interest expense             |   | 1,073                                                                                     |       | (874 | ) | 199 |   |
|                                |   |                                                                                      |       |   |   |   |   |
| Net  interest income                |   | $                                                                                         | 735        |   | $ | 1,389 |   | $ | 2,124 |   |

 

COMPARISON OF THE THREE MONTHS ENDEDSEPTEMBER 30, 2001 AND 2000

 

GENERAL. Net income for the quarter ended September 30, 2001 was $1,239,000 or$.38 per diluted share compared to net income of $1,180,000 or $.37 per dilutedshare in the corresponding period of 2000, a net increase of $59,000 or 5.0% innet income or 2.7% in diluted earnings per share.  The overall increase in net income was mainly attributable toincreases in net interest income, customer service fees and gains on sales ofmortgage loans partially offset by increases in provisions for possible loanlosses and non-interest expenses.

 

INTEREST AND DIVIDEND INCOME.  Interest and dividend income increased$548,000 or 4.4% during the three month period ended September 30, 2001, ascompared to the same period in 2000. The increase was attributable to increases in the volume of earningassets, which was partially offset by the lower yield earned on thoseassets.  The balance of average earningassets for the three month period ended September 30, 2001 was approximately$722,864,000 as compared to $674,643,000 for the same period in 2000, anoverall increase of $48,221,000 or 7.1%.

 

The increase in earning assets wasprimarily driven by the combined increase in average mortgage-backedinvestments and investment securities which were $265,222,000 and $51,681,000,respectively, for the quarter ended September 30, 2001 as compared to$187,222,000 and $85,819,000, respectively for the same period in 2000.  These balances when combined increased$43,862,000 or 16.1%.  The yield onmortgage-backed investments and investment securities was 6.48% and 6.80%,respectively, in the three months ended September 30, 2001 as compared to 6.89%and 7.01%, respectively, in the same period of 2000.  Throughout 2000 and through the first three months of 2001,yields on securities generally increased due to the rising interest rateenvironment which existed for most of 2000. From June 1999 to July 2000, the Federal Reserve Bank increased rates175 basis points.  While the investmentspurchased by the Company are generally not tied to prime, many other rates andindices which do impact the yield on assets purchased also increased in thistimeframe.  From January 2001 throughSeptember 2001, the Federal Reserve Bank lowered rates 350 basis points whichin turn, to a lesser degree, began to influence the yields on assets purchasedby the Company into the third quarter of 2001 as compared to the prior year.

 

The average balance of loans increased to$386,730,000 for the three months ended September 30, 2001 from $379,621,000for the same period in 2000, an increase of $7,109,000 or 1.9%.  These balances increased as a result of moreresidential loans being purchased and/or originated for the Company's loanportfolio since March 2001.  The yieldon loans was relatively flat at 7.74% in the third quarter of 2001 as comparedto 7.73% for the same period in 2000. While there was a rising interest rate environment for most of 2000,which impacted the yields on this portfolio favorably, we have seen a steadydecline in the yields on newly originated or acquired assets due to theaforementioned falling rate environment which has existed for much of 2001.

 

INTEREST EXPENSE.  Interest expense for the quarter endedSeptember 30, 2001 decreased $504,000 or 6.8% compared to the same period in2000, generally due to decreases in the rates paid on borrowed funds and coredeposits, offset in part by increases in the average balances of deposits andincreases in the rates paid on time deposits. The average balance of core and time deposits rose to $285,708,000 and$189,611,000, respectively, for the third quarter of 2001 as compared to$246,123,000 and $173,672,000, respectively, for the corresponding period in2000, for increases of 16.1% and 9.2%, respectively.  The increases noted for the three month period ended September30, 2001, generally relate to the attractiveness of the Company's retailproducts and services to the marketplace it serves as well as reflecting someof the fallout from "in market" bank merger activity in mid-2000which has displaced many customers who have sought an alternative to theirprevious banking relationship.  TheCompany will continue to closely manage its cost of deposits by continuing toseek methods of acquiring new core deposits and maintaining its current coredeposits while prudently adding time deposits at reasonable rates in comparisonto local markets and other funding alternatives, including borrowings. Theaverage balances of borrowed funds decreased overall during the third quarterof 2001 as compared to 2000, to $239,855,000 from $247,145,000, a decrease of2.9%.  The decrease in borrowings wasachieved due to the Company's success in attracting deposits over the pastyear.

 

The blended weighted average rate paid ondeposits and borrowed funds was 3.85% for the three months ended September 30,2001 as compared to 4.43% for the same period in 2000.  The overall weighted average rates paid onborrowed funds decreased to approximately 5.50% for the quarter ended September30, 2001 from 6.61% in 2000.  Thisdecrease is reflective of actions taken by the Federal Reserve Bank in2001.  From January 2001 to September2001, the Federal Reserve lowered the inter-bank borrowing rate 350 basispoints.  The weighted average rates paidon deposits was 3.02% for the quarter ended September 30, 2001 as compared to3.15% for the same period in 2000.  Theoverall cost of deposits has decreased in the third quarter of 2001 generallydue to the rate environment.  This was inspite of intense competition on the pricing of time deposits which has existedsince the third quarter of 2000.  It isanticipated, given the current rate environment, that the rates paid on timedeposits and borrowed funds could decline from current levels in futurequarters or as they are refinanced as they reach maturity.  The Company will continue to evaluate theuse of borrowing as an alternative funding source for asset growth in futureperiods. See "Asset/Liability Management" for further discussion ofthe competitive market for deposits and overall strategies for uses of borrowedfunds.

 

NON-INTERESTINCOME.  Total non-interest incomeincreased $371,000 or 15.6% in the third quarter of 2001 in comparison to thesame period in 2000.  Customer servicefees, which were $1,963,000 for the quarter ended September 30, 2001 as comparedto $1,739,000 for 2000, for an increase of $224,000 or 12.9%, rose primarilydue to growth in deposit accounts, primarily NOW and checking accountportfolios and continued success in cross-selling customers other products andservices, debit card activity, and sales of mutual funds and annuities.  Loan servicing fees and gains on sales ofmortgage loans were $59,000 and $642,000, respectively, for the third quarterof 2001 as compared to $80,000 and $336,000, respectively, for the same periodin 2000.  Gains on sales of mortgageloans increased $306,000 or 91.1% in the third quarter of 2001 as compared tothe same period in 2000.  This generallyis reflective of the improved market for loan originations and related highervolume of loans being originated and sold in the third quarter of 2001 ascompared to the same period in 2000. The favorable market was due to loweravailable residential mortgage rates in 2001. As mortgage rates remain lower than they were for most of 2000, it isanticipated that volumes of loans originated for sale should continue at theselevels given current market conditions for the fourth quarter.  As the Company has been selling loansgenerally on a servicing release basis since 1996, the portfolio of loanserviced for others has declined which has caused the continued drop in loanservicing income of $21,000 or 26.3%.

 

Realized gains on securities, net, were$16,000 for the third quarter of 2001 as compared to gains of $99,000 for 2000for a decrease of $83,000.  The resultsfrom the third quarter 2001 include $813,000 of gains generated generally fromthe sale of higher coupon mortgage-backed investments and discounted callableagency securities which were at a higher risk of being prepaid or called withinthe year.  These gains were offset bynet realized losses on the sales of equity securities, primarily in thetechnology and telecommunication sectors which totaled $797,000 in the quarterended September 30, 2001.  Thesesecurities were sold as part of management’s strategy to re-position theCompany’s equity portfolio in light of current market conditions and as part ofan overall tax strategy.

 

NON-INTEREST EXPENSES.  Non-interest expenses for the quarter endedSeptember 30, 2001 increased $731,000 or 13.3% compared to the same period in2000. Salaries and employee benefits increased 5.3% or $156,000.  This increase was attributable to severalfactors, including increases in salaries, commissions, payroll taxes andbenefits associated with increased residential mortgage volumes ($41,000);increased costs associated with the opening of the Canton and Hanover branches(in November 2000 and July 2001, respectively) ($78,000); increases inretirement and insurance benefits ($41,000). These increases correspond with the Company's strategic focus ofattracting core deposits and new customer relationships.  Occupancy expenses increased $108,000 or15.0%.  The increase was in part due tohigher costs associated with the Canton and Hanover branches (approximately$66,000) and higher costs associated with facilities maintenance and utilitiesin 2001 as compared to the same period in 2000.  Other non-interest expenses, including trust preferred expenses,also increased $467,000 or 25.0% for the quarter ended September 30, 2001 incomparison to the same period in 2000. This increase is generally the result of costs associated with thethird-party service bureau contract for computer mainframe systems and services(approximately $108,000), increases in marketing expenses (approximately $250,000)and other costs associated with customer volumes and general cost increases.

 

PROVISION FOR POSSIBLE LOAN LOSSES.  The provision for possible loan losses forthe quarter ended September 30, 2001 was $510,000 as compared to $0 for thecorresponding period in 2000.  Thelevels of provision in both periods are generally attributable to the assetquality factors that management uses to measure and evaluate the adequacy ofloan loss reserve levels, which include delinquency rates, charge offs, problemor "watched" assets and anticipated losses.  The increase in the provision for possible loan losses for thequarter ended September 30, 2001 was primarily influenced by potential exposureon a commercial credit.  Managementbelieves that the current status of overall asset quality and delinquency (.32%at September 30, 2001 as compared to .22% at December 31, 2000 and .46% atSeptember 30, 2000) to be strong.  Theresulting level of loan loss reserves were approximately 1.08% of period endloans at September 30, 2001 as compared to 1.02% and 1.00% at December 31, andSeptember 30, 2000, respectively.

 

PROVISION FOR INCOME TAXES.  The Company's effective income tax rate forthe quarter ended September 30, 2001 was 37.9% compared to 34.9% for thequarter ended September 30, 2000.  Thelower effective tax rate in comparison to statutory rates for both periods isreflective of income earned by certain non-bank subsidiaries which are taxed,for state tax purposes, at lower rates. These subsidiaries contributed a lower proportionate level of income incomparison to the total income in the current period as compared to 2000.

 

COMPARISON OF THE NINE MONTHS ENDEDSEPTEMBER 30, 2001 AND 2000

 

GENERAL. Net income for the nine months ended September 30, 2001 was $3,815,000 or$1.18 per diluted share compared to net income of $3,455,000 or $1.08 perdiluted share in the corresponding period of 2000, a net increase of $360,000or 10.4% on a net income basis or an increase of $.10 or 9.3% on a per dilutedshare basis.  The overall increase innet income was mainly attributable to increases in net interest income,customer service fees and increases in gains on sales of mortgage loanspartially offset by increases in provisions for possible loan losses andnon-interest expenses and decreases in net gains on securities.

 

INTEREST AND DIVIDEND INCOME.  Interest and dividend income increased$2,323,000 or 6.5% during the nine-month period ended September 30, 2001, ascompared to the same period in 2000. The increase was attributable to increases in earning assets andincreases in the yield earned on those assets. The balance of average earning assets for the nine month period endedSeptember 30, 2001 was approximately $703,746,000 as compared to $663,709,000for the same period in 2000, an overall increase of $40,037,000 or 6.0%.  Overall yields increased to 7.23% for thenine months ended September 30, 2001 as compared to 7.20% for the correspondingperiod in 2000.

 

The increase in earning assets wasprimarily driven by the combined increase in the average balances ofmortgage-backed investments and investment securities which were $239,363,000and $65,304,000, respectively for the nine months ended September 30, 2001 ascompared to $180,281,000 and $78,878,000, respectively, for the correspondingperiod in 2000.  These balances, whencombined, increased $45,508,000 or 17.6%. The yields on mortgage-backed investments and investment securities were6.64% and 7.30%, respectively, for the nine months ended September 30, 2001 ascompared to 6.69% and 6.91%, respectively for the same period in 2000.  The yield on investment securities for thenine months ended September 30, 2001 was influenced by two agency issued bondswhich had been purchased at a discount and were called during the first ninemonths of 2001.  This resulted in$221,000 of discounts being taken into income in the period which influencedthe yield by 45 basis points in 2001. Adjusted for these discounts, the yield on investment securities wouldhave been 6.85% for the nine months ended September 30, 2001.  The yields on both mortgage-backedinvestments and investment securities have been influenced by the rateenvironment which has existed throughout most of 2001.  From June 1999 through July 2000, theFederal Reserve Bank raised the inter-bank borrowing rate by 175 basis points.From January 2001 through September 2001, the Federal Reserve Bank lowered theinter-bank borrowing rate 350 basis points which in turn, but to a lesserdegree, has begun to influence yields on assets purchased in the second andthird quarters of 2001, particularly in relation to the yields available forcomparable securities a year ago.

 

The average balance of loans decreased to$377,730,000 for the nine months ended September 30, 2001 from $383,329,000 forthe same period in 2000, for a decrease of $5,599,000 or 1.5%.  The balances declined as a result of fewerresidential loans being purchased and/or originated for the Company’s loanportfolio in 2000 and through the first quarter of 2001.  The yield on loans increased to 7.73% forthe nine-months ended September 30, 2001 compared to 7.65% for thecorresponding period in 2000.  This wasgenerally due to the rising rate environment which existed for most of 2000,which impacted new loan originations and adjustable rate loans.  This increase was also reflective ofincreases in commercial loans which generally earn higher rates thanresidential loans.  Commercial loanswere approximately $97,100,000 at September 30, 2001 as compared to $76,800,000at September 30, 2000, an increase of 26.4%.

 

INTEREST EXPENSE.  Interest expense for the nine months endedSeptember 30, 2001 increased $199,000 or .9% compared to the same period in2000, generally due to increases in the average balances of deposits and fundsas well as the rates paid on time deposits, offset in part by decreases inborrowed funds and the rates paid on borrowed funds.  The average balance of core and time deposits rose to$271,756,000 and $194,507,000, respectively, for the nine month period endedSeptember 30, 2001 as compared to $235,789,000 and $172,208,000, respectively,for the corresponding period in 2000, for increases of 15.3% and 13.0%,respectively.  The increases noted forthe nine months ended September 30, 2001 as compared to the same period in 2000relate to the attractiveness of the Company’s retail products and services inthe marketplace it serves as well as reflecting some of the fallout from “inmarket” bank merger activity in mid-2000 which displaced many customers who havesought an alternative to their prior banking relationship.  The Company will continue to closely manageits cost of deposits by continuing to seek methods of acquiring new coredeposits and maintaining its current core deposits while prudently adding time depositsat reasonable rates in comparison to local markets and other fundingalternatives, including borrowings.  Theaverage balances of borrowed funds decreased overall during the nine monthperiod ending September 30, 2001 as compared to 2000, to $228,307,000 from$247,567,000 a decrease of 7.8%.  Thedecrease in borrowings was achieved due to the Company’s success in attractingdeposits over the past year.

 

The blended average rate paid on depositsand borrowed funds was 4.06% in the nine-month period ended September 2001 ascompared to 4.26% for the same period in 2000. The overall weighted average rates paid on borrowed funds declined to5.81% for the nine months ended September 30, 2001 from 6.22% for the correspondingperiod in 2000.  This decrease isreflective of actions taken by the Federal Reserve Bank in 2001. The weightedaverage rates paid on deposits was 3.20% for the nine months ended September30, 2001 as compared to 3.07% for the same period in 2000.  The overall cost of deposits has increasedin the first nine months of 2001 as compared to the corresponding period in2000, despite the declining rate environment which has existed thus far in 2001generally due to intense competition on the pricing of time deposits which hasexisted since the third quarter of 2000. It is anticipated, given the current interest rate environment, that therates paid on time deposits and borrowed funds could decline from currentlevels in future periods as they reach maturity.  The Company will continue to evaluate the use of borrowings as analternative funding source for asset growth in future periods.  See “Asset/Liability Management” for furtherdiscussion of the competitive market for deposits and overall strategies forthe uses of borrowed funds.

 

NON-INTEREST INCOME.  Total non-interest income increased$1,758,000 or 27.7% in the first nine months of 2001 in comparison to the sameperiod in 2000.  Customer services fees,which were $5,635,000 for the nine months ended September 30, 2001 as comparedto $4,475,000 for 2000, for an increase of $1,160,000 or 25.9%, rose primarilydue to growth in deposit accounts, primarily NOW and checking accountportfolios and continued success in cross-selling customers other products andservices, debit card activity and sales of mutual funds and annuities (theCompany received regulatory approval to sell insurance annuities in May2000).  The sales of mutual funds andinsurance annuities accounted for $394,000 of the aforementioned increase incustomer service fees.  Loan servicingfees and gains on sales of mortgage loans were $203,000 and $2,006,000,respectively, for the first nine months of 2001 compared to $239,000 and$878,000, respectively, for the same period in 2000.  This generally is reflective of the improved market forresidential loan originations in 2001 as compared to 2000 and related highervolume of loans being originated and sold in the first nine months of 2001 ascompared to the same period in 2000. This favorable market was due to lower available mortgage rates in2001.  As mortgage rates remain lowerthan they were for most of 2000, it is anticipated that volumes of loansoriginated for sale should be consistent, given current market conditions,resulting in similar loan gains in the fourth quarter.  As the Company has been selling loansgenerallyon aservicingrelease basis since 1996, the portfolio of loans serviced for others hasdeclined which has caused the continued drop in loan servicing income of$36,000 or 15.1%.

 

Losses on securities, net, were $47,000in the first nine months of 2001 as compared to net gains of $402,000 for thesame period in 2000, for a decrease of $449,000.  These results for the first nine months of 2001, included$1,470,000 of gains generated by the sales of higher coupon mortgage-backedinvestments and discounted callable agency securities which were deemed to beat a higher risk of being prepaid or called within the next year.  These gains were offset by net realizedlosses of approximately $1,097,000 on the Company’s sales of various equitysecurities, particularly in the technology and telecommunication sectors aspart of management’s strategy to re-position the equity portfolio holdingsgiven current market conditions and as part of overall tax planning.  Additionally, management realized a loss ofapproximately $420,000 on a corporate bond. This loss was recorded to reflect management’s change in its intent withregard to an investment which has a current market value below the amortizedcost.

 

NON-INTEREST EXPENSE.  Non-interest expenses for the nine-monthsended September 30, 2001 increased $2,459,000 or 15.5% compared to the sameperiod in 2000.  Salaries and employeebenefits increased $1,356,000 or 16.9%. This increase was attributable to several factors, including increasesto incentive and benefit expenses associated with greater sales volumes andrevenues associated with commissions on brokerage and annuity sales(approximately $210,000); increases in salaries, commissions and benefitsassociated with the increase in mortgage loan sales volumes and related gainson sales (approximately $148,000); increases in insurance and retirementbenefits (approximately $264,000); the opening of the Canton branch in November2000 (approximately $216,000) and other general increases in salaries andcustomer service related staff levels. These increases correspond with the Company’s strategic focus ofattracting core deposits and new customer service relationships.  Occupancy expenses were higher for the ninemonths ended September 30, 2001 at $2,515,000 which was $123,000 or 5.1% overlevels incurred for the same period in 2000. The amounts for 2001 included increases associated with the new Hanoverand Canton branches (approximately $150,000) and higher snow removal and utilitiescosts (approximately $49,000).  Theseincreases were offset by a reduction in computer mainframe related expenseswhich were incurred in 2000 but not in the nine month period ended September30, 2001 as the Company converted its computer systems to a third party servicebureau in June 2000.  The.increasesassociated with payments to the third party service bureau were approximately$444,000 and are included in other non-interest expenses.  Other non-interest expenses, including trustpreferredexpenses, also increased $980,000 or 18.1% in the first nine monthsof 2001 as compared to the same period in 2000.  This increase, which includes the aforementioned service bureauexpense increase, also increased due to increases in marketing expenses ($329,000)and other costs associated with customer service volumes.  The effect of these increases was offset inpart by the reduction in conversion related expenses (approximately $170,000)which were incurred in the nine-months ended September 30, 2000 for which therewas no corresponding expense for the same period in 2001.

 

PROVISION FOR POSSIBLE LOAN LOSSES.  The provision for possible loan losses forthe nine months ended September 30, 2001 was $840,000 as compared to $60,000for the same period in 2000.  The levelsof provision in both periods is attributable to asset quality factors, such asdelinquency, charge-offs, non-performing and “watched” assets that managementuses to measure and evaluate the adequacy of loan loss reserve levels.  The provision for possible loan losses forthe nine-month period ended September 30, 2001 was primarily influenced bypotential exposure on two specific loans. Management believes that the current status of overall asset quality anddelinquency (.32% at September 30, 2001 as compared with .22% at December 31,2000 and .46% at September 30, 2000) to be strong.  The resulting level of loan loss reserves were approximately1.08% of period end loans at September 30, 2001 as compared to 1.02% and 1.00%at December 31, and September 30, 2000, respectively.

 

PROVISION FOR INCOME TAXES.  The Company’s effective income tax rate forthe nine months ended September 30, 2001 was 36.3% compared to 35.3% for thenine months ended September 30, 2000. The lower effective tax rate in comparison to statutory rates for bothperiods is reflective of income earned by certain non-bank subsidiaries whichare taxed, for state tax purposes, at lower rates.  These subsidiaries contributed a lower proportionate level ofincome in comparison to the total in the nine-month period ended September 30,2001 as compared to 2000 which resulted in a higher effective tax rate.

 

ASSET/LIABILITY MANAGEMENT.  The objective of asset/liability managementis to ensure that liquidity, capital and market risk are prudently managed.Asset/liability management is governed by policies reviewed and approvedannually by the Company's Board of Directors (Board). The Board delegatesresponsibility for asset/liability management to the corporate Asset/LiabilityManagement Committee (ALCO). ALCO sets strategic directives that guide theday-to-day asset/liability management activities of the Company. ALCO alsoreviews and approves all major funding, capital and market risk-managementprograms. ALCO is comprised of members of management and executive managementof the Company and the Bank.

 

Interest rate risk is the sensitivity ofincome to variations in interest rates over both short-term and long-term timehorizons. The primary objective of interest rate risk management is to controlthis risk within limits approved by the Board and by ALCO. These limits andguidelines reflect the Company's tolerance for interest rate risk. The Companyattempts to control interest rate risk by identifying potential exposures anddeveloping tactical plans to address such potential exposures. The Companyquantifies its interest rate risk exposures using sophisticated simulation andvaluation models, as well as a more simple gap analysis. The Company managesits interest rate exposures by generally using on-balance sheet strategies,which is most easily accomplished through the management of the durations andrate sensitivities of the Company's investments, including mortgage-backedsecurities portfolios, and by extending or shortening maturities of borrowedfunds. Additionally, pricing strategies, asset sales and, in some cases, hedgestrategies are also considered in the evaluation and management of interestrate risk exposures. The Company uses simulation analysis to measure theexposure of net interest income to changes in interest rates over a 1 to 5 yeartime horizon. Simulation analysis involves projecting future interest incomeand expense from the Company's assets, liabilities, and off-balance sheetpositions under various interest rate scenarios.

 

The Company's limits on interest raterisk specify that if interest rates were to ramp up or down 200 basis pointsover a 12 month period, estimated net interest income for the next 12 monthsshould decline by less than 10%. The following table reflects the Company'sestimated exposure, as a percentage of estimated net interest income for thenext 12 months, which does not materially differ from the impact on net income,on the above basis:

 

| **Rate Change**     |   | **Estimated  Exposure as a** |   |
|---------------------|--------|------------------------------|--------|
| **(Basis  Points)** |   | **% of Net Interest Income** |   |
| +200                |   | 4.2                          | %      |
| -200                |   | (3.4                         | )%     |

 

Interest rate gap analysis provides astatic view of the maturity and repricing characteristics of the on-balancesheet 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 ormaturity.  Interest rate gap analysiscan be viewed as a short-hand complement to simulation and valuation analysis.

 

The Company's policy is to match, as wellas possible, the interest rate sensitivities of its assets andliabilities.  Residential mortgage loansthat the Company currently originates or purchases for the Company's ownportfolio are primarily 1-year, 3-year and 5-year adjustable rate mortgages andshorter term (generally 15-year or seasoned 30-year) fixed rate mortgages.  Residential mortgage loans currentlyoriginated by the Company are primarily sold in the secondary market.

 

The Company also emphasizes loans withterms to maturity or repricing of 3 years or less, such as certain adjustablerate residential mortgage loans, commercial mortgages, business loans,residential construction loans, second mortgages and home equity loans.

 

Management desires to expand its interestearning asset base in future periods primarily through growth in the Company'sloan portfolio.  Loans comprisedapproximately 54% of the average interest earning assets for the first ninemonths of 2001. In the future, the Company intends to continue to becompetitive in the residential mortgage market but plans to place greateremphasis on home equity and commercial loans. The Company also expects to become more active in pursuing wholesaleopportunities to purchase loans.  Duringthe first nine months of 2001 and 2000, the Company acquired approximately$68,800,000 and $0, respectively, of residential first mortgages which areserviced by others.

 

The Company has also used mortgage-backedinvestments (typically with weighted average lives of 5 to 7 years) as avehicle for fixed and adjustable rate investments and as an overallasset/liability tool.  These securitieshave been highly liquid given current levels of prepayments in the underlyingmortgage pools and, as a result, have provided the Company with greaterreinvestment flexibility.  The level ofthe Company's liquid assets and the mix of its investments may vary, dependingupon management's judgment as to market trends, the quality of specificinvestment opportunities and the relative attractiveness of their maturities andyields.

 

Management has been aggressivelypromoting the Company's core deposit products since the second quarter of 1995,particularly checking and NOW accounts. The success of this program has favorably impacted the overall depositgrowth to date, despite interest rate and general market pressures, and hashelped the Company to increase its customer base.  However, given the strong performance of mutual funds and theequity markets in general, the Company and many of its peers have begun to seelower levels of growth in time deposits as compared to prior years as customersreflect their desire to increase their returns on investment. This pressure hasbeen exacerbated currently by the historically low long-term economic interestrates. Management believes that the markets for future time deposit growth,particularly with terms of 1 to 2 years, will remain highly competitive.  Management will continue to evaluate futurefunding strategies and alternatives accordingly as well as to continue to focusits efforts on attracting core, retail deposit relationships.

 

The Company is also a voluntary member ofthe Federal Home Loan Bank ("FHLB") of Boston. This borrowingcapacity assists the Company in managing its asset/liability growth because, attimes, the Company considers it more advantageous to borrow money from the FHLBof Boston than to raise money through non-core deposits (i.e., certificates ofdeposit).  Borrowed funds totaled$217,760,000 at September 30, 2001 compared to $222,132,000 at December 31, 2000.  These borrowings are primarily comprised ofFHLB of Boston advances and have primarily funded residential loan originationsand purchases as well as mortgage-backed investments and investment securities.

 

Additionally, the Company obtainedfunding in June 1998 through the issuance of trust preferred securities whichcarry a higher interest rate than similar FHLB borrowings but at the same timeare included as capital, without diluting earnings per share and are taxdeductible.  See “Liquidity and CapitalResources” for further discussion.

 

The following table sets forth maturityand repricing information relating to interest sensitive assets and liabilitiesat September 30, 2001.  The balance ofsuch accounts has been allocated among the various periods based upon the termsand repricing intervals of the particular assets and liabilities.  For example, fixed rate residential mortgageloans and mortgage-backed securities, regardless of "available for sale"classification, are shown in the table in the time periods corresponding toprojected principal amortization computed based on their respective weightedaverage maturities and weighted average rates using prepayment data availablefrom the secondary mortgage market.

 

Adjustable rate loans and securities areallocated to the period in which the rates would be next adjusted.  The following table does not reflect partialor full prepayment of certain types of loans and investment securities prior toscheduled contractual maturity. Additionally, all securities or borrowingswhich are callable at the option of the issuer or lender are reflected in thefollowing table based upon the likelihood of call options being exercised bythe issuer on certain investments or borrowings in a most likely interest rateenvironment.  Since regular passbooksavings and NOW accounts are subject to immediate withdrawal, such accountshave been included in the "Other Savings Accounts" category and areassumed to mature within 6 months.  Thistable does not include non-interest bearing deposits.

 

While this table presents a cumulativenegative gap position in the 6 month to 5 year horizon, the Company considersits earning assets to be more sensitive to interest rate movements than itsliabilities.  In general, assets aretied to increases that are immediately impacted by interest rate movementswhile deposit rates are generally driven by market area and demand which tendto be less sensitive to general interest rate changes. In addition, othersavings accounts and money market accounts are substantially stable coredeposits, although subject to rate changes. A substantial core balance in thesetype of accounts is anticipated to be maintained over time.

 

 
| **At September 30, 2001**                                                                     |       |
|-----------------------------------------------------------------------------------------------|------------|
| **Repricing/Maturity**                                                                        |       |
|                                                                                          |       | **(1)** |   | **(2)** |   | **(3)** |   | **(4)** |   | **(5)** |   | **(6)** |   |   |   |
|                                                                                          | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** | **Over** | ** ** |   | ** ** |
|                                                                                          |       | **0-6 MOS.** |   | **6-12 MOS.** |   | **1-2 YRS.** |   | **2-3 YRS.** |   | **3-5 YRS.** |   | **5 YRS.** |   | **Total** | ** ** |
| **(Dollars  in thousands)**                                                                   |       |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Assets subject to  interest rate adjustment:                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term  investments                                                                       |       | $ | 13,646 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 13,646 |   |
| Bonds  and obligations                                                                        |       | 9,548 |   | - |   | 14,003 |   | 2,983 |   | 1,000 |   | 3,108 |   | 30,642 |   |
| Mortgage-backed  investments                                                                  |       | 40,182 |   | 18,992 |   | 28,612 |   | 25,169 |   | 41,127 |   | 91,584  |   | 245,666 |   |
| Mortgage  loans subject to rate review                                                        |       | 46,160 |   | 20,700 |   | 21,391 |   | 22,316 |   | 28,298 |   | 1,245 |   | 140,110 |   |
| Fixed-rate  mortgage loans                                                                    |       | 87,444 |   | 32,862 |   | 39,704 |   | 28,201 |   | 48,594 |   | 30,053 |   | 266,859 |   |
| Commercial  and other loans                                                                   |       | 11,228 |   | 4,192 |   | 1,645 |   | 1,279 |   | 3,286 |   | 479 |   | 22,108 |   |
| Total                                                                                         |       | $ | 208,208 |   | $ | 76,746 |   | $ | 105,355 |   | $ | 79,948  |   | $ | 122,305 |   | $ | 126,469 |   | $ | 719,031 |   |
|                                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities  subject to interest rate adjustment:                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money  market deposit accounts                                                                |       | $ | 21,114 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 21,114 |   |
| Savings  deposits – term certificates                                                    |       | 109,176 |   | 45,725 |   | 12,563 |   | 6,728 |   | 15,511 |   | - |   | 189,703 |   |
| Other  savings accounts                                                                       |       | 206,695 |   | - |   | - |   | - |   | - |   | - |   | 206,695 |   |
| Borrowed  funds                                                                               |       | 28,260 |   | 50,000 |   | 35,000 |   | 25,000 |   | 5,000 |   | 74,500 |   | 217,760 |   |
| Total                                                                                         |       | $ | 365,245 |   | $ | 95,725 |   | $ | 47,563 |   | $ | 31,728 |   | $ | 20,511 |   | $ | 74,500 |   | $ | 635,272 |   |
| Guaranteed  preferred beneficial  interest in junior subordinated  debentures                 |       | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 12,143 |   | $ | 12,143 |   |
| Excess  (deficiency of rate-sensitive)  assets over rate-sensitive liabilities                |       | (157,037 | ) | (18,979 | ) | 57,792 |   | 48,220 |   | 101,794 |   | 39,826 |   | 71,616 |   |
|                                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative  excess (deficiency)  of rate-sensitive assets over  rate sensitive liabilities(1) |       | $ | (157,037 | ) | $ | (176,016  | ) | $ | (118,224 | ) | $ | (70,004 | ) | $ | 31,790 |   | $ | 71,616 |   |   |   |
|                                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rate-sensitive  assets as a percent of rate-sensitive liabilities (cumulative)(1)             |       | 57.0 | % | 61.8 | % | 76.8 | % | 87.0 | % | 105.7 | % | 111.1 | % |   |   |

 

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

 

Liquidity and Capital Resources

 

Payments and prepayments on the Company'sloan and mortgage-backed investment portfolios, sales of fixed rate residentialloans, increases in deposits, borrowed funds and maturities of variousinvestments comprise the Company's primary sources of liquidity. The Company isalso a voluntary member of the FHLB of Boston and, as such, is entitled toborrow an amount up to the value of its qualified collateral that has not beenpledged to outside sources. Qualified collateral generally consists ofresidential first mortgage loans, securities issued, insured or guaranteed bythe U.S. Government or its agencies, and funds on deposit at the FHLB ofBoston. Short-term advances may be used for any sound business purpose, whilelong-term advances may be used only for the purpose of providing funds tofinance housing.  At September 30, 2001,the Company had approximately $233,000,000 in unused borrowing capacity that iscontingent upon the purchase of additional FHLB of Boston stock.  Use of this borrowing capacity is alsoimpacted by capital adequacy considerations.

 

The Company's short-term borrowingposition consists primarily of FHLB of Boston advances with original maturitiesof approximately 1 to 3 months.  TheCompany utilizes borrowed funds as a primary vehicle to manage interest raterisk, due to the ability to easily extend or shorten maturities as needed.  This enables the Company to adjust its cashneeds to the increased prepayment activity in its loan and mortgage-backedinvestment portfolios, as well as to quickly extend maturities when the need tofurther balance the Company's GAP position arises.

 

Non-performing assets were $946,000 atSeptember 30, 2001, compared to $556,000 at December 31, 2000, an increase of$390,000 or 70.1%.  The Company'spercentage of delinquent loans to total loans was .32% at September 30, 2001,as compared to .22 at December 31, 2000.

 

The Company regularly monitors its assetquality to determine the level of its loan loss reserves through periodiccredit reviews by members of the Company's Management Credit Committee.  The Management Credit Committee, whichreports to the Loan Committee of the Company's Board of Directors, also workson the collection of non-accrual loans and disposition of real estate acquiredby foreclosure.  The Company establishesprovisions for loan losses in order to maintain the allowance for loan lossesat a level that management estimates is appropriate to absorb futurecharge-offs of loans deemed uncollectible. In determining the appropriate level of the allowance for loan losses,management considers past and anticipated loss experience, evaluations of realestate collateral, current and anticipated economic conditions, volume and typeof lending and the levels of non-performing and other classified loans.  The amount of the allowance is based onestimates and the ultimate losses may vary from such estimates.

 

At September 30, 2001, the Company hadoutstanding commitments to originate, sell and purchase residential mortgageloans in the secondary market amounting to $52,711,000, $9,331,000 and$11,280,000, respectively.  Thecommitment to purchase residential mortgage loans as of September 30, 2001 isaccrued for on the Company’s Consolidated Balance Sheet and included under thecaption “Other Liabilities.”  TheCompany also has outstanding commitments to grant advances under existing homeequity lines of credit amounting to $18,016,000.  Unadvanced commitments under outstanding commercial andconstruction loans totaled $21,215,000 as of September 30, 2001. The Companybelieves it has adequate sources of liquidity to fund these commitments.

 

The Company's total stockholders' equitywas $41,781,000 or 5.3% of total assets at September 30, 2001, compared with$34,305,000 or 4.7% of total assets at December 31, 2000.  The increase in total stockholders' equityof approximately $7,476,000 or 21.8% primarily resulted from income in thefirst nine months of 2001 and increases in unrealized gains on securities, netof taxes, offset in part by dividends paid or payable, by the Company.

 

The Company issued $12,650,000 or 8.25%Trust Preferred Securities in June 1998. Under current regulatory guidelines, trust preferred securities areallowed to represent up to approximately 25% of the Company's Tier 1 capitalwith any excess amounts available as Tier 2 capital.  As of September 30, 2001, all of these securities were includedin Tier 1 capital.

 

Bank regulatory authorities have establisheda capital measurement tool called "Tier 1" leverage capital.  A 4.00% ratio of Tier 1 capital to assetsnow constitutes the minimum capital standard for most banking organizations anda 5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"classification.  At September 30, 2001,the Company's Tier 1 leverage capital ratio was approximately 6.06%.  In addition, regulatory authorities havealso implemented risk-based capital guidelines requiring a minimum ratio ofTier 1 capital to risk-weighted assets of 4.00% (6.00% for"well-capitalized") and a minimum ratio of total capital torisk-weighted assets of 8.00% (10.00% for "well-capitalized").  At September 30, 2001, the Company's Tier 1and total risk-based capital ratios were approximately 11.84% and 12.99%,respectively.  The Company iscategorized as "well-capitalized" under the Federal Deposit InsuranceCorporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bank is also categorizedas "well-capitalized" as of September 30, 2001.

 

IMPACT OF INFLATION

 

The Consolidated Financial Statements ofthe Company and related Financial Data presented herein have been prepared inaccordance with accounting principles generally accepted in the United Stateswhich generally require the measurement of financial condition and operatingresults in terms of historical dollars without considering the changes in therelative purchasing power of money over time due to inflation.  The primary impact of inflation onoperations of the Company is reflected in increased operating costs.  Unlike most industrial companies, almost allthe assets and liabilities of a financial institution are monetary in nature.As a result, interest rates have a more significant impact on a financialinstitution's performance than the effects of general levels of inflation.  Interest rates do not necessarily move inthe same direction or in the same magnitude as the price of goods and services.

 

PROPOSED ACCOUNTING PRONOUNCEMENTS

 

In August 2001, the FASB issued SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets.  This statement supercedes FASB Statement No.121, Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed of, and the accounting and reporting provisions of APBOpinion No. 30, Reporting the Results of Operations -- Reporting the Effects ofDisposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions.  Under this statement it is required that one accounting model beused for long-lived assets to be disposed of by sale, whether previously heldand used or newly acquired, and it broadens the presentation of discontinuedoperations to include more disposal transactions.  The provisions of this statement are effective for financialstatements issued for fiscal years beginning after December 15, 2001, andinterim periods within those fiscal years. The Company is currently evaluating the impact of this statement on its resultsof operations or financial position upon the adoption of SFAS No. 144.

 

ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

 

See "Management'sDiscussion and Analysis - Asset/Liability Management."

 

PartII. OTHERINFORMATION

 

Item 1.                    Legal Proceedings.

 

The Company is a defendant in variouslegal matters, none of which is believed by management to be

material to the consolidated financialstatements.

 

 

Item 2.                    Changes in Securities.

 

                (a)Not applicable.

                (b)Not applicable.

                (c)Not applicable.

                (d)Not applicable.

 

Item 3.                    Defaults Upon SeniorSecurities.

 

None.

 

Item4.                     Submission of Matters to a Vote ofSecurity Holders.

 

None.

 

Item5.                    Other Information.

 

None.

 

Item6.                    Exhibits and Reports on Form 8-K.

 

 

2.1           Plan of Reorganization andAcquisition dated as of October 15, 1996 between the Company and AbingtonSavings Bank incorporated by reference to the Company's Registration Statementon Form 8-A, effective January 13, 1997.

 

3.1           Articles of Organization of theCompany incorporated by reference to the Company's Registration Statement onForm 8-A, effective January 13, 1997.

 

3.2           3.2 By-Laws of the Company,incorporated by reference to the Company's quarterly report on Form 10-Q forthe second quarter of 2000, filed on May 12, 2000.

 

3.3           Specimen stock certificate for theCompany's Common Stock incorporated by reference to the Company's RegistrationStatement on Form 8-A, effective January 31, 1997.

 

4.2           Form of Indenture between AbingtonBancorp, Inc. and State Street Bank and Trust Company incorporated by referenceto Exhibit 4.1 of the Registration Statement on Form S-2 of the Company andAbington Bancorp Capital Trust, filed on May 12, 1998.

 

4.3           Form of Junior Subordinated Debentureincorporated by reference to Exhibit 4.2 of the Registration Statement on FormS-2 of the Company and Abington Bancorp Capital Trust, filed on May 12, 1998.

 

4.4           Form of Amended and Restated TrustAgreement by and among the Company, State Street Bank and Trust Company,Wilmington Trust Company and the Administrative Trustees of the Trustincorporated by reference to Exhibit 4.4 of the Registration Statement on FormS-2 of the Company and Abington Bancorp Capital Trust, filed on May 12, 1998.

 

4.4           Form of Preferred SecuritiesGuarantee Agreement by and between the Company and State Street Bank and TrustCompany incorporated by reference to Exhibit 4.6 of the Registration Statementon Form S-2 of the Company and Abington Bancorp Capital Trust, filed on May 12,1998.

 

*10.1   (a) Amended and Restated Special Termination Agreement dated as of January1997 among the Company, the Bank and James P. McDonough incorporated byreference to the Company's Annual Report on Form 10-K for the year endedDecember 31, 1996 filed on March 31, 1997. *(b) Amendment to Amended andRestated Special Termination Agreement, dated as of July 1, 1997 among theCompany, the Bank and James P. McDonough, incorporated by reference to theCompany's quarterly report on Form 10-Q for the second quarter of 1997, filedon August 13, 1997.

 

*10.2       Special Termination Agreement dated as ofNovember 2, 1998 among the Company, the Bank and Kevin M. Tierney, incorporatedby reference to the Company's quarterly report on Form 10-Q for the thirdquarter of 1998, filed on November 12, 1998.

 

*10.3      Special Termination Agreement datedas of September 13, 2000 among the Company, the Bank and Cynthia A. Mulligan,incorporated by reference to the Company's quarterly report on Form 10-Q forthe second quarter of 2001, filed on November 15, 2000.

 

*10.4        (a) Amended and Restated SpecialTermination Agreement dated as of January 31, 1997 among the Company, the Bankand Mario A. Berlinghieri incorporated by reference to the Company's AnnualReport for the year ended December 31, 1996 on Form 10-K filed on March 31,1997.

 

(b) Amendment to Amendedand Restated Special Termination Agreement, dated as of July 1, 1997 among theCompany, the Bank and Mario A. Berlinghieri, incorporated by reference to theCompany's quarterly report on Form 10-Q for the second quarter of 1997, filedon August 13, 1997.

 

(c) Amendment No. 2 toAmended and Restated Special Termination Agreement, dated as of April 16, 1998,by and among the Company, the Bank and Mario A. Berlinghieri, incorporated byreference to the Company's quarterly report on Form 10-Q for the second quarterof 1998, filed on May 8, 1998.

 

*10.5       Abington Bancorp, Inc. Incentive andNonqualified Stock Option Plan, as amended and restated to reflect holdingcompany formation incorporated by reference to the Company's Annual Report forthe year ended December 31, 1996 on Form 10-K filed on March 31, 1997.

 

*10.6       Senior Management Incentive Plan,incorporated by reference to the Company's Annual Report for the year endedDecember 31, 2000 on Form 10-K filed on March 28, 2000.

 

*10.7       Revised Long Term Performance IncentivePlan dated July, 2001, incorporated by reference to the Company’s quarterlyreport on From 10-Q for the second quarter of 2001, filed on August 10, 2001.

 

10.8         (a) Lease for office space located at538 Bedford Street, Abington, Massachusetts ("lease"), used for theBank's principal and administrative offices dated January 1, 1996 incorporatedby reference to the Company's Annual Report for the year ended December 31,1996 on Form 10-K filed on March 31, 1997. Northeast Terminal Associates,Limited owns the property. Dennis E. Barry and Joseph L. Barry, Jr., whobeneficially own more than 5% of the Company's Common Stock, are the principalbeneficial owners of Northeast Terminal Associates, Limited.

 

(b) Amendment to Leasedated December 31, 1997, incorporated by reference to the Company's AnnualReport for the year ended December 31, 1997 on Form 10-K filed on March 25,1998.

 

(c) Amendment to leasedated September 30, 2000, incorporated by reference to the Company's quarterlyreport on Form 10-Q for the second quarter of 2001, incorporated by referenceto the Company’s quarterly report on From 10-Q for the first quarter of 2001,filed on May 11, 2001.

 

10.9         Dividend Reinvestment and StockPurchase Plan is incorporated by reference herewith to the Company'sRegistration Statement on Form S-3, effective January 31, 1997.

 

*10.10     Abington Bancorp, Inc. 1997 Incentive andNonqualified Stock Option Plan, incorporated by reference herewith to AppendixA to the Company's proxy statement relating to its special meeting in lieu ofannual meeting held on June 17, 1997, filed with the Commission on April 29,1997.

 

*10.11      (a) Special Termination Agreement dated asof July 1, 1997 among the Company, the Bank and Robert M. Lallo, incorporatedby reference to the Company's quarterly report on Form 10-Q for the secondquarter of 1997, filed on August 13, 1997.

 

(b) Amendment No. 1 toSpecial Termination Agreement, dated April 16, 1998, by and among the Company,the Bank and Robert M. Lallo, incorporated by reference to the Company'squarterly report on Form 10-Q for the second quarter of 1998, filed on May 8,1998.

 

*10.12     Merger Severance Benefit Program dated asof August 28, 1997, incorporated by reference to the Company's Quarterly Reporton Form 10-Q for the third quarter of 1997, filed on November 15, 1997.

 

*10.13     Supplemental Executive Retirement Agreementbetween the Bank and James P. McDonough dated as of August 23, 2001, filedherewith.

 

*10.14     Deferred Stock Compensation Plan forDirectors, effective July 1, 1998 incorporated by reference to Appendix A tothe Company's proxy statement (schedule 14A) for its 1998 Annual Meeting, filedwith the Commission on April 13, 1998.

 

*10.15     Special Termination Agreement dated as ofFebruary 7, 2000 among the Company, the Bank and Jack B. Meehl, incorporated byreference to the Company's Annual Report for the year ended December 31, 2000on Form 10-K filed on March 28, 2000.

 

*10.16     Abington Bancorp, Inc. 2000 Incentive andNonqualified Stock Option Plan, incorporated by reference herewith to AppendixA to the Company's proxy statement relating to its annual meeting held on May16, 2000, filed with the Commission on April 13, 2000.

 

*10.17     Abington Bancorp, Inc. Board of DirectorsTransition and Retirement Plan, incorporated by reference to the Company'squarterly report on Form 10-Q for the second quarter of 2000, filed on August11, 2000.

 

*10.18     Defined Contribution Supplemental ExecutiveRetirement 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-Qfor the second quarter of 2001, filed on August 10, 2001.

 

*10.19     Defined Contribution Supplemental ExecutiveRetirement 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 forthe second quarter of 2001, filed on August 10, 2001.

 

11.1         A statement regarding the computationof earnings per share is included in Note D to Unaudited Consolidated FinancialStatements included in this Report.

 

b) Reports on Form 8-K.

 

The Company filed no reports on Form 8-Kduring the third quarter of 2001.

 

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*Management contract or compensatory planor arrangement.

 

SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Company has duly caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

 

 
|   |              |   |   | ABINGTON BANCORP, INC.                 |
|--------|-------------------|--------|--------|----------------------------------------|
|   |              |   |   | (Company)                              |
|   |              |   |   |                                   |
|   |              |   |   |                                   |
| Date:  | November  8, 2001 |   | By     | /s/  James P. McDonough                |
|   |              |   |   | James  P. McDonough                    |
|   |              |   |   | President  and Chief Executive Officer |
|   |              |   |   |                                   |
|   |              |   |   |                                   |
| Date:  | November  8, 2001 |   | By     | /s/  Robert M. Lallo                   |
|   |              |   |   | Robert  M. Lallo                       |
|   |              |   |   | Treasurer                              |
|   |              |   |   | (Principal  Financial Officer)         |